Dreyfus Premier State Municipal Bond Fund
Investing for income exempt from federal and, where applicable, from state
income taxes
PROSPECTUS September 1, 2000
As revised, January 19, 2001
(reg.tm)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Contents
The Fund
--------------------------------------------------------------------------------
Goal/Approach 2
Main Risks 3
Connecticut Series 4
Florida Series 6
>
Maryland Series 8
Massachusetts Series 10
Michigan Series 12
Minnesota Series 14
New Jersey Series 16
North Carolina Series 18
Ohio Series 20
Pennsylvania Series 22
Texas Series 24
Virginia Series 26
Financial Highlights 28
Management 52
Your Investment
--------------------------------------------------------------------------------
Account Policies 53
Distributions and Taxes 56
Services for Fund Investors 57
Instructions for Regular Accounts 58
For More Information
--------------------------------------------------------------------------------
INFORMATION ON EACH SERIES' RECENT PERFORMANCE AND HOLDINGS CAN BE FOUND IN ITS
CURRENT ANNUAL/SEMIANNUAL REPORT (SEE BACK COVER).
<PAGE>
Dreyfus Premier State Municipal Bond Fund
GOAL/APPROACH
The fund seeks to maximize current income exempt from federal income tax and,
where applicable, from state income tax, without undue risk. The fund permits
you to invest in any of twelve separate series:
Connecticut series New Jersey series
Florida series North Carolina series
Maryland series Ohio series
Massachusetts series Pennsylvania series
Michigan series Texas series
Minnesota series Virginia series
To pursue the fund's goal, each series normally invests substantially all of its
assets in municipal bonds that provide income exempt from federal income tax
and, where applicable, from the income tax of the state for which the series is
named.
Each series will invest at least 70% of its assets in investment grade municipal
bonds or the unrated equivalent as determined by Dreyfus. For additional yield,
each series may invest up to 30% of its assets in municipal bonds rated below
investment grade ("high yield" or "junk" bonds) or the unrated equivalent as
determined by Dreyfus. Under normal market conditions, the dollar-weighted
average maturity of each series' portfolio is expected to exceed 10 years.
The portfolio manager buys and sells bonds based on credit quality, financial
outlook and yield potential. Bonds with deteriorating credit quality are
potential sell candidates, while those offering higher yields are potential buy
candidates.
Concepts to understand
MUNICIPAL BONDS: debt securities that provide income free from federal income
taxes. Municipal bonds are typically of two types:
* GENERAL OBLIGATION BONDS, which are secured by the full faith and credit of
the issuer and its taxing power
* REVENUE BONDS, which are payable from the revenue derived from a specific
revenue source, such as charges for water and sewer service or highway
tolls
INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a
bond issuer's credit history and ability to repay debts. Based on their
assessment, they assign letter grades that reflect the issuer's
creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the
second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa
and above are considered investment grade.
<PAGE 2>
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow a series to invest for higher yields, the most immediate
effect is usually a drop in bond prices and, therefore, in the series' share
price as well. To the extent a series maintains a comparatively longer maturity
or duration, its share price will react more to interest rate movements. As a
result, the value of your investment in the series could go up and down, which
means that you could lose money.
Other risk factors could have an effect on a series' performance:
* if an issuer fails to make timely interest or principal payments, or there
is a decline in the credit quality of a bond or a perception of a decline,
the bond's value could fall, potentially lowering the series' share price
* the relevant state's economy and revenues underlying its municipal bonds
may decline
* investing primarily in a single state may make a series' portfolio
securities more sensitive to risks specific to the state
* lower-rated, higher-yielding municipal bonds are subject to greater credit
risk, including the risk of default, than investment grade bonds;
lower-rated bonds tend to be more volatile and less liquid
Although the fund's objective is to generate income exempt from federal income
tax and, where applicable, from state income tax, interest from some of a
series' holdings may be subject to the federal alternative minimum tax. In
addition, a series occasionally may invest in taxable bonds and municipal bonds
that are exempt only from federal personal income tax.
Other potential risks
Each series may invest in certain derivatives, such as futures and options,
which may cause taxable income. Derivatives can be illiquid and highly sensitive
to changes in their underlying security, interest rate or index and, as a
result, can be highly volatile. A small investment in certain derivatives could
have a potentially large impact on a series' performance.
Each series is non-diversified, which means that a relatively high percentage of
the series' assets may be invested in a limited number of issuers. Therefore,
its performance may be more vulnerable to changes in the market value of a
single issuer or a group of issuers.
The Fund
<PAGE 3>
Connecticut Series
---------------------------------
Ticker Symbols CLASS A: PSCTX
CLASS B: PMCBX
CLASS C: PMCCX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
6.90 11.05 8.70 12.64 -5.71 15.47 4.53 9.31 6.33 -4.22
90 91 92 93 94 95 96 97 98 99
CLASS A SHARES
BEST QUARTER: Q1 '95 +6.30%
WORST QUARTER: Q1 '94 -5.22%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 6.88%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) -8.53% 5.11% 5.81% --
CLASS B (1/15/93) -8.34% 5.21% -- 4.71%
CLASS C (8/15/95) -5.86% -- -- 4.09%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% 6.89% 5.83%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 4>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Connecticut series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .10 .12 .11
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .90 1.42 1.66
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $538 $724 $926 $1,508
CLASS B
WITH REDEMPTION $545 $749 $976 $1,431**
WITHOUT REDEMPTION $145 $449 $776 $1,431**
CLASS C
WITH REDEMPTION $269 $523 $902 $1,965
WITHOUT REDEMPTION $169 $523 $902 $1,965
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Connecticut Series
<PAGE 5>
Florida Series
---------------------------------
Ticker Symbols CLASS A: PSFLX
CLASS B: PSFBX
CLASS C: PSFCX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
7.37 12.37 9.02 11.90 -4.46 16.68 3.14 4.88 5.59 -4.71
90 91 92 93 94 95 96 97 98 99
CLASS A SHARES
BEST QUARTER: Q1 '95 +7.13%
WORST QUARTER: Q1 '94 -4.73%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 6.45%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) -9.01% 3.94% 5.49% --
CLASS B (1/15/93) -8.81% 4.05% -- 3.99%
CLASS C (8/15/95) -6.32% -- -- 2.60%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% 6.89% 5.83%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 6>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Florida series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .18 .19 .28
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .98 1.49 1.83
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $545 $748 $967 $1,597
CLASS B
WITH REDEMPTION $552 $771 $1,013 $1,516**
WITHOUT REDEMPTION $152 $471 $813 $1,516**
CLASS C
WITH REDEMPTION $286 $576 $990 $2,148
WITHOUT REDEMPTION $186 $576 $990 $2,148
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
For the fiscal year ended April 30, 2000, Dreyfus assumed certain expenses of
the Florida series pursuant to an undertaking, reducing total expenses from .98%
to .92% for Class A, from 1.49% to 1.43% for Class B, and from 1.83% to 1.73%
for Class C shares. This undertaking was voluntary.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Florida Series
<PAGE 7>
Maryland Series
---------------------------------
Ticker Symbols CLASS A: PSMDX
CLASS B: PMDBX
CLASS C: PMDCX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
8.10 11.94 8.35 11.39 -4.75 15.91 4.50 9.47 5.65 -4.56
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '95 +6.49%
WORST QUARTER: Q1 '94 -4.65%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 5.63%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) -8.83% 5.02% 5.91% --
CLASS B (1/15/93) -8.58% 5.12% -- 4.65%
CLASS C (8/15/95) -6.18% -- -- 3.91%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% 6.89% 5.83%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 8>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Maryland series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .11 .13 .10
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .91 1.43 1.65
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $539 $727 $931 $1,519
CLASS B
WITH REDEMPTION $546 $752 $982 $1,442**
WITHOUT REDEMPTION $146 $452 $782 $1,442**
CLASS C
WITH REDEMPTION $268 $520 $897 $1,955
WITHOUT REDEMPTION $168 $520 $897 $1,955
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Maryland Series
<PAGE 9>
Massachusetts Series
---------------------------------
Ticker Symbols CLASS A: PSMAX
CLASS B: PBMAX
CLASS C: PCMAX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
6.69 12.26 9.77 11.63 -4.56 14.81 4.24 8.57 5.81 -4.86
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '95 +5.68%
WORST QUARTER: Q1 '94 -4.20%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 7.07%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) -9.11% 4.55% 5.76% --
CLASS B (1/15/93) -8.88% 4.68% -- 4.40%
CLASS C (8/15/95) -6.48% -- -- 3.61%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% 6.89% 5.83%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 10>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Massachusetts series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .18 .19 .13
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .98 1.49 1.68
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $545 $738 $967 $1,597
CLASS B
WITH REDEMPTION $552 $771 $1,013 $1,516**
WITHOUT REDEMPTION $152 $471 $813 $1,516**
CLASS C
WITH REDEMPTION $271 $530 $913 $1,987
WITHOUT REDEMPTION $171 $530 $913 $1,987
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Massachusetts Series
<PAGE 11>
Michigan Series
---------------------------------
Ticker Symbols CLASS A: PSMIX
CLASS B: PMIBX
CLASS C: PCMIX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
6.18 13.05 9.25 13.67 -4.59 17.47 3.31 8.55 5.59 -3.73
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '95 +6.85%
WORST QUARTER: Q1 '94 -4.73%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 6.37%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) -8.07% 5.04% 6.17% --
CLASS B (1/15/93) -7.86% 5.16% -- 5.00%
CLASS C (8/15/95) -5.30% -- -- 4.03%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% 6.89% 5.83%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 12>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Michigan series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .14 .14 .14
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .94 1.44 1.69
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $542 $736 $947 $1,553
CLASS B
WITH REDEMPTION $547 $756 $987 $1,464**
WITHOUT REDEMPTION $147 $456 $787 $1,464**
CLASS C
WITH REDEMPTION $272 $533 $918 $1,998
WITHOUT REDEMPTION $172 $533 $918 $1,998
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Michigan Series
<PAGE 13>
Minnesota Series
---------------------------------
Ticker Symbols CLASS A: PSMNX
CLASS B: PMMNX
CLASS C: PMNCX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
8.03 11.38 8.38 12.37 -4.43 15.33 3.68 7.25 5.26 -3.76
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '95 +6.39%
WORST QUARTER: Q1 '94 -5.06%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 6.61%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) -8.11% 4.41% 5.68% --
CLASS B (1/15/93) -7.96% 4.49% -- 4.43%
CLASS C (8/15/95) -5.43% -- -- 3.30%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% 6.89% 5.83%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 14>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Minnesota series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .13 .16 .18
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .93 1.46 1.73
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $541 $733 $942 $1,542
CLASS B
WITH REDEMPTION $549 $762 $997 $1,471**
WITHOUT REDEMPTION $149 $462 $797 $1,471**
CLASS C
WITH REDEMPTION $276 $545 $939 $2,041
WITHOUT REDEMPTION $176 $545 $939 $2,041
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Minnesota Series
<PAGE 15>
New Jersey Series
----------------------------------
Ticker Symbols CLASS A: PSNAX
CLASS B: PSNBX
CLASS C: PSMJX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
17.47 2.10 8.60 5.71 -6.79
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '95 +7.34%
WORST QUARTER: Q1 '96 -2.97%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 7.21%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/4/94) -10.95% 4.16% -- 3.48%
CLASS B (5/4/94) -10.79% 4.25% -- 3.65%
CLASS C (12/4/95) -8.36% -- -- 1.64%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% -- 5.98%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 4/30/94 IS USED AS THE
BEGINNING VALUE ON 5/4/94.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 16>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the New Jersey series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .52 .52 .49
------------------------------------------------------------------------------------------------------------------------------------
TOTAL 1.32 1.82 2.04
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $578 $849 $1,141 $1,969
CLASS B
WITH REDEMPTION $585 $873 $1,185 $1,887**
WITHOUT REDEMPTION $185 $573 $985 $1,887**
CLASS C
WITH REDEMPTION $307 $640 $1,098 $2,369
WITHOUT REDEMPTION $207 $640 $1,098 $2,369
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
For the fiscal year ended April 30, 2000, Dreyfus assumed certain expenses of
the New Jersey series pursuant to an undertaking, reducing total expenses from
1.32% to .88% for Class A, from 1.82% to 1.40% for Class B, and from 2.04% to
1.63% for Class C shares. This undertaking was voluntary.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
New Jersey Series
<PAGE 17>
North Carolina Series
---------------------------------
Ticker Symbols CLASS A: PSNOX
CLASS B: PMNBX
CLASS C: PNCCX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
10.19 13.77 -8.53 18.14 4.19 9.80 5.75 -5.50
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '95 +7.60%
WORST QUARTER: Q1 '94 -7.03%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 6.87%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (8/1/91) -9.27% 5.33% -- 5.70%
CLASS B (1/15/93) -9.18% 5.43% -- 4.61%
CLASS C (8/15/95) -6.67% -- -- 4.26%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% -- 6.63%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 7/31/91 IS USED AS THE
BEGINNING VALUE ON 8/1/91.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 18>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the North Carolina series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .17 .18 .17
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .97 1.48 1.72
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $545 $745 $962 $1,586
CLASS B
WITH REDEMPTION $551 $768 $1,008 $1,504**
WITHOUT REDEMPTION $151 $468 $808 $1,504**
CLASS C
WITH REDEMPTION $275 $542 $933 $2,030
WITHOUT REDEMPTION $175 $542 $933 $2,030
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
North Carolina Series
<PAGE 19>
Ohio Series
---------------------------------
Ticker Symbols CLASS A: PSOHX
CLASS B: POHBX
CLASS C: POHCX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
7.18 12.32 9.35 12.35 -4.11 15.45 4.06 8.16 5.21 -3.38
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '95 +5.79%
WORST QUARTER: Q1 '94 -3.96%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 6.28%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) -7.75% 4.76% 5.99% --
CLASS B (1/15/93) -7.62% 4.84% -- 4.70%
CLASS C (8/15/95) -5.12% -- -- 3.89%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% 6.89% 5.83%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 20>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Ohio series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .11 .12 .12
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .91 1.42 1.67
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $539 $727 $931 $1,519
CLASS B
WITH REDEMPTION $545 $749 $976 $1,436**
WITHOUT REDEMPTION $145 $449 $776 $1,436**
CLASS C
WITH REDEMPTION $270 $526 $907 $1,976
WITHOUT REDEMPTION $170 $526 $907 $1,976
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Ohio Series
<PAGE 21>
Pennsylvania Series
---------------------------------
Ticker Symbols CLASS A: PTPAX
CLASS B: PPABX
CLASS C: PPACX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
8.63 12.25 9.77 12.72 -5.29 17.65 3.94 9.82 5.74 -4.75
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '95 +7.31%
WORST QUARTER: Q1 '94 -5.07%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 7.01%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (7/30/87) -9.06% 5.26% 6.32% --
CLASS B (1/15/93) -8.81% 5.37% -- 4.92%
CLASS C (8/15/95) -6.37% -- -- 4.10%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% 6.89% 5.83%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 22>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Pennsylvania series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .14 .16 .15
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .94 1.46 1.70
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $542 $736 $947 $1,553
CLASS B
WITH REDEMPTION $549 $762 $997 $1,476**
WITHOUT REDEMPTION $149 $462 $797 $1,476**
CLASS C
WITH REDEMPTION $273 $536 $923 $2,009
WITHOUT REDEMPTION $173 $536 $923 $2,009
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Pennsylvania Series
<PAGE 23>
Texas Series
---------------------------------
Ticker Symbols CLASS A: PTXBX
CLASS B: PSTBX
CLASS C: PTXCX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
6.96 13.37 9.72 13.68 -4-87 18.63 4.69 9.88 5.98 -5.30
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '95 +7.64%
WORST QUARTER: Q1 '94 -5.37%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 6.55%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (5/28/87) -9.54% 5.52% 6.53% --
CLASS B (1/15/93) -9.33% 5.65% -- 5.31%
CLASS C (8/15/95) -6.92% -- -- 4.32%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% 6.89% 5.83%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 12/31/92 IS USED AS THE
BEGINNING VALUE ON 1/15/93.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 24>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Texas series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .19 .21 .20
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .99 1.51 1.75
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $546 $751 $972 $1,608
CLASS B
WITH REDEMPTION $554 $777 $1,024 $1,533**
WITHOUT REDEMPTION $154 $477 $824 $1,533**
CLASS C
WITH REDEMPTION $278 $551 $949 $2,062
WITHOUT REDEMPTION $178 $551 $949 $2,062
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
For the fiscal year ended April 30, 2000, Dreyfus assumed certain expenses of
the Texas series pursuant to an undertaking, reducing total expenses from .99%
to .85% for Class A, from 1.51% to 1.35% for Class B, and from 1.75% to 1.60%
for Class C shares. This undertaking was voluntary.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Texas Series
<PAGE 25>
Virginia Series
---------------------------------
Ticker Symbols CLASS A: PSVAX
CLASS B: PVABX
CLASS C: PVACX
PAST PERFORMANCE
The bar chart and table below show some of the risks of investing in this series
of the fund. The bar chart shows the changes in the series' Class A performance
from year to year. Sales loads are not reflected in the chart; if they were, the
returns shown would have been lower. The table compares the series' average
annual total return to that of the Lehman Brothers Municipal Bond Index, a
widely recognized, unmanaged index of long-term municipal bond performance.
These returns include applicable sales loads. Of course, past performance is no
guarantee of future results.
--------------------------------------------------------------------------------
Year-by-year total return AS OF 12/31 EACH YEAR (%)
CLASS A SHARES
10.87 13.87 -7.62 19.04 4.41 9.53 5.82 -4.72
90 91 92 93 94 95 96 97 98 99
BEST QUARTER: Q1 '95 +7.53%
WORST QUARTER: Q1 '94 -6.65%
THE SERIES' CLASS A YEAR-TO-DATE TOTAL RETURN AS OF 9/30/00 WAS 6.82%.
--------------------------------------------------------------------------------
Average annual total return AS OF 12/31/99
<TABLE>
<CAPTION>
Since
Inception date 1 Year 5 Years 10 Years inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (8/1/91) -9.01% 5.55% -- 6.07%
CLASS B (1/15/93) -8.90% 5.66% -- 4.93%
CLASS C (8/15/95) -6.33% -- -- 4.31%
LEHMAN BROTHERS
MUNICIPAL BOND INDEX* -2.06% 6.91% -- 6.63%**
* UNLIKE THE SERIES, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE
STATE.
** FOR COMPARATIVE PURPOSES, THE VALUE OF THE INDEX ON 7/31/91 IS USED AS THE
BEGINNING VALUE ON 8/1/91.
</TABLE>
What this series is -- and isn't
This series is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in this series is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in this series, but you also have the
potential to make money.
<PAGE 26>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described for the Virginia series in the table below.
<TABLE>
<CAPTION>
Fee table
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (FEES PAID FROM YOUR ACCOUNT)
Maximum front-end sales charge on purchases
AS A % OF OFFERING PRICE 4.50 NONE NONE
Maximum contingent deferred sales charge (CDSC)
AS A % OF PURCHASE OR SALE PRICE, WHICHEVER IS LESS NONE* 4.00 1.00
------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM SERIES ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees .55 .55 .55
Rule 12b-1 fee NONE .50 .75
Shareholder services fee .25 .25 .25
Other expenses .17 .18 .15
------------------------------------------------------------------------------------------------------------------------------------
TOTAL .97 1.48 1.70
* SHARES BOUGHT WITHOUT AN INITIAL SALES CHARGE AS PART OF AN INVESTMENT OF
$1 MILLION OR MORE MAY BE CHARGED A CDSC OF 1.00% IF REDEEMED WITHIN ONE
YEAR.
</TABLE>
<TABLE>
<CAPTION>
Expense example
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $545 $745 $962 $1,586
CLASS B
WITH REDEMPTION $551 $768 $1,008 $1,504**
WITHOUT REDEMPTION $151 $468 $808 $1,504**
CLASS C
WITH REDEMPTION $273 $536 $923 $2,009
WITHOUT REDEMPTION $173 $536 $923 $2,009
** ASSUMES CONVERSION OF CLASS B TO CLASS A AT END OF THE SIXTH YEAR FOLLOWING
THE DATE OF PURCHASE.
</TABLE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. Because actual
return and expenses will be different, the example is for comparison only.
Concepts to understand
MANAGEMENT FEE: the fee paid to Dreyfus for managing the series and assisting in
all aspects of its operation.
RULE 12B-1 FEE: the fee paid to Dreyfus Service Corporation, the fund's
distributor, to finance the sale of Class B and Class C shares. Because this fee
is paid out of the series' assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SHAREHOLDER SERVICES FEE: a fee paid to the fund's distributor for shareholder
account service and maintenance.
OTHER EXPENSES: fees paid by the series for miscellaneous items such as transfer
agency, custody, professional and registration fees.
Virginia Series
<PAGE 27>
FINANCIAL HIGHLIGHTS
Connecticut Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.26 12.23 11.81 11.90 11.76
Investment operations: Investment income -- net .58 .61 .62 .64 .66
Net realized and unrealized gain (loss) on investments (.96) .19 .47 .16 .14
Total from investment operations (.38) .80 1.09 .80 .80
Distributions: Dividends from investment income -- net (.58) (.61) (.62) (.64) (.66)
Dividends from net realized gain on investments (.09) (.16) (.05) (.25) --
Total distributions (.67) (.77) (.67) (.89) (.66)
Net asset value, end of period 11.21 12.26 12.23 11.81 11.90
Total return (%)* (3.06) 6.70 9.44 6.84 6.85
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .90 .89 .90 .93 .92
Ratio of net investment income to average net assets (%) 5.08 4.94 5.12 5.32 5.45
Portfolio turnover rate (%) 35.12 21.95 33.31 30.66 28.83
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 274,962 317,923 310,343 313,881 321,559
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.26 12.23 11.80 11.89 11.76
Investment operations: Investment income -- net .52 .55 .56 .57 .60
Net realized and unrealized gain (loss) on investments (.97) .19 .48 .16 .13
Total from investment operations (.45) .74 1.04 .73 .73
Distributions: Dividends from investment income -- net (.52) (.55) (.56) (.57) (.60)
Dividends from net realized gain on investments (.09) (.16) (.05) (.25) --
Total distributions (.61) (.71) (.61) (.82) (.60)
Net asset value, end of period 11.20 12.26 12.23 11.80 11.89
Total return (%)* (3.66) 6.15 8.97 6.28 6.20
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.42 1.40 1.42 1.45 1.44
Ratio of net investment income to average net assets (%) 4.55 4.42 4.59 4.79 4.92
Portfolio turnover rate (%) 35.12 21.95 33.31 30.66 28.83
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 42,283 58,416 59,315 54,661 38,838
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<PAGE 28>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.25 12.22 11.79 11.89 11.84
Investment operations: Investment income -- net .50 .52 .53 .54 .40
Net realized and unrealized gain (loss) on investments (.97) .19 .48 .15 .05
Total from investment operations (.47) .71 1.01 .69 .45
Distributions: Dividends from investment income -- net (.50) (.52) (.53) (.54) (.40)
Dividends from net realized gain on investments (.09) (.16) (.05) (.25) --
Total distributions (.59) (.68) (.58) (.79) (.40)
Net asset value, end of period 11.19 12.25 12.22 11.79 11.89
Total return (%)(2) (3.89) 5.88 8.68 5.93 5.31(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.66 1.65 1.68 1.70 1.64(3)
Ratio of net investment income to average net assets (%) 4.31 4.15 4.29 4.56 4.31(3)
Portfolio turnover rate (%) 35.12 21.95 33.31 30.66 28.83
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 4,400 4,970 2,583 1,290 1,007
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES CHARGE.
(3) ANNUALIZED.
</TABLE>
Connecticut Series
<PAGE 29>
FINANCIAL HIGHLIGHTS
Florida Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 14.03 14.17 14.06 14.48 14.51
Investment operations: Investment income -- net .65 .65 .66 .76 .79
Net realized and unrealized gain (loss) on investments (1.10) .05 .26 (.08) .17
Total from investment operations (.45) .70 .92 .68 .96
Distributions: Dividends from investment income -- net (.65) (.65) (.66) (.76) (.79)
Dividends from net realized gain on investments (.05) (.19) (.15) (.34) (.20)
Total distributions (.70) (.84) (.81) (1.10) (.99)
Net asset value, end of period 12.88 14.03 14.17 14.06 14.48
Total return (%)* (3.19) 5.00 6.73 4.74 6.63
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .92 .92 .91 .92 .91
Ratio of net investment income to average net assets (%) 4.92 4.53 4.67 5.27 5.29
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) .06 -- -- -- --
Portfolio turnover rate (%) 29.04 88.48 91.18 71.68 54.37
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 118,352 149,185 167,793 202,503 227,478
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 14.02 14.17 14.05 14.47 14.51
Investment operations: Investment income -- net .58 .57 .59 .69 .71
Net realized and unrealized gain (loss) on investments (1.10) .04 .27 (.08) .16
Total from investment operations (.52) .61 .86 .61 .87
Distributions: Dividends from investment income -- net (.58) (.57) (.59) (.69) (.71)
Dividends from net realized gain on investments (.05) (.19) (.15) (.34) (.20)
Total distributions (.63) (.76) (.74) (1.03) (.91)
Net asset value, end of period 12.87 14.02 14.17 14.05 14.47
Total return (%)* (3.68) 4.40 6.26 4.21 6.01
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.43 1.42 1.41 1.42 1.41
Ratio of net investment income to average net assets (%) 4.41 4.02 4.16 4.76 4.77
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) .06 -- -- -- --
Portfolio turnover rate (%) 29.04 88.48 91.18 71.68 54.37
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 14,353 26,693 32,545 35,802 27,023
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<PAGE 30>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 14.03 14.17 14.05 14.47 14.65
Investment operations: Investment income -- net .54 .53 .55 .65 .48
Net realized and unrealized gain (loss) on investments (1.10) .05 .27 (.08) .02
Total from investment operations (.56) .58 .82 .57 .50
Distributions: Dividends from investment income -- net (.54) (.53) (.55) (.65) (.48)
Dividends from net realized gain on investments (.05) (.19) (.15) (.34) (.20)
Total distributions (.59) (.72) (.70) (.99) (.68)
Net asset value, end of period 12.88 14.03 14.17 14.05 14.47
Total return (%)(2) (3.97) 4.13 5.94 3.95 4.69(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.73 1.75 1.71 1.97 1.99(3)
Ratio of net investment income to average net assets (%) 4.11 3.69 3.69 4.60 4.20(3)
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) .10 -- -- -- --
Portfolio turnover rate (%) 29.04 88.48 91.18 71.68 54.37
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 456 394 366 58 35
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES CHARGE.
(3) ANNUALIZED.
</TABLE>
Florida Series
<PAGE 31>
FINANCIAL HIGHLIGHTS
Maryland Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.94 13.05 12.70 12.69 12.54
Investment operations: Investment income -- net .63 .65 .67 .68 .67
Net realized and unrealized gain (loss) on investments (1.10) .09 .50 .18 .23
Total from investment operations (.47) .74 1.17 .86 .90
Distributions: Dividends from investment income -- net (.63) (.65) (.67) (.68) (.67)
Dividends from net realized gain on investments (.10) (.20) (.15) (.17) (.08)
Total distributions (.73) (.85) (.82) (.85) (.75)
Net asset value, end of period 11.74 12.94 13.05 12.70 12.69
Total return (%)* (3.61) 5.76 9.40 6.91 7.24
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .91 .90 .90 .90 .90
Ratio of net investment income to average net assets (%) 5.16 4.97 5.12 5.29 5.23
Portfolio turnover rate (%) 28.37 29.30 18.12 43.63 41.65
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 229,184 264,255 262,560 266,658 283,878
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.94 13.05 12.70 12.69 12.54
Investment operations: Investment income -- net .56 .58 .60 .61 .61
Net realized and unrealized gain (loss) on investments (1.10) .09 .50 .18 .23
Total from investment operations (.54) .67 1.10 .79 .84
Distributions: Dividends from investment income -- net (.56) (.58) (.60) (.61) (.61)
Dividends from net realized gain on investments (.10) (.20) (.15) (.17) (.08)
Total distributions (.66) (.78) (.75) (.78) (.69)
Net asset value, end of period 11.74 12.94 13.05 12.70 12.69
Total return (%)* (4.12) 5.20 8.83 6.34 6.66
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.43 1.42 1.42 1.43 1.43
Ratio of net investment income to average net assets (%) 4.62 4.44 4.59 4.75 4.68
Portfolio turnover rate (%) 28.37 29.30 18.12 43.63 41.65
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 43,044 59,806 50,141 45,329 41,179
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<PAGE 32>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.95 13.06 12.71 12.69 12.67
Investment operations: Investment income -- net .54 .55 .57 .58 .41
Net realized and unrealized gain (loss) on investments (1.10) .09 .50 .19 .10
Total from investment operations (.56) .64 1.07 .77 .51
Distributions: Dividends from investment income -- net (.54) (.55) (.57) (.58) (.41)
Dividends from net realized gain on investments (.10) (.20) (.15) (.17) (.08)
Total distributions (.64) (.75) (.72) (.75) (.49)
Net asset value, end of period 11.75 12.95 13.06 12.71 12.69
Total return (%)(2) (4.32) 4.93 8.55 6.16 5.57(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.65 1.66 1.67 1.64 1.80(3)
Ratio of net investment income to average net assets (%) 4.41 4.15 4.29 4.47 4.59(3)
Portfolio turnover rate (%) 28.37 29.30 18.12 43.63 41.65
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 2,223 3,235 1,618 202 27
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES CHARGE.
(3) ANNUALIZED.
</TABLE>
Maryland Series
<PAGE 33>
FINANCIAL HIGHLIGHTS
Massachusetts Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 11.68 11.75 11.40 11.50 11.53
Investment operations: Investment income -- net .57 .59 .61 .63 .66
Net realized and unrealized gain (loss) on investments (.98) .11 .40 .17 --
Total from investment operations (.41) .70 1.01 .80 .66
Distributions: Dividends from investment income -- net (.57) (.59) (.61) (.63) (.66)
Dividends from net realized gain on investments (.01) (.18) (.05) (.27) (.03)
Total distributions (.58) (.77) (.66) (.90) (.69)
Net asset value, end of period 10.69 11.68 11.75 11.40 11.50
Total return (%)* (3.42) 6.08 9.04 7.08 5.69
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .98 .93 .91 .92 .92
Ratio of net investment income to average net assets (%) 5.22 4.97 5.23 5.46 5.57
Portfolio turnover rate (%) 57.94 47.11 48.69 24.45 34.86
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 50,885 62,958 60,529 65,809 68,812
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 11.67 11.75 11.40 11.49 11.52
Investment operations: Investment income -- net .52 .53 .55 .57 .60
Net realized and unrealized gain (loss) on investments (.98) .10 .40 .18 --
Total from investment operations (.46) .63 .95 .75 .60
Distributions: Dividends from investment income -- net (.52) (.53) (.55) (.57) (.60)
Dividends from net realized gain on investments (.01) (.18) (.05) (.27) (.03)
Total distributions (.53) (.71) (.60) (.84) (.63)
Net asset value, end of period 10.68 11.67 11.75 11.40 11.49
Total return (%)* (3.93) 5.46 8.49 6.63 5.15
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.49 1.43 1.42 1.43 1.43
Ratio of net investment income to average net assets (%) 4.70 4.46 4.71 4.94 5.03
Portfolio turnover rate (%) 57.94 47.11 48.69 24.45 34.86
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 4,648 6,733 6,584 6,064 5,255
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<PAGE 34>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 11.69 11.76 11.41 11.48 11.59
Investment operations: Investment income -- net .49 .50 .52 .54 .40
Net realized and unrealized gain (loss) on investments (.98) .11 .40 .20 (.08)
Total from investment operations (.49) .61 .92 .74 .32
Distributions: Dividends from investment income -- net (.49) (.50) (.52) (.54) (.40)
Dividends from net realized gain on investments (.01) (.18) (.05) (.27) (.03)
Total distributions (.50) (.68) (.57) (.81) (.43)
Net asset value, end of period 10.70 11.69 11.76 11.41 11.48
Total return (%)(2) (4.16) 5.28 8.22 6.55 3.76(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.68 1.70 1.64 1.65 1.69(3)
Ratio of net investment income to average net assets (%) 4.51 4.06 4.51 4.64 4.72(3)
Portfolio turnover rate (%) 57.94 47.11 48.69 24.45 34.86
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 141 345 1 1 1
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES CHARGE.
(3) ANNUALIZED.
</TABLE>
Massachusetts Series
<PAGE 35>
FINANCIAL HIGHLIGHTS
Michigan Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 15.57 15.61 15.14 15.15 15.14
Investment operations: Investment income -- net .76 .78 .80 .81 .83
Net realized and unrealized gain (loss) on investments (1.16) .12 .48 .21 .20
Total from investment operations (.40) .90 1.28 1.02 1.03
Distributions: Dividends from investment income -- net (.76) (.78) (.80) (.81) (.83)
Dividends from net realized gain on investments (.09) (.16) (.01) (.22) (.19)
Total distributions (.85) (.94) (.81) (1.03) (1.02)
Net asset value, end of period 14.32 15.57 15.61 15.14 15.15
Total return (%)* (2.56) 5.89 8.55 6.89 6.81
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .94 .92 .92 .91 .93
Ratio of net investment income to average net assets (%) 5.18 4.96 5.12 5.34 5.35
Portfolio turnover rate (%) 29.55 36.17 41.46 22.32 56.88
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1000) 123,635 145,764 149,221 155,568 166,538
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 15.56 15.61 15.13 15.15 15.13
Investment operations: Investment income -- net .69 .70 .72 .74 .75
Net realized and unrealized gain (loss) on investments (1.15) .11 .49 .20 .21
Total from investment operations (.46) .81 1.21 .94 .96
Distributions: Dividends from investment income -- net (.69) (.70) (.72) (.74) (.75)
Dividends from net realized gain on investments (.09) (.16) (.01) (.22) (.19)
Total distributions (.78) (.86) (.73) (.96) (.94)
Net asset value, end of period 14.32 15.56 15.61 15.13 15.15
Total return (%)* (2.98) 5.29 8.08 6.27 6.33
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.44 1.42 1.42 1.42 1.44
Ratio of net investment income to average net assets (%) 4.66 4.44 4.61 4.82 4.82
Portfolio turnover rate (%) 29.55 36.17 41.46 22.32 56.88
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1000) 13,101 22,338 20,938 19,338 19,031
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<PAGE 36>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 15.57 15.61 15.14 15.16 15.18
Investment operations: Investment income -- net .65 .66 .67 .69 .50
Net realized and unrealized gain (loss) on investments (1.15) .12 .48 .20 .17
Total from investment operations (.50) .78 1.15 .89 .67
Distributions: Dividends from investment income -- net (.65) (.66) (.67) (.69) (.50)
Dividends from net realized gain on investments (.09) (.16) (.01) (.22) (.19)
Total distributions (.74) (.82) (.68) (.91) (.69)
Net asset value, end of period 14.33 15.57 15.61 15.14 15.16
Total return (%)(2) (3.22) 5.08 7.70 5.94 6.12(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.69 1.67 1.69 1.72 1.70(3)
Ratio of net investment income to average net assets (%) 4.43 4.16 4.26 4.47 4.47(3)
Portfolio turnover rate (%) 29.55 36.17 41.46 22.32 56.88
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1000) 1,104 1,877 640 241 133
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES CHARGE.
(3) ANNUALIZED.
</TABLE>
Michigan Series
<PAGE 37>
FINANCIAL HIGHLIGHTS
Minnesota Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 15.30 15.30 15.03 14.98 14.90
Investment operations: Investment income -- net .75 .78 .82 .82 .82
Net realized and unrealized gain (loss) on investments (1.13) .04 .27 .09 .08
Total from investment operations (.38) .82 1.09 .91 .90
Distributions: Dividends from investment income -- net (.75) (.78) (.82) (.82) (.82)
Dividends from net realized gain on investments (.06) (.04) -- (.04) --
Total distributions (.81) (.82) (.82) (.86) (.82)
Net asset value, end of period 14.11 15.30 15.30 15.03 14.98
Total return (%)* (2.48) 5.41 7.36 6.16 6.11
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .93 .91 .90 .91 .90
Ratio of net investment income to average net assets (%) 5.20 5.05 5.32 5.42 5.41
Portfolio turnover rate (%) 13.45 41.27 13.37 25.82 35.47
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 116,261 134,314 126,115 129,031 138,058
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 15.33 15.33 15.06 15.01 14.92
Investment operations: Investment income -- net .67 .70 .74 .74 .74
Net realized and unrealized gain (loss) on investments (1.13) .04 .27 .09 .09
Total from investment operations (.46) .74 1.01 .83 .83
Distributions: Dividends from investment income -- net (.67) (.70) (.74) (.74) (.74)
Dividends from net realized gain on investments (.06) (.04) -- (.04) --
Total distributions (.73) (.74) (.74) (.78) (.74)
Net asset value, end of period 14.14 15.33 15.33 15.06 15.01
Total return (%)* (2.97) 4.86 6.79 5.60 5.62
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.46 1.43 1.42 1.44 1.43
Ratio of net investment income to average net assets (%) 4.64 4.52 4.79 4.90 4.87
Portfolio turnover rate (%) 13.45 41.27 13.37 25.82 35.47
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 14,671 29,562 28,568 26,004 25,617
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<PAGE 38>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 15.33 15.33 15.06 15.01 14.96
Investment operations: Investment income -- net .63 .65 .69 .70 .50
Net realized and unrealized gain (loss) on investments (1.14) .04 .27 .09 .05
Total from investment operations (.51) .69 .96 .79 .55
Distributions: Dividends from investment income -- net (.63) (.65) (.69) (.70) (.50)
Dividends from net realized gain on investments (.06) (.04) -- (.04) --
Total distributions (.69) (.69) (.69) (.74) (.50)
Net asset value, end of period 14.13 15.33 15.33 15.06 15.01
Total return (%)(2) (3.30) 4.53 6.46 5.34 5.15(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.73 1.74 1.73 1.67 1.42(3)
Ratio of net investment income to average net assets (%) 4.38 4.16 4.40 4.62 4.00(3)
Portfolio turnover rate (%) 13.45 41.27 13.37 25.82 35.47
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 1,073 1,422 667 307 373
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES CHARGE.
(3) ANNUALIZED.
</TABLE>
Minnesota Series
<PAGE 39>
FINANCIAL HIGHLIGHTS
New Jersey Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED APRIL 30, APRIL 30, YEAR ENDED JULY 31,
CLASS A 2000 1999 1998 1997(1) 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 13.14 13.08 12.63 12.79 12.71 12.58
Investment operations: Investment income -- net .59 .57 .61 .42 .59 .71
Net realized and unrealized
gain (loss) on investments (1.24) .15 .56 (.02) .08 .13
Total from investment operations (.65) .72 1.17 .40 .67 .84
Distributions: Dividends from investment
income -- net (.59) (.57) (.61) (.42) (.59) (.71)
Dividends from net realized
gain on investments (.16) (.09) (.11) (.14) -- --
Total distributions (.75) (.66) (.72) (.56) (.59) (.71)
Net asset value, end of period 11.74 13.14 13.08 12.63 12.79 12.71
Total return (%)(2) (4.96) 5.52 9.48 4.25(3) 5.31 7.01
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .88 1.08 1.02 1.20(3) 1.14 .10
Ratio of net investment income to average net assets (%) 4.84 4.28 4.73 4.39(3) 4.55 5.60
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) .44 -- .03 .10(3) .08 1.35
Portfolio turnover rate (%) 120.61 64.40 50.78 110.12(4) 28.14 43.48
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 4,946 5,179 4,454 4,837 5,212 4,981
(1) THE SERIES CHANGED ITS FISCAL YEAR END FROM JULY 31 TO APRIL 30.
(2) EXCLUSIVE OF SALES CHARGE. (3) ANNUALIZED. (4) NOT ANNUALIZED
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED APRIL 30, APRIL 30, YEAR ENDED JULY 31,
CLASS B 2000 1999 1998 1997(1) 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 13.14 13.07 12.63 12.79 12.71 12.58
Investment operations: Investment income -- net .53 .50 .55 .37 .52 .65
Net realized and unrealized
gain (loss) on investments (1.24) .16 .55 (.02) .08 .13
Total from investment operations (.71) .66 1.10 .35 .60 .78
Distributions: Dividends from investment
income -- net (.53) (.50) (.55) (.37) (.52) (.65)
Dividends from net realized
gain on investments (.16) (.09) (.11) (.14) -- --
Total distributions (.69) (.59) (.66) (.51) (.52) (.65)
Net asset value, end of period 11.74 13.14 13.07 12.63 12.79 12.71
Total return (%)(2) (5.45) 5.08 8.85 3.74(3) 4.79 6.48
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.40 1.58 1.53 1.69(3) 1.63 .61
Ratio of net investment income to average net assets (%) 4.32 3.78 4.20 3.88(3) 4.04 5.00
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) .42 -- .03 .09(3) .08 1.29
Portfolio turnover rate (%) 120.61 64.40 50.78 110.12(4) 28.14 43.48
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 8,488 11,628 10,533 8,680 8,910 6,852
(1) THE SERIES CHANGED ITS FISCAL YEAR END FROM JULY 31 TO APRIL 30.
(2) EXCLUSIVE OF SALES CHARGE. (3) ANNUALIZED. (4) NOT ANNUALIZED
</TABLE>
<PAGE 40>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
YEAR ENDED APRIL 30, APRIL 30, JULY 31,
CLASS C 2000 1999 1998 1997(1) 1996(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 13.15 13.09 12.64 12.78 13.21
Investment operations: Investment income -- net .50 .46 .50 .35 .32
Net realized and unrealized
gain (loss) on investments (1.24) .15 .56 -- (.43)
Total from investment operations (.74) .61 1.06 .35 (.11)
Distributions: Dividends from investment income -- net (.50) (.46) (.50) (.35) (.32)
Dividends from net realized gain
on investments (.16) (.09) (.11) (.14) --
Total distributions (.66) (.55) (.61) (.49) (.32)
Net asset value, end of period 11.75 13.15 13.09 12.64 12.78
Total return (%)(3) (5.66) 4.67 8.55 3.72(4) (1.21)(4)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.63 1.88 1.91 1.97(4) 1.95(4)
Ratio of net investment income to average net assets (%) 4.05 3.42 3.65 3.62(4) 3.68(4)
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) .41 -- .06 .76(4) .02(4)
Portfolio turnover rate (%) 120.61 64.40 50.78 110.12(5) 28.14
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 438 349 118 1 6
(1) THE SERIES CHANGED ITS FISCAL YEAR END FROM JULY 31 TO APRIL 30.
(2) FROM DECEMBER 4, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO JULY 31, 1996.
(3) EXCLUSIVE OF SALES CHARGE. (4) ANNUALIZED. (5) NOT ANNUALIZED
</TABLE>
New Jersey Series
<PAGE 41>
FINANCIAL HIGHLIGHTS
North Carolina Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 13.95 13.91 13.23 12.91 12.72
Investment operations: Investment income -- net .65 .66 .67 .67 .67
Net realized and unrealized gain (loss) on investments (1.12) .11 .68 .32 .19
Total from investment operations (.47) .77 1.35 .99 .86
Distributions: Dividends from investment income -- net (.65) (.66) (.67) (.67) (.67)
Dividends from net realized gain on investments (.04) (.07) -- -- --
Total distributions (.69) (.73) (.67) (.67) (.67)
Net asset value, end of period 12.79 13.95 13.91 13.23 12.91
Total return (%)* (3.38) 5.63 10.39 7.81 6.79
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .97 .94 .87 1.04 .98
Ratio of net investment income to average net assets (%) 4.97 4.68 4.89 5.10 5.11
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) -- -- -- -- .02
Portfolio turnover rate (%) 39.92 41.15 32.28 44.91 47.15
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 55,883 47,794 41,592 42,130 47,042
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 13.94 13.90 13.22 12.90 12.71
Investment operations: Investment income -- net .58 .59 .60 .60 .60
Net realized and unrealized gain (loss) on investments (1.12) .11 .68 .32 .19
Total from investment operations (.54) .70 1.28 .92 .79
Distributions: Dividends from investment income -- net (.58) (.59) (.60) (.60) (.60)
Dividends from net realized gain on investments (.04) (.07) -- -- --
Total distributions (.62) (.66) (.60) (.60) (.60)
Net asset value, end of period 12.78 13.94 13.90 13.22 12.90
Total return (%)* (3.88) 5.10 9.84 7.27 6.25
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.48 1.44 1.38 1.54 1.49
Ratio of net investment income to average net assets (%) 4.42 4.16 4.39 4.59 4.59
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) -- -- -- -- .02
Portfolio turnover rate (%) 39.92 41.15 32.28 44.91 47.15
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 19,854 39,535 45,296 43,979 42,668
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
<PAGE 42>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 13.96 13.90 13.22 12.90 12.76
Investment operations: Investment income -- net .55 .56 .57 .57 .40
Net realized and unrealized gain (loss) on investments (1.12) .13 .68 .32 .14
Total from investment operations (.57) .69 1.25 .89 .54
Distributions: Dividends from investment income -- net (.55) (.56) (.57) (.57) (.40)
Dividends from net realized gain on investments (.04) (.07) -- -- --
Total distributions (.59) (.63) (.57) (.57) (.40)
Net asset value, end of period 12.80 13.96 13.90 13.22 12.90
Total return (%)(2) (4.10) 5.02 9.58 7.00 5.92(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.72 1.63 1.62 1.77 1.73(3)
Ratio of net investment income to average net assets (%) 4.22 3.83 4.08 4.31 4.31(3)
Portfolio turnover rate (%) 39.92 41.15 32.28 44.91 47.15
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 671 434 44 11 1
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES CHARGE.
(3) ANNUALIZED.
</TABLE>
North Carolina Series
<PAGE 43>
FINANCIAL HIGHLIGHTS
Ohio Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.80 12.86 12.65 12.58 12.62
Investment operations: Investment income -- net .63 .65 .67 .69 .71
Net realized and unrealized gain (loss) on investments (.90) .08 .34 .17 .14
Total from investment operations (.27) .73 1.01 .86 .85
Distributions: Dividends from investment income -- net (.63) (.65) (.67) (.69) (.71)
Dividends from net realized gain on investments (.02) (.14) (.13) (.10) (.18)
Total distributions (.65) (.79) (.80) (.79) (.89)
Net asset value, end of period 11.88 12.80 12.86 12.65 12.58
Total return (%)* (2.08) 5.72 8.09 6.91 6.77
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .91 .91 .90 .91 .89
Ratio of net investment income to average net assets (%) 5.20 5.00 5.17 5.40 5.49
Portfolio turnover rate (%) 26.70 40.36 24.73 29.65 43.90
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 201,974 237,027 237,618 242,572 257,639
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.81 12.87 12.65 12.59 12.63
Investment operations: Investment income -- net .57 .58 .60 .62 .64
Net realized and unrealized gain (loss) on investments (.91) .08 .35 .16 .14
Total from investment operations (.34) .66 .95 .78 .78
Distributions: Dividends from investment income -- net (.57) (.58) (.60) (.62) (.64)
Dividends from net realized gain on investments (.02) (.14) (.13) (.10) (.18)
Total distributions (.59) (.72) (.73) (.72) (.82)
Net asset value, end of period 11.88 12.81 12.87 12.65 12.59
Total return (%)* (2.66) 5.17 7.62 6.27 6.19
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.42 1.42 1.41 1.42 1.42
Ratio of net investment income to average net assets (%) 4.68 4.47 4.65 4.87 4.94
Portfolio turnover rate (%) 26.70 40.36 24.73 29.65 43.90
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 39,445 54,929 50,453 44,746 40,476
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<PAGE 44>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 12.82 12.88 12.66 12.59 12.68
Investment operations: Investment income -- net .54 .55 .57 .59 .43
Net realized and unrealized gain (loss) on investments (.91) .08 .35 .17 .09
Total from investment operations (.37) .63 .92 .76 .52
Distributions: Dividends from investment income -- net (.54) (.55) (.57) (.59) (.43)
Dividends from net realized gain on investments (.02) (.14) (.13) (.10) (.18)
Total distributions (.56) (.69) (.70) (.69) (.61)
Net asset value, end of period 11.89 12.82 12.88 12.66 12.59
Total return (%)(2) (2.90) 4.92 7.35 6.07 5.66(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.67 1.66 1.66 1.64 1.63(3)
Ratio of net investment income to average net assets (%) 4.41 4.20 4.38 4.44 4.66(3)
Portfolio turnover rate (%) 26.70 40.36 24.73 29.65 43.90
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 3,095 1,793 579 694 1
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES CHARGE.
(3) ANNUALIZED.
Ohio Series
</TABLE>
<PAGE 45>
FINANCIAL HIGHLIGHTS
Pennsylvania Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 16.56 16.68 16.23 16.17 16.12
Investment operations: Investment income -- net .79 .82 .85 .85 .87
Net realized and unrealized gain (loss) on investments (1.33) .16 .71 .24 .32
Total from investment operations (.54) .98 1.56 1.09 1.19
Distributions: Dividends from investment income -- net (.79) (.82) (.85) (.85) (.87)
Dividends from net realized gain on investments (.29) (.28) (.26) (.18) (.27)
Total distributions (1.08) (1.10) (1.11) (1.03) (1.14)
Net asset value, end of period 14.94 16.56 16.68 16.23 16.17
Total return (%)* (3.24) 5.97 9.83 6.89 7.46
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .94 .92 .92 .92 .92
Ratio of net investment income to average net assets (%) 5.12 4.90 5.09 5.22 5.28
Portfolio turnover rate (%) 34.29 48.14 34.82 60.57 52.69
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 180,760 195,728 196,055 201,229 216,802
* EXCLUSIVE OF SALES CHARGE.
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value, beginning of period 16.55 16.67 16.23 16.16 16.11
Investment operations: Investment income -- net .71 .74 .77 .77 .79
Net realized and unrealized gain (loss) on investments (1.33) .16 .70 .25 .32
Total from investment operations (.62) .90 1.47 1.02 1.11
Distributions: Dividends from investment income -- net (.71) (.74) (.77) (.77) (.79)
Dividends from net realized gain on investments (.29) (.28) (.26) (.18) (.27)
Total distributions (1.00) (1.02) (1.03) (.95) (1.06)
Net asset value, end of period 14.93 16.55 16.67 16.23 16.16
Total return (%)* (3.75) 5.43 9.20 6.41 6.92
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.46 1.43 1.43 1.43 1.43
Ratio of net investment income to average net assets (%) 4.57 4.39 4.57 4.71 4.76
Portfolio turnover rate (%) 34.29 48.14 34.82 60.57 52.69
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 38,968 68,869 74,855 71,671 72,610
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<PAGE 46>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 16.57 16.69 16.23 16.16 16.18
Investment operations: Investment income -- net .67 .69 .70 .69 .53
Net realized and unrealized gain (loss) on investments (1.33) .16 .72 .25 .25
Total from investment operations (.66) .85 1.42 .94 .78
Distributions: Dividends from investment income -- net (.67) (.69) (.70) (.69) (.53)
Dividends from net realized gain on investments (.29) (.28) (.26) (.18) (.27)
Total distributions (.96) (.97) (.96) (.87) (.80)
Net asset value, end of period 14.95 16.57 16.69 16.23 16.16
Total return (%)(2) (3.98) 5.16 8.91 5.92 6.71(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.70 1.69 1.69 1.83 1.70(3)
Ratio of net investment income to average net assets (%) 4.35 4.07 3.98 4.28 4.46(3)
Portfolio turnover rate (%) 34.29 48.14 34.82 60.57 52.69
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 1,274 898 463 32 21
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES CHARGE.
(3) ANNUALIZED.
</TABLE>
Pennsylvania Series
<PAGE 47>
FINANCIAL HIGHLIGHTS
Texas Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 21.37 21.68 20.99 20.84 20.69
Investment operations: Investment income -- net .98 1.00 1.08 1.17 1.20
Net realized and unrealized gain (loss) on investments (1.77) .21 .99 .41 .45
Total from investment operations (.79) 1.21 2.07 1.58 1.65
Distributions: Dividends from investment income -- net (.98) (1.00) (1.08) (1.17) (1.20)
Dividends from net realized gain on investments (.27) (.52) (.30) (.26) (.30)
Total distributions (1.25) (1.52) (1.38) (1.43) (1.50)
Net asset value, end of period 19.33 21.37 21.68 20.99 20.84
Total return (%)* (3.62) 5.66 10.03 7.74 8.06
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .85 .85 .72 .37 .37
Ratio of net investment income to average net assets (%) 4.95 4.59 4.96 5.54 5.64
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) .14 .07 .18 .55 .55
Portfolio turnover rate (%) 22.70 49.67 27.18 61.22 49.24
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1000) 52,464 60,516 59,758 60,849 62,864
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 21.37 21.68 20.98 20.84 20.69
Investment operations: Investment income -- net .88 .89 .97 1.06 1.09
Net realized and unrealized gain (loss) on investments (1.78) .21 1.00 .40 .45
Total from investment operations (.90) 1.10 1.97 1.46 1.54
Distributions: Dividends from investment income -- net (.88) (.89) (.97) (1.06) (1.09)
Dividends from net realized gain on investments (.27) (.52) (.30) (.26) (.30)
Total distributions (1.15) (1.41) (1.27) (1.32) (1.39)
Net asset value, end of period 19.32 21.37 21.68 20.98 20.84
Total return (%)* (4.14) 5.13 9.53 7.15 7.51
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.35 1.35 1.23 .88 .88
Ratio of net investment income to average net assets (%) 4.41 4.09 4.44 5.03 5.13
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) .16 .08 .18 .55 .55
Portfolio turnover rate (%) 22.70 49.67 27.18 61.22 49.24
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 7,483 17,031 20,454 17,396 17,461
* EXCLUSIVE OF SALES CHARGE.
</TABLE>
<PAGE 48>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 21.36 21.67 20.97 20.83 20.78
Investment operations: Investment income -- net .84 .83 .91 .99 .73
Net realized and unrealized gain (loss) on investments (1.78) .21 1.00 .40 .35
Total from investment operations (.94) 1.04 1.91 1.39 1.08
Distributions: Dividends from investment income -- net (.84) (.83) (.91) (.99) (.73)
Dividends from net realized gain on investments (.27) (.52) (.30) (.26) (.30)
Total distributions (1.11) (1.35) (1.21) (1.25) (1.03)
Net asset value, end of period 19.31 21.36 21.67 20.97 20.83
Total return (%)(2) (4.33) 4.86 9.24 6.79 7.29(3)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.60 1.60 1.52 1.19 1.18(3)
Ratio of net investment income to average net assets (%) 4.15 3.79 4.10 4.57 4.77(3)
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) .15 .11 .15 .54 .58(3)
Portfolio turnover rate (%) 22.70 49.67 27.18 61.22 49.24
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 265 620 261 129 1
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) EXCLUSIVE OF SALES CHARGE.
(3) ANNUALIZED.
</TABLE>
Texas Series
<PAGE 49>
FINANCIAL HIGHLIGHTS
Virginia Series
The following tables describe the performance of each share class for the fiscal
periods indicated. "Total return" shows how much your investment in this series
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These figures have been
independently audited by Ernst & Young LLP, whose report, along with the fund's
financial statements, is included in the annual report.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS A 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 17.31 17.37 16.61 16.27 16.03
Investment operations: Investment income -- net .83 .85 .88 .94 .93
Net realized and unrealized gain (loss) on investments (1.47) .17 .76 .34 .24
Total from investment operations (.64) 1.02 1.64 1.28 1.17
Distributions: Dividends from investment income -- net (.83) (.85) (.88) (.94) (.93)
Dividends from net realized gain on investments (.00)(1) (.23) (.00)(1) -- --
Total distributions (.83) (1.08) (.88) (.94) (.93)
Net asset value, end of period 15.84 17.31 17.37 16.61 16.27
Total return (%)(2) (3.65) 5.98 10.05 8.02 7.32
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) .97 .92 .75 .39 .50
Ratio of net investment income to average net assets (%) 5.12 4.83 5.10 5.67 5.58
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) -- -- .14 .55 .55
Portfolio turnover rate (%) 31.63 30.19 21.25 45.29 50.06
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 67,043 71,612 65,086 61,099 61,149
(1) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE. (2) EXCLUSIVE OF SALES CHARGE.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS B 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 17.31 17.37 16.60 16.27 16.03
Investment operations: Investment income -- net .75 .76 .79 .86 .84
Net realized and unrealized gain (loss) on investments (1.48) .17 .77 .33 .24
Total from investment operations (.73) .93 1.56 1.19 1.08
Distributions: Dividends from investment income -- net (.75) (.76) (.79) (.86) (.84)
Dividends from net realized gain on investments (.00)(1) (.23) (.00)(1) -- --
Total distributions (.75) (.99) (.79) (.86) (.84)
Net asset value, end of period 15.83 17.31 17.37 16.60 16.27
Total return (%)(2) (4.21) 5.44 9.56 7.41 6.77
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.48 1.43 1.26 .90 1.01
Ratio of net investment income to average net assets (%) 4.59 4.32 4.58 5.15 5.06
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) -- -- .14 .55 .55
Portfolio turnover rate (%) 31.63 30.19 21.25 45.29 50.06
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 21,081 34,912 40,100 35,787 33,120
(1) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE. (2) EXCLUSIVE OF SALES CHARGE.
</TABLE>
<PAGE 50>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
CLASS C 2000 1999 1998 1997 1996(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value, beginning of period 17.30 17.36 16.60 16.26 16.17
Investment operations: Investment income -- net .71 .72 .75 .81 .57
Net realized and unrealized gain (loss) on investments (1.47) .17 .76 .34 .09
Total from investment operations (.76) .89 1.51 1.15 .66
Distributions: Dividends from investment income -- net (.71) (.72) (.75) (.81) (.57)
Dividends from net realized gain on investments (.00)(2) (.23) (.00)(2) -- --
Total distributions (.71) (.95) (.75) (.81) (.57)
Net asset value, end of period 15.83 17.30 17.36 16.60 16.26
Total return (%)(3) (4.37) 5.19 9.22 7.18 5.64(4)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (%) 1.70 1.66 1.54 1.17 1.21(4)
Ratio of net investment income to average net assets (%) 4.37 4.06 4.24 4.83 4.55(4)
Decrease reflected in above expense ratios
due to actions by Dreyfus (%) -- -- .11 .54 .52(4)
Portfolio turnover rate (%) 31.63 30.19 21.25 45.29 50.06
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 3,048 3,188 1,996 674 166
(1) FROM AUGUST 15, 1995 (COMMENCEMENT OF INITIAL OFFERING) TO APRIL 30, 1996.
(2) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(3) EXCLUSIVE OF SALES LOAD.
(4) ANNUALIZED.
</TABLE>
Virginia Series
<PAGE 51>
MANAGEMENT
The investment adviser for the fund is The Dreyfus Corporation, 200 Park Avenue,
New York, New York 10166. Founded in 1947, Dreyfus manages more than $150
billion in over 190 mutual fund portfolios. Dreyfus is the primary mutual fund
business of Mellon Financial Corporation, a global financial services company
with approximately $2.8 trillion of assets under management, administration or
custody, including approximately $540 billion under management. Mellon provides
wealth management, global investment services and a comprehensive array of
banking services for individuals, businesses and institutions. Mellon is
headquartered in Pittsburgh, Pennsylvania.
For the past fiscal year, the fund paid Dreyfus a monthly management fee at the
annual rate shown below as a percentage of the series' average daily net assets.
These fees reflect any fee waivers or expense reimbursements that may have been
in effect.
--------------------------------------------------------------------------------
EFFECTIVE ANNUAL RATE OF
NAME OF SERIES MANAGEMENT FEE PAID
--------------------------------------------------------------------------------
Connecticut 0.55%
Florida 0.49%
Maryland 0.55%
Massachusetts 0.55%
Michigan 0.55%
Minnesota 0.55%
New Jersey 0.12%
North Carolina 0.55%
Ohio 0.55%
Pennsylvania 0.55%
Texas 0.40%
Virginia 0.55%
Samuel J. Weinstock has managed the Connecticut series since August 1987 and has
managed the Virginia series since August 1991. Mr. Weinstock has been employed
by Dreyfus since March 1987.
Douglas J. Gaylor has managed the Florida series since August 1999 and has
managed each of the Maryland series, Pennsylvania series and Texas series since
he joined Dreyfus in January 1996. Prior to joining Dreyfus, Mr. Gaylor was a
municipal portfolio manager at PNC Bank since 1993 and from 1989 to September
1993 was a municipal portfolio manager at Wilmington Trust Company.
W. Michael Petty has managed each of the Massachusetts series, Michigan series,
Minnesota series, New Jersey series, North Carolina series, and Ohio series
since August 1997. Mr. Petty has been employed by Dreyfus since June 1997. Prior
to joining Dreyfus, Mr. Petty was vice president and portfolio manager of
municipal bond funds at Merrill Lynch Asset Management, Inc. since 1992.
The fund, Dreyfus and Dreyfus Service Corporation (the fund's distributor) each
have adopted a code of ethics that permits its personnel, subject to such code,
to invest in securities, including securities that may be purchased or held by
the fund. The Dreyfus code of ethics restricts the personal securities
transactions of its employees, and requires portfolio managers and other
investment personnel to comply with the code's preclearance and disclosure
procedures. Its primary purpose is to ensure that personal trading by Dreyfus
employees does not disadvantage any Dreyfus-managed fund.
<PAGE 52>
Your Investment
ACCOUNT POLICIES
THE DREYFUS PREMIER FUNDS are designed primarily for people who are investing
through a third party, such as a bank, broker-dealer or financial adviser. Third
parties with whom you open a fund account may impose policies, limitations and
fees which are different from those described here.
YOU WILL NEED TO CHOOSE A SHARE CLASS before making your initial investment. In
making your choice, you should weigh the impact of all potential costs over the
length of your investment, including sales charges and annual fees. For example,
in some cases, it can be more economical to pay an initial sales charge than to
choose a class with no initial sales charge but higher annual fees and a
contingent deferred sales charge (CDSC).
* CLASS A shares may be appropriate for investors who prefer to pay the
fund's sales charge up front rather than upon the sale of their shares,
want to take advantage of the reduced sales charges available on larger
investments and/or have a longer-term investment horizon
* CLASS B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately and/or have a longer-term investment horizon
* CLASS C shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately and/or have a shorter-term investment horizon
Your financial representative can help you choose the share class that is
appropriate for you.
Share class charges
EACH SHARE CLASS has its own fee structure. In some cases, you may not have to
pay a sales charge to buy or sell shares. Consult your financial representative
or the SAI to see if this may apply to you. Shareholders owning Class B shares
on or prior to November 30, 1996 may be eligible for a lower CDSC.
--------------------------------------------------------------------------------
Sales charges
CLASS A -- CHARGED WHEN YOU BUY SHARES
<TABLE>
<CAPTION>
Sales charge Sales charge
deducted as a % as a % of your
Your investment of offering price net investment
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Up to $49,999 4.50% 4.70%
$50,000 -- $99,999 4.00% 4.20%
$100,000 -- $249,999 3.00% 3.10%
$250,000 -- $499,999 2.50% 2.60%
$500,000 -- $999,999 2.00% 2.00%
$1 million or more* 0.00% 0.00%
* A 1.00% CDSC may be charged on any shares sold within one year of purchase
(except shares bought through dividend reinvestment).
</TABLE>
--------------------------------------------------------------------------------
CLASS B -- CHARGED WHEN YOU SELL SHARES
CDSC as a % of your initial
Years since purchase investment or your redemption
was made (whichever is less)
--------------------------------------------------------------------------------
Up to 2 years 4.00%
2 -- 4 years 3.00%
4 -- 5 years 2.00%
5 -- 6 years 1.00%
More than 6 years Shares will automatically
convert to Class A
Class B shares also carry an annual Rule 12b-1 fee of 0.50% of the class's
average daily net assets.
--------------------------------------------------------------------------------
CLASS C -- CHARGED WHEN YOU SELL SHARES
A 1.00% CDSC is imposed on redemptions made within the first year of purchase.
Class C shares also carry an annual Rule 12b-1 fee of 0.75% of the class's
average daily net assets.
Reduced Class A sales charge
LETTER OF INTENT: lets you purchase Class A shares over a 13-month period and
receive the same sales charge as if all shares had been purchased at once.
RIGHT OF ACCUMULATION: lets you add the value of any shares you own in this
fund, any other Dreyfus Premier fund, or any other fund that is advised by
Founders Asset Management LLC ("Founders"), an affiliate of Dreyfus, sold with a
sales load, to the amount of your next Class A investment for purposes of
calculating the sales charge.
CONSULT THE STATEMENT OF ADDITIONAL INFORMATION (SAI) OR YOUR FINANCIAL
REPRESENTATIVE FOR MORE DETAILS.
Your Investment
<PAGE 53>
ACCOUNT POLICIES (CONTINUED)
Buying shares
THE NET ASSET VALUE (NAV) of each class is generally calculated as of the close
of trading on the New York Stock Exchange ("NYSE") (usually 4:00 p.m. Eastern
time) every day the exchange is open. Your order will be priced at the next NAV
calculated after your order is accepted by the fund's transfer agent or other
authorized entity. Each series' investments are generally valued based on fair
value as determined by an independent pricing service approved by the fund's
board. The pricing service's procedures are reviewed under the general
supervision of the board. Because each series seeks tax-exempt income, the
series are not recommended for purchase in IRAs or other qualified plans.
ORDERS TO BUY AND SELL SHARES received by dealers by the close of trading on the
NYSE and transmitted to the distributor or its designee by the close of its
business day (normally 5:15 p.m. Eastern time) will be based on the NAV
determined as of the close of trading on the NYSE that day.
--------------------------------------------------------------------------------
Minimum investments
Initial Additional
--------------------------------------------------------------------------------
REGULAR ACCOUNTS $1,000 $100; $500 FOR
TELETRANSFER INVESTMENTS
All investments must be in U.S. dollars. Third-party checks cannot be accepted.
You may be charged a fee for any check that does not clear. Maximum TeleTransfer
purchase is $150,000 per day
Selling shares
YOU MAY SELL (REDEEM) SHARES AT ANY TIME through your financial representative,
or you can contact the fund directly. Your shares will be sold at the next NAV
calculated after your order is accepted by the fund's transfer agent or other
authorized entity. Any certificates representing series shares being sold must
be returned with your redemption request. Your order will be processed promptly,
and you will generally receive the proceeds within a week.
TO KEEP YOUR CDSC AS LOW AS POSSIBLE, each time you request to sell shares we
will first sell shares that are not subject to a CDSC, and then those subject to
the lowest charge. The CDSC is based on the lesser of the original purchase cost
or the current market value of the shares being sold, and is not charged on
shares you acquired by reinvesting your dividends. There are certain instances
when you may qualify to have the CDSC waived. Consult your financial
representative or the SAI for details.
BEFORE SELLING OR WRITING A CHECK against shares recently purchased by check,
TeleTransfer or Dreyfus Automatic Asset Builder, please note that if you send a
written request to sell such shares, the fund may delay sending the proceeds for
up to eight business days following the purchase of those shares. The fund will
not honor redemption checks, or process wire, telephone or TeleTransfer
redemption requests for up to eight business days following the purchase of
those shares.
Written sell orders
Some circumstances require written sell orders along with signature guarantees.
These include:
* amounts of $10,000 or more on accounts whose address has been changed
within the last 30 days
* requests to send the proceeds to a different payee or address
Written sell orders of $100,000 or more must also be signature guaranteed.
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary public. For joint accounts,
each signature must be guaranteed. Please call us to ensure that your signature
guarantee will be processed correctly.
Concepts to understand
NET ASSET VALUE (NAV): the market value of one share, computed by dividing the
total net assets of a fund or class by its shares outstanding. Each series'
Class A shares are offered to the public at NAV plus a sales charge. Classes B
and C are offered at NAV, but generally are subject to higher annual operating
expenses and a CDSC.
<PAGE 54>
General policies
UNLESS YOU DECLINE TELEPHONE PRIVILEGES on your application, you may be
responsible for any fraudulent telephone order as long as Dreyfus takes
reasonable measures to verify the order.
THE FUND RESERVES THE RIGHT TO:
* refuse any purchase or exchange request that could adversely affect the
fund or its operations, including those from any individual or group who,
in the fund's view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the fund within a calendar year)
* refuse any purchase or exchange request in excess of 1% of a series' total
assets
* change or discontinue its exchange privilege, or temporarily suspend this
privilege during unusual market conditions
* change its minimum investment amounts
* delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions)
The fund also reserves the right to make a "redemption in kind" -- payment in
portfolio securities rather than cash -- if the amount you are redeeming is
large enough to affect a series' operations (for example, if it represents more
than 1% of a series' assets).
Small account policies
To offset the relatively higher costs of servicing smaller accounts, the fund
charges regular accounts with balances below $2,000 an annual fee of $12. The
fee will be imposed during the fourth quarter of each calendar year.
The fee will be waived for: any investor whose aggregate Dreyfus mutual fund
investments total at least $25,000; accounts participating in automatic
investment programs; accounts opened through a financial institution.
If your account falls below $500, the fund may ask you to increase your balance.
If it is still below $500 after 30 days, the fund may close your account and
send you the proceeds.
Your Investment
<PAGE 55>
DISTRIBUTIONS AND TAXES
EACH SERIES GENERALLY PAYS ITS SHAREHOLDERS dividends from its net investment
income once a month, and distributes any net capital gains it has realized once
a year. Each share class of a series will generate a different dividend because
each has different expenses. Your distributions will be reinvested in your
series unless you instruct the fund otherwise. There are no fees or sales
charges on reinvestments.
EACH SERIES ANTICIPATES that virtually all of its income dividends will be
exempt from federal income tax and, where applicable, from the income tax of the
state for which the series is named. However, any dividends paid from interest
on taxable investments or short-term capital gains will be taxable as ordinary
income. Any distribution of long-term capital gains will be taxable as such. The
tax status of any distribution is the same regardless of how long you have been
in the series and whether you reinvest your distributions or take them in cash.
In general, distributions are federally taxable as follows:
--------------------------------------------------------------------------------
Taxability of distributions
Type of Tax rate for Tax rate for
distribution 15% bracket 28% bracket or above
--------------------------------------------------------------------------------
INCOME GENERALLY GENERALLY
DIVIDENDS TAX EXEMPT TAX EXEMPT
SHORT-TERM ORDINARY ORDINARY
CAPITAL GAINS INCOME RATE INCOME RATE
LONG-TERM
CAPITAL GAINS 8%/10% 18%/20%
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
Taxes on transactions
Any sale or exchange of series shares, including through the checkwriting
privilege, may generate a tax liability.
The table at left also can provide a guide for potential tax liability when
selling or exchanging series shares. "Short-term capital gains" applies to
series shares sold or exchanged up to 12 months after buying them. "Long-term
capital gains" applies to shares sold or exchanged after 12 months; the lower
rate shown applies to shares held for more than five years and, for the 28% tax
rate bracket and above, purchased after December 31, 2000.
<PAGE 56>
SERVICES FOR FUND INVESTORS
THE THIRD PARTY THROUGH WHOM YOU PURCHASE series shares may impose different
restrictions on these services and privileges offered by the fund, or may not
make them available at all. Consult your financial representative for more
information on the availability of these services and privileges.
Automatic services
BUYING OR SELLING SHARES AUTOMATICALLY is easy with the services described
below. With each service, you select a schedule and amount, subject to certain
restrictions. You can set up most of these services with your application, or by
calling your financial representative or 1-800-554-4611.
--------------------------------------------------------------------------------
For investing
DREYFUS AUTOMATIC For making automatic investments
ASSET BUILDER((reg.tm)) from a designated bank account.
DREYFUS GOVERNMENT For making automatic investments
DIRECT DEPOSIT from your federal employment,
PRIVILEGE Social Security or other regular
federal government check.
DREYFUS DIVIDEND For automatically reinvesting the
SWEEP dividends and distributions from
the fund into another Dreyfus fund
or certain Founders-advised funds
(not available for IRAs).
--------------------------------------------------------------------------------
For exchanging shares
DREYFUS AUTO- For making regular exchanges
EXCHANGE PRIVILEGE from the fund into another
Dreyfus fund or certain
Founders-advised funds.
--------------------------------------------------------------------------------
For selling shares
DREYFUS AUTOMATIC For making regular withdrawals
WITHDRAWAL PLAN from most Dreyfus funds. There will be no CDSC
on Class B shares, as long as the amount
of any withdrawal does not exceed an
annual rate of 12% of the account value
at the time of the first withdrawal
under the plan, or at the time of
the subsequent withdrawal.
Checkwriting privilege (Class A only)
YOU MAY WRITE REDEMPTION CHECKS against your account for Class A shares in
amounts of $500 or more. These checks are free; however, a fee will be charged
if you request a stop payment or if the transfer agent cannot honor a redemption
check due to insufficient funds or another valid reason. Please do not postdate
your checks or use them to close your account.
Exchange privilege
YOU CAN EXCHANGE SHARES WORTH $500 OR MORE from one class of a series into the
same class of another Dreyfus Premier fund or Founders-advised fund. You can
request your exchange by contacting your financial representative. Be sure to
read the current prospectus for any fund into which you are exchanging before
investing. Any new account established through an exchange will generally have
the same privileges as your original account (as long as they are available).
There is currently no fee for exchanges, although you may be charged a sales
load when exchanging into any fund that has a higher one.
TeleTransfer privilege
TO MOVE MONEY BETWEEN YOUR BANK ACCOUNT and your Dreyfus fund account with a
phone call, use the TeleTransfer privilege. You can set up TeleTransfer on your
account by providing bank account information and following the instructions on
your application, or contacting your financial representative.
Reinvestment privilege
UPON WRITTEN REQUEST YOU CAN REINVEST up to the number of Class A or B shares
you redeemed within 45 days of selling them at the current share price without
any sales charge. If you paid a CDSC, it will be credited back to your account.
This privilege may be used only once.
Account statements
EVERY FUND INVESTOR automatically receives regular account statements. You'll
also be sent a yearly statement detailing the tax characteristics of any
dividends and distributions you have received.
Your Investment
<PAGE 57>
INSTRUCTIONS FOR REGULAR ACCOUNTS
TO OPEN AN ACCOUNT
In Writing
Complete the application.
Mail your application and a check to:
Name of Fund
P.O. Box 6587, Providence, RI 02940-6587
Attn: Institutional Processing
TO ADD TO AN ACCOUNT
Fill out an investment slip, and write your account number on your check.
Mail the slip and a check to: Name of Fund
P.O. Box 6587, Providence, RI 02940-6587 Attn: Institutional Processing
By Telephone
WIRE Have your bank send your
investment to The Bank of New York, with these instructions:
* ABA# 021000018
* DDA# (see below)
* the fund and series names
* the share class
* your Social Security or tax ID number
* name(s) of investor(s)
* dealer number if applicable
Call us to obtain an account number. Return your application with the account
number on the application.
WIRE Have your bank send your investment to The Bank of New York, with these
instructions:
* ABA# 021000018
* DDA# (see below)
* the fund and series names
* the share class
* your account number
* name(s) of investor(s)
* dealer number if applicable
ELECTRONIC CHECK Same as wire, but insert "1111" before your account number.
TELETRANSFER Request TeleTransfer on your application. Call us to request your
transaction.
Automatically
WITH AN INITIAL INVESTMENT Indicate
on your application which automatic service(s) you want. Return your application
with your investment.
ALL SERVICES Call us or your financial representative to request a form to add
any automatic investing service (see "Services for Fund Investors"). Complete
and return the form along with any other required materials.
TO SELL SHARES
Write a redemption check (Class A only) OR write a letter of instruction that
includes:
* your name(s) and signature(s)
* your account number
* the fund and series names
* the dollar amount you want to sell
* how and where to send the proceeds
Obtain a signature guarantee or other documentation, if required (see page 54)
Mail your request to: The Dreyfus Family of Funds P.O. Box 6587, Providence, RI
02940-6587 Attn: Institutional Processing
TELETRANSFER Call us or your financial representative to request your
transaction. Be sure the fund has your bank account information on file.
Proceeds will be sent to your bank by electronic check.
CHECK Call us or your financial representative to request your transaction. A
check will be sent to the address of record.
AUTOMATIC WITHDRAWAL PLAN Call us or your financial representative to request a
form to add the plan. Complete the form, specifying the amount and frequency of
withdrawals you would like.
Be sure to maintain an account balance of $5,000 or more.
To open an account, make subsequent investments or to sell shares, please
contact your financial representative or call toll free in the U.S.
1-800-554-4611. Make checks payable to: THE DREYFUS FAMILY OF FUNDS.
SELECT THE APPROPRIATE DDA# FOR YOUR SERIES:
Connecticut DDA# 8900119489
Florida DDA# 8900119381
Maryland DDA# 8900119403
Massachusetts DDA# 8900119470
Michigan DDA# 8900119411
Minnesota DDA# 8900119438
New Jersey DDA# 8900088389
North Carolina DDA# 8900208635
Ohio DDA# 8900119446
Pennsylvania DDA# 8900119454
Texas DDA# 8900119462
Virginia DDA# 8900208678
<PAGE 58>
[Application p1]
<PAGE>
[Application p2]
<PAGE>
NOTES
<PAGE>
For More Information
Dreyfus Premier State
Municipal Bond Fund
--------------------------------------
SEC file number: 811-4906
More information on this fund is available free upon request, including the
following:
Annual/Semiannual Report
Describes the fund's performance, lists portfolio holdings and contains a letter
from the fund's manager discussing recent market conditions, economic trends
and fund strategies that significantly affected the fund's performance during
the last fiscal year.
Statement of Additional Information (SAI)
Provides more details about the fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
To obtain information:
BY TELEPHONE Call your financial representative or 1-800-554-4611
BY MAIL Write to: The Dreyfus Premier Family of Funds 144 Glenn Curtiss
Boulevard Uniondale, NY 11556-0144
ON THE INTERNET Text-only versions of certain fund documents can be viewed
online or downloaded from: http://www.sec.gov
You can also obtain copies, after paying a duplicating fee, by visiting the
SEC's Public Reference Room in Washington, DC (for information, call
1-202-942-8090) or by E-mail request to [email protected], or by writing to the
SEC's Public Reference Section, Washington, DC 20549-0102.
(c) 2001 Dreyfus Service Corporation
PSTMB-P0101
-------------------------------------------------------------------------------
DREYFUS PREMIER STATE MUNICIPAL BOND FUND
o Connecticut Series o New Jersey Series
o Florida Series o North Carolina Series
o Maryland Series o Ohio Series
o Massachusetts Series o Pennsylvania Series
o Michigan Series o Texas Series
o Minnesota Series o Virginia Series
CLASS A, CLASS B AND CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 2000
AS REVISED, JANUARY 19, 2001
-------------------------------------------------------------------------------
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of the
above-named series (each, a "Series") of Dreyfus Premier State Municipal Bond
Fund (the "Fund"), dated September 1, 2000, as it may be revised from time to
time. To obtain a copy of the Fund's Prospectus, please write to the Fund at 144
Glenn Curtiss Boulevard, Uniondale, New York 11556-0144 or call 1-800-554-4611.
The Fund's most recent Annual Report and Semi-Annual Report to
Shareholders are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing in the Annual Report are incorporated by
reference into this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
Page
Description of the Fund and Series...............................B-3
Management of the Fund...........................................B-20
Management Arrangements..........................................B-25
How to Buy Shares................................................B-31
Distribution Plan and Shareholder Services Plan..................B-37
How To Redeem Shares.............................................B-41
Shareholder Services.............................................B-46
Determination of Net Asset Value.................................B-51
Dividends, Distributions and Taxes...............................B-51
Portfolio Transactions...........................................B-61
Performance Information..........................................B-62
Information About the Fund and Series............................B-71
Counsel and Independent Auditors.................................B-73
Appendix A.......................................................B-74
Appendix B.......................................................B-141
<PAGE>
DESCRIPTION OF THE FUND AND SERIES
The Fund is a Massachusetts business trust that was formed on September 19,
1986. The Fund is an open-end, management investment company, known as a
municipal bond fund.
The Dreyfus Corporation (the "Manager") serves as the Fund's investment
adviser.
Dreyfus Service Corporation (the "Distributor") is the distributor of the
Fund's shares.
Certain Portfolio Securities
The following information supplements and should be read in conjunction
with the Fund's Prospectus.
Municipal Obligations. The Fund's investment objective is to maximize
current income exempt from Federal income tax and, where applicable, from State
income taxes for residents of the States of Connecticut, Florida, Maryland,
Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Ohio,
Pennsylvania, Texas and Virginia, without undue risk. To accomplish the Fund's
investment objective, each Series invests primarily in the debt securities of
the State after which it is named, such State's political subdivisions,
authorities and corporations, the interest from which is, in the opinion of bond
counsel to the issuer, exempt from Federal and such State's personal income
taxes (collectively, "State Municipal Obligations" or when the context so
requires, "Connecticut Municipal Obligations," "Florida Municipal Obligations,"
"Maryland Municipal Obligations," "Massachusetts Municipal Obligations," etc.).
To the extent acceptable, State Municipal Obligations are at any time
unavailable for investment by the Series, the Series will invest temporarily in
other Municipal Obligations (as defined below).
Each Series will invest at least 80% of the value of its net assets (except
when maintaining a temporary defensive position) in Municipal Obligations.
Municipal Obligations are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate agencies
or authorities, the interest from which 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 full faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable from the revenue derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source, but not from the general
taxing power. Tax exempt industrial development bonds, in most cases, are
revenue bonds that do not carry the pledge of the credit of the issuing
municipality, but generally are guaranteed by the corporate entity on whose
behalf they are issued. Notes are short-term instruments which are obligations
of the issuing municipalities or agencies and are sold in anticipation of a bond
sale, collection of taxes or receipt of other revenues. Municipal Obligations
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities. Municipal
Obligations bear fixed, floating or variable rates of interest, which are
determined in some instances by formulas under which the Municipal Obligation's
interest rate will change directly or inversely to changes in interest rates or
an index, or multiples thereof, in many cases subject to a maximum and minimum.
Certain Municipal Obligations are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated from the
related Municipal Obligation and purchased and sold separately.
The yields on Municipal Obligations are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions in the Municipal Obligations market, size of a particular offering,
maturity of the obligation and rating of the issue.
Certain Tax Exempt Obligations. Each Series may purchase floating and
variable rate demand notes and bonds, which are tax exempt obligations
ordinarily having stated maturities in excess of one year, but which permit the
holder to demand payment of principal at any time or at specified intervals.
Variable rate demand notes include master demand notes which are obligations
that permit the Series to invest fluctuating amounts, at varying rates of
interest, pursuant to direct arrangements between the Series, as lender, and the
borrower. These obligations permit daily changes in the amount borrowed. Because
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value, plus accrued interest. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Series' right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Each obligation purchased
will meet the quality criteria established for the purchase of Municipal
Obligations.
Tax Exempt Participation Interests. Each Series may purchase from financial
institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Series an undivided interest in the Municipal
Obligation in the proportion that the Series' participation interest bears to
the total principal amount of the Municipal Obligation. These instruments may
have fixed, floating or variable rates of interest. If the participation
interest is unrated or has been given a rating below that which otherwise is
permissible for purchase by the Series, it will be backed by an irrevocable
letter of credit or guarantee of a bank that the Fund's Board has determined
meets prescribed quality standards for banks, or the payment obligation
otherwise will be collateralized by U.S. Government securities. For certain
participation interests, the Series will have the right to demand payment, on
not more than seven days' notice, for all or any part of the Series'
participation interest in the Municipal Obligation, plus accrued interest. As to
these instruments, each Series intends to exercise its right to demand payment
only upon a default under the terms of the Municipal Obligation, as needed to
provide liquidity to meet redemptions, or to maintain or improve the quality of
its investment portfolio.
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with Municipal Obligations. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, a lease obligation ordinarily is backed by the municipality's covenant
to budget for, appropriate, and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. Certain lease obligations may be considered
illiquid. Determination as to the liquidity of such securities is made in
accordance with guidelines established by the Fund's Board. Pursuant to such
guidelines, the Board has directed the Manager to monitor carefully each Series'
investment in such securities with particular regard to: (1) the frequency of
trades and quotes for the lease obligation; (2) the number of dealers willing to
purchase or sell the lease obligation and the number of other potential buyers;
(3) the willingness of dealers to undertake to make a market in the lease
obligation; (4) the nature of the marketplace trades, including the time needed
to dispose of the lease obligation, the method of soliciting offers and the
mechanics of transfer; and (5) such other factors concerning the trading market
for the lease obligation as the Manager may deem relevant. In addition, in
evaluating the liquidity and credit quality of a lease obligation that is
unrated, the Fund's Board has directed the Manager to consider: (a) whether the
lease can be canceled; (b) what assurance there is that the assets represented
by the lease can be sold; (c) the strength of the lessee's general credit (e.g.,
its debt, administrative, economic, and financial characteristics); (d) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an "event of
nonappropriation"); (e) the legal recourse in the event of failure to
appropriate; and (f) such other factors concerning credit quality as the Manager
may deem relevant. A Series will not invest more than 15% of the value of its
net assets in lease obligations that are illiquid and in other illiquid
securities.
Tender Option Bonds. Each Series may purchase tender option bonds. A tender
option bond is a Municipal Obligation (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing interest at a fixed
rate substantially higher than prevailing short-term tax exempt rates, that has
been coupled with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender their securities
to the institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees equal to
the difference between the Municipal Obligation's fixed coupon rate and the
rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with the
tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term tax exempt rate. The Manager,
on behalf of the Series, will consider on an ongoing basis the creditworthiness
of the issuer of the underlying Municipal Obligation, of any custodian and of
the third party provider of the tender option. In certain instances and for
certain tender option bonds, the option may be terminable in the event of a
default in payment of principal or interest on the underlying Municipal
Obligation and for other reasons.
A Series will purchase tender option bonds only when the Fund is satisfied
that the custodial and tender option arrangements, including the fee payment
arrangements, will not adversely affect the tax exempt status of the underlying
Municipal Obligations and that payment of any tender fees will not have the
effect of creating taxable income for the Series. Based on the tender option
bond agreement, the Fund expects to be able to value the tender option bond at
par; however, the value of the instrument will be monitored to assure that it is
valued at fair value.
Custodial Receipts. Each Series may purchase custodial receipts
representing the right to receive certain future principal and interest payments
on Municipal Obligations which underlie the custodial receipts. A number of
different arrangements are possible. In a typical custodial receipt arrangement,
an issuer or a third party owner of Municipal Obligations deposits such
obligations with a custodian in exchange for two classes of custodial receipts.
The two classes have different characteristics, but, in each case, payments on
the two classes are based on payments received on the underlying Municipal
Obligations. One class has the characteristics of a typical auction rate
security, where at specified intervals its interest rate is adjusted, and
ownership changes, based on an auction mechanism. This class' interest rate
generally is expected to be below the coupon rate of the underlying Municipal
Obligations and generally is at a level comparable to that of a Municipal
Obligation of similar quality and having a maturity equal to the period between
interest rate adjustments. The second class bears interest at a rate that
exceeds the interest rate typically borne by a security of comparable quality
and maturity; this rate also is adjusted, but in this case inversely to changes
in the rate of interest of the first class. In no event will the aggregate
interest paid with respect to the two classes exceed the interest paid by the
underlying Municipal Obligations. The value of the second class and similar
securities should be expected to fluctuate more than the value of a Municipal
Obligation of comparable quality and maturity and their purchase by a Series
should increase the volatility of its net asset value and, thus, its price per
share. These custodial receipts are sold in private placements. Each Series also
may purchase directly from issuers, and not in a private placement, Municipal
Obligations having characteristics similar to custodial receipts. These
securities may be issued as part of a multi-class offering and the interest rate
on certain classes may be subject to a cap or floor.
Stand-By Commitments. Each Series may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, the Series obligates a broker, dealer or bank to repurchase, at the
Series' option, specified securities at a specified price and, in this respect,
stand-by commitments are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller to make payment
on demand. The Series will acquire stand-by commitments solely to facilitate its
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The Series may pay for stand-by commitments if such action is
deemed necessary, thus increasing to a degree the cost of the underlying
Municipal Obligation and similarly decreasing such security's yield to
investors. Gains realized in connection with stand-by commitments will be
taxable. Each Series also may acquire call options on specific Municipal
Obligations. A Series generally would purchase these call options to protect the
Series from the issuer of the related Municipal Obligation redeeming, or other
holder of the call option from calling away, the Municipal Obligation before
maturity. The sale by the Series of a call option that it owns on a specific
Municipal Obligation could result in the receipt of taxable income by the
Series.
Ratings of Municipal Obligations. Each Series will invest at least 70% of
the value of its net assets in Municipal Obligations which, in the case of
bonds, are rated no lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Services ("S&P") or Fitch IBCA,
Duff & Phelps ("Fitch" and, together with Moody's and S&P, the "Rating
Agencies"). Each Series may invest up to 30% of the value of its net assets in
Municipal Obligations which, in the case of bonds, are rated lower than Baa by
Moody's and BBB by S&P and Fitch and as low as the lowest rating assigned by a
Rating Agency. Each Series also may invest in securities which, while not rated,
are determined by the Manager to be of comparable quality to the rated
securities in which the Series may invest; for purposes of the 70% requirement
described in this paragraph, such unrated securities will be considered to have
the rating so determined.
The average distribution of investments (at value) in Municipal Obligations
(including notes) by ratings for the fiscal year ended April 30, 2000, computed
on a monthly basis, for each Series was as follows:
<PAGE>
Fitch or Moody's or S&P Connecticut Florida Maryland
----- ------- --- Series Series Series
----------- ------ ------
AAA Aaa AAA 37.8% 55.9% 33.7%
AA Aa AA 24.4 4.5 32.8
A A A 2.8 13.3 16.8
BBB Baa BBB 22.7 10.3 8.8
BB Ba BB 2.3 2.5 -
F-1 MIG 1/P-1 SP-1/A-1 2.4 .9 .5
Not Rated Not Rated Not Rated 7.6(1) 12.62 7.43
------- ------ ---
100.0% 100.0% 100.0%
====== ====== ======
Massachusetts Michigan Minnesota
Fitch or Moody's or S&P Series Series Series
----- ------- ------ ------------ ------ ------
AAA Aaa AAA 45.8% 56.5% 42.7%
AA Aa AA 10.3 13.3 16.8
A A A 13.6 8.4 19.5
BBB Baa BBB 18.3 4.5 10.7
BB Ba BB - - -
F-1 MIG 1/P-1 SP-1/A-1 4.6 2.4 2.8
Not Rated Not Rated Not Rated 7.44 14.95 7.56
------ ------ -----
100.0% 100.0% 100.0%
====== ======= ======
1 Included in the Not Rated category are securities comprising 7.6% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: Aaa/AAA (2.6%), Aa/AA (2.5%) and Baa/BBB (2.5%).
2 Included in the Not Rated category are securities comprising 12.6% 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 (1.0%), A/A (1.1%), Baa/BBB (5.0%) and C/D (5.5%).
3 Included in the Not Rated category are securities comprising 7.4% 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 (.2%), Baa/BBB (4.0%) and Ba/BB (3.2%).
4 Included in the Not Rated category are securities comprising 7.4% 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
category: Baa/BBB (7.4%).
5 Included in the Not Rated category are securities comprising 14.9% of the
Series' market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: Aaa/AAA (3.9%), A/A (.9%), Baa/BBB (6.2%) and Ba/BB (3.9%).
6 Included in the Not Rated category are securities comprising 7.5% 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 (3.5%), Baa/BBB (.3%) and Ba/BB (3.7%).
New Jersey North Carolina Ohio
Fitch or Moody's or S&P Series Series Series
----- ------- ------- ------ ------------- ------
AAA Aaa AAA 47.7% 36.0% 45.6%
AA Aa AA 7.2 12.9 13.8
A A A 8.7 9.3 16.0
BBB Baa BBB 17.2 25.1 9.8
BB Ba BB 5.4 - 6.4
B B B .5 - -
F-1 MIG 1/P-1 SP-1/A-1 5.2 5.2 1.9
F-2 MIG 2/P-2 SP-2/A-2 - .5 -
Not Rated Not Rated Not Rated 8.1(7) 11.0(8) 6.5(9)
--- ----- -----
100.0% 100.0% 100.0%
====== ======= ======
Pennsylvania Texas Virginia
Fitch or Moody's or S&P Series Series Series
----- ------- --- ------- ------ ------
AAA Aaa AAA 58.3% 61.6% 25.0%
AA Aa AA 6.6 7.4 12.8
A A A 11.2 11.9 8.2
BBB Baa BBB 15.1 13.8 27.2
BB Ba BB - - 2.4
B B B - 2.2 -
F-1 MIG 1/P-1 SP-1/A-1 .7 2.1 2.4
Not Rated Not Rated Not Rated 8.1(10) 1.0(11) 22.0(12)
---- ---- ----
100.0% 100.0% 100.0%
====== ====== ======
7 Included in the Not Rated category are securities comprising 8.1% 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
category: Baa/BBB (8.1%).
8 Included in the Not Rated category are securities comprising 11.0% 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 (2.5%), Baa/BBB (4.5%) and B/B (4.0%).
9 Included in the Not Rated category are securities comprising 6.5% 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 (5.9%), A/A (.3%) and Ba/BB (.3%).
10 Included in the Not Rated category are securities comprising 8.1% 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 (.1%), Baa/BBB (4.1%) and Ba/BB (3.9%).
11 Included in the Not Rated category are securities comprising 1.0% 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
category: Aaa/AAA (1.0%).
12 Included in the Not Rated category are securities comprising 22.0% 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 (4.5%), Baa/BBB (7.4%) and Ba/BB (10.1%).
Subsequent to its purchase by a Series, an issue of rated Municipal
Obligations may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Series. Neither event will require the sale of such
Municipal Obligations by the Series, but the Manager will consider such event in
determining whether the Series should continue to hold the Municipal
Obligations. To the extent that the ratings given by the Rating Agencies for
Municipal Obligations may change as a result of changes in such organizations or
their rating systems, the Series will attempt to use comparable ratings as
standards for its investments in accordance with the investment policies
contained in the Prospectus and this Statement of Additional Information. The
ratings of the Rating Agencies represent their opinions as to the quality of the
Municipal Obligations which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Although these ratings may be an initial criterion for selection of
portfolio investments, the Manager also will evaluate these securities and the
creditworthiness of the issuers of such securities.
Taxable Investments. From time to time, on a temporary basis other than for
temporary defensive purposes (but not to exceed 20% of the value of a Series'
net assets) or for temporary defensive purposes, each Series may invest in
taxable short-term investments ("Taxable Investments") consisting of: notes of
issuers having, at the time of purchase, a quality rating within the two highest
grades of a Rating Agency; obligations of the U.S. Government, its agencies or
instrumentalities; commercial paper rated not lower than P-1 by Moody's, A-1 by
S&P or F-1 by Fitch; certificates of deposit of U.S. domestic banks, including
foreign branches of domestic banks, with assets of $1 billion or more; time
deposits; bankers' acceptances and other short-term bank obligations; and
repurchase agreements in respect of any of the foregoing. Dividends paid by a
Series that are attributable to income earned by the Series from Taxable
Investments will be taxable to investors. See "Dividends, Distributions and
Taxes." Except for temporary defensive purposes, at no time will more than 20%
of the value of a Series' net assets be invested in Taxable Investments. When a
Series has adopted a temporary defensive position, including when acceptable
State Municipal Obligations are unavailable for investment by the Series, in
excess of 35% of the Series' net assets may be invested in securities that are
not exempt from Federal and, where applicable, State personal income taxes.
Under normal market conditions, each Series anticipates that not more than 5% of
the value of its total assets will be invested in any one category of Taxable
Investments.
Zero Coupon Securities. Each Series may invest in zero coupon securities
which are debt securities issued or sold at a discount from their face value
which do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The amount of
the discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and perceived
credit quality of the issuer. Zero coupon securities also may take the form of
debt securities that have been stripped of their unmatured interest coupons, the
coupons themselves and receipts or certificates representing interest in such
stripped debt obligations and coupons. The market prices of zero coupon
securities generally are more volatile than the market prices of securities that
pay interest periodically and are likely to respond to a greater degree to
changes in interest rates than non-zero coupon securities having similar
maturities and credit qualities.
Illiquid Securities. Each Series may invest up to 15% of the value of its
net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Series' investment objective.
These securities may include securities that are not readily marketable, such as
securities that are subject to legal or contractual restrictions on resale, and
repurchase agreements providing for settlement in more than seven days after
notice. As to these securities, the Series is subject to a risk that should the
Series desire to sell them when a ready buyer is not available at a price that
the Series deems representative of their value, the value of the Series' net
assets could be adversely affected.
Investment Techniques
The following information supplements and should be read in conjunction
with the Fund's Prospectus. A Series' use of certain of the investment
techniques described below may give rise to taxable income.
Borrowing Money. Each Series is permitted to borrow to the extent permitted
under the Investment Company Act of 1940, as amended (the "1940 Act"), which
permits an investment company to borrow in an amount up to 33-1/3% of the value
of its total assets. 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 its total assets (including the amount borrowed) valued at the lesser
of cost or market, less liabilities (not including the amount borrowed) at the
time the borrowing is made. While such borrowings exceed 5% of the value of a
Series' total assets, the Series will not make any additional investments.
Short Selling. Each Series may make short sales of securities. In these
transactions, a Series sells a security it does not own in anticipation of a
decline in the market value of the security. To complete the transaction, the
Series must borrow the security to make delivery to the buyer. The Series is
obligated to replace the security borrowed by purchasing it subsequently at the
market price at the time of replacement. The price at such time may be more or
less the price at which the security was sold by the Series, which would result
in a loss or gain, respectively.
Securities will not be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed 25%
of the value of a Series' net assets. A Series may not make a short sale which
results in the Series having sold short in the aggregate more than 5% of the
outstanding securities of any class of an issuer.
Each Series also may make short sales "against the box," in which the
Series enters into a short sale of a security it owns. At no time will a Series
have more than 15% of the value of its net assets in deposits on short sales
against the box.
Until the Series closes its short position or replaces the borrowed
security, the Series will: (a) segregate permissible liquid assets in an amount
that, together with the amount deposited with the broker as collateral, always
equals the current value of the security sold short; or (b) otherwise cover its
short position.
Lending Portfolio Securities. Each Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Series continues to be entitled
to payments in amounts equal to the interest or other distributions payable on
the loaned securities which affords the Series an opportunity to earn interest
on the amount of the loan and on the loaned securities' collateral. Loans of
portfolio securities may not exceed 33-1/3% of the value of the Series' total
assets, and the Series will receive collateral consisting of cash, U.S.
Government securities or irrevocable letters of credit which will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. Such loans are terminable at any time upon specified
notice. The Series might experience risk of loss if the institution with which
it has engaged in a portfolio loan transaction breaches its agreement with the
Series. In connection with its securities lending transactions, the Series may
return to the borrower or a third party which is unaffiliated with the Fund, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
Derivatives. Each Series may invest in, or enter into, derivatives, such
as options and futures, for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Series to invest than
"traditional" securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular derivative and the
portfolio as a whole. Derivatives permit the Series to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Series can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities. However, derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small
investment in derivatives could have a large potential impact on the Series'
performance.
If a Series invests in derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Series' return or result
in a loss. A Series also could experience losses if its derivatives were poorly
correlated with its other investments, or if the Series were unable to liquidate
its position because of an illiquid secondary market. The market for many
derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
derivatives.
Although neither the Fund nor any Series will be a commodity pool, certain
derivatives subject the Series to the rules of the Commodity Futures Trading
Commission which limit the extent to which a Series can invest in such
derivatives. A Series may invest in futures contracts and options with respect
thereto for hedging purposes without limit. However, a Series may not invest in
such contracts and options for other purposes if the sum of the amount of
initial margin deposits and premiums paid for unexpired options with respect to
such contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Series' assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided, however,
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5% limitation.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter derivatives.
Exchange-traded derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such derivatives. This guarantee usually
is supported by a daily variation margin system operated by the clearing agency
in order to reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated with
derivatives purchased on an exchange. By contrast, no clearing agency guarantees
over-the-counter derivatives. Therefore, each party to an over-the-counter
derivative bears the risk that the counterparty will default. Accordingly, the
Manager will consider the creditworthiness of counterparties to over-the-counter
derivatives in the same manner as it would review the credit quality of a
security to be purchased by the Series. Over-the-counter derivatives are less
liquid than exchange-traded derivatives since the other party to the transaction
may be the only investor with sufficient understanding of the derivative to be
interested in bidding for it.
Futures Transactions--In General. Each Series may enter into futures contracts
in U.S. domestic markets. Engaging in these transactions involves risk of loss
to the Series which could adversely affect the value of the Series' net assets.
Although each Series intends to purchase or sell futures contracts only if there
is an active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
trading day. Futures contract prices could move to the limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and potentially subjecting the Series to
substantial losses.
Successful use of futures by a Series also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant market,
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the securities being hedged and
the price movements of the futures contract. For example, if a Series uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Series will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Series has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. A Series may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission, a Series may be required to segregate permissible liquid
assets to cover its obligations relating to its transactions in derivatives. To
maintain this required cover, the Series may have to sell portfolio securities
at disadvantageous prices or times since it may not be possible to liquidate a
derivative position at a reasonable price. In addition, the segregation of such
assets will have the effect of limiting a Series' ability otherwise to invest
those assets.
Specific Futures Transactions. Each Series may purchase and sell interest rate
futures contracts. An interest rate future obligates the Series to purchase or
sell an amount of a specific debt security at a future date at a specific price.
Options--In General. Each Series may purchase call and put options and write
(i.e., sell) covered call and put option contracts with respect to interest rate
futures contracts. A call option gives the purchaser of the option the right to
buy, and obligates the writer to sell, the underlying security or securities at
the exercise price at any time during the option period, or at a specific date.
Conversely, a put option gives the purchaser of the option the right to sell,
and obligates the writer to buy, the underlying security or securities at the
exercise price at any time during the option period, or at a specific date.
A covered call option written by a Series is a call option with respect to
which the Series owns the underlying security or otherwise covers the
transaction by segregating permissible liquid assets. A put option written by a
Series is covered when, among other things, the Series segregates permissible
liquid assets having a value equal to or greater than the exercise price of the
option to fulfill the obligation undertaken. The principal reason for writing
covered call and put options is to realize, through the receipt of premiums, a
greater return than would be realized on the underlying securities alone. The
Series receives a premium from writing covered call or put options which it
retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, a Series is unable to effect a closing purchase
transaction in the secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Successful use by a Series of options will be subject to the Manager's
ability to predict correctly movements in interest rates. To the extent the
Manager's predictions are incorrect, the Series may incur losses.
Future Developments. A Series may take advantage of opportunities in the
area of options and futures contracts and options on futures contracts and any
other derivatives which are not presently contemplated for use by the Series or
which are not currently available but which may be developed, to the extent such
opportunities are both consistent with the Series' investment objective and
legally permissible for the Series. Before entering into such transactions or
making any such investment, the Fund will provide appropriate disclosure in its
Prospectus or this Statement of Additional Information.
Forward Commitments. Each Series may purchase or sell Municipal Obligations
and other securities on a forward commitment or when-issued basis, which means
that delivery and payment take place a number of days after the date of the
commitment to purchase. The payment obligation and the interest rate receivable
on a forward commitment or when-issued security are fixed when the Series enters
into the commitment, but the Series does not make payment until it receives
delivery from the counterparty. The Series will commit to purchase such
securities only with the intention of actually acquiring the securities, but the
Series may sell these securities before the settlement date if it is deemed
advisable. The Series will segregate permissible liquid assets at least equal at
all times to the amount of the Series' purchase commitments.
Municipal Obligations and other securities purchased on a forward commitment
or when-issued basis are subject to changes in value (generally changing in the
same way, i.e. appreciating when interest rates decline and depreciating when
interest rates rise) based upon the public's perception of the creditworthiness
of the issuer and changes, real or anticipated, in the level of interest rates.
Securities purchased on a forward commitment or when-issued basis may expose the
Series to risks because they may experience such fluctuations prior to their
actual delivery. Purchasing securities on a forward commitment or when-issued
basis can involve the additional risk that the yield available in the market
when the delivery takes place actually may be higher than that obtained in the
transaction itself. Purchasing securities on a forward commitment or when-issued
basis when the Series is fully or almost fully invested may result in greater
potential fluctuation in the value of the Series' net assets and its net asset
value per share.
Certain Investment Considerations and Risks
Investing in Municipal Obligations. Each Series may invest more than 25% of
the value of its total assets in Municipal Obligations which are related in such
a way that an economic, business or political development or change affecting
one such security also would affect the other securities; for example,
securities the interest upon which is paid from revenues of similar types of
projects. As a result, each Series may be subject to greater risk as compared to
a fund that does not follow this practice.
Certain municipal lease/purchase obligations in which a Series may invest may
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease payments in future years unless money is appropriated
for such purpose on a yearly basis. Although "non-appropriation" lease/purchase
obligations are secured by the leased property, disposition of the leased
property in the event of foreclosure might prove difficult. In evaluating the
credit quality of a municipal lease/purchase obligation that is unrated, the
Manager will consider, on an ongoing basis, a number of factors including the
likelihood that the issuing municipality will discontinue appropriating funding
for the leased property.
Certain provisions in the Internal Revenue Code of 1986, as amended (the
"Code"), relating to the issuance of Municipal Obligations may reduce the volume
of Municipal Obligations qualifying for Federal tax exemption. One effect of
these provisions could be to increase the cost of the Municipal Obligations
available for purchase by the Series and thus reduce available yield.
Shareholders should consult their tax advisers concerning the effect of these
provisions on an investment in a Series. Proposals that may restrict or
eliminate the income tax exemption for interest on Municipal Obligations may be
introduced in the future. If any such proposal were enacted that would reduce
the availability of Municipal Obligations for investment by a Series so as to
adversely affect its shareholders, the Series would reevaluate its investment
objective and policies and submit possible changes in the Series' structure to
shareholders for their consideration. If legislation were enacted that would
treat a type of Municipal Obligation as taxable, the Series would treat such
security as a permissible Taxable Investment within the applicable limits set
forth herein.
Investing in State Municipal Obligations. Since each Series is
concentrated in securities issued by the State after which it is named or
entities within that State, an investment in a Series may involve greater risk
than investments in certain other types of municipal bond funds. You should
consider carefully the special risks inherent in the purchase of shares of a
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 review "Appendix A" which sets
forth information relating to the respective State's Municipal Obligations.
Zero Coupon Securities. Each Series may invest in zero coupon securities and
pay-in-kind bonds (bonds which pay interest through the issuance of additional
bonds). Federal income tax law requires the holder of a zero coupon security or
of certain pay-in-kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments. To maintain its qualification as a
regulated investment company and avoid liability for Federal income taxes, a
Series may be required to distribute such income accrued with respect to these
securities and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy these distribution
requirements.
Lower Rated Bonds. Each Series may invest up to 30% of the value of its net
assets in higher yielding (and, therefore, higher risk) debt securities such as
those rated Ba by Moody's or BB by S&P or Fitch or as low as the lowest rating
assigned by the Rating Agencies (commonly known as "high yield" or "junk"
bonds). They may be subject to greater risks and market fluctuations than
certain lower yielding, higher rated Municipal Obligations. See "Appendix B" for
a general description of the Rating Agencies' ratings of Municipal Obligations.
Although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of these bonds.
Each Series will rely on the Manager's judgment, analysis and experience in
evaluating the creditworthiness of an issuer.
You should be aware that the market values of many of these bonds tend to
be more sensitive to economic conditions than are higher rated securities and
will fluctuate over time. These bonds generally are considered by the Rating
Agencies to be, on balance, predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation and generally will involve more credit risk than securities in the
higher rating categories.
Because there is no established retail secondary market for many of these
securities, the Fund anticipates that such securities could be sold only to a
limited number of dealers or institutional investors. To the extent a secondary
trading market for these bonds does exist, it generally is not as liquid as the
secondary market for higher rated securities. The lack of a liquid secondary
market may have an adverse impact on market price and yield and the Series'
ability to dispose of particular issues when necessary to meet the Series'
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Series to obtain accurate market quotations for purposes of valuing the Series'
portfolio and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, the Manager's judgment
may play a greater role in valuation because less reliable objective data may be
available.
These bonds may be particularly susceptible to economic downturns. It is
likely that any economic recession would disrupt severely the market for such
securities and may have an adverse impact on the value of such securities, and
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon which would increase the incidence of default
for such securities.
The Series may acquire these bonds during an initial offering. Such
securities may involve special risks because they are new issues. The Fund has
no arrangement with any person concerning the acquisition of such securities,
and the Manager will review carefully the credit and other characteristics
pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also apply to
lower rated zero coupon bonds and pay-in-kind bonds, in which each Series may
invest up to 5% of its total assets. Zero coupon bonds and pay-in-kind bonds
carry an additional risk in that, unlike bonds which pay interest throughout the
period to maturity, the Series will realize no cash until the cash payment date
unless a portion of such securities are sold and, if the issuer defaults, the
Series may obtain no return at all on its investment.
See "Dividends, Distributions and Taxes."
Simultaneous Investments. Investment decisions for a Series are made
independently from those of the other Series and investment companies advised by
the Manager. If, however, such other Series or investment companies desire to
invest in, or dispose of, the same securities as a Series, available investments
or opportunities for sales will be allocated equitably to each. In some cases,
this procedure may adversely affect the size of the position obtained for or
disposed of by the Series or the price paid or received by the Series.
Investment Restrictions
Each Series' investment objective is a fundamental policy, which cannot be
changed as to a Series without approval by the holders of a majority (as defined
in the 1940 Act) of such Series' outstanding voting shares. In addition, each
Series has adopted investment restrictions numbered 1 through 9 as fundamental
policies. Investment restrictions numbered 10 and 11 are not fundamental
policies and may be changed by a vote of a majority of the Fund's Board members
at any time. No Series may:
1.Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Prospectus and those
arising out of transactions in futures and options.
2.Borrow money, except to the extent permitted under the 1940 Act (which
currently limits borrowing to no more than 33-1/3% of the value of the Series'
total assets). Transactions in futures and options and the entry into short
sales transactions do not involve any borrowing for purposes of this
restriction.
3.Purchase securities on margin, but may make margin deposits in connection
with transactions in futures, including those related to indices, and options on
futures or indices.
4.Underwrite the securities of other issuers, except that the Series may bid
separately or as part of a group for the purchase of Municipal Obligations
directly from an issuer for its own portfolio to take advantage of the lower
purchase price available, and except to the extent the Series may be deemed an
underwriter under the Securities Act of 1933, as amended, by virtue of disposing
of portfolio securities.
5.Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this shall not
prevent the Series from investing in Municipal Obligations secured by real
estate or interests therein, or prevent the Series from purchasing and selling
futures contracts, including those related to indices, and options on futures
contracts or indices.
6.Make loans to others except through the purchase of qualified debt
obligations and the entry into repurchase agreements referred to above and in
the Fund's Prospectus; however, each Series may lend its portfolio securities in
an amount not to exceed 33-1/3% of the value of the Series' total assets. Any
loans of portfolio securities will be made according to guidelines established
by the Securities and Exchange Commission and the Fund's Board.
7.Invest more than 25% of its total assets in the securities of issuers in
any single industry; provided that there shall be no such limitation on the
purchase of Municipal Obligations and, for temporary defensive purposes,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
8.Invest in companies for the purpose of exercising control.
9.Invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets.
10. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to
the extent necessary to secure permitted borrowings. The deposit of assets in
escrow in connection with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed-delivery basis and collateral
arrangements with respect to initial or variation margin for futures contracts
and options on futures contracts or indices will not be deemed to be pledges of
assets.
11. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are illiquid (which
securities could include participation interests that are not subject to the
demand feature described in the Fund's Prospectus and floating and variable rate
demand obligations as to which the Fund cannot exercise the demand feature
described in the Fund's Prospectus on not more than seven days' notice if there
is no secondary market), if, in the aggregate, more than 15% of the value of the
Series' net assets would be so invested.
For purposes of Investment Restriction No. 7, industrial development bonds,
where the payment of principal and interest is the ultimate responsibility of
companies within the same industry, are grouped together as an "industry."
If a percentage restriction is adhered to at the time of investment, a later
increase in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
While not a fundamental policy, the Texas Series will not invest in real
estate limited partnerships.
MANAGEMENT OF THE FUND
The Fund's Board is responsible for the management and supervision of the
Fund. The Board approves all significant agreements between the Fund and those
companies that furnish services to the Fund. These companies are as follows:
The Dreyfus Corporation................ Investment Adviser
Dreyfus Service Corporation............ Distributor
Dreyfus Transfer, Inc.................. Transfer Agent
The Bank of New York................... Custodian
Board members of the Fund, together with information as to their principal
business occupations during at least the last five years, are shown below.
Board Members of the Fund
JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of the
Board of various funds in the Dreyfus Family of Funds. He also is a
director of The Muscular Dystrophy Association, HealthPlan Services
Corporation, a provider of marketing, administrative and risk management
services to health and other benefit programs, Carlyle Industries, Inc.
(formerly, Belding Heminway Company, Inc.), a button packager and
distributor, Century Business Services, Inc., a provider of various
outsourcing functions for small and medium sized companies, and
QuikCAT.com, Inc., a private company engaged in the development of high
speed movement, routing, storage and encryption of data across all modes
of data transport. For more than five years prior to January 1995, he was
President, a director and, until August 1994, Chief Operating Officer of
the Manager and Executive Vice President and a director of the
Distributor. From August 1994 until December 31, 1994, he was a director
of Mellon Financial Corporation. He is 56 years old and his address is 200
Park Avenue, New York, New York 10166.
CLIFFORD L. ALEXANDER, JR., Board Member. Chairman of the Board and Chief
Executive Officer of The Dun and Bradstreet Corporation. President of
Alexander & Associates, Inc., a management consulting firm. From 1977
to 1981, Mr. Alexander served as Secretary of the Army and Chairman of
the Board of the Panama Canal Company, and from 1975 to 1977, he was a
member of the Washington, D.C. law firm of Verner, Liipfert, Bernhard,
McPherson and Alexander. He is a director of American Home Products
Corporation, IMS Health, a service provider of marketing information and
information technology, MCI WorldCom and Mutual of America Life
Insurance Company. He is 66 years old and his address is 400 C Street,
N.E., Washington, D.C. 20002.
PEGGY C. DAVIS, Board Member. Shad Professor of Law, New York University School
of Law. Professor Davis has been a member of the New York University law
faculty since 1983. Prior to that time, she served for three years as a
judge in the courts of New York State; was engaged for eight years in the
practice of law, working in both corporate and non-profit sectors; and
served for two years as a criminal justice administrator in the government
of the City of New York. She writes and teaches in the fields of evidence,
constitutional theory, family law, social sciences and the law, legal
process and professional methodology and training. She is 57 years old and
her address is c/o New York University School of Law, 40 Washington Square
South, New York, New York 10012.
ERNEST KAFKA, Board Member. A physician engaged in private practice specializing
in the psychoanalysis of adults and adolescents. Since 1981, he has served
as an Instructor at the New York Psychoanalytic Institute and, prior
thereto, held other teaching positions. He is Associate Clinical Professor
of Psychiatry at Cornell Medical School. For more than the past five
years, Dr. Kafka has held numerous administrative positions, including
President of the NY Psychoanalytic Society, and has published many
articles on subjects in the field of psychoanalysis. He is 67 years old
and his address is 23 East 92nd Street, New York, New York 10128.
NATHAN LEVENTHAL, Board Member. President of Lincoln Center for the Performing
Arts, Inc. Mr. Leventhal was Deputy Mayor for Operations of New York City
from September 1979 to March 1984 and Commissioner of the Department of
Housing Preservation and Development of New York City from February 1978
to September 1979. Mr. Leventhal was an associate and then a member of the
New York law firm of Poletti Freidin Prashker Feldman and Gartner from
1974 to 1978. He was Commissioner of Rent and Housing Maintenance for New
York City from 1972 to 1973. Mr. Leventhal also served as Chairman of
Citizens Union, an organization which strives to reform and modernize city
and state governments from June 1994 to June 1997. He is 57 years old and
his address is 70 Lincoln Center Plaza, New York, New York 10023-6583.
The Fund has a standing nominating committee comprised of its Board
members who are not "interested persons" of the Fund, as defined in the 1940
Act. The function of the nominating committee is to select and nominate all
candidates who are not "interested persons" of the Fund for election to the
Fund's Board.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the Board
receives an additional 25% of such compensation. Emeritus Board members are
entitled to receive an annual retainer and a per meeting fee of one-half the
amount paid to them as Board members. The aggregate amount of compensation paid
to each Board member by the Fund for the fiscal year ended April 30, 2000, and,
by all funds in the Dreyfus Family of Funds for which such person was a Board
member (the number of which is set forth in parenthesis next to each Board
member's total compensation)* during the year ended December 31, 1999, was as
follows:
Total
Compensation from
Aggregate Fund and Fund
Name of Board Compensation from Complex Paid to
Member Fund** Board Member
------- --------------- ------------------
Joseph S. DiMartino $4,855 $642,177 (189)
Clifford L. $4,133 $ 85,378 (43)
Alexander, Jr.
Peggy C. Davis $4,133 $ 68,378 (29)
Ernest Kafka $4,133 $ 68,378 (29)
Saul B. Klaman*** $3,270 $ 68,378 (29)
Nathan Leventhal $4,133 $ 68,378 (29)
-------
* Represents the number of separate portfolios comprising the investment
companies in the Fund Complex, including the Series, for which the Board
member serves.
** Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $6,800 for all Board members as a group.
*** Emeritus Board member as of January 18, 2000.
Officers of the Fund
STEPHEN E. CANTER, President. President, Chief Operating Officer, Chief
Investment Officer and a director of the Manager, and an officer of
other investment companies advised and administered by the Manager. Mr.
Canter also is a Director or an Executive Committee Member of the other
investment management subsidiaries of Mellon Financial Corporation, each
of which is an affiliate of the Manager. He is 55 years old.
MARK N. JACOBS, Vice President. Vice President, General Counsel and
Secretary of the Manager, and an officer of other investment companies
advised and administered by the Manager. He is 54 years old.
JOSEPH CONNOLLY, Vice President and Treasurer. Director - Mutual Fund Accounting
of the Manager, and an officer of other investment companies advised and
administered by the Manager. He is 43 years old.
STEVEN F. NEWMAN, Secretary. Associate General Counsel and Assistant
Secretary of the Manager, and an officer of other investment companies
advised and administered by the Manager. He is 51 years old.
JANETTE FARRAGHER, Assistant Secretary. Assistant General Counsel of the
Manager, and an officer of other investment companies advised and
administered by the Manager. She is 37 years old.
MICHAEL A. ROSENBERG, Assistant Secretary. Associate General Counsel of the
Manager, and an officer of other investment companies advised and
administered by the Manager. He is 40 years old.
GREGORY S. GRUBER, Assistant Treasurer. Senior Accounting Manager -
Municipal Bond Funds of the Manager, and an officer of other investment
companies advised and administered by the Manager. He is 41 years old.
The address of each officer of the Fund is 200 Park Avenue, New York, New
York 10166.
The Fund's Board members and officers, as a group, owned less than 1% of the
Fund's voting securities outstanding on August 1, 2000.
As of August 1, 2000, the following persons owned of record 5% or more of the
indicated Series' outstanding shares of beneficial interest:
Connecticut Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL -
9.36% (Class A); Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 7.55%
(Class B); Lauren Friedman & Norman Wienstein Co-Administrators Estate of Louise
Ribak, Easton, CT - 10.36%, Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL -9.04%, Salomon Smith Barney, Inc. - 6.02% (Class C);
Florida Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 5.58%
(Class A); Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 13.62%, Rose
S Miller TTEE U/A DDTD 11/5/92 Rose S Miller Living Trust, Boca Raton, FL -
8.23% (Class B); Raymond James & Assoc Inc. FBO U/A DTD 06-13-96 M Michael
Moseone Irrev TR Rev FBO Mark Paul Moscone, Farmington Hills, MI - 31.09%,
Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 29.06%, PaineWebber for
the Benefit of Charles J Daly Rev TR UAD 2/22/90 Charles J Daly TTEE, West
Bloomfield, MI -16.78%, PaineWebber for the Benefit of Christine Hassuk Rev Liv
Trust UA DTD 12/4/85 Christine Hassuk TTEE, N. Miami Beach, FL - 7.90% (Class
C);
Maryland Series - None (Class A); Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL - 14.64% (Class B); Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL - 21.80%, PaineWebber for the Benefit of Charles Guthmann,
Chevy Chase, MD - 8.49%, NFSC FEBO #X31-077852 Irvin Bregman Irvin Bregman TTEE
U/A 09/29/93, Silver Spring, MD - 6.09% (Class C);
Massachusetts Series - None (Class A); Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL - 8.55% (Class B); Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL - 46.06%, Karen P Doppke TTEE Karen P Doppke Family Living
Trust U/A DTD 11-24-97 Boston, MA - 34.94%, NFSC FEBO #D5G-110620 Bartley
Sullivan Martha Sullivan, Braintree, MA - 12.96%, J.C. Bradford & Co. Cust FBO
Harvey G. Everett, Nashville, TN - 5.99% (Class C);
Michigan Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 8.02%
(Class A); Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 19.00% (Class
B); Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 23.67%, Donaldson
Lufkin Jenrette Securities Corporation Inc., Jersey City, NJ - 21.97%,
Prudential Securities Inc. FBO Robert J Nordin TTEE Robert J Nordin Revocable
Living Trust UA DTD 06/10/97, Kalamazoo, MI - 6.49%, Murvale L Huston &
Catherine A Huston TTEES Catherine A Huston Revocable Trust DTD 09/26/96, Saint
Clair, MI - 5.98% (Class C);
Minnesota Series - None (Class A); None (Class B); Norwest Investment Services,
Inc. FBO 117015391, Minneapolis, MN - 42.54%, Frances A Quade, Sauk Centre, MN -
6.46% (Class C);
New Jersey Series - Bernard Stern & Rhoda Stern JT TEN, Monroe TWP, NJ - 6.77%
(Class A); Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 8.53% (Class
B); Painewebber for the Benefit of Richard Salzman Salzman Retained Annuity
U/A/D 03/20/91, Union, NJ - 34.25%, Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL - 30.11%, Painewebber for the Benefit of Eleanor Beaumont,
Summit, NJ - 28.96% (Class C);
North Carolina Series -None (Class A); None (Class B); Merrill Lynch Pierce
Fenner & Smith, Jacksonville, FL - 58.36%, Painewebber for the Benefit of Hersey
Hawkins Jennifer Hawkins JTWROS, Detroit, MI - 28.77%, First Clearing
Corporation A/C 3312-1513 Ronald T Foster JO Lynn Foster, Trinity, NC - 9.11%
(Class C);
Ohio Series - None (Class A); None (Class B); Max Weisbrod & Sylvia Weisbrod
JTWROS, Canton, OH - 14.34%, Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL - 10.67%, FISERV Securities, Inc. FAO 25318832, Philadelphia, PA - 9.54%,
Donaldson Lufkin Jenrette Securities Corporation Inc., Jersey City, NJ - 5.85%
(Class C);
Pennsylvania Series - First Clearing Corporation A/C 5520-7985 Mary Alice
Morrissey and James D Morrissey, Huntingdon Valley, PA - 5.93% (Class A); None
(Class B); Painewebber for the Benefit of Charlene Monzo, Monroeville, PA -
15.47%, Painewebber for the Benefit of Charron Monzo, Monroeville, PA - 15.47%,
Painewebber for the Benefit of Michelle Monzo, Monroeville, PA - 15.47%, Dreyfus
Investment Services Corporation FBO 641440251, Pittsburgh, PA - 15.01%, Merrill
Lynch Pierce Fenner & Smith, Jacksonville, FL - 6.71%, Painewebber for the
Benefit of Sharon A Stark, Lenhartsville, PA - 6.47% (Class C);
Texas Series - None (Class A); Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL - 8.23%, NFSC FEBO # A85-033316 Bill Hielscher 1992 IRRVOC TR,
Mansfield, TX - 7.43% (Class B); Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL - 54.79%, Norwest Investment Services, Inc. FBO 105797791,
Minneapolis, MN - 30.54, Painewebber for the Benefit of Abigail L Bailey,
Houston, TX - 10.54% (Class C);
Virginia Series - Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 8.01%
(Class A); Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 13.67% (Class
B); Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL - 57.30%, Salomon
Smith Barney Inc. 00125702176, New York, NY - 6.39%, FISERV Securities, Inc. FAO
17369815, Philadelphia, PA - 6.39% (Class C).
A shareholder who beneficially owned, directly or indirectly, 25% or more of
the Fund's voting securities may be deemed to be a "control person" (as defined
in the 1940 Act) of the Fund.
MANAGEMENT ARRANGEMENTS
Investment Adviser. The Manager is a wholly-owned subsidiary of Mellon Bank,
N.A., which is a wholly-owned subsidiary of Mellon Financial Corporation
("Mellon"). Mellon is a global multibank financial 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 largest bank holding companies in the United States
based on total assets.
The Manager provides management services pursuant to the Management Agreement
(the "Agreement") between the Manager and the Fund. As to each Series, the
Agreement is subject to annual approval by (i) the Fund's Board or (ii) vote of
a majority (as defined in the 1940 Act) of the outstanding voting securities of
such Series, provided that in either event the continuance also is approved by a
majority of the Board members who are not "interested persons" (as defined in
the 1940 Act) of the Fund or the Manager, by vote cast in person at a meeting
called for the purpose of voting on such approval. The Agreement is terminable
without penalty, as to each Series, on 60 days' notice, by the Fund's Board or
by vote of the holders of a majority of such Series' shares, or, on not less
than 90 days' notice, by the Manager. The Agreement will terminate
automatically, as to the relevant Series, in the event of its assignment (as
defined in the Act).
The following persons are officers and/or directors of the Manager:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment
Officer and a director; Thomas F. Eggers, Vice Chairman--Institutional and a
director; Lawrence S. Kash, Vice Chairman; J. David Officer, Vice Chairman
and a director; Ronald P. O'Hanley III, Vice Chairman; William T. Sandalls,
Jr., Executive Vice President; Stephen R. Byers, Senior Vice President;
Patrice M. Kozlowski, Senior Vice President--Corporate Communications; Mark
N. Jacobs, Vice President, General Counsel and Secretary; Diane P. Durnin,
Vice President--Product Development; Mary Beth Leibig, Vice President--Human
Resources; Theodore A. Schachar, Vice President--Tax; Wendy Strutt, Vice
President; Ray Van Cott, Vice President--Information Systems; William H.
Maresca, Controller; James Bitetto, Assistant Secretary; Steven F. Newman,
Assistant Secretary; and Mandell L. Berman, Burton C. Borgelt, Steven G.
Elliott, Martin G. McGuinn, Richard W. Sabo and Richard F. Syron, directors.
The Manager's Code of Ethics subjects its employees' personal securities
transactions to various restrictions to ensure that such trading does not
disadvantage any fund advised by the Manager. In that regard, portfolio managers
and other investment personnel of the Manager must preclear and report their
personal securities transactions and holdings, which are reviewed for compliance
with the Code of Ethics and are also subject to the oversight of Mellon's
Investment Ethics Committee. Portfolio managers and other investment personnel
of the Manager who comply with the Code of Ethics' preclearance and disclosure
procedures and the requirements of the Committee may be permitted to purchase,
sell or hold securities which also may be or are held in fund(s) they manage or
for which they otherwise provide investment advice.
The Manager manages each Series' portfolio of investments in accordance
with the stated policies of such Series, subject to the approval of the
Fund's Board. The Manager is responsible for investment decisions, and
provides the Fund with portfolio managers who are authorized by the Board to
execute purchases and sales of securities. The Fund's portfolio managers are
Joseph P. Darcy, A. Paul Disdier, Douglas J. Gaylor, Joseph Irace, Coleen
Meehan, Richard J. Moynihan, W. Michael Petty, Jill C. Shaffro, Scott
Sprauer, Samuel J. Weinstock and Monica S. Wieboldt. The Manager also
maintains a research department with a professional staff of portfolio
managers and securities analysts who provide research services for the Fund
and for other funds advised by the Manager.
The Manager maintains office facilities on behalf of the Fund and furnishes
statistical and research data, clerical help, accounting, data processing,
bookkeeping and internal auditing and certain other required services to the
Fund. The Manager may pay the Distributor for shareholder services from the
Manager's own assets, including past profits but not including the management
fee paid by the Fund. The Distributor may use part or all of such payments to
pay Service Agents (as defined below) in respect of these services. The Manager
also may make such advertising and promotional expenditures, using its own
resources, as it from time to time deems appropriate.
All expenses incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by the Manager. The expenses borne by
the Fund include, without limitation, the following: taxes, interest, loan
commitment fees, interest and distributions on securities sold short, brokerage
fees and commissions, if any, fees of Board members who are not officers,
directors, employees or holders of 5% or more of the outstanding voting
securities of the Manager, Securities and Exchange Commission fees and state
Blue Sky qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of independent
pricing services, costs of maintaining the Fund's existence, costs attributable
to investor services (including, without limitation, telephone and personnel
expenses), costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to existing
shareholders, costs of shareholders' reports and meetings, and any extraordinary
expenses. In addition, shares of each Class are subject to an annual service fee
and Class B and Class C shares are subject to an annual distribution fee. See
"Distribution Plan and Shareholder Services Plan." Expenses attributable to a
particular Series are charged against the assets of that Series; other expenses
of the Fund are allocated among the Series on the basis determined by the Board,
including, but not limited to, proportionately in relation to the net assets of
each Series.
<TABLE>
<CAPTION>
As compensation for the Manager's services, the Fund has agreed to pay the
Manager a monthly management fee at the annual rate of 0.55% of the value of
each Series' average daily net assets. For the fiscal years ended April 30,
1998, 1999 and 2000, the management fee payable, the reduction in such fee
pursuant to undertakings in effect, and the net management fee paid by each
Series was as set forth below:
Name of Series Management Fee Payable Reduction in Fee Net Fee Paid
1998 1999 2000 1998 1999 2000 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Connecticut Series $2,056,770 $2,091,086 $1,918,534 $ 0 $ 0 $ 0 $2,056,770 $2,091,086 $1,918,534
Florida Series 1,217,046 1,046,222 834,475 0 0 85,069 1,217,046 1,046,222 749,406
Maryland Series 1,735,376 1,774,160 1,661,534 0 0 0 1,735,376 1,774,160 1,661,534
Massachusetts Series 382,683 380,345 335,169 0 0 0 382,683 380,345 335,169
Michigan Series 969,239 943,868 831,121 0 0 0 969,239 943,868 831,121
Minnesota Series 861,736 890,399 814,463 0 0 0 861,736 890,399 814,463
New Jersey Series 81,625 89,899 85,582 4,579 0 65,782 77,046 89,899 19,800
North Carolina Series 481,978 482,759 447,702 0 0 0 481,978 482,759 447,702
Ohio Series 1,599,166 1,619,028 1,481,538 0 0 0 1,599,166 1,619,028 1,481,538
Pennsylvania Series 1,513,450 1,484,169 1,326,793 0 0 0 1,513,450 1,484,169 1,326,793
Texas Series 442,275 441,230 373,352 145,790 56,145 98,727 296,485 385,085 274,625
Virginia Series 574,324 596,668 540,481 147,021 0 0 427,303 596,668 540,481
</TABLE>
The Manager has agreed that if in any fiscal year the aggregate expenses of
each Series, exclusive of taxes, brokerage, interest on borrowings and (with the
prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the management fee, exceed the expense
limitation of any state having jurisdiction over such Series, the Fund may
deduct from the payment to be made to the Manager under the Agreement, or the
Manager will bear, such excess expense to the extent required by state law. Such
deduction of payment, if any, will be estimated daily, and reconciled and
effected or paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to reduction
as the value of the Series' net assets increases.
Distributor. The Distributor, a wholly-owned subsidiary of the Manager
located at 200 Park Avenue, New York, New York 10166, serves as the Fund's
distributor on a best efforts basis pursuant to an agreement with the Fund which
is renewable annually.
From August 23, 1994 through March 21, 2000, Premier Mutual Fund Services,
Inc. ("Premier") acted as the Fund's distributor. Therefore, the disclosure
below of amounts retained on the sale of the Fund for the fiscal years ended
April 30, 1998 and 1999, and for the period from May 1, 1999 through March 21,
2000 refers to amounts retained by Premier and for the period from March 22,
2000 through April 30, 2000 refers to amounts retained by the Distributor from
sales loads with respect to Class A, and from contingent deferred sales charges
("CDSCs") with respect to Class B and Class C, of each Series.
The disclosure below of amounts retained on the sale of the Fund for the fiscal
year ended April 30, 2000 refers to the aggregate amount retained by the
Distributor and Premier from sale loads with respect to Class A, and from CDSCs
with respect to Class B and Class C for that period.
<TABLE>
<CAPTION>
Name of Series Class A
Period from Period from
Fiscal Fiscal Year May 1, 1999 March 22, 2000
Year Ended Ended Through Through Fiscal Year
1998 1999 March 21, 2000 April 30, 2000 Ended 2000
--------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Connecticut Series $24,947 $38,230 $18,410 $1,672 $20,082
Florida Series 6,983 5,671 3,996 151 4,147
Maryland Series 20,191 4,932 16,963 119 17,082
Massachusetts Series 3,640 30,466 2,301 680 2,981
Michigan Series 8,197 9,695 6,205 492 6,697
Minnesota Series 11,909 12,720 6,465 158 6,623
New Jersey Series 1,456 2,222 769 137 906
North Carolina Series 4,367 3,489 4,269 329 4,598
Ohio Series 15,644 15,801 9,767 35 9,802
Pennsylvania Series 10,760 16,787 12,492 732 13,224
Texas Series 3,891 4,379 1,589 156 1,745
Virginia Series 14,139 12,457 4,269 329 4,598
Name of Series Class B
Period From Period From
Fiscal Year Fiscal Year May 1, 1999 March 22, 2000
Ended Ended through through Fiscal Year
1998 1999 March 21, 2000 April 30, 2000 Ended 2000
--------- --------- -------------- -------------- ----------
Connecticut Series $79,931 $56,410 $ 90,774 $10,153 $100,927
Florida Series 88,555 44,932 31,509 14,364 45,873
Maryland Series 66,118 47,833 122,519 24,553 147,072
Massachusetts Series 6,252 14,587 13,240 2,228 15,468
Michigan Series 39,054 36,799 46,570 10,899 57,469
Minnesota Series 25,293 12,907 64,086 11,930 76,016
New Jersey Series 32,380 28,222 37,216 17,059 54,275
North Carolina Series 52,671 18,275 28,720 7,632 36,352
Ohio Series 85,243 40,857 102,878 15,421 118,299
Pennsylvania Series 87,672 58,804 86,174 11,434 97,608
Texas Series 16,845 22,638 12,444 14,752 27,196
Virginia Series 37,262 31,316 43,576 3,474 47,050
Name of Series Class C
Period From Period From
Fiscal Year Fiscal Year May 1, 1999 March 22, 2000
Ended Ended through through Fiscal Year
1998 1999 March 21, 2000 April 30, 2000 Ended 2000
----------- ------------ -------------- -------------- ------------
Connecticut Series $ 50 $ 215 $ 3,635 $12 $ 3,647
Florida Series 0 297 248 10 258
Maryland Series 247 3,350 9,126 63 9,189
Massachusetts Series 0 0 1,886 0 1,886
Michigan Series 0 522 580 25 605
Minnesota Series 0 200 815 0 815
New Jersey Series 100 36 1,108 0 1,108
North Carolina Series 0 249 1,450 0 1,450
Ohio Series 150 1,146 1,170 0 1,170
Pennsylvania Series 42 2,904 404 0 404
Texas Series 0 176 2,301 0 2,301
Virginia Series 0 400 1,805 0 1,805
</TABLE>
The Distributor, at its expense, may provide promotional incentives to
dealers that sell shares of funds advised by the Manager which are sold with a
sales load, such as the Dreyfus Premier Funds. In some instances, those
incentives may be offered only to certain dealers who have sold or may sell
significant amounts of shares.
Transfer and Dividend Disbursing Agent and Custodian. Dreyfus Transfer,
Inc. (the "Transfer Agent"), a wholly-owned subsidiary of the Manager, P.O. Box
9671, Providence, Rhode Island 02940-9671, is the Fund's transfer and dividend
disbursing agent. Under a transfer agency agreement with the Fund, the Transfer
Agent arranges for the maintenance of shareholder account records for the Fund,
the handling of certain communications between shareholders and the Fund and the
payment of dividends and distributions payable by the Fund. For these services,
the Transfer Agent receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Fund during the month, and is
reimbursed for certain out-of-pocket expenses.
The Bank of New York (the "Custodian"), 100 Church Street, New York, New
York 10286, is the Fund's custodian. The Custodian has no part in determining
the investment policies of the Fund or which securities are to be purchased or
sold by the Fund. Under a custody agreement with the Fund, the Custodian holds
the Fund's securities and keeps all necessary accounts and records. For its
custody services, the Custodian receives a monthly fee based on the market value
of the Fund's assets held in custody and receives certain securities
transactions charges.
HOW TO BUY SHARES
General. Fund shares may be purchased only by clients of certain financial
institutions (which may include banks), securities dealers ("Selected Dealers")
and other industry professionals (collectively, "Service Agents"), except that
full-time or part-time employees of the Manager or any of its affiliates or
subsidiaries, directors of the Manager, Board members of a fund advised by the
Manager, including members of the Fund's Board, or the spouse or minor child of
any of the foregoing may purchase Class A shares directly through the
Distributor. Subsequent purchases may be sent directly to the Transfer Agent or
your Service Agent.
When purchasing Fund shares, you must specify which Series and Class is
being purchased. Share certificates are issued only upon your written request.
No certificates are issued for fractional shares. It is not recommended that the
Fund be used as a vehicle for Keogh, IRA or other qualified retirement plans.
The Fund reserves the right to reject any purchase order.
Service Agents may receive different levels of compensation for selling
different Classes of shares. Management understands that some Service Agents may
impose certain conditions on their clients which are different from those
described in the Fund's Prospectus and this Statement of Additional Information,
and, to the extent permitted by applicable regulatory authority, may charge
their clients direct fees. You should consult your Service Agent in this regard.
The minimum initial investment is $1,000. Subsequent investments must be
at least $100. The Fund reserves the right to vary further the initial and
subsequent investment minimum requirements at any time.
Fund shares may be purchased through Dreyfus-Automatic Asset Builder(R)
and Dreyfus Government Direct Deposit Privilege described under "Shareholder
Services." These services enable you to make regularly scheduled investments and
may provide you with a convenient way to invest for long-term financial goals.
You should be aware, however, that periodic investment plans do not guarantee a
profit and will not protect an investor against loss in a declining market.
Each Series' shares are sold on a continuous basis. Net asset value per
share of each Class is determined as of the close of trading on the floor of the
New York Stock Exchange (currently 4:00 p.m., New York time), on each day the
New York Stock Exchange is open for business. For purposes of determining net
asset value, options and futures contracts will be valued 15 minutes after the
close of trading on the floor of the New York Stock Exchange. For each Series,
net asset value per share of each Class is computed by dividing the value of the
net assets of the Series represented by such Class (i.e., the value of its
assets less liabilities) by the total number of shares of such Class
outstanding. Each Series' investments are valued by an independent pricing
service approved by the Fund's Board and are valued at fair value as determined
by the pricing service. The pricing service's procedures are reviewed under the
general supervision of the Fund's Board. For further information regarding the
methods employed in valuing the Series' investments, see "Determination of Net
Asset Value."
If an order is received in proper form by the Transfer Agent or other
entity authorized to receive orders on behalf of the Fund by the close of
trading on the floor of the New York Stock Exchange (currently 4:00 p.m., New
York time) on a business day, Fund shares will be purchased at the public
offering price determined as of the close of trading on the floor of the New
York Stock Exchange on that day. Otherwise, Fund shares will be purchased at the
public offering price determined as of the close of trading on the floor of the
New York Stock Exchange on the next business day, except where shares are
purchased through a dealer as provided below.
Orders for the purchase of Fund shares received by dealers by the close of
trading on the floor of the New York Stock Exchange on any business day and
transmitted to the Distributor or its designee by the close of its business day
(normally 5:15 p.m., New York time) will be based on the public offering price
per share determined as of the close of trading on the floor of the New York
Stock Exchange on that day. Otherwise, the orders will be based on the next
determined public offering price. It is the dealer's responsibility to transmit
orders so that they will be received by the Distributor or its designee before
the close of its business day.
Using Federal Funds. The Transfer Agent or the Fund may attempt to notify the
investor upon receipt of checks drawn on banks that are not members of the
Federal Reserve System as to the possible delay in conversion into immediately
available funds ("Federal Funds" (monies of member banks within the Federal
Reserve System which are held on deposit at a Federal Reserve Bank)) and may
attempt to arrange for a better means of transmitting the money. If the investor
is a customer of a Selected Dealer and his order to purchase Fund shares is paid
for other than in Federal Funds, the Selected Dealer, acting on behalf of its
customer, will complete the conversion into, or itself advance, Federal Funds
generally on the business day following receipt of the customer order. The order
is effective only when so converted and received by the Transfer Agent. An order
for the purchase of Fund shares placed by an investor with sufficient Federal
Funds or a cash balance in his brokerage account with a Selected Dealer will
become effective on the day that the order, including Federal Funds, is received
by the Transfer Agent.
<TABLE>
<CAPTION>
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:
Total Sales Load
------------------- ------- -------------------
Amount of Transaction As a % of Dealers' Reallowance
--------------------------------
Offering Price As a % ofNet as a % of
Per Share Asset Value Per Offering Price
Share
-------------------
------------------- -----------------------
<S> <C> <C> <C>
Less than $50,000 4.50 4.70 4.25
$50,000 to less than $100,000 4.00 4.20 3.75
$100,000 to less than $250,000 3.00 3.10 2.75
$250,000 to less than $500,000 2.50 2.60 2.25
$500,000 to less than $1,000,000 2.00 2.00 1.75
$1,000,000 or more -0- -0- -0-
</TABLE>
A CDSC of 1% will be assessed at the time of redemption of Class A shares
purchased without an initial sales charge as part of an investment of at least
$1,000,000 and redeemed within one year of purchase. The Distributor may pay
Service Agents an amount up to 1% of the net asset value of Class A shares
purchased by their clients that are subject to a CDSC.
The scale of sales loads applies to purchases of Class A shares made by
any "purchaser," which term includes an individual and/or spouse purchasing
securities for his, her or their own account or for the account of any minor
children, or a trustee or other fiduciary purchasing securities for a single
trust estate or a single fiduciary account (including a pension, profit-sharing
or other employee benefit trust created pursuant to a plan qualified under
Section 401 of the Code), although more than one beneficiary is involved; or a
group of accounts established by or on behalf of the employees of an employer or
affiliated employers pursuant to an employee benefit plan or other program
(including accounts established pursuant to Sections 403(b), 408(k) and 457 of
the Code); or an organized group which has been in existence for more than six
months, provided that it is not organized for the purpose of buying redeemable
securities of a registered investment company and provided that the purchases
are made through a central administration or a single dealer, or by other means
which result in economy of sales effort or expense.
Set forth below is an example of the method of computing the offering price
of each Series' Class A shares. The examples assume a purchase of Class A shares
aggregating less than $50,000 subject to the schedule of sales charges set forth
above at a price based upon the net asset value of the Series' Class A shares on
April 30, 2000.
<TABLE>
<CAPTION>
Connecticut Florida Maryland Massachusetts
Series Series Series Series
Class A Shares:
<S> <C> <C> <C> <C>
NET ASSET VALUE, per share................. $11.21 $12.88 $11.74 $10.69
Per Share Sales Charge - 4.5% of
offering price (4.7% of net asset value per
share)..
.53 .61 .55 .50
--------- --------- --------- ---
Per Share Offering Price to Public......... $11.74 $13.49 $12.29 $11.19
====== ====== ====== ======
Michigan Minnesota New Jersey North Carolina
Series Series Series Series
Class A Shares:
NET ASSET VALUE, per share.........
$14.32 $14.11 $11.74 $12.79
Per Share Sales Charge - 4.5% of
offering price (4.7% of net asset value
per share)
.67 .66 .55 .60
--------- --------- --------- --------
Per Share Offering Price to Public. $14.99 $14.77 $12.29 $13.39
====== ====== ====== ======
<PAGE>
Ohio Pennsylvania Texas Virginia
Series Series Series Series
Class A Shares:
NET ASSET VALUE, per share.................. $11.88 $14.94 $19.33 $15.84
Per Share Sales Charge - 4.5% of
offering price (4.7% of net asset value
per share)...
.56 .70 .91 .74
--------- --------- ------- ---------
Per Share Offering Price to Public.... $12.44 $15.64 $20.24 $16.58
====== ====== ====== ======
</TABLE>
Full-time employees of NASD member firms and full-time employees of other
financial institutions which have entered into an agreement with the Distributor
pertaining to the sale of Fund shares (or which otherwise have a brokerage
related or clearing arrangement with an NASD member firm or financial
institution with respect to the sale of such shares) may purchase Class A shares
for themselves directly or pursuant to an employee benefit plan or other
program, or for their spouses or minor children, at net asset value, provided
they have furnished the Distributor with such information as it may request from
time to time in order to verify eligibility for this privilege. This privilege
also applies to full-time employees of financial institutions affiliated with
NASD member firms whose full-time employees are eligible to purchase Class A
shares at net asset value. In addition, Class A shares are offered at net asset
value to full-time or part-time employees of the Manager or any of its
affiliates or subsidiaries, directors of the Manager, Board members of a fund
advised by the Manager, including members of the Fund's Board, or the spouse or
minor child of any of the foregoing.
Class A shares may be purchased at net asset value through certain
broker-dealers and other financial institutions which have entered into an
agreement with the Distributor, which includes a requirement that such shares be
sold for the benefit of clients participating in a "wrap account" or a similar
program under which such clients pay a fee to such broker-dealer or other
financial institution.
Class A shares also may be purchased at net asset value, subject to
appropriate documentation, through a broker-dealer or other financial
institution with the proceeds from the redemption of shares of a registered
open-end management investment company not managed by the Manager or its
affiliates. The purchase of Class A shares of the Fund must be made within 60
days of such redemption and the shareholder must have been subject to an initial
sales charge or a contingent deferred sales charge with respect to such redeemed
shares.
Class A shares also may be purchased at net asset value, subject to
appropriate documentation, by (i) qualified separate accounts maintained by an
insurance company pursuant to the laws of any State or territory of the United
States, (ii) a State, county or city or instrumentality thereof, (iii) a
charitable organization (as defined in Section 501(c)(3) of the Code) investing
$50,000 or more in Fund shares, and (iv) a charitable remainder trust (as
defined in Section 501(c)(3) of the Code).
Class B Shares. The public offering price for Class B shares is the net
asset value per share of that Class. No initial sales charge is imposed at the
time of purchase. A CDSC is imposed, however, on certain redemptions of Class B
shares as described in the Fund's Prospectus and in this Statement of Additional
Information under "How to Redeem Shares--Contingent Deferred Sales Charge--Class
B Shares." The Distributor compensates certain Service Agents for selling Class
B shares at the time of purchase from its own assets. The proceeds of the CDSC
and the distribution fee, in part, are used to defray these expenses.
Approximately six years after the date of purchase, Class B shares of a
Series automatically will convert to Class A shares of such Series, based on the
relative net asset values for shares of each such Class. Class B shares that
have been acquired through the reinvestment of dividends and distributions will
be converted on a pro rata basis together with other Class B shares, in the
proportion that a shareholder's Class B shares converting to Class A shares
bears to the total Class B shares not acquired through the reinvestment of
dividends and distributions.
Class C Shares. The public offering price for Class C shares is the net
asset value per share of that Class. No initial sales charge is imposed at the
time of purchase. A CDSC is imposed, however, on redemptions of Class C shares
made within the first year of purchase. See "Class B Shares" above and "How to
Redeem Shares." The Distributor compensates certain Service Agents for selling
Class C shares at the time of purchase from its own assets. The proceeds of the
CDSC and the distribution fee, in part, are used to defray these expenses.
Right of Accumulation--Class A Shares. Reduced sales loads apply to any
purchase of Class A shares, shares of other funds in the Dreyfus Premier Family
of Funds which are sold with a sales load, shares of certain other funds advised
by the Manager or Founders Asset Management LLC ("Founders"), an affiliate of
the Manager, which are sold with a sales load and shares acquired by a previous
exchange of such shares (hereinafter referred to as "Eligible Funds"), by you
and any related "purchaser" as defined above, where the aggregate investment,
including such purchase, is $50,000 or more. If, for example, you previously
purchased and still hold Class A shares, or shares of any other Eligible Fund or
combination thereof, with an aggregate current market value of $40,000 and
subsequently purchase Class A shares or shares of an Eligible Fund having a
current value of $20,000, the sales load applicable to the subsequent purchase
would be reduced to 4.0% of the offering price. All present holdings of Eligible
Funds may be combined to determine the current offering price of the aggregate
investment in ascertaining the sales load applicable to each subsequent
purchase.
To qualify for reduced sales loads, at the time of purchase you or your
Service Agent must notify the Distributor if orders are made by wire, or the
Transfer Agent if orders are made by mail. The reduced sales load is subject to
confirmation of your holdings through a check of appropriate records.
Dreyfus TeleTransfer Privilege. You may purchase shares by telephone if
you have checked the appropriate box and supplied the necessary information on
the Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The proceeds will be transferred between the bank account
designated in one of these documents and your Fund account. Only a bank account
maintained in a domestic financial institution which is an Automated Clearing
House ("ACH") member may be so designated.
Dreyfus TeleTransfer purchase orders may be made at any time. Purchase
orders received by 4:00 p.m., New York time, on any day the Transfer Agent and
the New York Stock Exchange are open for business will be credited to the
shareholder's Fund account on the next bank business day following such purchase
order. Purchase orders made after 4:00 p.m., New York time, on any day the
Transfer Agent and the New York Stock Exchange are open for business, or orders
made on Saturday, Sunday or any Fund holiday (e.g., when the New York Stock
Exchange is not open for business), will be credited to the shareholder's Fund
account on the second bank business day following such purchase order. To
qualify to use the Dreyfus TeleTransfer Privilege, the initial payment for
purchase of shares must be drawn on, and redemption proceeds paid to, the same
bank and account as are designated on the Account Application or Shareholder
Services Form on file. If the proceeds of a particular redemption are to be
wired to an account at any other bank, the request must be in writing and
signature-guaranteed. See "How to Redeem Shares--Dreyfus TeleTransfer
Privilege."
Reopening an Account. You may reopen an account with a minimum investment
of $100 without filing a new Account Application during the calendar year the
account is closed or during the following calendar year, provided the
information on the old Account Application is still applicable.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Class B and Class C shares only are subject to a Distribution Plan and Class
A, Class B and Class C shares are subject to a Shareholder Services Plan.
Distribution Plan. Rule 12b-1 (the "Rule") adopted by the Securities and
Exchange Commission under the 1940 Act provides, among other things, that an
investment company may bear expenses of distributing its shares only pursuant to
a plan adopted in accordance with the Rule. The Fund's Board has adopted such a
plan (the "Distribution Plan") with respect to the Class B and Class C shares of
each Series, pursuant to which the Series pays the Distributor for distributing
each such Class of shares a fee at the annual rate of 0.50% of the value of the
average daily net assets of Class B and 0.75% of the value of the average daily
net assets of Class C. The Fund's Board believes that there is a reasonable
likelihood that the Distribution Plan will benefit the Fund and the holders of
the Series' relevant Class of shares.
A quarterly report of the amounts expended under the Distribution Plan, and
the purposes for which such expenditures were incurred, must be made to the
Fund's Board for its review. In addition, the Distribution Plan provides that it
may not be amended to increase materially the costs which holders of Class B or
Class C shares may bear for distribution pursuant to the Distribution Plan
without such shareholders' approval and that other material amendments of the
Distribution Plan must be approved by the Fund's Board, and by the Board members
who are not "interested persons" (as defined in the 1940 Act) of the Fund and
have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreements entered into in connection with the
Distribution Plan, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Distribution Plan is subject to annual approval
by such vote of the Board members cast in person at a meeting called for the
purpose of voting on the Distribution Plan. As to the relevant Class of shares
of a Series, the Distribution Plan may be terminated at any time (i) by vote of
a majority of the Board members who are not "interested persons" and have no
direct or indirect financial interest in the operation of the Distribution Plan
or in any agreements entered into in connection with the Distribution Plan or
(ii) by vote of the holders of a majority of the outstanding shares of such
Class of the Series.
<TABLE>
<CAPTION>
For the period from May 1, 1999 through March 21, 2000, each Series paid
Premier, and for the period from March 22, 2000 through April 30, 2000, each
Series paid the Distributor, and for the fiscal year ended April 30, 2000, each
Series paid Premier and the Distributor in the aggregate, with respect to the
Series' Class B and Class C pursuant to the Distribution Plan, the following
amounts:
Amount Paid by Class Amount Paid by Class B
B to Premier for to the Distributor for Total Amount Paid by Class B to
Period from May 1, Period from March 22, both Premier and the
1999 through 2000 through Distributor for fiscal year
Name of Series March 21, 2000 April 30, 2000 ended April 30, 2000
------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Connecticut Series $ 222,404 $23,310 $245,714
Florida Series 88,634 8,111 96,745
Maryland Series 225,598 27,766 253,364
Massachusetts Series 24,883 2,650 27,533
Michigan Series 78,918 7,430 86,348
Minnesota Series 96,405 8,172 104,577
New Jersey Series 46,569 4,781 51,350
North Carolina Series 120,221 11,102 131,323
Ohio Series 209,556 21,801 231,357
Pennsylvania Series 234,294 21,873 256,167
Texas Series 52,788 4,319 57,107
Virginia Series 117,412 11,684 129,096
Amount Paid by Class Amount Paid by Class C
C to Premier for to the Distributor for Total Amount Paid by Class C to
Period from May 1, Period from March 22, both Premier and the
1999 through 2000 through , Distributor for fiscal year
March 21, 2000 April 30, 2000 ended April 30, 2000
------------------- ---------------------- -------------------------------
Name of Series
Connecticut Series $29,146 $3,488 $32,634
Florida Series 2,657 377 3,034
Maryland Series 19,513 2,402 21,915
Massachusetts Series 1,412 119 1,531
Michigan Series 9,665 908 10,573
Minnesota Series 7,073 888 7,961
New Jersey Series 1,960 258 2,218
North Carolina Series 3,498 582 4,080
Ohio Series 16,094 2,487 18,581
Pennsylvania Series 6,548 1,031 7,579
Texas Series 3,808 203 4,011
Virginia Series 20,142 2,501 22,643
</TABLE>
Shareholder Services Plan. The Fund has adopted a Shareholder Services Plan,
pursuant to which each Series pays the Distributor for the provision of certain
services to the holders of its Class A, Class B and Class C shares a fee at the
annual rate of 0.25% of the value of the average daily net assets of each such
Class. The services provided may include personal services relating to
shareholder accounts, such as answering shareholder inquiries regarding the
Series and providing reports and other information, and services related to the
maintenance of such shareholder accounts. Under the Shareholder Services Plan,
the Distributor may make payments to Service Agents in respect to these
services.
A quarterly report of the amounts expended under the Shareholder Services
Plan, and the purposes for which such expenditures were incurred, must be made
to the Fund's Board for its review. In addition, the Shareholder Services Plan
provides that material amendments must be approved by the Fund's Board, and by
the Board members who are not "interested persons" (as defined in the 1940 Act)
of the Fund and have no direct or indirect financial interest in the operation
of the Shareholder Services Plan or in any agreements entered into in connection
with the Shareholder Services Plan, by vote cast in person at a meeting called
for the purpose of considering such amendments. The Shareholder Services Plan is
subject to annual approval by such vote of the Board members cast in person at a
meeting called for the purpose of voting on the Shareholder Services Plan. As to
each Series, the Shareholder Services Plan is terminable at any time by vote of
a majority of the Board members who are not "interested persons" and have no
direct or indirect financial interest in the operation of the Shareholder
Services Plan or in any agreements entered into in connection with the
Shareholder Services Plan.
<TABLE>
<CAPTION>
For the period from May 1, 1999 through March 21, 2000, each Series paid
Premier, and for the period from March 22, 2000 through April 30, 2000, each
Series paid the Distributor, and for the fiscal year ended April 30, 2000, each
Series paid Premier and the Distributor in the aggregate, with respect to the
Series' Class A, Class B and Class C pursuant to the Shareholder Services Plan,
the following amounts:
Amount Paid to Amount Paid to the
Premier for Period Distributor for Period Total Amount Paid to both
from May 1, 1999 from March 22, 2000 Premier and the Distributor for
through March 21, through April 30, 2000 fiscal year ended April 30,
2000 with respect to with respect to 2000 with respect to
Class A Class A Class A
Name of Series
<S> <C> <C> <C>
Connecticut Series $662,332 $75,994 $738,326
Florida Series 297,105 32,818 329,923
Maryland Series 553,172 68,083 621,255
Massachusetts Series 124,073 13,999 138,072
Michigan Series 297,049 34,035 331,084
Minnesota Series 283,200 32,068 315,268
New Jersey Series 11,136 1,351 12,487
North Carolina Series 121,166 15,314 136,480
Ohio Series 495,804 55,750 551,554
Pennsylvania Series 422,493 49,985 472,478
Texas Series 125,290 14,525 139,815
Virginia Series 155,166 18,411 173,577
Amount Paid to Amount Paid to the Total Amount Paid to both
Premier for Period Distributor for Period Premier and the
from May 1, 1999 from March 22, 2000 Distributor for fiscal
through March 21, through April 30, 2000 year ended April 30, 2000
2000 with respect to with respect to with respect to
Class B Class B Class B
Name of Series
Connecticut Series $111,202 $11,655 $122,857
Florida Series 44,318 4,055 48,373
Maryland Series 112,799 13,883 126,682
Massachusetts Series 12,442 1,325 13,767
Michigan Series 39,459 3,715 43,174
Minnesota Series 48,203 4,086 52,289
New Jersey Series 23,284 2,391 25,675
North Carolina Series 60,110 5,551 65,661
Ohio Series 104,778 10,901 115,679
Pennsylvania Series 117,147 10,937 128,084
Texas Series 26,394 2,160 28,554
Virginia Series 58,706 5,842 64,548
Amount Paid to Amount Paid to the Total Amount Paid to both
Premier for Period Distributor for Period Premier and the
from May 1, 1999 from March 22, 2000 Distributor for fiscal
through March 21, through April 30, 2000 year ended April 30, 2000
2000 with respect to with respect to with respect to
Class C Class C Class C
Name of Series
Connecticut Series $9,715 $1,163 $10,878
Florida Series 885 126 1,011
Maryland Series 6,504 801 7,305
Massachusetts Series 470 40 510
Michigan Series 3,221 303 3,524
Minnesota Series 2,358 296 2,654
New Jersey Series 653 86 739
North Carolina Series 1,166 194 1,360
Ohio Series 5,364 829 6,193
Pennsylvania Series 2,182 344 2,526
Texas Series 1,269 68 1,337
Virginia Series 6,714 834 7,548
</TABLE>
HOW TO REDEEM SHARES
General. 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 Dreyfus TeleTransfer
Privilege or through Dreyfus-Automatic Asset Builder(R) and subsequently submit
a written redemption request to the Transfer Agent, the Fund may delay sending
the redemption proceeds for up to eight business days after the purchase of such
shares. In addition, the Fund will not honor redemption checks under the
Checkwriting Privilege, and will reject requests to redeem shares by wire or
telephone or pursuant to the Dreyfus TeleTransfer Privilege, for a period of
eight business days after receipt by the Transfer Agent of the purchase check,
the Dreyfus TeleTransfer purchase or the Dreyfus-Automatic Asset Builder(R)
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.
Fund shares may not be redeemed until the Transfer Agent has received your
Account Application.
Contingent Deferred Sales Charge--Class B Shares. A CDSC is paid to the
Distributor on any redemption of Class B shares of a Series which reduces the
current net asset value of your Class B shares to an amount which is lower than
the dollar amount of all payments by you for the purchase of Class B shares of
such Series held by you at the time of redemption. No CDSC will be imposed to
the extent that the net asset value of the Class B shares redeemed does not
exceed (i) the current net asset value of the Class B shares acquired through
reinvestment of dividends or capital gain distributions, plus (ii) increases in
the net asset value of your Class B shares above the dollar amount of all your
payments for the purchase of Class B shares of such Series held by you at the
time of redemption.
If the aggregate value of Class B shares redeemed has declined below their
original cost as a result of the Series' performance, a CDSC may be applied to
the then-current net asset value rather than the purchase price.
In circumstances where the CDSC is imposed, the amount of the charge will
depend on the number of years for the time you purchased the Class B shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of Class B
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
The following table sets forth the rates of the CDSC for Class B shares,
except for Class B shares purchased by shareholders who beneficially owned Class
B shares on November 30, 1996:
Year Since CDSC as a % of
Purchase Payment Amount Invested or
Was Made Redemption
Proceeds
First....................... 4.00
Second...................... 4.00
Third....................... 3.00
Fourth...................... 3.00
Fifth....................... 2.00
Sixth....................... 1.00
The following table sets forth the rates of the CDSC for Class B shares
purchased by shareholders who beneficially owned Class B shares on November 30,
1996:
Year Since CDSC as a % of
Purchase Payment Amount Invested or
Was Made Redemption
Proceeds
First....................... 3.00
Second...................... 3.00
Third....................... 2.00
Fourth...................... 2.00
Fifth....................... 1.00
Sixth....................... 0.00
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value of Class B shares
above the total amount of payments for the purchase of Class B shares made
during the preceding six years (five years for shareholders beneficially owning
Class B shares on November 30, 1996); then of amounts representing the cost of
shares purchased six years (five years for shareholders beneficially owning
Class B shares on November 30, 1996) prior to the redemption; and finally, of
amounts representing the cost of shares held for the longest period of time
within the applicable six-year period (five-year period for shareholders
beneficially owning Class B shares on November 30, 1996).
For example, assume an investor purchased 100 shares at $10 per share for
a cost of $1,000. Subsequently, the shareholder acquired five additional shares
through dividend reinvestment. During the second year after the purchase the
investor decided to redeem $500 of the investment. Assuming at the time of the
redemption the net asset value had appreciated to $12 per share, the value of
the investor's shares would be $1,260 (105 shares at $12 per share). The CDSC
would not be applied to the value of the reinvested dividend shares and the
amount which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 4% (the
applicable rate in the second year after purchase) for a total CDSC of $9.60.
Contingent Deferred Sales Charge--Class C Shares. A CDSC of 1% is paid to
the Distributor on any redemption of Class C shares within one year of the date
of purchase. The basis for calculating the payment of any such CDSC will be the
method used in calculating the CDSC for Class B shares. See "Contingent Deferred
Sales Charge--Class B Shares" above.
Waiver of CDSC. The CDSC will be waived in connection with (a) redemptions
made within one year after the death or disability, as defined in Section
72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in qualified or non-qualified employee benefit plans or other
programs where (i) the employers or affiliated employers maintaining such plans
or programs have a minimum of 250 employees eligible for participation in such
plans or programs, or (ii) such plan's or program's aggregate investment in the
Dreyfus Family of Funds or certain other products made available by the
Distributor exceeds $1,000,000, (c) redemptions as a result of a combination of
any investment company with the relevant Series by merger, acquisition of assets
or otherwise, (d) a distribution following retirement under a tax-deferred
retirement plan or upon attaining age 70 1/2 in the case of an IRA or Keogh plan
or custodial account pursuant to Section 403(b) of the Code, and (e) redemptions
pursuant to the Automatic Withdrawal Plan, as described below. If the Fund's
Board determines to discontinue the waiver of the CDSC, the disclosure herein
will be revised appropriately. Any Fund shares subject to a CDSC which were
purchased prior to the termination of such waiver will have the CDSC waived as
provided in the Fund's Prospectus or this Statement of Additional Information at
the time of the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of redemption you must
notify the Transfer Agent or your Service Agent must notify the Distributor. Any
such qualification is subject to confirmation of your entitlement.
Checkwriting Privilege - Class A Only. The Fund provides redemption checks
("Checks") to investors in Class A shares automatically upon opening an account
unless you specifically refuse the Checkwriting Privilege by checking the
applicable "No" box on the Account Application. Checks will be sent only to the
registered owner(s) of the account and only to the address of record. The
Checkwriting Privilege may be established for an existing account by a separate
signed Shareholder Services Form. The Account Application or Shareholder
Services Form must be manually signed by the registered owner(s). Checks are
drawn on your Fund account and may be made payable to the order of any person in
an amount of $500 or more. When a Check is presented to the Transfer Agent for
payment, the Transfer Agent, as your agent, will cause the Fund to redeem a
sufficient number of full and fractional Class A shares in your account to cover
the amount of the Check. Dividends are earned until the Check clears. After
clearance, a copy of the Check will be returned to you. You generally will be
subject to the same rules and regulations that apply to checking accounts,
although the election of this Privilege creates only a shareholder-transfer
agent relationship with the Transfer Agent.
You should date your Checks with the current date when you write them.
Please do not postdate your Checks. If you do, the Transfer Agent will honor,
upon presentment, even if presented before the date of the Check, all postdated
Checks which are dated within six months of presentment for payment, if they are
otherwise in good order.
Checks are free, but the Transfer Agent will impose a fee for stopping
payment of a Check upon your request or if the Transfer Agent cannot honor a
Check due to insufficient funds or other valid reason. If the amount of the
Check is greater than the value of the Class A shares in the investor's account,
the Check will be returned marked insufficient funds. Checks should not be used
to close an account.
This Privilege will be terminated immediate, without notice, with respect
to any account which is, or becomes, subject to back up withholding. Any Check
written on an account which has become subject to back up withholding on
redemptions will not be honored by the Transfer Agent.
Redemption Through a Selected Dealer. If you are a customer of a Selected
Dealer, you may make redemption requests to your Selected Dealer. If the
Selected Dealer transmits the redemption request so that it is received by the
Transfer Agent prior to the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), the redemption request will be
effective on that day. If a redemption request is received by the Transfer Agent
after the close of trading on the floor of the New York Stock Exchange, the
redemption request will be effective on the next business day. It is the
responsibility of the Selected Dealer to transmit a request so that it is
received in a timely manner. The proceeds of the redemption are credited to your
account with the Selected Dealer. See "How to Buy Shares" for a discussion of
additional conditions or fees that may be imposed upon redemption.
In addition, the Distributor or its designee will accept orders from
Selected Dealers with which the Distributor has sales agreements for the
repurchase of shares held by shareholders. Repurchase orders received by dealers
by the close of trading on the floor of the New York Stock Exchange on any
business day and transmitted to the Distributor or its designee prior to the
close of its business day (normally 5:15 p.m., New York time) are effected at
the price determined as of the close of trading on the floor of the New York
Stock Exchange on that day. Otherwise, the shares will be redeemed at the next
determined net asset value. It is the responsibility of the Selected Dealer to
transmit orders on a timely basis. The Selected Dealer may charge the
shareholder a fee for executing the order. This repurchase arrangement is
discretionary and may be withdrawn at any time.
Reinvestment Privilege. Upon written request, you may reinvest up to the
number of Class A or Class B shares you have redeemed, within 45 days of
redemption, at the then-prevailing net asset value without a sales load, or
reinstate your account for the purpose of exercising Fund Exchanges. Upon
reinstatement, with respect to Class B shares, or Class A shares if such shares
were subject to a CDSC, your account will be credited with an amount equal to
CDSC previously paid upon redemption of the Class A or Class B shares
reinvested. The Reinvestment Privilege may be exercised only once.
Dreyfus TeleTransfer Privilege. You may request by telephone that
redemption proceeds be transferred between your Fund account and your bank
account. Only a bank account maintained in a domestic financial institution
which is an ACH member may be designated. Holders of jointly registered Fund or
bank accounts may redeem through the Dreyfus TeleTransfer Privilege for transfer
to their bank account not more than $500,000 within any 30-day period.
Redemption proceeds will be on deposit in your account at an ACH member bank
ordinarily two business days after receipt of the redemption request. You should
be aware that if you have selected the Dreyfus TeleTransfer Privilege, any
request for a wire redemption will be effected as a Dreyfus TeleTransfer
transaction through the ACH system unless more prompt transmittal specifically
is requested. See "How to Buy Shares--Dreyfus TeleTransfer Privilege."
Share Certificates; Signatures. Any certificates representing Fund shares
to be redeemed must be submitted with the redemption request. Written redemption
requests must be signed by each shareholder, including each owner of a joint
account, and each signature must be guaranteed. Signatures on endorsed
certificates submitted for redemption also must be guaranteed. The Transfer
Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations,
as well as from participants in the New York Stock Exchange Medallion Signature
Program, the Securities Transfer Agents Medallion Program ("STAMP"), and the
Stock Exchanges Medallion Program. Guarantees must be signed by an authorized
signatory of the guarantor and "Signature-Guaranteed" must appear with the
signature. The Transfer Agent may request additional documentation from
corporations, executors, administrators, trustees or guardians, and may accept
other suitable verification arrangements from foreign investors, such as
consular verification.
Redemption Commitment. The Fund has committed itself to pay in cash all
redemption requests by any shareholder of record of a Series, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of such
Series' net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such amount, the
Fund's Board reserves the right to make payments in whole or in part in
securities or other assets in case of an emergency or any time a cash
distribution would impair the liquidity of the Series to the detriment of the
existing shareholders. In this event, the securities would be valued in the same
manner as the Series' portfolio is valued. If the recipient sells such
securities, brokerage charges might be incurred.
Suspension of Redemptions. The right of redemption may be suspended or the
date of payment postponed (a) during any period when the New York Stock Exchange
is closed (other than customary weekend and holiday closings), (b) when trading
in the markets the Fund ordinarily utilizes is restricted, or when an emergency
exists as determined by the Securities and Exchange Commission so that disposal
of the Fund's investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
Fund Exchanges. Clients of certain Service Agents may purchase, in
exchange for shares of a Series, shares of the same Class of one of the other
Series or of another fund in the Dreyfus Premier Family of Funds, shares of the
same Class of certain funds advised by Founders, or shares of certain other
funds in the Dreyfus Family of Funds, to the extent such shares are offered for
sale in such client's state of residence. Shares of the same Class of such other
funds purchased by exchange will be purchased on the basis of relative net asset
value per share as follows:
A. Exchanges for shares of funds offered without a sales load will be
made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged for
shares of other funds sold with a sales load, and the applicable
sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged without
a sales load for shares of other funds sold without a sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a sales
load and additional shares acquired through reinvestment of
dividends or distributions of any such funds (collectively referred
to herein as "Purchased Shares") may be exchanged for shares of
other funds sold with a sales load (referred to herein as "Offered
Shares"), but if the sales load applicable to the Offered Shares
exceeds the maximum sales load that could have been imposed in
connection with the Purchased Shares (at the time the Purchased
Shares were acquired), without giving effect to any reduced loads,
the difference will be deducted.
E. Shares of funds subject to a CDSC that are exchanged for shares of
another fund will be subject to the higher applicable CDSC of the two
funds, and for purposes of calculating CDSC rates and conversion
periods, if any, will be deemed to have been held since the date the
shares being exchanged were initially purchased.
To accomplish an exchange under item D above, your Service Agent must
notify the Transfer Agent of your prior ownership of such Class A shares and
your account number.
You also may exchange your Fund shares that are subject to a CDSC for
shares of Dreyfus Worldwide Dollar Money Market Fund, Inc. The shares so
purchased will be held in a special account created solely for this purpose
("Exchange Account"). Exchanges of shares for an Exchange Account only can be
made into certain other funds managed or administered by the Manager. No CDSC is
charged when an investor exchanges into an Exchange Account; however, the
applicable CDSC will be imposed when shares are redeemed from an Exchange
Account or other applicable Fund account. Upon redemption, the applicable CDSC
will be calculated without regard to the time such shares were held in an
Exchange Account. See "How to Redeem Shares." Redemption proceeds for Exchange
Account shares are paid by Federal wire or check only. Exchange Account shares
also are eligible for the Dreyfus Auto-Exchange Privilege, Dreyfus Dividend
Sweep and the Automatic Withdrawal Plan.
To request an exchange, your Service Agent acting on your behalf must give
exchange instructions to the Transfer Agent in writing or by telephone. The
ability to issue exchange instructions by telephone is given to all shareholders
automatically, unless you check the applicable "No" box on the Account
Application, indicating that you specifically refuse this privilege. By using
the Telephone Exchange Privilege, you authorize the Transfer Agent to act on
telephonic instructions (including over The Dreyfus Touch(R) automated telephone
system) from any person representing himself or herself to be you or a
representative of your Service Agent, and reasonably believed by the Transfer
Agent to be genuine. Telephone exchanges may be subject to limitations as to the
amount involved or the number of telephone exchanges permitted. Shares issued in
certificate form are not eligible for telephone exchange. No fees currently are
charged shareholders directly in connection with exchanges, although the Fund
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal administrative fee in accordance with rules promulgated
by the Securities and Exchange Commission.
To establish a personal retirement plan by exchange, shares of the fund
being exchanged must have a value of at least the minimum initial investment
being required for shares of the same Class of the fund into which the exchange
is being made.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege permits
you to purchase (on a semi-monthly, monthly, quarterly or annual basis), in
exchange for shares of a Series, shares of the same Class of one of the other
Series or of another fund in the Dreyfus Premier Family of Funds, shares of the
same Class of certain funds advised by Founders or shares of certain other funds
in the Dreyfus Family of Funds of which you are a shareholder. This Privilege is
available only for existing accounts. Shares will be exchanged on the basis of
relative net asset value as described above under "Fund Exchanges." Enrollment
in or modification or cancellation of this Privilege is effective three business
days following notification by you. You will be notified if your account falls
below the amount designated to be exchanged under this Privilege. In this case,
your account will fall to zero unless additional investments are made in excess
of the designated amount prior to the next Auto-Exchange transaction.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-554-4611. The Fund reserves the right to reject any
exchange request in whole or in part. Shares may be exchanged only between
accounts having identical names and other identifying designations. The Fund
Exchanges service or the Dreyfus Auto-Exchange Privilege may be modified or
terminated at any time upon notice to shareholders.
Dreyfus-Automatic Asset Builder(R). Dreyfus-Automatic Asset Builder
permits you to purchase Fund shares (minimum of $100 and maximum of $150,000 per
transaction) at regular intervals selected by you. Fund shares are purchased by
transferring funds from the bank account designated by you.
Dreyfus Government Direct Deposit Privilege. Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social Security,
or certain veterans', military or other payments from the U.S. Government
automatically deposited into your Fund account. You may deposit as much of such
payments as you elect.
Dreyfus Dividend Options. Dreyfus Dividend Sweep allows you to invest
automatically your dividends or dividends and capital gain distributions, if
any, from the Fund in shares of the same Class of another fund in the Dreyfus
Premier Family of Funds, shares of the same Class of certain funds advised by
Founders, or shares of certain other funds in the Dreyfus Family of Funds of
which you are a shareholder. Shares of the same Class of other funds purchased
pursuant to this privilege will be purchased on the basis of relative net asset
value per share as follows:
A. Dividends and distributions paid with respect to Class A shares by a
fund may be invested without imposition of a sales load in Class A
shares of other funds offered without a sales load.
B. Dividends and distributions paid with respect to Class A shares by a
fund which does not charge a sales load may be invested in Class A
shares of other funds sold with a sales load, and the applicable
sales load will be deducted.
C. Dividends and distributions paid with respect to Class A shares by a
fund which charges a sales load may be invested in Class A shares of
other funds sold with a sales load (referred to herein as "Offered
Shares"), but if the sales load applicable to the Offered Shares
exceeds the maximum sales load charged by the fund from which
dividends or distributions are being swept (without giving effect to
any reduced loads), the difference will be deducted.
D. Dividends and distributions paid by a fund with respect to Class B or
Class C shares may be invested without imposition of any applicable
CDSC in the same Class of shares of other funds and the relevant
Class of shares of such other funds will be subject on redemption to
any applicable CDSC.
Dreyfus Dividend ACH permits you to transfer electronically dividends or
dividends and capital gain distributions, if any, from the Fund to a designated
bank account. Only an account maintained at a domestic financial institution
which is an ACH member may be so designated. Banks may charge a fee for this
service.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits you to
request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. Withdrawal
payments are the proceeds from sales of Fund shares, not the yield on the
shares. If withdrawal payments exceed reinvested dividends and distributions,
your shares will be reduced and eventually may be depleted. Automatic Withdrawal
may be terminated at any time by you, the Fund or the Transfer Agent. Shares for
which share certificates have been issued may not be redeemed through the
Automatic Withdrawal Plan.
No CDSC with respect to Class B shares will be imposed on withdrawals made
under the Automatic Withdrawal Plan, provided that any amount withdrawn under
the plan does not exceed on an annual basis 12% the greater of: (1) the account
value at the time of the first withdrawal under the Automatic Withdrawal Plan,
or (2) the account value at the time of the subsequent withdrawal. Withdrawals
with respect to Class B shares under the Automatic Withdrawal Plan that exceed
such amounts will be subject to a CDSC. Withdrawals of Class A shares subject to
a CDSC and Class C shares under the Automatic Withdrawal Plan will be subject to
any applicable CDSC. Purchases of additional Class A shares where the sales load
is imposed concurrently with withdrawals of Class A shares generally are
undesirable.
Letter of Intent--Class A Shares. By signing a Letter of Intent form,
which can be obtained by calling 1-800-554-4611, you become eligible for the
reduced sales load applicable to the total number of Eligible Fund shares
purchased in a 13-month period pursuant to the terms and conditions set forth in
the Letter of Intent. A minimum initial purchase of $5,000 is required. To
compute the applicable sales load, the offering price of shares you hold (on the
date of submission of the Letter of Intent) in any Eligible Fund that may be
used toward "Right of Accumulation" benefits described above may be used as a
credit toward completion of the Letter of Intent. However, the reduced sales
load will be applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if you do not purchase the
full amount indicated in the Letter of Intent. The escrow will be released when
you fulfill the terms of the Letter of Intent by purchasing the specified
amount. If your purchases qualify for a further sales load reduction, the sales
load will be adjusted to reflect your total purchase at the end of 13 months. If
total purchases are less than the amount specified, you will be requested to
remit an amount equal to the difference between the sales load actually paid and
the sales load applicable to the aggregate purchases actually made. If such
remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem an
appropriate number of Class A shares of the Fund held in escrow to realize the
difference. Signing a Letter of Intent does not bind you to purchase, or the
Fund to sell, the full amount indicated at the sales load in effect at the time
of signing, but you must complete the intended purchase to obtain the reduced
sales load. At the time you purchase Class A shares, you must indicate your
intention to do so under a Letter of Intent. Purchase pursuant to a Letter of
Intent will be made at the then-current net asset value plus the applicable
sales load in effect at the time such Letter of Intent was executed.
DETERMINATION OF NET ASSET VALUE
Valuation of Portfolio Securities. Each Series' investments are valued each
business day by an independent pricing service (the "Service") approved by the
Fund's Board. When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of the
market, these investments are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for such
securities). Other investments (which constitute a majority of the portfolio
securities) are carried at fair value as determined by the Service, based on
methods which include consideration of: yields or prices of municipal bonds of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. The Service may employ electronic data
processing techniques and/or a matrix system to determine valuations. The
Service's procedures are reviewed by the Fund's officers under the general
supervision of the Fund's Board. Expenses and fees, including the management fee
(reduced by the expense limitation, if any), Shareholder Services Plan fees, and
with respect to Class B and Class C shares only Distribution Plan fees, are
accrued daily and are taken into account for the purpose of determining the net
asset value of the relevant Class of each Series' shares. Because of the
difference in operating expenses incurred by each Class, the per share net asset
value of each Class will differ.
New York Stock Exchange Closings. The holidays (as observed) on which the
--------------------------------
New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Management believes that each Series qualified for the fiscal year ended
April 30, 2000 as a "regulated investment company" under the Code. Each Series
intends to continue to so qualify, if such qualification is in the best
interests of its shareholders. As a regulated investment company, a Series will
pay no Federal income tax on net investment income and net realized capital
gains to the extent that such income and gains are distributed to shareholders
in accordance with applicable provisions of the Code. To qualify as a regulated
investment company, a Series must distribute to its shareholders at least 90% of
its net income (consisting of net investment income from tax exempt obligations
and taxable obligations, if any, and net short-term capital gains), and must
meet certain asset diversification and other requirements. If a Series did not
qualify as a regulated investment company, it would be treated for tax purposes
as an ordinary corporation subject to Federal income tax. The term "regulated
investment company" does not imply the supervision of management or investment
practices or policies by any government agency.
Each Series ordinarily declares dividends from its net investment income on
each day the New York Stock Exchange is open for business. Shares begin earning
income dividends on the day Federal Funds are received by the Transfer Agent. If
a purchase order is not accompanied by remittance in Federal Funds, there may be
a delay between the time the purchase order becomes effective and the time the
shares purchased start earning dividends. If your payment is not made in Federal
Funds, it must be converted into Federal Funds. This usually occurs within one
business day of receipt of a bank wire and within two business days of receipt
of a check drawn on a member bank of the Federal Reserve System. Checks drawn on
banks which are not members of the Federal Reserve System may take considerably
longer to convert into Federal Funds.
Each Series' earnings for Saturdays, Sundays and holidays are declared as
dividends on the preceding business day. Dividends usually are paid on the last
business day of each month and are automatically reinvested in additional shares
of the Series and the same Class from which they were paid at net asset value
without a sales load or, at your option, paid in cash. If you redeem all shares
in your account at any time during the month, all dividends to which you are
entitled will be paid to you along with the proceeds of the redemption. If you
are an omnibus accountholder and indicate in a partial redemption request that a
portion of any accrued dividends to which such account is entitled belongs to an
underlying accountholder who has redeemed all shares in his or her account, such
portion of the accrued dividends will be paid to you along with the proceeds of
the redemption.
If you elect to receive dividends and distributions in cash and your dividend
or distribution check is returned to the Fund as undeliverable or remains
uncashed for six months, the Fund reserves the right to reinvest such dividend
or distribution and all future dividends and distributions payable to you in
additional Fund shares at net asset value. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
If, at the close of each quarter of its taxable year, at least 50% of the
value of a Series' total assets consists of Federal tax exempt obligations, then
the Series may designate and pay Federal exempt-interest dividends from interest
earned on all such tax exempt obligations. Such exempt-interest dividends may be
excluded by shareholders of the Series from their gross income for Federal
income tax purposes. Dividends derived from Taxable Investments, together with
distributions from any net realized short-term securities gains, generally are
taxable as ordinary income for Federal income tax purposes whether or not
reinvested. Distributions from net realized long-term securities gains generally
are taxable as long-term capital gains to a shareholder who is a citizen or
resident of the United States, whether or not reinvested and regardless of the
length of time the shareholder has held his or her shares.
Any dividend or distribution paid shortly after an investor's purchase may
have the effect of reducing the aggregate net asset value of his shares below
the cost of his investment. Such a distribution would be a return on investment
in an economic sense although taxable as stated under "Distributions and Taxes"
in the Prospectus. In addition, the Code provides that if a shareholder has not
held his shares for more than six months (or such shorter period as the Internal
Revenue Service may prescribe by regulation) and has received an exempt-interest
dividend with respect to such shares, any loss incurred on the sale of such
shares will be disallowed to the extent of the exempt-interest dividend
received.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gains or losses. However, all or a portion of the gains
realized from the disposition of certain market discount bonds will be treated
as ordinary income. In addition, all or a portion of any gain realized from
engaging in "conversion transactions" (generally including certain transactions
designed to convert ordinary income into capital gain) may be treated as
ordinary income.
Gain or loss, if any, realized by a Series from certain financial futures and
options transactions ("Section 1256 contracts") 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 Section 1256 contracts as well as from closing
transactions. In addition, any Section 1256 contracts remaining unexercised at
the end of a Series' taxable year will be treated as sold for their then fair
market value, resulting in additional gain or loss to a Series as described
above.
Offsetting positions held by a Series involving certain futures and options
transactions with respect to actively traded personal property may be
considered, for tax purposes, to constitute "straddles." To the extent the
straddle rules apply to positions established by a Series, losses realized by a
Series may be deferred to the extent of unrealized gain in the offsetting
position. In addition, short-term capital loss on straddle positions may be
recharacterized as long-term capital loss, and long-term capital gains on
straddle positions may be treated as short-term capital gains or ordinary
income. Certain of the straddle positions held by a Series may constitute "mixed
straddles." A Series may make one or more elections with respect to the
treatment of "mixed straddles," resulting in different tax consequences. In
certain circumstances, the provisions governing the tax treatment of straddles
override or modify certain of the provisions discussed above.
If a Series either (1) holds an appreciated financial position with respect
to stock, certain debt obligations, or partnership interests ("appreciated
financial position") and then enters into a short sale, futures, forward, or
offsetting notional principal contract (collectively, a "Contract") respecting
the same or substantially identical property or (2) holds an appreciated
financial position that is a Contract and then acquires property that is the
same as, or substantially identical to, the underlying property, the Series
generally will be taxed as if the appreciated financial position were sold at
its fair market value on the date the Series enters into the financial position
or acquires the property, respectively.
Investment by a Series in securities issued or acquired 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 by causing the Series to
recognize income prior to the receipt of cash payment. 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, the Series may have to dispose of securities which it
might otherwise have continued to hold in order to generate cash to satisfy
these distribution requirements.
State and Local Tax Treatment. Each Series will invest primarily in Municipal
Obligations of the State after which the Series is named. Except to the extent
specifically noted below, dividends by a Series are not subject to an income tax
by such State to the extent that the dividends are attributable to interest on
such Municipal Obligations. However, some or all of the other dividends or
distributions by a Series may be taxable by those States that have income taxes,
even if the dividends or distributions are attributable to income of the Series
derived from obligations of the United States or its agencies or
instrumentalities.
The Fund anticipates that a substantial portion of the dividends paid by each
Series will not be subject to income tax of the State after which the Series is
named. However, to the extent that you are obligated to pay State or local taxes
outside of such State, dividends earned by an investment in such Series may
represent taxable income. Also, all or a portion of the dividends paid by a
Series that are not subject to income tax of the State after which the Series is
named may be a preference item for such State's alternative minimum tax (where
imposed). Finally, you should be aware that State and local taxes, other than
those described above, may apply to the dividends, distributions or shares of a
Series.
The paragraphs below discuss the State tax treatment of dividends and
distributions by each Series to residents of the State after which the Series is
named. Investors should consult their own tax advisers regarding specific
questions as to Federal, State and local taxes.
Connecticut Series. Dividends by the Series that qualify as exempt-interest
dividends for Federal income tax purposes are not subject to the Connecticut
income tax, imposed on individuals, trusts and estates, to the extent that such
dividends are derived from income received by the Series as interest from
Connecticut Municipal Obligations or obligations the interest with respect to
which Connecticut is prohibited by Federal law from taxing. In the case of
shares held as a capital asset, dividends that qualify as capital gain dividends
for Federal income tax purposes are not subject to the Connecticut income tax to
the extent they are derived from Connecticut Municipal Obligations. Dividends
derived from other sources are subject to the Connecticut income tax. In the
case of a shareholder subject to the Connecticut income tax and required to pay
the Federal alternative minimum tax, the portion of exempt-interest dividends
paid by the Series that is derived from income received by the Series as
interest from Connecticut Municipal Obligations or obligations the interest with
respect to which Connecticut is prohibited by Federal law from taxing is not
subject to the net Connecticut minimum tax even if treated as a preference item
for purposes of the Federal alternative minimum tax.
Dividends qualifying as exempt-interest dividends or capital gain dividends
for Federal income tax purposes that are distributed by the Series to entities
subject to the Connecticut corporation business tax are not exempt from that
tax.
The shares of the Series are not subject to property taxation by the State of
Connecticut or its political subdivisions.
Florida Series. Dividends or distributions by the Series to a Florida
individual resident are not taxable by Florida. However, Florida imposes an
intangible personal property tax on shares of the Series owned by a Florida
resident on January 1 of each year unless such shares qualify for an exemption
from the tax.
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.
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.
Maryland Series. Dividends and distributions by the Series to a Maryland
resident (including individuals, corporations, estates or trusts who are subject
to Maryland state and local income tax) will not be subject to income tax in
Maryland to the extent that such dividends or distributions (a) qualify, for
Federal income tax purposes, as exempt-interest dividends of a regulated
investment company and are attributable to (i) interest on Maryland Municipal
Obligations or (ii) interest on obligations of the United States or an
authority, commission, instrumentality, possession or territory of the United
States, or (b) are attributable to gain realized by the Series from the sale or
exchange of Maryland Municipal Obligations or obligations of the United States
or an authority, commission or instrumentality thereof. To the extent that
distributions by the Series are attributable to sources other than those
described above, such as (x) interest on obligations issued by states other than
Maryland or (y) income from repurchase agreements, such distributions will not
be exempt from Maryland state and local income taxes. In addition, any gain
realized by a shareholder upon a redemption or exchange of Series shares will be
subject to Maryland taxation.
Interest on indebtedness incurred (directly or indirectly) by a shareholder
of the Series to purchase or carry shares of the Series will not be deductible
for Maryland state and local income tax purposes to the extent such interest is
allocable to exempt-interest dividends.
If the Series fails to qualify as a regulated investment company, the Series
would be subject to corporate Maryland income tax and distributions generally
would be taxable as ordinary income to the shareholders.
Individuals will not be subject to personal property tax on their shares of
the Maryland Series.
Massachusetts Series. Dividends by the Series to a Massachusetts resident are
not subject to the Massachusetts personal income tax to the extent that the
dividends are attributable to income received by the Series from Massachusetts
Municipal Obligations or direct U.S. Government obligations, and are properly
designated as such. Distributions of capital gain dividends by the Series to a
Massachusetts resident are not subject to the Massachusetts personal income tax
to the extent such distributions are attributable to gain from the sale of
certain Massachusetts Municipal Obligations the gain from which is exempt from
the Massachusetts personal income tax, and the distributions are properly
designated as such. Dividends or distributions by the Series to a Massachusetts
resident that are attributable to most other sources are subject to the
Massachusetts personal income tax. In addition, distributions from the Series
may be included in the net income measure of the corporate excise tax for
corporate shareholders who are subject to the Massachusetts corporate excise
tax. In 1994, the Massachusetts personal income tax statute was modified to
provide for graduated rates of tax (with some exceptions) on gains from the sale
or exchange of capital assets held for more than one year based on the length of
time the asset has been held since January 1, 1995. The Massachusetts Department
of Revenue has released proposed regulations providing that the holding period
of the mutual fund (rather than that of its shareholders) will be determinative
for purposes of applying the revised statute to shareholders that receive
capital gain distributions, so long as the mutual fund separately designates the
amount of such distributions attributable to each of six classes of gains from
the sale or exchange of capital assets held for more than one year in a notice
provided to shareholders and the Commissioner of Revenue on or before March 1 of
the calendar year after the calendar year of such distributions. In the absence
of such notice, the holding period of the assets giving rise to such gains is
deemed to be more than one but not more than two years. Shareholders should
consult their tax advisers with respect to the Massachusetts tax treatment of
capital gain distributions from the Series.
The shares of the Series are not subject to property taxation by
Massachusetts or its political subdivisions.
Michigan Series. Dividends by the Series to a Michigan resident individual
are not subject to the Michigan personal income tax to the extent that the
dividends are attributable to income received by the Series as interest from the
Series' investment in Michigan Municipal Obligations, obligations of U.S.
possessions, as well as direct U.S. Government obligations.
For Michigan personal income tax purposes, the proportionate share of
dividends from the Series' net investment income from other than Michigan
Municipal Obligations and from distributions from any short-term or long-term
capital gains will be included in Michigan taxable income. Additionally, for
Michigan personal income tax purposes, any gain or loss realized when the
shareholder sells or exchanges Series' shares will be included in Michigan
taxable income.
Persons engaging in business activities in Michigan may be subject to the
Michigan Single Business Tax and should consult their tax advisers with respect
to the application of such tax in connection with an investment in the Series.
Minnesota Series. Dividends paid by the Series to a Minnesota resident are
not subject to the Minnesota personal income tax to the extent that the
dividends are attributable to income received by the Series as interest from
Minnesota Municipal Obligations, provided such attributable dividends represent
95% or more of the exempt-interest dividends that are paid by the Series.
Moreover, dividends paid by the Series to a Minnesota resident are not subject
to the Minnesota personal income tax to the extent that the dividends are
attributable to income received by the Series as interest from a Series'
investment in direct U.S. Government obligations. Dividends and distributions by
the Series to a Minnesota resident that are attributable to most other sources
are subject to the Minnesota personal income tax. Dividends and distributions
from the Series will be included in the determination of taxable net income of
corporate shareholders who are subject to Minnesota income (franchise) taxes. In
addition, dividends attributable to interest received by the Series that is a
preference item for Federal income tax purposes, whether or not such interest is
from a Minnesota Municipal Obligation, may be subject to the Minnesota
alternative minimum tax.
The shares of the Series are not subject to property taxation by Minnesota or
its political subdivisions.
New Jersey Series. The New Jersey Series is a "qualified investment fund"
within the meaning of the New Jersey gross income tax. The primary criteria for
constituting a "qualified investment fund" are that (i) the Series is an
investment company registered with the Securities and Exchange Commission which,
for the calendar year in which the dividends and distributions (if any) are
paid, has no investments other than interest-bearing obligations, obligations
issued at a discount, and cash and cash items, including receivables, and
financial options, futures and forward contracts, or other similar financial
instruments relating to interest-bearing obligations, obligations issued at a
discount or bond indices related thereto and (ii) at the close of each quarter
of the taxable year, the Series has not less than 80% of the aggregate principal
amount of all of its investments excluding financial options, futures and
forward contracts, or other similar financial instruments related to
interest-bearing obligations, obligations issued at a discount or bond indices
related thereto, cash and cash items, which cash items shall include
receivables, in New Jersey Municipal Obligations, including obligations of
Puerto Rico, the Virgin Islands and other territories and possessions of the
United States and certain other specified securities exempt from New Jersey
income taxes. Additionally, a qualified investment fund must comply with certain
continuing reporting requirements.
If the New Jersey Series continues to qualify as a qualified investment fund
and the Series complies with its reporting obligations, (a) dividends and
distributions by the New Jersey Series to a New Jersey resident individual
shareholder will not be subject to New Jersey gross income tax to the extent
that the dividends and distributions are attributable to income earned by the
Series as interest on or gain from New Jersey Municipal Obligations, and (b)
gain from the sale of New Jersey Series shares by a New Jersey resident
individual shareholder will not be subject to the New Jersey gross income tax.
Shares of the New Jersey Series are not subject to property taxation by New
Jersey or its political subdivisions. To the extent that you are subject to
state and local taxes outside of New Jersey, dividends and distributions earned
by an investment in the New Jersey Series may represent taxable income.
North Carolina Series. Dividends paid by the Series to a North Carolina
resident that are attributable to interest on North Carolina Municipal
Obligations or direct U.S. Government obligations are not subject to the North
Carolina income tax. Dividends or distributions attributable to gain realized by
the Series from the sale or exchange of certain North Carolina Municipal
Obligations issued before July 1, 1995 will not be included in the North
Carolina taxable income of a resident individual, trust or estate. Other
dividends or distributions which are attributable to net realized securities
gains and most other sources are subject to the North Carolina income tax at the
applicable rate. Gain realized by a North Carolina resident shareholder from the
sale or exchange of an interest held in the North Carolina Series also will be
subject to the North Carolina income tax at the applicable rate.
The North Carolina intangibles tax previously imposed upon certain intangible
personal property was repealed, as of January 1, 1995. Accordingly, shares of
the North Carolina Series will not be subject to an intangibles tax in North
Carolina.
To the extent that dividends or distributions from the North Carolina Series
increase the surplus of a corporate shareholder required to file a North
Carolina franchise tax return, such increase in the surplus will be subject to
the North Carolina franchise tax.
Ohio Series. Dividends paid by the Series to an Ohio resident, or to a
corporation subject to the Ohio Corporation Franchise Tax, are not subject to
Ohio state and local income taxes or the net income basis of the Ohio
Corporation Franchise Tax to the extent that such dividends are attributable to
income received by the Series as interest from Ohio Municipal Obligations and
direct obligations of the United States, certain Federal agencies and certain
U.S. territories. Dividends or distributions paid by the Series to an Ohio
resident, or to a corporation subject to the Ohio Corporation Franchise Tax,
that are attributable to most other sources are subject to Ohio state and local
income taxes and are includible in the net income basis of the Ohio Corporation
Franchise Tax. The shares of the Series are not subject to property taxation by
the State of Ohio or its political subdivisions, except when held by a "dealer
in intangibles" (generally, a person in the lending or brokerage business), a
decedent's estate, an Ohio insurance company, or a corporation (other than
certain holding companies) taxed on the net worth basis of the Ohio Corporation
Franchise Tax.
Pennsylvania Series. Dividends by the Series will not be subject to the
Pennsylvania personal income tax to the extent that the dividends are
attributable to interest received by the Series from its investments in
Pennsylvania Municipal Obligations and U.S. Government obligations, including
obligations issued by U.S. possessions. Dividends by the Series will not be
subject to the Philadelphia School District investment income tax to the extent
that the dividends are attributable to interest received by the Series from its
investments in Pennsylvania Municipal Obligations and U.S. obligations,
including obligations issued by U.S. possessions. Dividends or distributions by
the Series to a Pennsylvania resident that are attributable to most other
sources may be subject to the Pennsylvania personal income tax and (for
residents of Philadelphia) to the Philadelphia School District investment net
income tax.
Dividends paid by the Series which are considered "exempt-interest dividends"
for Federal income tax purposes are not subject to the Pennsylvania Corporate
Net Income Tax, but other dividends or distributions paid by the Series may be
subject to that tax. An additional deduction from Pennsylvania taxable income is
permitted for dividends or distributions paid by the Series attributable to
interest received by the Series from its investments in Pennsylvania Municipal
Obligations and U.S. Government obligations to the extent included in Federal
taxable income, but such a deduction is reduced by any interest on indebtedness
incurred to carry the securities and other expenses incurred in the production
of such interest income, including expenses deducted on the Federal income tax
return that would not have been allowed under the Code if the interest were
exempt from Federal income tax. Series shares are considered exempt assets (with
a pro rata exclusion based on the value of the Series attributable to its
investments in Pennsylvania Municipal Obligations and U.S. Government
obligations, including obligations issued by U.S. possessions) for purposes of
determining a corporation's capital stock value subject to the Pennsylvania
Capital Stock/Franchise Tax.
Texas Series. All dividends and distributions by the Series to Texas resident
individuals are not subject to taxation by Texas. However, Texas enacted
significant changes to its corporate franchise tax law for reporting years
beginning January 1, 1992 and thereafter. These changes include the imposition
of a tax measured by earned surplus, in addition to the previously existing tax
on a corporation's capital. The earned surplus component of the Texas franchise
tax is applicable only to the extent that it exceeds the taxable capital
component of the franchise tax. For Texas franchise tax purposes, earned surplus
is computed by reference to Federal taxable income. Thus, any amounts subject to
Federal income tax that are payable by the Series to corporations doing business
in or incorporated in Texas generally will be included in the earned surplus
component of the Texas franchise tax, to the extent such earned surplus is
apportioned to Texas. Dividends and other distributions not subject to Federal
income tax generally will be excluded from the calculation of the earned surplus
component of the franchise tax.
Both the capital tax and earned surplus tax components of the Texas franchise
tax are computed by reference to the portion of the corporation's capital or
earned surplus, respectively, based on the corporation's gross receipts derived
from Texas. To the extent dividend and interest payments are made by a
corporation not incorporated in Texas, or another type of entity not legally
domiciled in Texas, such dividends and payments are not considered to be Texas
sourced receipts for franchise tax apportionment purposes.
Effective with franchise tax reports originally due after January 1, 1994
(which are based upon accounting years ending in 1993), other taxable
distributions from the Series to corporations doing business in or incorporated
in Texas (such as the proceeds resulting from net gain upon the sale of Series
bonds) may be allocable to Texas as Texas sourced gross receipts for the earned
surplus component of the franchise tax if: (1) the activities of the recipient
corporation do not have a sufficient unitary connection with that corporation's
other activities conducted within the state giving rise to the underlying sale
of such assets; and (2) the recipient corporation has its commercial domicile in
Texas. Although there were attempts made ruing the 1997 legislative session to
extend the franchise tax to entities other than corporations and limited
liability companies, no such changes occurred then or during the 1999
legislative session.
The shares of the Series are not subject to property taxation by Texas or its
political subdivisions.
Virginia Series. Subject to the provisions discussed below, dividends paid to
shareholders and derived from interest on obligations of the Commonwealth of
Virginia or of any political subdivision or instrumentality of the Commonwealth
or derived from interest or dividends on obligations of the United States
excludable from Virginia taxable income under the laws of the United States,
which obligations are issued in the exercise of the borrowing power of the
Commonwealth or the United States and are backed by the full faith and credit of
the Commonwealth or the United States, will be exempt from Virginia income tax.
Dividends paid to shareholders by the Series and derived from interest on debt
obligations of certain territories and possessions of the United States (those
issued by Puerto Rico, the Virgin Islands and Guam) will be exempt from Virginia
income tax. To the extent any portion of the dividends are derived from interest
on debt obligations other than those described above, such portion will be
subject to Virginia income tax even though it may be excludable from gross
income for Federal income tax purposes.
Generally, dividends distributed to shareholders by the Series and derived
from capital gains will be taxable to the shareholders. To the extent any
portion of the dividends are derived from taxable interest for Virginia purposes
or from net short-term capital gains, such portion will be taxable to the
shareholders as ordinary income. The character of long-term capital gains
realized and distributed by the Series will flow through to its shareholders
regardless of how long the shareholders have held their shares. Capital gains
distributed to shareholders derived from Virginia obligations issued pursuant to
special Virginia enabling legislation that provides a specific exemption for
such gains will be exempt from Virginia income tax. Generally, interest on
indebtedness incurred by shareholders to purchase or carry shares of the Fund
will not be deductible for Virginia income tax purposes.
As a regulated investment company, the Series may distribute dividends that
are exempt from Virginia income tax to its shareholders if the Series satisfies
all requirements for conduit treatment under Federal law and, at the close of
each quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations the interest on which is exempt from taxation under
Federal law. If the Series fails to qualify, no part of its dividends will be
exempt from Virginia income tax.
When taxable income of a regulated investment company is commingled with
exempt income, all distributions of the income are presumed taxable to the
shareholders unless the portion of income that is exempt from Virginia income
tax can be determined with reasonable certainty and substantiated. Generally,
this determination must be made for each distribution to each shareholder. The
Virginia Department of Taxation has adopted a policy, however, of allowing
shareholders to exclude from Virginia taxable income the exempt portion of
distributions from a regulated investment company even though the shareholders
receive distributions monthly but receive reports substantiating the exempt
portion of such distributions at less frequent intervals. Accordingly, if the
Series receives taxable income, the Series must determine the portion of income
that is exempt from Virginia income tax and provide such information to the
shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution from
the Series.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to parties acting
as either principal or agent. Newly-issued securities ordinarily are purchased
directly from the issuer or from an underwriter; other purchases and sales
usually are placed with those dealers from which it appears that the best price
or execution will be obtained. Usually no brokerage commissions, as such, are
paid by the Fund for such purchases and sales, although the price paid usually
includes an undisclosed compensation to the dealer acting as agent. The prices
paid to underwriters of newly-issued securities usually include a concession
paid by the issuer to the underwriter, and purchases of after-market securities
from dealers ordinarily are executed at a price between the bid and asked price.
No brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and analysis
with the views and information of other securities firms and may be selected
based upon their sales of shares of the Series or other funds managed, advised
or administered by the Manager or its affiliates.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds it
advises and, conversely, research services furnished to the Manager by brokers
in connection with other funds the Manager advises may be used by the Manager in
advising the Fund. Although it is not possible to place a dollar value on these
services, it is the Manager's opinion that the receipt and study of such
services should not reduce the overall expenses of its research department.
Each Series anticipates that its annual portfolio turnover rate generally
will not exceed 100%, but the turnover rate will not be a limiting factor when a
Series deems it desirable to sell or purchase securities. Therefore, depending
upon market conditions, a Series' annual portfolio turnover rate may exceed 100%
in particular years.
PERFORMANCE INFORMATION
The current yield for the 30-day period ended April 30, 2000, for Class A,
Class B and Class C of each Series was as follows:
Current Net of Absorbed
Name of Series Yield Expenses1
-------------- ----- --------------
Class A:
-------
Connecticut Series 4.75% -
Florida Series 4.81 4.53%
Maryland Series 5.04 -
Massachusetts Series 4.41 -
Michigan Series 4.44 -
Minnesota Series 4.71 -
New Jersey Series 5.07 4.60
North Carolina 4.77 -
Series
Ohio Series 4.41 -
Pennsylvania Series 5.01 -
Texas Series 4.81 4.70
Virginia Series 4.78 -
----------------------------
1 This column sets forth current yield had certain expenses for the indicated
Series not been absorbed.
Current Net of Absorbed
Name of Series Yield Expenses1
-------------- ----- --------------
Class B:
-------
Connecticut Series 4.45% -
Florida Series 4.54 4.24%
Maryland Series 4.76 -
Massachusetts Series 4.08 -
Michigan Series 4.15 -
Minnesota Series 4.38 -
New Jersey Series 4.77 4.32
North Carolina 4.47 -
Series
Ohio Series 4.11 -
Pennsylvania Series 4.72 -
Texas Series 4.54 4.42
Virginia Series 4.50 -
-----------
1 This column sets forth current yield had certain expenses for the indicated
Series not been absorbed.
Current Net of Absorbed
Name of Series Yield Expenses1
-------------- ----- --------------
Class C:
-------
Connecticut Series 4.21% -
Florida Series 4.21 3.87%
Maryland Series 4.53 -
Massachusetts Series 3.82 -
Minnesota Series 4.13 -
New Jersey Series 4.56 4.10
North Carolina 4.15 -
Series
Ohio Series 3.82 -
Pennsylvania Series 4.48 -
Texas Series 4.33 4.11
Virginia Series 4.29 -
----------------------------
1 This column sets forth current yield had certain expenses for the
indicated Series not been absorbed.
Current yield is computed pursuant to a formula which operates as follows: The
amount of each Series' expenses accrued for the 30-day period (net of
reimbursements) is subtracted from the amount of the dividends and interest
earned (computed in accordance with regulatory requirements) by the Series
during the period. That result is then divided by the product of: (a) the
average daily number of shares outstanding during the period that were entitled
to receive dividends, and (b) the net asset value (or maximum offering price in
the case of Class A) per share on the last day of the period less any
undistributed earned income per share reasonably expected to be declared as a
dividend shortly thereafter. The quotient is then added to 1, and that sum is
raised to the 6th power, after which 1 is subtracted. The current yield is then
arrived at by multiplying the result by 2.
Based upon the 2000 combined (except where noted) Federal and applicable
State tax rate specified below, the tax equivalent yield for the 30-day period
ended April 30, 2000 for Class A, Class B and Class C of each Series was as
follows:
Tax Net of
Equivalent Absorbed
Name of Series Tax Rate Yield Expenses1
-------------- -------- ---------- ---------
Class A:
-------
Connecticut 42.32% 8.24% -
Series
Florida Series2 39.60 7.96 7.50%
Maryland Series 42.53 8.77 -
Massachusetts 43.13 7.75 -
Series
Michigan Series 42.20 7.68 -
Minnesota Series 44.43 8.48 -
New Jersey Series 43.45 8.97 8.13
North Carolina 44.28 8.56 -
Series
Ohio Series 44.13 7.89 -
Pennsylvania 41.29 8.53 -
Series
Texas Series2 39.60 7.96 7.78
Virginia Series 43.07 8.40 -
---------------------------
1 This column sets forth tax equivalent yield had certain expenses for the
indicated Series not been absorbed.
2 Federal tax rate only. No state personal income tax imposed during 2000.
<PAGE>
Tax Net of
Equivalent Absorbed
Name of Series Tax Rate Yield Expenses1
-------------- -------- ---------- ---------
Class B:
-------
Connecticut 42.32% 7.71% -
Series
Florida Series2 39.60 7.52 7.02%
Maryland Series 42.53 8.28 -
Massachusetts 43.13 7.17 -
Series
Michigan Series 42.20 7.18 -
Minnesota Series 44.43 7.88 -
New Jersey Series 43.45 8.44 7.64
North Carolina 44.28 8.02 -
Series
Ohio Series 44.13 7.36 -
Pennsylvania 41.29 8.04 -
Series
Texas Series2 39.60 7.52 7.32
Virginia Series 43.07 7.90 -
---------------------------
1 This column sets forth tax equivalent yield had certain expenses for the
indicated Series not been absorbed.
2 Federal tax rate only. No state personal income tax imposed during 2000.
Tax Net of
Equivalent Absorbed
Name of Series Tax Rate Yield Expenses1
-------------- -------- ---------- ---------
Class C:
-------
Connecticut 42.32% 7.30% -
Series
Florida Series2 39.60 6.97 6.41%
Maryland Series 42.53 7.88 -
Massachusetts 43.13 6.72 -
Series
Michigan Series 42.20 6.75 -
Minnesota Series 44.43 7.43 -
New Jersey Series 43.45 8.06 7.25
North Carolina 44.28 7.45 -
Series
Ohio Series 44.13 6.84 -
Pennsylvania 41.29 7.63 -
Series
Texas Series2 39.60 7.17 6.80
Virginia Series 43.07 7.54 -
1 This column sets forth tax equivalent yield had certain expenses for the
indicated Series not been absorbed.
2 Federal tax rate only. No state personal income tax imposed during 2000.
Tax equivalent yield is computed by dividing that portion of the current yield
(calculated as described above) which is tax-exempt by 1 minus a stated tax rate
and adding the quotient to that portion, if any, of the yield of the Series that
is not tax-exempt.
The tax equivalent yield noted above represents the application of the
highest marginal personal tax rates currently in effect. For Federal personal
income tax purposes, a 39.60% tax rate has been used. The tax equivalent figure,
however, does not include the potential effect of any local (including, but not
limited to, county, district or city) taxes, including applicable surcharges. In
addition, there may be pending legislation which could affect such stated tax
rates or yields. Each investor should consult its tax adviser, and consider its
own factual circumstances and applicable tax laws, in order to ascertain the
relevant tax equivalent yield.
The average annual total return for the periods indicated for Class A of each
Series was as follows:
1-year period 5-year period 10-year period
ended ended ended
Name of Series April 30, 2000 April 30, 2000 April 30, 2000
-------------- -------------- -------------- ---------------
Connecticut -7.44% 4.30% 6.12%
Series
Florida Series -7.54 2.96 5.82
Maryland Series -7.95 4.07 6.15
Massachusetts -7.77 3.85 6.11
Series
Michigan Series -6.92 4.08 6.51
Minnesota Series -6.86 3.50 5.94
New Jersey Series -9.24 3.22 3.721
North Carolina -7.74 4.37 5.802
Series
Ohio Series -6.46 4.06 6.32
Pennsylvania -7.59 4.32 6.57
Series
Texas Series -7.96 4.50 6.84
Virginia Series -8.01 4.46 6.082
----------------------------
1 For the 6.00 year period ended April 30, 2000.
2 For the 8.76 year period ended April 30, 2000.
The average annual total return for the periods indicated since the initial
offering for Class B of each Series was as follows:
1-year period 5-year period 7.30-year period
ended ended ended
Name of Series April 30, 2000 April 30, 2000 April 30, 2000
-------------- -------------- -------------- ----------------
Connecticut Series -7.31% 4.37% 4.81%
Florida Series -7.36 3.06 4.08
Maryland Series -7.74 4.17 4.70
Massachusetts -7.59 3.95 4.55
Series
Michigan Series -6.66 4.20 5.06
Minnesota Series -6.66 3.59 4.53
New Jersey Series -9.03 3.33 3.871
North Carolina -7.55 4.48 4.77
Series
Ohio Series -6.37 4.14 4.81
Pennsylvania -7.36 4.43 5.06
Series
Texas Series -7.75 4.61 5.42
Virginia Series -7.86 4.55 5.00
1 For the 6.00 year period ended April 30, 2000.
The average annual total return for the periods indicated since the initial
offering for Class C of each Series was as follows:
1-year period 4.72-year period
Name of Series ended April 30, 2000 ended April 30, 2000
-------------- -------------------- --------------------
Connecticut Series -4.80% 4.24%
Florida Series -4.89 2.78
Maryland Series -5.23 4.00
Massachusetts Series -5.07 3.85
Michigan Series -4.14 4.15
Minnesota Series -4.22 3.48
New Jersey Series -6.55 2.041
North Carolina Series -5.01 4.51
Ohio Series -3.83 4.07
Pennsylvania Series -4.88 4.32
Texas Series -5.24 4.51
Virginia Series -5.28 4.40
---------------------------
1 For the 4.41 year period ended April 30, 2000.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased at net asset value (maximum offering
price in the case of Class A) per share with a hypothetical $1,000 payment made
at the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result. A Class' average annual total return figures
calculated in accordance with such formula assume that in the case of Class A
the maximum sales load has been deducted from the hypothetical initial
investment at the time of purchase or in the case of Class B or Class C the
maximum applicable CDSC has been paid upon redemption at the end of the period.
The total return for the period May 28, 1987 (except where indicated) through
April 30, 2000 for Class A of each Series was as follows:
Based on Maximum Based on Net Asset
Name of Series Offering Price Value
-------------- ---------------- ------------------
Connecticut Series 123.86% 134.44%
Florida Series 145.19 156.83
Maryland Series 110.14 120.06
Massachusetts Series 110.25 120.13
Michigan Series 150.44 162.16
Minnesota Series 127.64 138.43
New Jersey Series1 24.43 30.30
North Carolina 63.76 71.55
Series2
Ohio Series 84.21 92.83
Pennsylvania Series3 128.70 139.51
Texas Series 192.39 206.14
Virginia Series2 67.64 75.54
----------------------------
1 For the period from May 4, 1994 (commencement of operations) through
April 30, 2000.
2 For the period from August 1, 1991 (commencement of operations) through
April 30, 2000.
3 For the period from July 30, 1987 (commencement of operations) through
April 30, 2000.
<PAGE>
The total return for the period January 15, 1993 (except where indicated)
through April 30, 2000 for Class B of each Series was as follows:
Based on Net Based on
Name of Series Asset Value Maximum CDSC
-------------- ------------ ------------
Connecticut Series 40.87% 40.87%
Florida Series 33.93 33.93
Maryland Series 39.88 39.88
Massachusetts Series 38.40 38.40
Michigan Series 43.41 43.41
Minnesota Series 38.15 38.15
New Jersey Series1 26.46 25.52
North Carolina Series 40.53 40.53
Ohio Series 40.92 40.92
Pennsylvania Series 43.34 43.34
Texas Series 46.97 46.97
Virginia Series 42.78 42.78
-----------------------------------
1 For the period May 4, 1994 (commencement of operations) to April 30, 2000.
The total return for the period August 15, 1995 (except where indicated)
through April 30, 2000 for Class C of each Series was as follows:
Name of Series Based on Net Asset Value*
-------------- ------------------------
Connecticut Series 21.60%
Florida Series 13.79
Maryland Series 20.29
Massachusetts Series 19.46
Michigan Series 21.10
Minnesota Series 17.50
New Jersey Series1 9.29
North Carolina Series 23.07
Ohio Series 20.67
Pennsylvania Series 22.05
Texas Series 23.12
Virginia Series 22.50
-----------------------------------
* No CDSC is charged Class C shares after one year of purchase.
1 For the period December 4, 1995 (commencement of operations) to
April 30, 2000.
Total return is calculated by subtracting the amount of the Series' net asset
value (maximum offering price in the case of Class A) per share at the beginning
of a stated period from the net asset value per share at the end of the period
(after giving effect to the reinvestment of dividends and distributions during
the period and any applicable CDSC), and dividing the result by the net asset
value (maximum offering price in the case of Class A) per share at the beginning
of the period. Total return also may be calculated based on the net asset value
per share at the beginning of the period for Class A shares or without giving
effect to any applicable CDSC at the end of the period for Class B or Class C
shares. In such cases, the calculation would not reflect the deduction of the
sales load with respect to Class A shares or any applicable CDSC with respect to
Class B or Class C shares which, if reflected, would reduce the performance
quoted. The total return for each Series' Class B shares (with exception to the
New Jersey Series) takes into consideration a conversion to Class A shares after
six years.
On March 31, 1997, the New Jersey Series commenced operations through a
transfer of assets from the New Jersey Series of Premier Insured Municipal Bond
Fund (the "Insured New Jersey Fund"). The performance information provided above
for periods prior to such date for the New Jersey Series is for the Insured New
Jersey Fund and reflects the fact that for such periods, the Insured New Jersey
Fund was required to invest (i) at least 65% of the value of its total assets in
Municipal Obligations insured as to timely payment of principal and interest by
recognized insurers of Municipal Obligations and (ii) in Municipal Obligations
rated no lower than Baa by Moody's or BBB by S&P and Fitch.
From time to time, the Fund may use hypothetical tax equivalent yields or
charts in its advertising. These hypothetical yields or charts will be used for
illustrative purposes only and not as being representative of the Fund's past or
future performance.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including data from Lipper Analytical Services,
Inc., Moody's Bond Survey Bond Index, Lehman Brothers Municipal Bond Index,
Morningstar, Inc. and other industry publications. Advertising materials for the
Fund may refer to or discuss then-current or past economic conditions,
developments and/or events, including those relating to actual or proposed tax
legislation. From time to time, advertising materials for the Fund also may
refer to statistical or other information concerning trends relating to
investment companies, as compiled by industry associations such as the
Investment Company Institute, and to Morningstar ratings and related analysis
supporting such ratings.
The Fund may compare its performance, directly as well as against inflation,
with that of other instruments, such as short-term Treasury bills (which are
direct obligations of the U.S. Government), FDIC-insured bank money market
accounts and FDIC-insured fixed-rate certificates of deposit. In addition,
advertising for the Fund may indicate that investors may consider diversifying
their investment portfolios in order to seek protection of the value of their
assets against inflation.
From time to time, advertising materials for the Fund may include
biographical information relating to its portfolio managers and may refer to, or
include commentary by a portfolio manager relating to an investment strategy,
asset growth, current or past business, political, economic or financial
conditions and other matters of general interest to investors.
INFORMATION ABOUT THE FUND AND SERIES
Each share has one vote and, when issued and paid for in accordance with the
terms of the offering, is fully paid and non-assessable. Shares have no
preemptive or subscription rights and are freely transferable.
The Fund is organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts. Under Massachusetts law, shareholders could,
under certain circumstances, be held personally liable for the obligations of
the Fund. However, the Fund's Agreement and Declaration of Trust (the "Trust
Agreement") disclaims shareholder liability for acts or obligations of the Fund
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or a Trustee. The
Trust Agreement provides for indemnification from a Series' property for all
losses and expenses of any shareholder held personally liable for the
obligations of the Series. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Series itself would be unable to meet its obligations, a possibility which
management believes is remote. Upon payment of any liability incurred by the
Series, the shareholder paying such liability will be entitled to reimbursement
from the general assets of the Series. The Fund intends to conduct its
operations in such a way so as to avoid, as far as possible, ultimate liability
of the shareholders for liabilities of the Series.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Board members or the
appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Fund to hold a special meeting
of shareholders for purposes of removing a Board member from office.
Shareholders may remove a Board member by the affirmative vote of two-thirds of
the Fund's outstanding voting shares. In addition, the Board will call a meeting
of shareholders for the purpose of electing Board members if, at any time, less
than a majority of the Board members then holding office have been elected by
shareholders.
The Fund is a "series fund," which is a mutual fund divided into separate
portfolios, each of which is treated as a separate entity for certain matters
under the 1940 Act and for other purposes. A shareholder of one portfolio is not
deemed to be a shareholder of any other portfolio. For certain matters
shareholders vote together as a group; as to others they vote separately by
portfolio.
To date, the Board has authorized the creation of twelve Series of shares.
All consideration received by the Fund for shares of one of the Series, and all
assets in which such consideration is invested, will belong to that Series
(subject only to the rights of creditors of the Fund) and will be subject to the
liabilities related thereto. The income attributable to, and the expenses of,
one Series would be treated separately from those of the other Series. The Fund
has the ability to create, from time to time, new series without shareholder
approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of any investment
company, such as the Fund, will not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by such matter. Rule 18f-2 further provides that a series
shall be deemed to be affected by a matter unless it is clear that the interests
of each series in the matter are identical or that the matter does not affect
any interest of such series. However, the rule exempts the selection of
independent accountants and the election of Board members from the separate
voting requirements of the rule.
Each Series is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating on short-term market
movements. A pattern of frequent purchases and exchanges can be disruptive to
efficient portfolio management and, consequently, can be detrimental to the
Series' performance and its shareholders. Accordingly, if the Fund's management
determines that an investor is following a market-timing strategy or is
otherwise engaging in excessive trading, the Fund, with or without prior notice,
may temporarily or permanently terminate the availability of Fund Exchanges, or
reject in whole or part any purchase or exchange request, with respect to such
investor's account. Such investors also may be barred from purchasing other
funds in the Dreyfus Family of Funds. Generally, an investor who makes more than
four exchanges out of a Series during any calendar year or who makes exchanges
that appear to coincide with a market-timing strategy may be deemed to be
engaged in excessive trading. Accounts under common ownership or control will be
considered as one account for purposes of determining a pattern of excessive
trading. In addition, the Fund may refuse or restrict purchase or exchange
requests for shares by any person or group if, in the judgment of the Fund's
management, the Series would be unable to invest the money effectively in
accordance with its investment objective and policies or could otherwise be
adversely affected or if the Series receives or anticipates receiving
simultaneous orders that may significantly affect the Series (e.g., amounts
equal to 1% or more of the Series' total assets). If an exchange request is
refused, the Fund will take no other action with respect to the shares until it
receives further instructions from the investor. A Series may delay forwarding
redemption proceeds for up to seven days if the investor redeeming shares is
engaged in excessive trading or if the amount of the redemption request
otherwise would be disruptive to efficient portfolio management or would
adversely affect the Series. The Fund's policy on excessive trading applies to
investors who invest in a Series directly or through financial intermediaries,
but does not apply to the Auto-Exchange Privilege, to any automatic investment
or withdrawal privilege described herein, or to participants in
employer-sponsored retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange requests
based on their separate components -- redemption orders with a simultaneous
request to purchase the other fund's shares. In such a case, the redemption
request would be processed at the Series' next determined net asset value but
the purchase order would be effective only at the net asset value next
determined after the fund being purchased receives the proceeds of the
redemption, which may result in the purchase being delayed.
To offset the relatively higher costs of servicing smaller accounts, the
Fund will charge regular accounts with balances below $2,000 an annual fee of
$12. The valuation of accounts and the deductions are expected to take place
during the last four months of each year. The fee will be waived for any
investor whose aggregate Dreyfus mutual fund investments total at least $25,000,
and will not apply to IRA accounts or to accounts participating in automatic
investment programs or opened through a securities dealer, bank or other
financial institution, or to other fiduciary accounts.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
The Manager's legislative efforts led to the 1976 Congressional Amendment to
the Code permitting an incorporated mutual fund to pass through tax exempt
income to its shareholders. The Manager offered to the public the first
incorporated tax exempt fund and currently manages or administers over $22
billion in tax exempt assets.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the shares
being sold pursuant to each Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, independent
auditors, have been selected as independent auditors of the Fund.
<PAGE>
APPENDIX A
RISK FACTORS -- INVESTING
IN STATE MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based primarily on information
drawn from official statements relating to securities offerings of the relevant
State available as of the date of this Statement of Additional Information.
While the Fund has not independently verified this information, it has no reason
to believe that such information is not correct in all material respects.
Connecticut Series.............................. B-74
Florida Series.................................. B-80
Maryland Series................................. B-85
Massachusetts Series............................ B-88
Michigan Series................................. B-90
Minnesota Series................................ B-96
New Jersey Series............................... B-102
North Carolina Series........................... B-105
Ohio Series..................................... B-112
Pennsylvania Series............................. B-118
Texas Series.................................... B-131
Virginia Series................................. B-136
Connecticut Series
Connecticut is a highly developed and urbanized state. Connecticut's
economic performance is measured by personal income which has been and is
expected to remain among the highest in the nation; gross state product (the
market value of all final goods and services produced by labor and property
located within the State) which demonstrated stronger output growth than the
nation in general during the 1980s, slower growth for a few years in the early
1990s, and steadily increasing growth during the rest of the 1990s; employment
which fell during the early 1990s, but has risen steadily during the rest of the
decade to the levels achieved in the late 1980s; and the unemployment rate,
which is the lowest in a decade and lower than the regional and national rate.
Connecticut has a high level of personal income. Historically, the
State's average per capita income has been among the highest in the nation.
According to projections made by the U.S. Department of Commerce through the
year 2045, Connecticut is expected to continue to rank first in the nation in
state per capita income throughout the projected period.
Connecticut's gross state product output has been concentrated recently
in three areas: finance, services and manufacturing. Manufacturing has
traditionally been of prime economic importance to Connecticut but has declined
during the last decade. Connecticut has a diverse manufacturing sector, with the
construction of transportation equipment (primarily aircraft engines,
helicopters and submarines) being the dominant industry. The State is also a
leading producer of military and civilian helicopters. Employment in the
transportation equipment sector is followed by fabricated metals, nonelectrical
machinery, and electrical equipment for the total number employed in 1998.
Reductions in defense spending have had a substantial adverse effect on
Connecticut's manufacturing industry.
During the past ten years, Connecticut's manufacturing employment was at
its highest in 1989 at over 359,260 workers. Since that year, employment in
manufacturing was on a downward trend until 1997. A number of factors, such as
the overvalued dollar of the mid 1980s, heightened foreign competition, a sharp
decrease in defense spending, and improved productivity played a significant
role in affecting the overall level of manufacturing employment. Total
manufacturing jobs in Connecticut rebounded in 1997 and continued to improve in
1998, registering a gain of 3,590 jobs or 1.3% over the recent low of 274,750
recorded in 1996.
Over the past several decades, the non-manufacturing sector of the
State's economy has risen in economic importance, from just over 50% of total
State employment in 1950 to approximately 83% by 1998. This trend has decreased
the State's dependence on manufacturing. The State's non-manufacturing sector
expanded by 2.3% in 1998 as compared to 2.1% in both 1997 and 1996. Services,
retail and wholesale trade, state and local government, as well as finance,
insurance and real estate (FIRE) collectively comprise approximately 90% of the
State's employment in the non-manufacturing sector.
After enjoying an extraordinary boom during the mid-1980s, Connecticut,
as well as the rest of the Northeast, experienced an economic slowdown during
the recession of the early 1990s. The unemployment rate in the State rose from a
low of 3.6% in 1989, to just above the national average of 7.5% in 1992. Since
then it has generally been declining and below the national average. For 1998
and 1999 it has been 3.3% and 3.0% respectively, well below the national
average.
The State finances most of its operations through its General Fund.
However, certain State functions, such as the State's transportation budget, are
financed through other State funds. For budgetary purposes, the State's General
Fund is accounted for on a modified cash basis of accounting (the
"budgetary-basis"), which differs from generally accepted accounting principles
("GAAP"). The State is not presently required to prepare GAAP financial
statements, although it has prepared such statements annually since 1988. The
major components of General Fund revenues are State taxes, including the
personal income tax (approximately 35%), the sales and use tax (approximately
26%) and the corporation business tax (approximately 5%). Miscellaneous fees,
receipts, transfers and unrestricted Federal grants account for most of the
other General Fund revenue. State expenditures are categorized for budget and
appropriation purposes under ten functional headings, with expenditures by
agency generally shown as subheadings in the following functional categories,
listed in order to magnitude of expenditure for the current budget biennium:
Human Services (approximately 31%); Education, Libraries and Museums
(approximately 24%); Non-Functional (debt service and miscellaneous expenditures
including fringe benefits) (approximately 18%); Health and Hospitals
(approximately 9%); Corrections (approximately 9%); General Government
(approximately 4%); Judicial (approximately 3%); and Regulation and Protection
of Persons and Property, Conservation and Development, and Legislative
(collectively, approximately 3%). State expenditures for Department of
Transportation functions are paid from the Transportation Fund, not the General
Fund.
The adopted budget for the 1998-99 fiscal year anticipated General Fund
revenues of $9,992.0 million and General Fund expenditures of $9,972.1 million
resulting in a projected surplus of $19.9 million. As part of the adopted budget
for the upcoming biennium, discussed more fully below, modifications were made
which resulted in the projected 1998-99 fiscal year surplus of $71.8 million.
Additional appropriations were made in the fiscal year for mostly one-time
expenditures which are to occur over the upcoming biennium. The most significant
changes included an additional appropriation of $96 million for a taxpayer
rebate program; $90 million for the twenty-seventh state payroll, which occurs
approximately every eleven years; $78 million for the twelfth Medicaid
capitation and incentive payments spread across both years of the biennium. And
$60 million related to the conversion of the state employee health insurance
plan from a self insured plan to a fully insured plan. These changes exceeded
the limits imposed by the expenditure cap, and were approved by a three-fifths
vote of each house of the General Assembly.
The State's official budgetary basis fiscal position for the fiscal year
ended June 30, 1999 is reported by the Comptroller, shows 1998-99 fiscal year
General Fund revenues of $10,616.4 million, General Fund expenditures of
$10,544.6 million and an operating surplus of $71.8 million (excluding
Restricted Federal and Other Grants and related expenditures). Any
unappropriated surplus, up to five percent of General Fund expenditures, is
required to be deposited into the Budget Reserve Fund. After transferring the
$30.5 million which was required to meet the five percent of General Fund
expenditures, the balance of $41.3 million was held or applied pursuant to
Article XXVIII of the Amendments to the Constitution of Connecticut to reduce
bonded indebtedness.
The Governor submitted a proposed budget document to the legislature on
February 10, 1999, which included a proposed General Fund budget for fiscal year
1999-2000 and fiscal year 2000-01.
The adopted budget for fiscal year 1999-2000 anticipated General Fund
revenues of $10,646.0 million and General Fund expenditures of $10,581.6
million, with an estimated year end surplus of $64.4 million. For fiscal year
2000-01, the adopted budget anticipated General Fund revenues of $11,090.0
million and General fund expenditures of $11,085.2 million, with a surplus of
$4.8 million. The adopted budget is within the expenditure limits prescribed by
the Constitution of the State of Connecticut -- $68.6 million below the cap in
fiscal year 1999-2000 and $59.3 million below the cap in fiscal year 2000-01.
The adopted budget made several modifications to the State's tax law.
These changes total approximately $105 million in fiscal year 1999-2000 and $170
million in fiscal year 2000-01. Over the biennium the most significant change is
the increase in the income tax credit for property taxes paid from the $350 per
filer to $425 per filer in taxable year 1999 and $500 per filer in taxable year
2000. Other major changes included a reduction in taxes paid by hospitals and
the exemption of various items from the sales tax. Finally, the adopted budget
anticipated that a portion of the proceeds from the tobacco case settlement will
be deposited in the General Fund. Over the biennium, the State's anticipated
receipts from the settlement are projected to total approximately $300 million,
of which $78.0 million was to be deposited into the General Fund in fiscal year
1999-2000 and $150.3 million will be deposited into the General Fund in fiscal
year 2000-01.
The adopted budget anticipated significant expenditure changes in several
areas. State support of local education spending is anticipated to increase by a
total of $128 million by the second year of the biennium primarily through an
increase in formula driven grants and funding aimed at reducing racial isolation
while improving urban education. An additional $42 million above fiscal year
1998-99 is anticipated for the assessment, evaluation and ultimate care of
neglected and abused children. Expenditures are anticipated to increase $62
million through the second year of the biennium in the Department of Corrections
to support the increase in length of prison sentences and an almost $21 million
increase in the Department of Public Safety for new state troopers and support
staff. Fringe benefit costs related to state employees are projected to increase
due to higher health insurance costs and the transfer of fringe benefit costs
related to the patrol function from the Transportation Fund. Finally, debt
service expenditures will increase by approximately $94 million in the first
year of the biennium and $64 million in the second year of the biennium, driven
significantly by the State's commitment to funding education related capital
expenditures and a change in the methodology of funding local school
construction projects.
The adopted budget for the 1999-2000 fiscal year anticipated General Fund
revenues of $10,646.0 million and General Fund expenditures of $10,581.6
million, resulting in a projected surplus of $64.4 million (excluding Restricted
Federal and Other Grants and related expenditures). The Comptroller's monthly
report on the State's fiscal position compares revenues already received and the
expenditures already made to estimated revenues to be collected and estimated
expenditures to be made during the balance of the fiscal year. This report
estimates 1999-2000 fiscal year General Fund revenues of $11,127.7 million,
General Fund expenditures of $10,725.5 million and an estimated operating
surplus of $402.2 million. Estimated revenues have been revised upward by $312.9
million from the enacted budget plan and estimated expenditures have been
revised upward by $143.9 million.
On February 9, 2000, the Governor submitted to the General Assembly a
status report including detailed projections of expenditures and revenues and
proposed Midterm Budget Adjustments for the 1999-2000 and 2000-2001 fiscal
years. The Constitution of Connecticut requires the General Assembly enact a
budget in which the authorized general budget expenditures do not exceed the
estimated amount of revenue for such fiscal year. The General Assembly convened
on February 9, 2000 to consider the Governor's proposed Midterm Budget
Adjustments and adjourned on May 3, 2000. Special Act No. 00-13 containing the
General Assembly's Midterm Budget Adjustments for fiscal years 1999-2000 and
2000-01 was passed by both Houses, and was signed into law by the Governor on
May 5, 2000. Based on the Midterm Budget Adjustments of Special Act 00-13, the
estimated operating surplus will be $205.8 million after accounting for
additional expenditures authorized by the General Assembly from the surplus.
As part of the Midterm Budget Adjustments for the 1999-2000 fiscal year,
the General Assembly appropriated substantially the entire projected 1999-2000
surplus. The appropriation of the surplus necessitated a declaration from the
Governor in order for the General Assembly to appropriate funds beyond the
limits of the State's expenditure cap. Items to be funded through the
disposition of the surplus include: $82/2 million in debt avoidance for school
construction projects, education technology initiatives and a revamping of the
State's core financial systems; $20.0 million to close projected deficits at the
Uconn Health Center; a one-time revenue-sharing initiative of $34.0 million
distributed to municipalities throughout the State; and $60.2 million for
various miscellaneous other purposed which are primarily one-time expenditures.
Additionally, a reduction in revenue of approximately $17.5 million is
anticipated by the elimination of the Hospital Gross Receipts Tax on April 1,
2000. After the above disposition, it is currently projected that there will
remain sufficient surplus available to fully fund the Budget Reserve Fund the
maximum 5% statutory requirement. Special Act 00-13 made provisions for any
excess surplus after transferring funds to the Budget Reserve Fund to be
disposed of as follows: the first $10 million to school wiring projects and the
balance to avoid issuing debt for school construction. Based on the current
forecast, an additional $170.9 million will be available for these purposes. The
General Assembly is planning on convening a special legislative session to
address various issues including passing legislation necessary to implement
various appropriations. No assurances can be given that any acts passed by the
General Assembly will not result in changes to the Midterm Budget Adjustments.
Midterm Budget Adjustments anticipate General Fund expenditures of
$11,280.8 million, General Fund revenues of $11,281.3 million and an estimated
General Fund surplus of $0.5 million. The General Assembly did not pass all
legislation necessary to implement the appropriations act prior to adjournment.
Therefore a special legislative session will be necessary to implement those
items.
The Midterm Budget Adjustments would result in a fiscal 2000-01 budget
that remains within the limits imposed by the expenditure cap under the
Constitution of the State of Connecticut. For fiscal 2000-01, permitted growth
in capped expenditures is estimated at 5.48%. the proposed Midterm Budget
Adjustments would result in a fiscal 2000-01 budget that is $50.9 million below
the expenditure cap.
For fiscal 2000-01, the General Assembly passed a total of more than $170
million in General Fund revenue reductions within the General Fund. For fiscal
2000-01, the General Assembly increased General Fund appropriations by
approximately $195.6 million from the originally enacted budget.
The State has no constitutional limit on its power to issue obligations
or incur debt other than it may borrow only for public purposes. There are no
reported court decisions relating to State bonded debt other than two cases
validating the legislative determination of the public purpose for improving
employment opportunities and related activities. The State Constitution has
never required a public referendum on the questions of incurring debt.
Therefore, State statutes govern 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.
Pursuant to various public and special acts the State has authorized a
variety of types of debt. These types fall generally into the following
categories: direct general obligation debt, which is payable from the State's
General Fund; special tax obligation debt, which is payable from specified taxes
and other funds which are maintained outside the State's General Fund; and
special obligation and revenue debt, which is payable from specified revenues or
other funds which are maintained outside the State's General fund. In addition,
the State has a number of programs under which the State is continently liable
on the debt of certain State quasi-public agencies and political subdivisions.
The 2000 Session of the Connecticut General Assembly authorized new
direct general obligation bonding totaling $263.7 million in addition to the
original total bond authorizations for fiscal year 2000-01 of $1.144 billion. In
addition, the 2000 Session of the Connecticut General Assembly authorized
reductions from prior bond authorizations of $70.1 million, resulting in a net
increase of new bonding of $193.6 million.
Moody's, S&P and Fitch have assigned their municipal bond ratings of Aa3,
AA and AA, respectively, to the State's general obligation bonds. On March 17,
1995, Fitch reduced its ratings of the State's general obligation bonds from AA+
to AA.
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of the
following cases might have s significant impact on the State's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury claiming that their constitutional rights are violated by
placement in State hospitals alleged not to provide adequate treatment and
training, and seeking placement in community residential settings with
appropriate support service; and (iii) litigation involving claims by Indian
tribes to portions of the State's land.
The State Treasurer has the investment responsibility for all funds of
the State and functions as the trustee of all State pension, retirement and
trust funds. The Treasurer is authorized to invest or reinvest funds under the
control of the Treasurer in United States government or agency obligations,
shares or interests in an investment company or trust registered under the 1940
Act whose portfolio is limited to obligations of the United States, its agencies
or instrumentalities, or repurchase agreements fully collateralized by such
obligations, United States postal service obligations, certificates of deposit,
commercial paper, savings accounts and bank acceptances. The Treasurer may also
invest funds, excluding civil list funds, in the sale or acquisition of
securities or obligations which the Treasurer is authorized to sell or acquire
for purposes of any combined investment fund, subject to repurchase agreements
with any securities dealer or bank included in the list of primary dealers
prepared by the Federal Reserve Bank of New York. The Treasurer is also
authorized to invest all or any part of any sinking fund in bonds in which
savings banks may legally invest, provided such bonds mature prior to maturity
of the bonds of the State which are outstanding. The Treasurer is required to
report by October 15 annually to the Governor and the Investment Advisory
Council as to the activities of the Office of the Treasurer for the preceding
fiscal year.
On September 23, 1999 former State Treasurer Paul J. Silvester pleaded
guilty in Federal District Court of Connecticut to charges of racketeering,
bribery and money laundering. The guilty pleas related to solicitations, for
himself and others, of bribes and rewards in return for directing investments of
State pension funds. The office of the United States Attorney for Connecticut
has stated that the investigation by his office is continuing. Representatives
of the Internal Revenue Service and the Securities and Exchange Commission are
also investigating. The Office of the Treasurer is cooperating with all
investigations. In April 2000 former Assistant Treasurer George M. Gomes pleaded
guilty to a mail fraud charge related to the matters under investigation. In
response to concerns about the activities of the former Treasurer, Treasurer
Denise L. Nappier proposed, and the General Assembly passed, legislation which
requires additional oversight by the Investment Advisory Council over pension
fund investments and increases public disclosure by firms providing investment
services to the Treasurer's office.
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.
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 (July 1- June 30).
The State of Florida is not authorized by law to issue obligations to fund
governmental operations. The Florida Constitution provides that State bonds
pledging the full faith and credit of the State of Florida may be issued only to
finance or refinance the cost of State fixed capital outlay projects upon
approval by a vote of the electors, and provides that revenue bonds may be
issued by the State of Florida or its agencies without a vote of the electors
only to finance or refinance the cost of State fixed capital outlay projects
which are payable solely from funds derived directly from sources other than
State tax revenues.
Pursuant to a constitutional amendment which was ratified by the voters on
November 8, 1994, the rate of growth in state revenues in a given fiscal year is
limited to no more than the average annual growth rate in Florida personal
income over the previous five years. Revenues collected in excess of the
limitation are to be deposited into the Budget Stabilization Fund unless 2/3 of
the members of both houses of the Legislature vote to raise the limit. The
revenue limit is determined by multiplying the average annual growth rate in
Florida personal income over the previous five years by the maximum amount of
revenue permitted under the cap for the previous year.
For purposes of the amendment, "State revenues" means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, "State revenues" does
not include: revenues that are necessary to meet the requirements set forth in
documents authorizing the issuance of bonds by the State; revenues that are used
to provide matching funds for the federal Medicaid program with the exception of
the revenues used to support the Public Medical Assistance Trust Fund or its
successor program and with the exception of State matching funds used to fund
elective expansions made after July 1, 1994; proceeds from the State Lottery
returned as prizes; receipts of the Florida Hurricane Catastrophe Fund; balances
carried forward from prior fiscal years; taxes, licenses, fees and charges for
services imposed by local, regional, or school district governing bodies; or
revenue from taxes, licenses, fees and charges for services required to be
imposed by any amendment or revision to the State Constitution after July 1,
1994. An adjustment to the revenue limitation will be made by general law to
reflect the fiscal impact of transfers of responsibility for the funding of
governmental functions between the State and other levels of government.
For fiscal year 1999-00, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available total $20,604.9 million, a 5.2%
increase over 1998-99. Estimated revenues of $18,738.6 million represent a 4.8%
increase over the analogous figure in 1998-99. With combined General Revenue,
Working Capital Fund, and Budget Stabilization Fund appropriations at $18,870.0
million, including a $60.1 million transfer to the Budget Stabilization Fund,
unencumbered reserves at the end of 1999-00 are estimated at $1,795.0 million.
For fiscal year 2000-01, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available total $21,359.0 million, a 3.7%
increase over 1999-00. Estimated revenues of $19,320.7 million represent a 3.1%
increase over the analogous figure in 1999-00.
Florida ended fiscal years 1996-97 and 1997-98 with General Revenue plus
Working Capital Funds unencumbered reserves of approximately $440.5 million and
$756.8 million, respectively. For fiscal year 1998-99, General Revenue plus
Working Capital Funds available total $18,900.1 million. Total effective
appropriations for the 1998-99 fiscal year were $17,992.7 million, resulting in
an unencumbered reserve of $907.4 million at the end of the fiscal year.
In fiscal year 1998-99, the State derived approximately 67% of its total
direct revenues from the General Revenue Fund, Trust Funds, Working Capital Fund
and Budget Stabilization Fund from State taxes and fees. Federal funds 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, intangible personal property tax, beverage tax, and estate tax, which
amounted to 70%, 8%, 4%, 3% 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 1999-00, appropriations from the General Revenue Fund for education,
health and welfare and public safety amounted to approximately 55%, 24% and 16%,
respectively, of total General Revenue funds available.
Sales and Use Tax. The largest single source of tax receipts in Florida
is the sales and use tax. The sales tax is 6% of the sales price of tangible
property sold at retail in the State. The use tax is 6% of the cost price of
tangible personal property when the same is not sold but is used, or stored for
use, in the State. The use tax also applies to the use in the State of tangible
personal property purchased outside Florida which would have been subject to the
sales tax if purchased from a Florida dealer. Slightly 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, local governments are authorized to levy
numerous types of local discretionary sales surtaxes. The local discretionary
sales surtaxes apply to all transactions subject to the state tax. The sales
surtax does not apply if the property or service is delivered within a county
that does not impose a surtax. The sales surtax does not apply to any sales
amount above $5,000 on any item of tangible personal property. 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 (at a 7%
rate), except those used in homes; and (iv) restaurant meals. Exemptions
include: groceries; medicines; hospital rooms and meals; fuels used to produce
electricity; electrical energy used in manufacturing; 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, 1999, receipts from this source were $13,918 million,
an increase of 7.3% from the prior fiscal year.
Motor Fuel Tax. The second largest source of State tax receipts,
including those distributed to local governments, is the tax on motor fuels.
Preliminary data show collections from this source in the State fiscal year
ended June 30, 1999, were $2,215.7 million. 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 tax on highway fuels, which currently
is 9.3 cents per gallon; (ii) the State excise tax of 4 cents per gallon on
highway 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 1 to 6 cents county's local
option highway fuel tax rate; (iv) aviation fuel, which depending on the air
carriers choice, can either be taxed at 6.9 cents per gallon or eight percent of
the retail price of fuel, not to be less than 4.4 cents per gallon; and (v)
local option highway fuel taxes, which may range between 1 cent to 12 cents per
gallon.
Alcoholic Beverage Tax. Florida's alcoholic beverage tax is an excise tax
on beer, wine, and liquor. This tax is one of the State's major tax sources,
with revenues totaling $466.3 million in State fiscal year ended June 30, 1999.
Two percent of collections are deposited into the Alcoholic Beverage and Tobacco
Trust Fund, while the remainder of revenues collected from this tax are
deposited into the State's General Revenue Fund.
The State also levies a surcharge on alcoholic beverages sold for
consumption on premises. In fiscal year 1998-99, a total of $110.4 million was
collected. Of these collections, the Children and Adolescent Substance Abuse
Trust Fund receives 13.6%, while the remainder is deposited to the credit of the
General Revenue Fund.
Corporate Income Tax. Pursuant to an amendment to the State Constitution,
the State Legislature adopted, effective January 1, 1972, the "Florida Income
Tax Code" imposing a tax upon the net income of corporations, organizations,
associations and other artificial entities for the privilege of conducting
business, deriving income or existing within the State. This tax does not apply
to natural persons who engage in a trade or business or profession under their
own or any fictitious name, whether individually as proprietorships or in
partnerships with others, estates of decedents or incompetents, or testamentary
trusts.
The tax is imposed in an amount equal to 5.5% of the taxpayer's net
corporate income for the taxable year, less a $5,000 exemption. 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, 1999, receipts from this source
were $1,472.2 million, an increase of 5.5% from fiscal year 1997-98.
Documentary Stamp Tax. Deeds and other documents relating to a realty are
taxed at 70 cents per $100 of consideration, while corporate shares, bonds,
certificates of indebtedness, promissory notes, wage assignments and retail
charge accounts are taxed at 35 cents per $100 of face value, or actual value if
issued without face value. Documentary stamp tax collections totaled $1,185.1
million during fiscal year 1998-99, posting a 13.4% increase from the previous
fiscal year. The General Revenue Fund receives approximately 63% of documentary
stamp tax collections.
Gross Receipts Tax. The tax rate is 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 1998-99, gross receipts utilities tax
collections totaled $639.6 million, an increase of 6% over the previous fiscal
year.
Intangible Personal Property Tax. This tax is levied on two distinct
bases: (i) stocks, bonds, including bonds secured by liens on 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 1.5 mills, and (ii)
mortgages and other obligations secured by liens on Florida realty, are taxed
with a non-recurring 2 mill tax.
The Department of Revenue uses part of the proceeds for administrative
costs. Of the remaining tax proceeds, 33.5% is distributed to the County Revenue
Sharing Trust Fund, and 66.5% is distributed to the General Revenue Fund.
In fiscal year 1998-99, total intangible personal property tax
collections were $1,210 million, a 2.2% increase over the prior year.
Estate Tax. An estate tax is imposed on the estate for the privilege of
transferring property at death. The tax on estates of resident decedents is
equal to the amount allowable as a credit against federal estate tax for state
death taxes paid, less any amount paid to other states. Thus, the Florida estate
tax on resident decedents will not increase the total tax liability of the
estate. The tax on estates of nonresident decedents is equal to the amount
allowable as a credit against federal estate tax for state death taxes paid
multiplied by the ratio of the value of the property taxable in Florida over the
value of the entire gross estate.
All receipts of the estate tax are credited to the General Revenue Fund.
In fiscal year 1998-99, receipts from this source were $674.1 million, an
increase of 13.3% from the prior 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 1998-99 produced gross revenues of $2.11 billion of which
education received approximately $802.9 million.
Maryland Series
The State of Maryland has a population of approximately 5.2 million, with
employment based largely in services, trade, and government. Those sectors,
along with finance, insurance, and real estate, were the largest contributors to
the gross state product, according to the most recent Census. Population is
concentrated around the Baltimore and Washington, D.C. PMSAs, and proximity to
Washington D.C. influences the above average percentage of employees in
government. Manufacturing, on the other hand, is a much smaller proportion of
employment than for the nation as a whole. Annual unemployment rates have been
below those of the national average for each of the last 20 years except 1979
and 1997. The unemployment figure for 1999 was 3.6% compared to a national rate
for the same period of 4.2%. Total employment increased by 8.3% between 1991 and
1999. The State's personal income per capita was the fifth highest in the nation
in 1999, according to the U.S. Department of Commerce, Bureau of Economic
Analysis, at 112.8% of the national average.
The State enacts its budget annually. Revenues are derived largely from
certain broad-based taxes, including state-wide income, sales, motor vehicle,
and property taxes. Non-tax revenues are largely from the federal government for
transportation, health care, welfare and other social programs. General fund
revenues on a budgetary basis realized in the State's fiscal year ended June 30,
1999, exceeded estimates by about $327.7 million, or 4%. The State ended fiscal
1999 with a $583.3 million general fund balance on a budgetary basis of which
$263.3 million was designated to fund fiscal year 2000 operations; this balance
reflects a $568.8 million increase compared to the balance projected at the time
the 1999 budget was enacted. In addition, there was a balance in the Revenue
Stabilization Fund of $634.9 million. On a GAAP basis, the fiscal 1999
undesignated general fund balance was $539.3 million, compared with $230.2
million at the end of fiscal year 1998. The total GAAP fund balance for fiscal
year 1999 was $1,798 million compared with a total fund balance of $1,595.2
million for fiscal year 1998.
Estimates for fiscal 2000 project a total budget of $18.2 billion, a $1.5
billion increase over fiscal 1999. The general fund accounts for approximately
$9 billion, of which the largest expenditures are for health and education,
which together represent nearly two-thirds of total general fund expenditures.
General fund expenditures exclude transportation, which is funded with special
fund revenues from the Transportation Trust Fund.
Reserve funds consist of the Revenue Stabilization Fund and other reserve
accounts, which together totaled $741 million at the end of Fiscal 1999. The
Revenue Stabilization Fund was established to retain State revenues for future
needs and to reduce the need for future tax increases. Current estimates for the
close of fiscal 2000 project a total reserve balance of $679.7 million, of which
$581 million is projected to be in the Revenue Stabilization Fund. The projected
balance in the Revenue Stabilization Fund represents 6.4% of estimated General
Fund Revenues.
General fund appropriations to the State Reserve Fund for fiscal 2001
total $346.5 million and include $235 million to the Revenue Stabilization Fund;
$15.5 million to the Economic Development Opportunities Program Fund; $86
million to the Dedicated Purpose Fund, of which $50 million is for
transportation projects, $30 million is for future needs in the Family
Investment Program, and $6 million is for utility deregulation education; and
$10 million to the Joseph Fund.
It is estimated that the general fund balance on a budgetary basis at June
30, 2001, will be approximately $19.6 million. In addition, the balance in the
Revenue Stabilization Fund of the State Reserve Fund is estimated to be $912.3
million at June 30, 2001, equal to 9.8% of general fund revenues.
The public indebtedness of the State of Maryland, and its
instrumentalities, is divided into three basic types. The State issues general
obligation bonds, to the payment of which the State ad valorem property tax is
exclusively pledged, for capital improvements and for various State-sponsored
projects. In addition, the Maryland Department of Transportation issues for
transportation purposes its limited, special obligation bonds payable primarily
from specific, fixed-rate excise taxes and other revenues related mainly to
highway use. Certain authorities issue obligations payable solely from specific
non-tax, enterprise fund revenues and for which the State has no liability and
has given no moral obligation assurance. The State and certain of its agencies
also have entered into a variety of lease purchase agreements to finance the
acquisition of capital assets. These lease agreements specify that payments
thereunder are subject to annual appropriation by the General Assembly.
At least since the end of the Civil War, the State has paid the principal
of and interest on its general obligation bonds when due. There is no general
debt limit imposed by the State Constitution or public general laws. Although
the State has the authority to make short-term borrowings in anticipation of
taxes and other receipts up to a maximum of $100 million, the State in the past
20 years has not issued short-term tax anticipation notes or made any other
similar short-term borrowings for cash flow purposes. The State has not issued
bond anticipation notes except in connection with a State program to ameliorate
the impact of the failure of certain State-chartered savings and loans in 1985;
all such notes were redeemed without the issuance of debt.
Maryland had $4.6 billion of net State tax supported debt outstanding at
March 31, 2000. General obligation bonds accounted for $3.4 billion of that
amount. About 58% of debt service on general obligation bonds is paid from State
property tax receipts, with the remainder paid from general funds of the State
and by loan repayments from local units and other sources. Department of
Transportation bonds outstanding account for another $1.0 billion; the debt
service on those bonds is payable from taxes and fees related to motor vehicles
and motor vehicles fuel and a portion of the corporate income tax. Debt
obligations issued by the Maryland Stadium Authority in the form of lease-backed
revenue bonds account for $290.8 million of State tax supported debt outstanding
at March 31, 2000. Rental payments under the lease are subject to annual
appropriation by the General Assembly. The State has also financed construction
and acquisition of various other facilities and equipment through lease-type
financing, subject to annual appropriation by the General Assembly.
The State had $893.7 million of authorized but unissued debt at March 31,
2000.
According to recent available ratings, general obligation bonds of the
State of Maryland are rated "Aaa" by Moody's and "AAA" by S&P, as are those of
the largest county of the State, i.e., Montgomery County in the suburbs of
Washington, D.C. General obligation bonds of Baltimore County, a separate
political entity surrounding Baltimore City and the third largest county in the
State, are also rated "Aaa" by Moody's and "AAA" by S&P. The general obligation
bonds of those other counties of the State with populations in excess of 100,000
that are rated by Moody's carry an "A" rating or better. Baltimore City's
general obligation bonds are rated "Al" by Moody's. The Washington Suburban
Sanitary District, a bi-county agency providing water and sewage services in
Montgomery and Prince George's Counties, issues general obligation bonds rated
"Aal" by Moody's and "AA" by S&P.
There can, of course, be no assurance that the ratings and other factors
mentioned above will remain unchanged or that particular bond issues may not be
adversely affected by changes in state or local economic or political
conditions. Because the Maryland Fund favors investing in revenue bonds, its
performance may be affected by economic developments and local legislation and
policy changes impacting a specific facility or type of facility not described
above.
Massachusetts Series
Between 1982 and 1988, the economies of Massachusetts and New England were
among the strongest performers in the nation, with growth rates considerably
higher than those for the national economy as a whole. Between 1989 and 1992,
however, both Massachusetts and New England experienced growth rates
significantly below the national average. Since then, growth rates in
Massachusetts and New England have improved to levels on par with the rest of
the nation. In 1997, the economies of both Massachusetts and New England grew at
a faster pace than the nation as a whole for the first time since 1988. The
Massachusetts economy has been the strongest in New England, making up an
average of 47.7% of New England's total Gross Product and an average of 2.8% of
the nation's economy over the decade and a half.
In 1998, employment levels in every industry increased or remained
constant. The most rapid growth in 1998 came in the construction sector and the
services sector, which grew at rates of 7.6% and 2.8%, respectively. Total
non-agricultural employment in Massachusetts grew at a rate of 1.9% in 1998.
While the Massachusetts unemployment rate was significantly lower than the
national average between 1979 and 1989, the economic recession of the early
1990s caused unemployment rates in Massachusetts to rise significantly above the
national average. However, the economic recovery that began in 1993 has caused
unemployment rates in Massachusetts to decline faster than the national average.
As a result, since 1994 the unemployment rate in Massachusetts has been below
the national average. The unemployment rate in Massachusetts fell from 3.4% in
June 1998 to 3.1% in June 1999 and the United States unemployment rate remained
the same between June 1998 and June 1999. In 1998, average annual pay levels in
Massachusetts were the fourth highest in the nation, and the personal income
growth rate was the eight highest in the nation.
Massachusetts ended each of the fiscal years 1995 through 1999 with a
positive closing fund balance in its budgeted operating funds, and expects to do
so again at the close of fiscal 2000. Year-to-date tax collections through May
totaled approximately $13.909 billion, an increase of approximately $1.165
billion, or 9.1%, over the same period in fiscal 1999. Taking into account
expected reversions (i.e., appropriations that will not be spent in fiscal
2000), the Executive Office for Administration and Finance projected in June
2000 fiscal 2000 spending of approximately $31.259 billion, a 5.0% increase over
fiscal 1999 spending.
A cash flow projection for the balance of fiscal 2000 was released by the
State Treasurer and the Secretary of Administration and Finance on March 7,
2000. Fiscal 2000 was projected to end with a cash balance of $776.6 million,
excluding any fiscal 2000 activity that will occur after June 30, 2000 and
excluding the Stabilization Fund. Bond issues of $250 million each were
projected to occur in April and June, 2000. Federal grant anticipation note and
note issues of $450 million and $150 million were projected to occur in April
and June 2000, respectively. (These bond and note issues did not occur as
projected. It is now anticipated that the Commonwealth will issue approximately
$650 million of general obligation bonds in June, 2000 and $600 million of
federal grant anticipation notes in August, 2000.)
In recent years, health related costs have risen dramatically in
Massachusetts and across the nation, and the increase in Massachusetts' Medicaid
and group health insurance costs reflects this trend. In fiscal 1993, Medicaid
was the largest item in Massachusetts' budget and has been one of the fastest
growing budget items. However the rate of increase has abated in recent years,
due to a number of savings and cost-cutting initiatives, such as managed care
and utilization review. During fiscal years 1995, 1996, 1997, 1998 and 1999,
Medicaid expenditures were $3.398 billion, $3.416 billion, $3.456 billion,
$3.666 billion and $3.856 billion, respectively. The average annual growth rate
from fiscal 1995 to fiscal 1999 was 3.3%. It is estimated that in fiscal 2000,
Medicaid expenditures will be $4.092 billion, an increase of 6.1% from fiscal
1999.
On June 15, 2000 the federal Health Care Financing Administration (HCFA)
sent a letter to nine states, including Massachusetts, New York and Florida,
indicating that portions of their Medicaid programs may be funded with
impermissible taxes on health care providers, jeopardizing federal
reimbursements collected on any Medicaid program expenditures funded with such
taxes. If HCFA makes a final determination that the Commonwealth has imposed an
impermissible provider tax, HCFA will undertake an audit of the Commonwealth's
uncompensated care pool program and seek retroactive repayment of federal
Medicaid reimbursements. Under federal regulations recoupment of federal
Medicaid reimbursements is generally accomplished by withholding a portion of
future Medicaid reimbursements to the state owing the repayment. States can
appeal a request for repayment to an appeals panel within the U.S. Department of
Health and Human Services and then to a federal district court. Since 1993, the
Commonwealth has received an estimated $920 million in federal Medicaid
reimbursements related to the expenditures in question. Clarification of the law
surrounding permissible provider taxes is a national issue and resolution could
take several years.
Massachusetts' pension costs had risen dramatically as the Commonwealth
appropriated funds to address in part the unfunded liabilities that had
accumulated over several decades. Total pension costs increased an aggregate
rate of 3.54% from $908.9 million in fiscal 1994 to $1.07 billion in fiscal
1998. Since fiscal 1998, total pension costs have decreased to $990.2 million in
fiscal 1999 and are estimated to be $987.4 million in fiscal 2000. As
recommended by the Governor, the Senate and House fiscal 2001 budget
appropriates $922 million for the state's pension funding schedule and an
additional $100 million related to increased pension liabilities due to the
conversion to a new actuarial software.
Payments for debt service on Massachusetts general obligation bonds and
notes have risen at an average annual rate of 1.11% from $1.15 billion in fiscal
1994 to $1.21 billion in fiscal 1998. Payments for debt service in fiscal 1999
amounted to $1.17 billion. State law generally imposes a 10% limit on the total
appropriations in any fiscal year that may be expended for payment of interest
and principal on general obligation debt. As of January 1, 2000 the State had
approximately $9.9 billion of long-term general obligation debt outstanding and
short-term direct obligations of the Commonwealth totaled $175.0 million.
Certain independent authorities and agencies within the State are
statutorily authorized to use debt for which Massachusetts is directly, in whole
or in part, or indirectly liable. Massachusetts' 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. Massachusetts is
indirectly liable for the debt of certain authorities through a moral obligation
to maintain the funding of reserve funds which are pledged as security for the
authorities' debt.
In November 1980, voters in the Commonwealth approved a state-wide tax
limitation initiative petition, commonly known as Proposition 2 1/2, to
constrain levels of property taxation and to limit the charges and fees imposed
on cities and towns 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, as amended
to date, limits the property taxes which a Massachusetts city or town may assess
in any fiscal year to the lesser of (i) 2.5% of the full and fair cash value of
real estate and personal property therein and (ii) 2.5% over the previous year's
levy limit plus any growth in the tax base from certain new construction and
parcel subdivisions. In addition, Proposition 2 1/2 limits any increase in the
charges and fees assessed by certain governmental entities, including county
governments, on cities and towns to the sum of (i) 2.5% of the total charges and
fees imposed in the preceding fiscal year, and (ii) any increase in charges for
services customarily provided locally or services obtained by the city or town
at its option. The law contains certain override provisions which require voter
approval at a general or special election. Proposition 2 1/2 also limits any
annual increase in the total assessments on cities and towns by any county,
district, authority, the Commonwealth, or any other governmental entity except
regional school districts and regional water and sewer districts whose budgets
are approved by two-thirds of their member cities and towns. During the 1980's,
Massachusetts increased payments to the cities, towns and regional school
districts ("Local Aid") to mitigate the impact of Proposition 2 1/2 on local
programs and services. In fiscal 2000, approximately 21.7% of Massachusetts'
budgeted expenditures were allocated to Local Aid.
Many factors affect the financial condition of the Commonwealth and its
cities, towns and public bodies, such as social, environmental, and economic
conditions, many of which are not within the control of such entities. As is the
case with most urban states, the continuation of many of Massachusetts'
programs, particularly its human services programs, is in significant part
dependent upon continuing Federal reimbursements which have been steadily
declining. The loss of grants to Massachusetts and its cities and towns could
further slow economic development. To the extent that such factors may exist,
they could have an adverse effect on economic conditions in Massachusetts,
although what effects, if any, such factors would have on Massachusetts'
Municipal Obligations cannot be predicted.
Michigan Series
General. Recently, the State's economy has been undergoing certain basic
changes in its underlying structure. These changes reflect a diversifying
economy which is less reliant on the automobile industry. As a result, the State
anticipates that its economy in the future will be less susceptible to cyclical
swings and more resilient when national downturns occur. In 1999, approximately
78% of wage and salary employment was in the State's non-manufacturing sectors.
In 1999, total employment was 4.942 million with manufacturing wage and salary
employment totaling 977,900. Manufacturing employment remains below the peak
employment level of 1,179,600 attained in 1978. Employment in the durable goods
manufacturing industries was 740,500 and non-durable goods manufacturing
employment was 237,300 in the State in 1999. The motor vehicle industry, which
is still an important component in the State's economy, employed 284,300 in
1999. The State's average unemployment rate for calendar year 1996 was 4.9%, for
1997 was 4.2%, for 1998 was 3.9% and for 1999 was 3.8%.
State Constitutional Provisions Affecting Revenues and Expenditures. The
State Constitution provides that proposed expenditures and revenues of any
operating fund must be in balance and that any prior year's surplus or deficit
must be included in the succeeding year's budget for that fund.
In 1978, the State Constitution was amended to limit the amount of total
State revenues raised from taxes and certain other sources. State revenues
(excluding Federal aid and revenues for payment of principal and interest on
general obligation bonds) in any fiscal year are limited to a fixed percentage
of State personal income in the prior calendar year or average of the prior
three calendar years, whichever is greater. The percentage is fixed by the
amendment to equal the ratio of the 1978-79 fiscal year revenues to total
calendar 1977 State personal income.
If, in any fiscal year, revenues exceed the revenue limitation by 1% or
more, the entire amount of such excess shall be rebated in the following fiscal
year's personal income tax or single business tax. Any excess of less than 1%
may be transferred to the State's Budget Stabilization Fund. The State may raise
taxes in excess of the limit for emergencies when deemed necessary by the
Governor and two-thirds of the members of each house of the Legislature.
The State Constitution provides that the proportion of State spending
paid to all units of local government to total State spending may not be reduced
below the proportion in effect in the 1978-79 fiscal year. If such spending does
not meet the required level in a given year, an additional appropriation for
local governmental units is required by the following fiscal year. Spending for
local units met this requirement for fiscal years 1990-91 through 1995-96.
The State has settled litigation with Oakland County, Michigan in which
Oakland County had alleged that the classification of State expenditures for
certain mental health programs as spending for local units was improper. As part
of the settlement, the State agreed to reclassify these expenditures, beginning
in fiscal year 1992-93. As a result, the State determined that in fiscal year
1992-93 the proportion of State spending from State sources paid to local units
of government was approximately $97.0 million less than constitutionally
required and an amount at least this large was appropriated to the State's local
government payment fund in the fiscal year 1996-97.
The State Constitution also requires the State to finance any new or
expanded activity of local governments mandated by State law. Any expenditures
required by this provision would be counted as State spending for local units of
government for the purpose of determining compliance with the provision cited
above.
Major Funds of the State. The General Fund receives those revenues of the
State not specifically required to be included in other funds. General Fund
revenues are obtained approximately 55% from the payment of the State taxes and
45% from federal and non-tax revenue sources.
General Fund revenues are segregated into two categories for accounting
purposes: General Purpose and Special Purpose. The General Purpose category is
comprised of those revenues on which no restrictions on use apply. The Special
Purpose category is comprised of revenues designated for specific purposes and
includes a portion of certain major taxes and most federal aid. Because
expenditures are accounted for on a consolidated basis, it is not possible to
segregate expenditures as related to the General Purpose portion or Special
Purpose portion of total General Fund expenditures. Expenditures are not
permitted by the State Constitution to exceed available revenues.
General Purposes revenues consist primarily of that portion of taxes and
federal aid not dedicated to any specific purpose. General Purpose revenues
account for approximately 46% of total General Fund revenues. The passage of
property tax and school finance reform, discussed below, significantly affects
the sources of State revenues.
Special Purpose revenues consist primarily of federal aid, taxes and other
revenues dedicated to specific purposes. Special Purpose Revenues account for
approximately 53% of total General Fund revenues.
Federal aid accounted for approximately 72% of Special Purpose revenues.
It is estimated that approximately three-fourths of the State's federal aid
revenues require matching grants by the State. The percentage of State funds to
total expense in programs requiring matched funds varies generally between 10
and 50%.
Over two-thirds of total General Fund expenditures are made for education,
and by the Family Independence Agency and by the Department of Community Health.
State support of public education consists of aid to local and
intermediate school districts, charter schools, state universities, community
colleges, and the Department of Education, which is responsible for
administering a variety of programs which provide additional special purpose
funding for local and intermediate school districts.
The Family Independence Agency and the Department of Community Health
administer economic, social and medical assistance programs, including Medicare,
Medicaid and the Temporary Assistance to Needy Families ("TANF") block grant,
which represent the major portion of social services expenditures. The TANF
grant requires state contributions tied to a 1994 maintenance of effort level.
The Medicaid program continues on a matching basis, i.e., with federal funds
supplying more than 50% of the fund.
Under constitutional and statutory provisions, the School Aid Fund has
received the proceeds of certain taxes. For a discussion of constitutional and
legislative changes which significantly change the sources of revenue of the
School Aid Fund, see below.
Because the School Aid Fund receives almost all of its direct revenues
from the sources which also provide revenues for the General Fund and a General
Fund appropriation is made to the School Aid Fund each year, the daily
management of the State Treasurer's Common Cash Fund is predicated in part on
daily projections of estimated cash flow of the combined General Fund and School
Aid Fund.
The operating costs of local school districts are funded by local property
taxes, State school aid and general aid. Approximately 10% of the annual debt
service of "qualified" bonds issued by local school districts is funded by
borrowing from the State School Bond Loan Fund, with the balance of the annual
debt service of both "qualified" and "non-qualified" bonds funded from local
property taxes.
The School Aid Fund finances State expenditures in the form of financial
assistance to public elementary and secondary and intermediate school districts
("K-12 districts").
The Common Cash Fund, which is managed by the State Treasurer, pools the
combined cash balances of State moneys until paid out as provided by law,
including the General Fund and the School Aid Fund, but not certain trusts funds
and funds covering the operations of State authorities, colleges and
universities. State law authorizes the State Treasurer, with the approval of the
State Administrative Board, to transfer cash on hand and on deposit among the
various funds (other than certain bond-related funds) to best manage the
available cash on hand and to assure that State obligations are paid as they
become due. As a result, certain funds may have a negative cash balance for
periods of time. All funds with negative balances are required to pay interest
on such balances at a rate equal to the average interest earned by the Common
Cash Fund on its investments. Allocations of earnings are made quarterly, based
upon the average daily balances of the various funds and the common cash
investment earnings rate.
As of September 30, 1999, the actual balance for funds in the Common Cash
Fund was $3,987.8 million. The actual General Fund - General Purpose total
revenues and expenditures for the 1998-99 fiscal year were $9,322.6 million and
$9,063.2 million, respectively. Projected 1999-00 fiscal year General Fund -
General Purpose total revenues and expenditures are $9,514.4 million and
$9,230.1 million, respectively.
Property Tax and School Finance Reform. On August 19, 1993, the Governor
signed into law Act 145, Public Acts of Michigan, 1993 ("Act 145"), a measure
which would have significantly impacted financing of primary and secondary
school operations and which has resulted in additional property tax and school
finance reform legislation. Act 145 would have exempted all property in the
State of Michigan from mileage levied for local and intermediate school
districts operating purposes, other than mileage levied for community colleges,
effective July 1, 1994. In order to replace local property tax revenues lost as
a result of Act 145, the Michigan Legislature, in December 1993, enacted several
statutes which address property tax and school finance reform.
The property tax and school finance reform measures included a ballot
proposal which was approved by the voters on March 15, 1994. Effective May 1,
1994, the State sales and use tax was increased from 4% to 6%, the State income
tax was decreased from 4.6% to 4.4% (reduced to 4.2% for tax years 2000 and 2001
with phased-in reductions to 3.9% in 2004), the cigarette tax was increased from
$.25 to $.75 per pack and an additional tax of 16% of the wholesale price was
imposed on certain other tobacco products. A 0.75% real estate transfer tax
became effective January 1, 1995. Beginning in 1994, a State-wide property tax
of 6 mills will be imposed on all real and personal property currently subject
to the general property tax. The ability of school districts to levy property
taxes for school operating purposes has been partially restored. A school board
will, with voter approval, be able to levy up to the lesser of 18 mills or the
number of mills levied in 1993 for school operating purposes, on non-homestead
property and non-qualified agricultural property. The adopted ballot proposal
contains additional provisions regarding the ability of local school districts
to levy taxes as well as a limit on assessment increases for each parcel of
property, beginning in 1995 to the lesser of 5% or the rate of inflation. When
property is subsequently sold, its assessed value will revert to the current
assessment level of 50% of true cash value. Under the adopted ballot proposal,
much of the additional revenue generated by the new taxes will be dedicated to
the State School Aid Fund.
The adopted ballot proposal contains a system of financing local school
operating costs relying upon a foundation allowance amount which may vary by
district based upon historical spending levels. State funding will provide each
school district an amount equal to the difference between their foundation
allowance and the revenues generated by their local property tax levy. Local
school districts will also be entitled to levy supplemental property taxes to
generate additional revenue if their foundation allowance is less than their
historical per pupil expenditures. The adopted proposal also contains provisions
which allow for the levy of a limited number of enhancement mills on regional
and local school district bases.
The adopted ballot proposal shifts significant portions of the cost of
local school operations from local school districts to the State and raises
additional State revenues to fund these additional State expenditures. These
additional revenues will be included within the State's constitutional revenue
limitations and may impact the State's ability to raise additional revenues in
the future.
Budget Stabilization Fund. In 1977, the Budget Stabilization Fund was
established to accumulate balances during years of significant economic growth
which may be utilized in years when the State's economy experiences cyclical
downturns or unforeseen fiscal emergencies. Calculated on an accrual basis, the
unreserved ending accrued balance of the Budget Stabilization Fund on September
30, 1995 was $987.9 million, on September 30, 1996 was $614.5 million (net of a
$529.1 million reserve for future education funding), on September 30, 1997 was
$579.8 million (net of a $572.6 million reserve for future education funding),
on September 30, 1998 was $1,000.5 million, and on September 30, 1999 was
$1,222.5 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. Such debt does not require
voter approval.
Debt incurred by the State for the purpose of making loans to school
districts may be issued in whatever amount required without voter approval. All
other general obligation bonds issued by the State must be approved as to
amount, purpose and method of repayment by a two-thirds vote of each house of
the Legislature and by a majority vote of the public at a general election.
There is no limitation as to number or size of such general obligation issues.
There are also various State authorities and special purpose agencies
created by the State which issue bonds secured by specific revenues. Such debt
is not a general obligation of the State.
The State has issued outstanding general obligation full faith and credit
bonds and notes for Water Resources, Environmental Protection, Recreation
Program, and School Loan purposes. As of September 30, 1999, the outstanding
principal amount of all State general obligation bonds was approximately $839.4
million. The State did not issue any long-term general obligation bonds during
the 1995-96 and 1996-97 fiscal years. The State issued $250 million in general
obligation bonds in fiscal year 1997-98. The State did not issue any general
obligation bonds in fiscal year 1998-99.
The State issued between $500 million and $900 million in short-term
general obligation notes in each fiscal year from 1992-93 through 1997-98;
except during the 1993-94 fiscal year when no notes were issued. These notes
were issued for cash flow purposes and were fully paid at maturity. The State
did not issue any general obligation notes in fiscal year 1998-99 and does not
anticipate issuing general obligation notes for cash flow purposes in fiscal
year 1999-2000.
On October 20, 1999, the State issued $96.9 million in general obligation
bonds for its Clean Michigan Initiative Program.
As of December 31, 1999, approximately $8.76 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 paid in full to the State School Bond Loan Fund.
Effective for qualified bonds issued on and after October 1, 1998, the
State implemented strengthened program mechanics which require advance fund
transfers by school districts and paying agent notification prior to qualified
bond debt service payment dates. These new procedures further ensure that
qualified bond obligations are paid on a timely basis.
The Department of Transportation, State Building Authority, the Michigan
Underground Storage Tank Financial Assurance Authority and Michigan State
Housing Development Authority have outstanding as of September 30, 1999,
$4,980.0 million of various revenue and special obligation debt and have the
authority to issue such debt in the future.
Minnesota Series
State and State-Related Indebtedness. The Minnesota Constitution
authorizes public debt to be incurred for the acquisition and betterment of
public land, buildings and other improvements of a capital nature or for
appropriations or loans to Minnesota State agencies or political subdivisions
for this purpose, as the Legislature by the three-fifths vote of each House may
direct, and to finance the development of agricultural resources of the State by
extending credit on real estate security, as the Legislature may direct. All
such debt is evidenced by the issuance of State of Minnesota bonds maturing
within 20 years of their date of issue, for which the full faith and credit and
taxing powers of the State are irrevocably pledged. There is no limitation as to
the amount or interest rate of such general obligation issues.
As of June 1, 2000, the outstanding principal amount of all Minnesota
general obligation bonds was approximately $2.49 billion. The total amount of
general obligation bonds authorized but unissued as of June 1, 2000, was
approximately $1.06 billion.
The Minnesota Constitution limits Minnesota general obligation debt to (i)
short-term debt for Minnesota operating purposes, (ii) short-term debt for
purposes of making loans to school districts and (iii) voter-approved long-term
debt.
Short-term debt for operating purposes is limited to an amount not in
excess of 15% of undedicated revenues received during the preceding fiscal year
and must be issued only to meet obligations incurred pursuant to appropriation
and repaid during the fiscal year in which incurred. Minnesota has no short-term
debt outstanding and, therefore, Minnesota does not expect to do any short-term
borrowing for cash flow purposes during the Current Biennium. Minnesota has not
done any short-term borrowing since January, 1985.
There are also various Minnesota authorities and special purpose agencies
created by the state which issue bonds secured by specific revenues. Such debt
is not a general obligation of the State of Minnesota.
Constitutional and Statutory Provisions Relating to Minnesota and Local
Funding. Revenues in Minnesota are generated primarily from individual income
taxes, corporate franchise taxes, sales and use taxes, insurance gross earnings
taxes, estate taxes, motor vehicle excise taxes, excise taxes on liquor and
tobacco products, mortgage taxes, deed taxes, legalized gambling taxes, rental
motor vehicle taxes, taconite and iron ore occupation taxes, and health care
provider taxes. In addition to the major taxes described above, other sources of
non-dedicated revenue include minor taxes, 60% of Minnesota's lottery net
proceeds, unrestricted grants, fees and charges of Minnesota State agencies and
departments, and investment income. County, municipal and certain special
purpose districts (such as water, flood or mosquito control districts) are
authorized to levy property taxes within specified legislative limits. A portion
of Minnesota's revenues is allocated from State government to other governmental
units within Minnesota such as municipal and county governments, school
districts and State agencies through a complex series of appropriations and
financial aid formulas. This financial interdependency of the Minnesota State
government with other units of government, subject all levels of government, in
varying degrees, to fluctuations in Minnesota's overall economy.
Minnesota's constitutionally prescribed fiscal period is a biennium, and
Minnesota operates on a biennial budget basis with revenues created in the
period in which they are collected and expenditures debited in the period in
which the corresponding liabilities are incurred. The biennium begins on July
1st of the odd numbered year and runs through June 30th of the next odd numbered
year. Minnesota's Current Biennium began on July 1, 1999 and will end on June
30, 20001.
Minnesota's ability to appropriate funds is limited by the Minnesota
Constitution, which directs that Minnesota government shall not in any biennium
appropriate funds in excess of projected tax revenues from all sources.
Minnesota is authorized to levy additional taxes to resolve any inadvertent
shortfalls.
Appropriations for each biennium are enacted during the final legislative
session of the immediately preceding biennium. A revenue forecast is prepared
during the legislative session to provide the legislature with updated
information for the appropriations process. During each biennium, regular
forecasts of revenues and expenditures are prepared.
Minnesota's biennial budget appropriation process relies on revenue
forecasting as the basis for establishing aggregate expenditure levels. Risks
are inherent in the revenue and expenditure forecasts. Assumptions about U.S.
economic activity and federal tax and expenditure policies underlie these
forecasts. Any federal law changes that increase federal income taxes or reduce
federal spending programs may adversely affect these forecasts. Finally, even if
economic and federal tax assumptions are correct, revenue forecasts are still
subject to some normal level of error. The correctness of revenue forecasts and
the strength of Minnesota's overall economy may restrict future aid or
appropriations from Minnesota government to other units of government.
The Cash Flow Account was established in the General Accounting Fund for
the purpose of providing sufficient cash balances to cover monthly revenue and
expenditure imbalances. The use of funds from the Cash Flow Account is governed
by statute. The Cash Flow Account balance is set for the Current Biennium at
$350 million. No provision has been made for increasing the balance of the Cash
Flow Account from increases in forecast revenues over forecast expenditures. The
Budget Reserve Account was established in the Accounting General Fund for the
purpose of reserving funds to cushion the State from an economic downturn. The
use of funds from the Budget Reserve Account and the allocation of surplus
forecast balances to the Budget Reserve Account are governed by statute. The
Budget Reserve Account balance is set for the Current Biennium at $622 million.
For the fiscal year ended June 30, 1999, net revenues received in the
Accounting General Fund were $10.481 billion. Total expenditures and net
transfers to other funds were $11.093 billion for fiscal year 1999. For the
fiscal year ended June 30, 1998, total net revenues were $10.904 billion. Total
expenditures and net transfers were $10.014 billion.
As of April 30, 2000, net revenues received without taking into account
accruals, were approximately $9.957 billion for fiscal year 1999. Total
expenditures and net transfers through April 30, 2000, were $9.261 billion.
The Department of Finance prepared a forecast of Accounting General Fund
revenues and expenditures for the Current Biennium in February 2000. Accounting
General Fund resources were forecast to be $26.516 billion and Accounting
General Fund expenditures were forecast to be $23.581 billion, resulting in a
projected Unreserved Accounting General Fund balance of $2.935 billion. That
balance included a Cash Flow Account of $350 million, a Budget Reserve Account
of $622 million, Dedicated Reserves of $145 million, and a Property Tax Reform
Account of $1.018 billion, resulting in a projected Unrestricted Accounting
General Fund balance of $800 million.
Compared to estimates in November 1999, Accounting General Fund resources
were $222 million higher. Forecast expenditures were $12 million lower. When
combined with a $5 million increase in the investment earnings dedicated to the
Property Tax Reform Account, the net increase in expected Unrestricted
Accounting General Fund balance was $229 million.
Of the forecast increase of $222 million, $185 million was a net increase
in forecast non-dedicated revenues and a $37 million increase in transfers and
dedicated revenues accounted for the balance of the change in resources. The
forecast for individual income taxes increased $140 million, while corporate
projections fell $46 million.
Accounting General Fund expenditures were forecast to total $23.581
billion, down $12 billion from November 1999. Minor increases in K-12 education,
family support and other programs were offset by a $42 million reduction in
health care spending.
During the 2000 legislative session, the Legislature enacted revenue
measures and appropriations that modified the budget for the Current Biennium.
Actions were based on the February 2000 revenue and expenditure forecast.
The 2000 legislative session produced three significant tax law changes.
The Legislature adopted, and the Governor approved $1.030 billion in tax
reductions for Minnesota taxpayers in the Current Biennium. For Fiscal Year
2000, the Legislature passed a $640 million sales tax rebate. Authorized
spending was increased by slightly over $800 million.
The end of 2000 legislative session estimates of resources, expenditures,
and unrestricted fund balance were $25.766 billion, $24.640 billion and $9
million, respectively.
In 1992, the Minnesota Legislature established the MinnesotaCare(R)
program to provide subsidized health care insurance for long term uninsured
Minnesotans; reform individual and small group health insurance regulations;
create a health care analysis unit; to collect condition-specific data about
health care practices in order to develop practice parameters for health care
providers; implement certain cost containment measures into the system; and
establish an office of rural health to ensure the health care needs of all
Minnesotans are being met. The program is not part of the Accounting General
Fund. A separate fund, called the Health Care Access Fund, has been established
in Minnesota's Special Reserve Fund to account for revenues and expenditures for
the MinnesotaCare(R) program. Program expenditures are limited to revenues
received in the Health Care Access Fund. Program revenues are derived from
dedication of insurance premiums paid by individuals and permanent taxes
including a 2% gross revenue tax on hospitals, health care providers, and
wholesale drug distributors, a 2% use tax on prescription drugs and a 1% gross
premium tax on nonprofit health service plans and HMOs. For calendar years 2000
and 2001, these permanent taxes have been temporarily lowered to 1.5% and 0%,
respectively. The provider tax will continue at 1.5% until calendar year 2002,
while the gross premium tax will remain at 0% until calendar year 2003.
The 1993 Legislature adopted legislation establishing a school district
credit enhancement program. The legislation authorizes and directs the
Commissioner of Finance, under certain circumstances and subject to the
availability of funds, to issue a warrant and authorize the Commissioner of
Children, Families and Learning to pay debt service coming due on school
district tax and state-aid anticipation certificates of indebtedness and school
district general obligation bonds in the event that the school district notifies
the Commissioner of Children, Families and Learning that it does not have
sufficient money in its debt service fund for that purpose, or the paying agent
informs the Commissioner of Children, Families and Learning that it has not
received from the school district timely payment of moneys to be used to pay
debt service. The legislation appropriates annually from the Accounting General
Fund to the Commissioner of Children, Families and Learning the amount needed to
pay any warrants which are issued. The amounts paid on behalf of any school
district are required to be repaid, with interest, either through a reduction of
subsequent state-aid payments or by the levy of an ad valorem tax which may be
made with the approval of the Commissioner of Children, Families and Learning.
As of June 1, 2000, there were approximately $225 million of certificates of
indebtedness enrolled in the program, all of which will mature within a thirteen
month period. The State has not had to make any debt service payments on behalf
of school districts under the program and does not expect to make any payments
in the future. The State expects that school districts will issue certificates
of indebtedness in 2001 and will enroll these certificates in the program in
about the same amount of principal as 2000.
School districts may issue certificates of indebtedness or capital notes
to purchase certain equipment. The certificates or notes may be issued by
resolution of the Board, are payable from school district taxes levied within
statutory limits and must be payable in not more than five years. School
districts are authorized to issue general obligation bonds only when authorized
by school district electors or special law, and only after levying a direct,
irrevocable ad valorem tax on all taxable property in the school district for
the years and in amounts sufficient to produce sums not less than 5% in excess
of the principal of an interest on the bonds when due. As of June 1, 2000, the
total amount of principal on certificates and capital notes issued for
equipment, certificates of participation and bonds, plus the interest on these
obligations, through the year 2026, is approximately $6.4 billion.
Tobacco Settlement. On May 8, 1998, the State entered into a settlement of
a lawsuit, which it had initiated against several tobacco companies. The
settlement requires the defendant tobacco companies to pay to the State an
amount of $6.1 billion over a period of 25 years. This settlement will produce
additional annual calendar year revenue to the State ranging from a low of
approximately $204.0 million to a high of approximately $418.0 million. The
allocation and use of most of these revenues has not been established. There has
been federal congressional discussion about state Medicaid reimbursement out of
state tobacco settlements. Federal legislative proposals have been introduced,
but to date no federal legislation has been enacted.
Selected Economic and Demographic Factors. Diversity and a significant
natural resource base are two important characteristics of Minnesota's economy.
Minnesota's economy is being lifted by strong earnings growth in the service
industry, rising housing construction, and job gains which are slowly firming up
the labor market.
When viewed in 1999 at a highly aggregative level of detail, the structure
of Minnesota's economy parallels the structure of the U.S. economy as a whole.
Minnesota employment in ten major sectors was distributed in approximately the
same proportions as national employment. In all sectors, the share of total
Minnesota employment was within two percentage points of national employment
share.
Minnesota's employment in the durable goods industries continues to be
highly concentrated in industries specializing in the manufacturing of
industrial machinery, fabricated metal, electronic equipment and instruments,
and miscellaneous categories. This emphasis is partially explained by the
location in Minnesota of computer-related equipment manufacturers. Further,
manufacturers of food products, wood products, and printed and published
materials joined the high technology manufacturing group which has led to
significant business expansion in Minnesota.
The importance of Minnesota's rich natural resource base for overall
employment is apparent in the employment mix in non-durable goods industries. In
1999, 29.5% of Minnesota's non-durable goods employment was concentrated in food
and kindred industries, and 16.6% in paper and allied industries. This compares
to 22.7% and 8.9%, respectively, for comparable sectors in the national economy.
Both of these industries rely heavily on renewable resources in Minnesota.
Over half of Minnesota's acreage is devoted to agricultural purposes and nearly
one-third to forestry. Printing and publishing are also relatively more
important in Minnesota than in the U.S.
Mining is currently a less significant factor in the Minnesota economy
than formerly. Mining employment, primarily in the iron ore or taconite
industry, dropped from 17.3 per thousand in 1979 to 7.4 per thousand in 1999. It
is not expected that mining employment will soon return to 1979 levels. However,
Minnesota retains vast quantities of taconite as well as copper, nickel, cobalt,
and peat which may be utilized in the future.
While Minnesota's involvement in the defense industry is limited, as
military procurement cuts continue, Minnesota employers may face challenges in
maintaining employment and sales. More importantly, Minnesota firms producing
electronic components, communication equipment, electrical equipment, chemicals,
plastics, computers and software may face additional competition from companies
converting from military to civilian production.
Minnesota resident population grew from 4,085,000 in 1980 to 4,387,000 in
1990 or, at an average annual compound rate of .7%. In comparison, U.S.
population grew at an annual compound rate of .917% during this period.
Minnesota population is currently forecast by the U.S. Department of Commerce to
grow at an annual compound rate of .8% through 2010.
Employment and Income Growth in Minnesota. In the period 1980 to 1990,
overall employment growth in Minnesota lagged behind national growth. However,
manufacturing has been a strong sector, with Minnesota employment outperforming
its U.S. counterpart in both the 1980-1990 and 1990-1999 periods.
In spite of the strong manufacturing sector, during the 1980 to 1990
period, total employment in Minnesota increased 17.9% as compared to 20.1%
nationally. Most of Minnesota's slower growth can be associated with declining
agricultural employment and two recessions in the U.S. economy in the early
1980's which were more severe in Minnesota than nationwide. Minnesota non-farm
employment growth generally kept pace with the nation in the period after the
1981-82 recession ended in late 1982. In the period 1990 to 1996, non-farm
employment growth in Minnesota exceeded national growth. Since then, Minnesota
and U.S. employment have expanded at about the same rate. Between 1990 and 1999,
Minnesota's non-farm employment grew 22.5% compared to 15.0% nationwide.
Since 1980, Minnesota per capita personal income has been within six
percentage points of national per capita personal income. The State's per capita
income, which is computed by dividing personal income by total resident
population, has generally remained above the national average in spite of the
early 1980's recessions and some difficult years in agriculture. In 1998,
Minnesota per capita personal income was 102.8% of its U.S. counterpart.
Another measure of the vitality of Minnesota's economy is its unemployment
rate. During 1998 and 1999, Minnesota's monthly unemployment rate was generally
less than the national unemployment rate, averaging 2.8% in 1999, as compared to
the national average of 4.2%.
New Jersey Series
New Jersey's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture. New Jersey's principal manufacturing
industries produce chemicals, pharmaceutical, electrical equipment and
instruments, machinery, printing and food products. Other economic activities
include services, wholesale and retail trade, insurance, tourism, petroleum
refining and truck farming.
During 1999, a continuation of the national business expansion, a strong
business climate in the State, and positive developments in neighboring
metropolitan areas contributed to the State's economic expansion - the second
strongest year for economic growth since 1988.
Employment within the State increased by 1.7% in 1999, resulting in an
increase of over 65,000 jobs. Job gains were primarily spread across the service
producing industries with particularly strong growth in wholesale and retail
trade (20,400) and business services (20,200). Computer software and personnel
supply related companies accounted for the bulk of the job growth in the
business services sub-sector, adding 15,000 jobs.
With strong labor market conditions, New Jersey's personal income
increased at a pace of 5.8% in 1999, making it the first year since 1992 that
the New Jersey growth rate was above the national rate. The strong State economy
also led to a 6.5% growth in retail sales. Low inflation, approximately 2%,
continues to benefit New Jersey consumers and businesses, and low interest rates
have increased spending on housing and other consumer durables. In 1999, home
building was at its highest level since 1988.
New Jersey's unemployment rate remained low in 1999 - close to the
national average. Joblessness, in terms of both absolute level and its rate, has
been falling steadily since its peak in 1992. The early trends in year 2000
indicate that the number of unemployed persons in New Jersey has dropped to its
lowest level since mid-1989.
The economic outlook for 2000/2001 is for continued growth, but at
somewhat more moderate rates. Employment is expected to increase by
approximately 50,000 jobs, reflecting a slowing national economy and shortages
in skilled technical specialties that will constrain job growth. The outlook
also indicates a steady slowing in State personal income growth from 5.7% in
2000 to 4.8% in 2001.
A slower growing national economy and the national election year campaign
make it increasingly unlikely that any changes in national economic or fiscal
policy will be implemented that will impact the State's economy significantly in
the forecast period. However, uncertainties in the international economy are
likely to remain due to oil price and currency issues.
Other areas of concern include the volatility in the stock market,
possible significant shifts in consumer and investor confidence, unstable and
potentially deflationary international economic conditions, and the prospect of
leaner U.S. corporate profits. In addition, the restructuring of major
industries will continue due to cost containment, globalization of competition,
and deregulation concerns. Although the forecasts for 2000/2001 contain more
risks than in the recent past, the basic fundamentals of the State's economic
health remain favorable.
The New Jersey outlook is based on expected national economic performance
and on recent State strategic policy actions aimed at infrastructure
improvements, effective education and training of the State's workforce, and
maintaining a competitive business environment. Investments in each of these
policy areas are critical to maintaining the long-term health of the State's
economy.
In July 1991, S&P lowered New Jersey's general obligation bond rating
from "AAA" to "AA+". As of May 2000, S&P, Moody's and Fitch rated New Jersey's
long-term general obligations "AA+", "Aal" and "AA+", respectively.
The revised estimate as shown in the Governor's fiscal year 2000 Budget
forecasts Sales and Use tax collections for fiscal year 2000 of $5.575 billion,
a 10.3% increase from the fiscal year 1999 revenue. The fiscal year 2001
estimate of $5.993 billion is a 7.5% increase from the fiscal year 2000
estimate.
The revised estimate as shown in the Governor's fiscal year 2000 Budget
forecasts gross income tax collections for fiscal year 2000 of $7.035 billion,
an 11.2% increase from fiscal year 1999 revenue. The fiscal year 2001 estimate
of $7.580 billion is a 7.7% increase from fiscal year 2000. Included in the
fiscal year 2000 and fiscal year 2001 estimates is the enactment of a property
tax deduction, to be phased in over a three-year period, permitting a deduction
by resident taxpayers against gross income tax of a percentage of their property
taxes.
The revised estimate as shown in the Governor's fiscal year 2000 Budget
forecasts corporations business tax collections for fiscal year 2000 of $1.396
billion, a 0.5% decrease from fiscal year 1999 revenue. The fiscal year 2001
estimate of $1.486 billion is a 6.4% increase from fiscal year 2000. Included in
the corporation business tax estimates for fiscal year 2000 and fiscal year 2001
is an estimate of amounts which were previously collected pursuant to the gross
receipts and franchise taxes applicable to utilities and which are now collected
pursuant to the corporation business tax related to the utilities.
Estimated receipts from State taxes and revenues, including the three
principal taxes set forth above, are forecasts based on the best information
available at the time of such forecasts. Changes in economic activity in the
State and the nation, consumption of durable goods, corporate financial
performance and other factors that are difficult to predict may result in actual
collections being more or less than forecasted.
Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. There are additional means by which the
Governor may ensure that the State is operated efficiently and does not incur a
deficit. No supplemental appropriation may be enacted after adoption of an
appropriations act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such appropriation. In the
past when actual revenues have been less than the amount anticipated in the
budget, the Governor has exercised her plenary powers leading to, among other
actions, implementation of a hiring freeze for all State departments and the
discontinuation of programs for which appropriations were budgeted but not yet
spent.
The State appropriated approximately $18.486 billion and $19.975 billion
(adjusted) for fiscal years 1999 and 2000, respectively. Of the $18.486 billion
appropriated in fiscal year 2000 from the General Fund, the Property Tax Relief
Fund, the Casino Control Fund, the Casino Revenue Fund and Gubernatorial
Elections Fund, $7.928 billion was appropriated for State aid to local
governments, $6.172 billion was appropriated for grants-in-aid (payments to
individuals or public or private agencies for benefits to which a recipient is
entitled by law or for the provision of service on behalf of the State), $4.467
billion for Direct State services, $518.7 million for debt service on State
general obligation bonds and $889.6 million for capital construction.
Should tax revenues be less than the amount anticipated in the Budget for
a fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. The appropriations for fiscal year 1999 and
for fiscal year 2000 reflect the amounts contained in the Governor's fiscal year
2000 Budget.
The State has made appropriations for principal and interest payments for
general obligation bonds for fiscal years 1997 through 2000 in the amounts of
$446.9 million, $483.7 million, $501.1 million and $518.7 million, respectively.
The Governor's fiscal year 2001 Budget includes an appropriation in the amount
of $530.0 million for principal and interest payments for general obligations
bonds.
North Carolina Series
Economic Characteristics. The economic profile of North Carolina consists
of a combination of industry, agriculture, and tourism. Non-agricultural wage
and salary employment accounted for approximately 3,666,800 jobs in 1997, of
which approximately 834,500 were in manufacturing. According to the North
Carolina Bureau of Labor Statistics, in July 1997, the State ranked tenth in
non-agricultural employment and eighth in manufacturing employment. During the
period from 1990 to 1998, per capita income in the State grew from $16,674 to
$24,036, an increase of 44.2%. The North Carolina Employment Security Commission
estimated the May 1999 seasonally adjusted unemployment rate to be 2.9%, as
compared with a national unemployment rate of 4.0%.
The labor force has undergone significant changes during recent years.
The State has moved from an agricultural to a service and goods producing
economy. According to the Employment Security Commission, the labor force has
grown from 2,855,200 in 1980 to 3,884,100 in 1997, an increase of 35%.
More than 734 international firms have established a presence in the
State. Charlotte is the second largest financial center in the nation, based on
assets of banks headquartered there. Bank of America, the nation's largest bank,
is based in Charlotte. The strength of North Carolina's manufacturing sector
also supports a growth in exports. The 1997 annual statistics showed $18.2
billion in exports, placing North Carolina tenth among the states in export
trade.
Agriculture is a basic element in North Carolina's economy. Gross
agricultural income in 1997 reached over $8.3 billion, placing the State eighth
in the nation in gross agricultural income. The poultry industry is the leading
source of agricultural income, accounting for approximately 25% of gross
agricultural income. Pork production accounts for approximately 24% of gross
agricultural income. The tobacco industry remains important to North Carolina
providing approximately 4% of gross agricultural income. In 1997, North Carolina
ranked third in the nation in net farm income.
North Carolina's agricultural diversity and a continuing emphasis on
marketing efforts have protected farm income from some of the wide variations
experienced in states where most of the agricultural economy is dependent on a
small number of agricultural commodities. North Carolina has the third most
diversified agricultural economy in the nation. In 1997, there were
approximately 54,000 farms in the State. A strong agribusiness sector also
supports farmers with farm inputs (agricultural chemicals and fertilizer, farm
machinery, and building supplies) and processing of commodities produced by
farmers (vegetable canning and cigarette manufacturing). North Carolina's
agricultural industry, including food, fiber and forest, contributes over $46
billion annually to the State's economy, accounts for nearly 25% of the State's
income and employs approximately 22% of the State's workforce.
On November 23, 1998, 46 states' Attorneys General and the major tobacco
companies signed a proposed settlement that reimburses states for
smoking-related medical expenses paid through Medicaid and other health care
programs. North Carolina could receive approximately $4.6 billion over the next
25 years. The settlement was approved in North Carolina by a Consent Decree in
December 1998. On March 16, 1999, the General Assembly enacted a law approving
the establishment of a foundation, to comply with the Consent Decree, to help
communities in North Carolina hurt by the decline of tobacco. The court must
review the law for compliance with the intent outlined in the Consent Decree.
The foundation would receive 50% of the settlement. A trust fund for tobacco
farmers and quota holders and a second trust fund for health programs, both to
be created by the General Assembly, would each get a quarter of the settlement.
The Division of Tourism, Film and Sports Development of the North
Carolina Department of Commerce has estimated that approximately $10.1 billion
was spent on tourism in the State in 1997, an increase of approximately 4.1%
over 1996. The Division of Tourism, Film and Sports Development estimates that
approximately 171,000 people, or 4.7% of total non-agricultural employment, were
employed in tourism-related jobs in the State.
Revenue Structure. North Carolina's three major operating funds which
receive revenues and from which monies are expended are the General Fund, the
Highway Fund and the Highway Trust Fund. The 1989 General Assembly created the
Highway Trust Fund to provide monies for a major highway construction program
for the State. There are no prohibitions or limitations in the North Carolina
Constitution on the State's power to levy taxes except an income tax rate
limitation of 10% and a prohibition against a capitation or "poll" tax.
A portion of North Carolina's tax revenue is generated from individual
and corporate income taxes, sales and use taxes, highway use tax on certain
short-term motor vehicle rentals, corporate franchise tax, excise taxes on piped
natural gas, taxes on alcoholic beverages, tobacco products and soft drinks,
estate taxes, insurance taxes levied on insurance companies and other taxes,
which revenues are deposited into the State's General Fund. Additional tax
revenue is generated from a motor fuels tax, a highway use tax on long term
rentals and retail sales of motor vehicles and motor vehicle license tax, which
revenue is deposited in the Highway Fund and Highway Trust Fund. Additional
non-tax revenue deposited to the General Fund consists of (i) institutional and
departmental receipts which are deposited with the State Treasurer, including
fees, tuition payments, and Federal funds collected by State agencies, (ii)
interest earned by the State Treasurer on investments of General Fund monies,
and (iii) revenues from the judicial branch. Federal aid is an important source
of non-tax revenue for the Highway Fund and Highway Trust Fund.
State Budget. The North Carolina Constitution requires that the total
expenditures of the State for the fiscal period covered by the budget not exceed
the total of receipts during the fiscal period and the surplus remaining in the
State Treasury at the beginning of the period.
The budget is based upon estimated revenues and a multitude of existing
and assumed State and non-State factors, including State and national economic
conditions, international activity and federal government policies and
legislation.
The Executive Budget Act, adopted by the General Assembly in 1925, sets
out the procedure by which the State's budget is adopted and administered. The
Act requires the adoption of a balanced budget. North Carolina General Statute
Section 143-25 provides that the Governor, as ex officio Director of the Budget,
"may reduce all of said appropriations, pro rata when necessary, to prevent an
overdraft or deficit to the fiscal period for which such appropriations are
made. The purpose and policy of this Article is to provide and insure that there
shall be no overdraft or deficit in the General Fund of the State at the end of
the fiscal period, growing out of appropriations for maintenance, and the
Director of the Budget is directed and required to so administer this Article so
as to prevent any such overdraft or deficit. Prior to taking any action under
this section to reduce appropriations pro rata, the Governor may consult with
the Advisory Budget Commission." The Governor may take less drastic action to
reduce expenditures to maintain a balanced budget before the need for
across-the-board appropriations reduction arises.
In November 1996, the voters of the State approved a Constitutional
amendment giving the Governor the power to veto budgetary and certain other
legislative matters.
Actual General Fund tax revenue totaled $11,679,700,000 in 1997-98, an
increase of 9.5% over 1996-97. General Fund tax and non-tax revenue totaled
12,097,200,000 in 1997-98, an increase of 8.1% over 1996-97. This tax and
non-tax revenue total includes investment earnings of $447,700,000. The
individual income tax personal exemption was increased from $2,000 to $2,250 for
1995 and further to $2,500 for 1996 and beyond. In addition, a $60 child tax
credit was enacted beginning with the 1995 tax year. The remaining portion of
the State intangibles tax was also repealed as of January 1, 1995.
The State sales and use tax rate on food consumed at home was reduced
from 3.0% to 2.0% beginning January 1, 1997, and has been repealed effective
July 1, 1998. The State corporate income tax rate was reduced from 7.5% to 7.25%
in 1998, 7.0% in 1999, and will be reduced to 6.9% in 2000 and thereafter. The
State homestead exemption was increased, decreasing the ad valorem tax base for
counties. Most privilege license taxes were eliminated as of January 1, 1997.
The Highway Fund revenue collections totaled $1,778,900,000 in fiscal
year 1997-98, an 8.0% increase over 1996-97. Sources of revenues for the Highway
Fund include taxes on the sale of motor fuels as well as registration and
licensing fees for motor vehicles. This gross revenue includes investment
earnings in the amount of $18.5 million.
The Highway Trust Fund is more dependent on consumption-based revenues,
such as taxes and fees derived from sales of motor fuels and vehicles, than the
Highway Fund, which draws upon more stable sources for its revenue, such as
motor vehicle registration and licensing fees. The Highway Trust Fund revenue
collections totaled $862,200,000 in fiscal year 1997-98, an 8.8% increase over
1996-97. This gross revenue includes investment earnings in the amount of $62.8
million.
State Indebtedness. The North Carolina Constitution provides in substance
that the State shall not contract a debt, other than refunding debt, by
borrowing money in any biennium and pledge its faith and credit to the payment
thereof for an amount in excess of two-thirds of the amount by which the
outstanding debt of the State was reduced in the preceding biennium unless the
proposed debt is submitted to and approved by the voters at an election.
The State is authorized by the Constitution to borrow in anticipation of
the collection of taxes due and payable within the current fiscal year to an
amount not exceeding 50% of such taxes. The State has not borrowed in
anticipation of taxes since fiscal year 1959-60.
There are no bonds of the State outstanding which contemplate the
appropriation by the General Assembly of such amount as may be necessary to make
up any deficiency in a debt service reserve therefor. Furthermore, no
legislation has been enacted by the General Assembly which would authorize the
issuance of any such bonds.
Of the $1.95 billion of bonds authorized and unissued, an offering of $450
million School Bonds was anticipated for the second quarter of 2000. It is
anticipated that $300 million of Clean Water and Natural Gas Bonds will be
issued in the 2000-01 fiscal year.
Litigation. The following are cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure but which, in the opinion of the Department of State Treasurer,
would not materially adversely affect the State of North Carolina's ability to
meet its financial obligations:
1. Leandro, et al. v. State of North Carolina and State Board of Education
- School Funding. On May 25, 1994 students and boards of education in five
counties in the State filed suit in Superior Court requesting a declaration that
the public education system of North Carolina, including its system of funding,
violates the State constitution by failing to provide adequate or substantially
equal educational opportunities and denying due process of law and violates
various statutes relating to public education. Five other North Carolina
counties intervened and now allege claims for relief on behalf of their
students' rights to sound basic education on the basis of the high proportion of
at risk students in the counties' systems.
The suit is similar to a number of suits in other states, some of which
resulted in holdings that the respective systems of public education funding
were unconstitutional under the applicable state law. The State filed a motion
to dismiss, which was denied at the trial court level. On appeal, the North
Carolina Supreme Court upheld the present funding system against the claim that
it unlawfully discriminated against low wealth counties but remanded the case
for trial on the claim for relief based on the Court's conclusion that the North
Carolina Constitution guarantees every child the opportunity to obtain a sound
basic education. Trial on the claim of one plaintiff's County is set for August
of 1999. The North Carolina Attorney General's Office believes that sound legal
arguments support the State's position.
2. Bailey/Emory/Patton cases -- State Tax Refunds-State and Federal
Retirees. State and local government retirees filed a class action suit in 1990
as a result of the repeal of the income tax exemptions for state and local
government retirement benefits. The original suit was dismissed after the North
Carolina Supreme Court ruled in 1991 that the plaintiffs had failed to comply
with state law requirements for challenging unconstitutional taxes and the
United States Supreme Court denied review. In 1992, many of the same plaintiffs
filed a new lawsuit, Bailey, et. al. v. North Carolina, et. al., alleging
essentially the same claims, including breach of contract, unconstitutional
impairment of contract rights by the State in taxing benefits that were
allegedly promised to be tax-exempt and violation of several state
constitutional provisions.
On May 31, 1995, the Superior Court of Wake County issued an order ruling
in favor of the Bailey plaintiffs. On May 8, 1998 the North Carolina Supreme
Court affirmed the Superior Court order in favor of the Bailey plaintiffs.
Several additional cases, also named Bailey, et. al. v. North Carolina, et. al.,
and one named Emory, et. al. v. North Carolina, et. al., were filed by State and
local government retirees to preserve their refund claims for subsequent tax
years through tax year 1997. The outcome of these cases was controlled by the
outcome of the initial Bailey case.
In 1995, a group of federal government retirees filed a class action suit
in Wake County Superior Court, Patton, et. al. v. North Carolina, et. al.,
seeking refunds of State taxes paid on federal pension income since 1989. The
Patton plaintiffs alleged that, should the plaintiffs in Bailey prevail, such a
result would re-establish the disparity of treatment between state and federal
pension income which was held unconstitutional in Davis v. Michigan (1989). In
Davis, the United States Supreme Court ruled that a Michigan income tax statute
which taxed federal retirement benefits while exempting those paid by state and
local governments violated the constitutional doctrine of intergovernmental tax
immunity. At the time of the Davis decision, North Carolina law contained
similar exemptions in favor of state and local retirees. Those exemptions were
repealed prospectively, beginning with 1989 tax year, resulting in the Bailey
case.
On June 10, 1998, the North Carolina General Assembly reached an agreement
settling the Bailey, Emory and Patton cases. The agreement, embodied in a
consent order, provided that the State would pay $799,000,000 in two
installments, one in 1998 and the other in 1999, to extinguish all liability for
refunds for tax years 1989 through 1997 of taxes paid by federal, State and
local government retirees who had five years of creditable service in their
retirement system prior to August 12, 1989, the date of enactment of the statute
repealing the exemptions from taxation of State and local government retirement
benefits, or who had "vested" by that date in certain "defined contribution"
plans such as the State's 401(k) and deferred compensation plans. The consent
order was conditioned upon the North Carolina General Assembly appropriating the
funds to make the payments set forth in the consent order and court approval of
the settlement following notice to class members. The appropriation of the first
installment of $400,000,000 was made, and the Superior Court approved the
settlement on October 7, 1998.
3. Smith/Shaver Cases - State Tax Refunds - Intangibles Tax. The Smith
case is a class action tax refund lawsuit related to litigation in Fulton
Corporation v. Faulkner, a case filed by a single taxpayer and decided by the
United States Supreme Court in 1996 regarding the constitutionality of certain
taxes previously collected by the State on intangible personal property. On July
7, 1995, while the Fulton case was pending before the United States Supreme
Court, the Smith class action was commenced in North Carolina Superior Court on
behalf of all other taxpayers who had paid the tax and had complied with the
requirements of the North Carolina tax refund statute and would, therefore, be
entitled to refunds if Fulton prevailed on its refund claim. These original
plaintiffs were later designated Class A when a second group of plaintiffs were
added. The new class, denominated Class B, consisted of taxpayers who had paid
the tax but had failed to comply with the tax refund statute. On February 21,
1996, the United States Supreme Court held in Fulton that the State's
intangibles tax on shares of stock in non-North Carolina corporations (by then
repealed) violated the Commerce Clause of the United States Constitution because
it discriminated against stock issued by corporations that do all or part of
their business outside of North Carolina. It remanded the case to the North
Carolina Supreme Court to consider remedial issues, including whether the
offending provision in the statute (the taxable percentage deduction) was
severable.
On February 10, 1997, the Supreme Court of North Carolina in the Fulton
remand proceeding severed the taxable deduction provision and invited the
General Assembly to determine the appropriate remedy for the discriminatory tax
treatment of eligible taxpayers who paid the tax but did not benefit from the
deduction. While the General Assembly considered the remedial issues raised by
the Fulton remand, the Smith plaintiffs moved for judgment on their refund
claims. On June 11, 1997, the trial judge in Smith ordered refunds to be made
for tax years 1991-1994 to the Class A plaintiffs and dismissed the Class B
claims. Refunds to Class A taxpayers, totaling approximately $120,000,000 have
been paid, with interest. The Class B plaintiffs appealed, and on December 4,
1998, the North Carolina Supreme Court reversed the dismissal of their claims.
As a result of the Smith decision, the State will be required to pay refunds to
the Class B plaintiffs. As of March 31, 1999, the State estimated that its
liability for such tax refunds, with interest through June 30, 1999, would be
approximately $350,000,000.
A second class action tax refund lawsuit, Shaver, et. al. v. North
Carolina, et. al., was filed on January 16, 1998, by the same taxpayers as the
Class B plaintiffs in Smith asserting alternative theories of recovery for the
same tax years 1991 through 1994 involved in the Smith case and claiming refunds
for one additional tax year, 1990. Their additional claim for tax year 1990
totaled approximately $100,000,000.
On July 12, 1999, the General Assembly approved a plan to settle all
outstanding claims in the Smith and Shaver cases for a total sum of
$440,000,000. Pursuant to the terms of the settlement plan, $200,000,000 will be
appropriated by the State in October 1999, and the remaining $240,000,000 will
be appropriated no later than July 2000. Final implementation of the settlement
is contingent upon the entrance of a consent order by the presiding judge in the
Smith and Shaver cases.
4. N.C. School Boards Association, et. al. v. Harlan E. Boyles, State
Treasurer, et. al. - Use of Administration Payments. On December 14, 1998,
plaintiffs, including the county school boards of five counties, filed suit
in Superior Court requesting a declaration that certain payments to State
administrative agencies must be distributed to the public schools on the
theory that such amounts are fines which under the North Carolina
Constitution must be paid to the schools. For the last fiscal year for which
information was available to them, plaintiffs allege liability of
approximately $84,000,000. Until this matter is resolved, any refunds and
interest will continue to accrue. The North Carolina Attorney General's
office believes that sound legal arguments support the State's position on
the outstanding claims.
5. Faulkenbury v. Teachers' and State Employees' Retirement System, Peele
v. Teachers' and State Employees' Retirement System and Woodard v. Local
Governmental Employees' Retirement System - Disability Retirement Benefits.
Plaintiffs are disability retirees who brought class actions in state court
challenging changes in the formula for payment of disability retirement benefits
and claiming impairment of contract rights, breach of fiduciary duty, violation
of other federal constitutional rights, and violation of state constitutional
and statutory rights. The Superior Court ruled in favor of plaintiffs. The Order
was affirmed by the North Carolina Supreme Court in 1997. The case went back to
the Superior Court for calculations of benefits and payment of retroactive
benefits, along with determination of various remedial issues. As a result of
the remedial proceedings, there are now two appeals pending in the appellate
courts concerning calculation of retroactive benefits. The plaintiffs previously
submitted documentation to the court asserting that the cost in damages and
higher prospective benefit payments to the plaintiffs and class members would
amount to $407.0 million. Calculations and payments so far indicate that
retroactive benefits will be significantly less than estimated, depending in
part on the pending appeals. Payments have been made by the State of
approximately $73.0 million. The remaining liability for retroactive benefits is
estimated by the State not to exceed $42.0 million. All retroactive payments and
future benefit payments are payable from the funds of the Retirement systems.
Ohio Series
State Economy and Budget. The "non-manufacturing" sector employs
approximately 80% of all non-agricultural payroll workers in the State of Ohio.
Economic activity in Ohio, as in many other industrially developed states, tends
to be more cyclical than in some other states and in the nation as a whole.
Agriculture and related agricultural sectors combined also is an important
segment of the Ohio economy. The financial condition of the State has fluctuated
in a pattern related to national economic conditions, with periods of prolonged
stringency characterizing fiscal years 1980 through 1983. Additionally, the
1980-82 recession brought with it a substantial increase in bankruptcies and
foreclosures. While the State's economy improved since 1983, the State
experienced an economic slowdown in 1990-91, consistent with the national
economic conditions during that period. In recent years the State has
experienced an increase in economic activity, fueled in part by employment
growth in the non-manufacturing sector, consistent with the national trend. This
economic upswing served as a basis for temporary personal income tax reductions
in 1996.
The State constitution requires the Ohio General Assembly to "provide for
raising revenue, sufficient to defray the expenses of the State, for each year,
and also a sufficient sum to pay the principal and interest as they become due
on the State debt." The State is effectively precluded by law from ending a
fiscal year or a biennium in a "deficit" position. State borrowing to meet
casual deficits or failures in revenues or to meet expenses not otherwise
provided for is limited by the constitution to $750,000.
The State finances most of its operations through the General Revenue Fund
("GRF") which receives general state revenues not otherwise dedicated pursuant
to certain constitutional and statutory claims on state revenues. The GRF
sources consist primarily of personal income and sales and use taxes. The GRF
ending (June 30) biennial fund balance is reduced during less-favorable national
economic periods and then increases during more favorable economic periods.
The Office of Budget and Management ("OBM") reported positive $976.8
million ending fund balance for the GRF for the last complete fiscal biennium
ended June 30, 1999. In addition, as of June 1, 2000, the Budget Stabilization
Fund ("BSF") had a cash balance of $953.3 million.
For the 1998-99 biennium, GRF appropriations approximated $36 billion,
which provided for significant increases in funding for primary and secondary
education. Of the first Fiscal Year (ended on June 30, 1998) ending fund balance
of over $1.08 billion, approximately $701,400,000 was transferred into the State
income tax reduction fund, $200,000,000 into public school assistance programs,
and $44,184,153 into the BSF. The Fiscal Year 1999 biennium ending GRF balances
were $1.512 billion (cash) and $976,778,000 (fund). Portions of that fund
balance were transferred as follows: $325,700,000 to school building assistance;
$293,185,000 to the State income tax reduction fund; $85,400,000 to SchoolNet (a
program to supply computers for classrooms); $46,374,000 to the BSF; and
$4,600,000 to interactive video distance learning. With the transfer, the BSF
balance increased to its current level of $953,291,000.
The GRF appropriations acts for the current 2000-01 biennium (one for all
education purposes, and one for general GRF purposes) were both passed in June
1999 and were promptly signed (after selective vetoes) by the Governor. Those
acts provided for total GRF biennial expenditures of over $39.8 billion. The
following are examples of GRF major program biennial expenditure increases over
those for the prior biennium: primary and secondary education, 17.2%; higher
education, 12.6%; mental health and mental retardation, 4.3%; and adult and
juvenile corrections, 18%.
Because GRF cash receipts and disbursements do not precisely coincide,
temporary GRF cash flow deficiencies often occur in some months, particularly
the middle months, of a Fiscal Year. State statutory provisions provide for
effective management by permitting the adjustment of payment schedules (as was
done during some prior Fiscal Years) and the use of the Total Operating Fund
("TOF") to manage temporary GRF cash flow deficiencies. The State has not
undertaken external revenue anticipation borrowing.
The TOF includes the total consolidated total cash balances, revenues,
disbursements and transfers of the GRF and several other specified funds
(including the BSF). The TOF 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.
The State has planned for and encountered some monthly GRF cash flow
deficiencies in all recent Fiscal Years. For example, GRF cash flow deficiencies
have ranged from occurring in 10 months in Fiscal Year 1992 to four months in
Fiscal Years 1995 and 1997. With respect to recent fiscal years, the GRF had
cash flow deficiencies in five months in Fiscal Year 1998 (the highest being
$742,059,000), in six months in Fiscal Year 1999 (the highest being
$497,677,000), and in four months of the current Fiscal Year (the highest being
$827,127,000). GRF cash flow deficiencies have been and are expected by OBM to
remain within the TOF limitations discussed above.
The State has enacted legislation allocating its anticipated share of the
proceeds of the national tobacco settlement. A comprehensive allocation has been
made through Fiscal Year 2012 and a partial allocation has been made through
Fiscal Year 2025. (In light of the constitutional two-year limitation on
appropriations, those allocations are subject to the General Assembly making
biennial appropriations to fund them.) None of the moneys are to be applied to
existing operations programs of the State. The main portion of the moneys will
go to assist the financing of elementary and secondary school capital
facilities. Other amounts are targeted for new programs for smoking cessation
and other health-related purposes, biomedical research and technology transfer,
and assistance to the tobacco-growing areas of the State (primarily the
southeastern portion).
State Debt. The Ohio Constitution prohibits the incurrence or assumption
of debt by the State without a popular vote except to (i) cover causal deficits
or failures in revenues limited in amount of $750,000 and (ii) repel invasion,
suppress insurrection or defend the State in war.
From 1921 to June 1, 2000, the voters of Ohio, by 16 constitutional
amendments, have authorized the incurrence of state borrowing debt to which
taxes or excises were pledged for payment, all of which related to capital
facilities financing, except for three funding veterans' bonuses and one for
coal technology research and development. The only such tax-supported debt still
authorized to be incurred are highway, local infrastructure, coal development
and natural resources general obligation bonds and a recently authorized common
school and higher education facilities bonds.
A constitutional amendment approved by the electors in November 1999
provides a new annual debt service "cap" for future issues of State general
obligation bonds and other State direct obligations payable from the GRF or net
State lottery proceeds. Generally, those new bonds may not be issued if future
Fiscal Year debt service on those new and the then outstanding bonds would
exceed 5% of the total estimated GRF revenues plus net State lottery proceeds
during the Fiscal Year of issuance. Application of the cap may be waived in a
particular instance by a 3/5ths vote of each house of the General Assembly, and
may be changed by future constitutional amendments. Those direct obligations of
the State include, for example, bonds issued by the OPFC, OBA and Treasurer that
are paid from GRF appropriations, but exclude bonds such as highway bonds that
are paid from highway user receipts. Pursuant to the amendment and implementing
legislation, the Governor has designated the OBM Director as the State official
to make the 5% determinations and certifications.
The State and State agencies have issued revenue bonds that are payable
from net revenues of or relating to revenue-producing facilities or categories
of facilities, such as those issued by the Ohio Turnpike Commission. Under
interpretations by Ohio courts, those revenue bonds are not "debt" within the
constitutional provisions described above. The Constitution authorizes State
bonds for certain housing purposes (issued by the Ohio Housing Finance Agency),
to which tax moneys may not be obligated or pledged.
In addition, the Constitution authorizes the issuance, for certain
purposes, of State obligations the owners or holders of which are not given the
right to have excises or taxes levied by the General Assembly to pay principal
and interest. Those special obligations include those issued by, among others,
the Ohio Public Facilities Commission (OPFC) and the Ohio Building Authority
(OBA), and certain obligations issued by the Treasurer of State. OPFC issues
those obligations for mental health and parks and recreation purposes, and has
previously issued them for higher education purposes. OBA issues obligations for
facilities to house branches and agencies of State government and their
functions, including: State office buildings and facilities for the Department
of Administrative Services (DAS) and others; juvenile detention facilities for
the Department of Youth Services (DYS) and other governmental entities; Ohio
Department of Transportation (ODOT) buildings; Department of Rehabilitation and
Correction (DRC) prisons and correctional facilities including certain local and
community-based facilities; office facilities for the Bureau of Workers'
Compensation (BWC) and Department of Natural Resources (DNR); Ohio Arts and
Sports Facilities Commission (AFSC) and Department of Public Safety (DPS)
facilities; and school district computer technology and security facilities. The
Treasurer has issued obligations for certain elementary and secondary school
facilities under lease with the Ohio School Facilities Commission.
In recent years, State agencies also have participated in office and
non-highway transportation projects that have some local as well as State use
and benefit, in connection with which the State enters into lease-purchase
agreements with terms ranging from 7 to 20 years. Certificates of participation
(COPs) are issued that represent fractionalized interests in the State's
anticipated payments. OBM estimates the highest future Fiscal Year payments,
which are primarily made from GRF appropriations, under those agreements to be
$4,599,220.
In addition, to assist in financing selected highway infrastructure
projects, the State has recently used financing arrangements (lease agreements,
with related local agency special obligation bonds) that call for State payments
to be made from federal transportation funds allocated to the State. OBM
estimates the highest future Fiscal Year payments under those arrangements to be
$23,962,913. In the event of any insufficiency in those anticipated federal
allocations, the ODOT director is obligated to request a discretionary General
Assembly appropriation from other sources.
Payments by the State under all such agreements are subject to biennial
appropriations by the General Assembly, with the lease terms as to the State
being two years subject to renewal if appropriations are made. The number and
amount of obligations under such agreements have varied and will vary from time
to time. Generally, the OBM Director's approval of such agreements is required,
particularly if there are to be publicly offered obligations representing
fractionalized interests in or payable from the State's anticipated payments.
A statewide economic development program assists, with loans and loan
guarantees, the financing of facilities for industry, commerce, research and
distribution. The law authorizes the issuance of state bonds and loan guarantees
secured by a pledge of portions of the state profits from liquor sales. The
General Assembly has authorized the issuance of these bonds by the State
Treasurer, with a general maximum of $300 million currently authorized to be
outstanding at any one time (excluding bonds issued to meet guarantees, but less
any amount by which 4% of the unpaid principal amount of guaranteed loan
payments exceeds the funded amount applicable to the guarantees). The aggregate
amount from the liquor profits to be used in any fiscal year in connection with
these bonds (except for bonds issued to meet guarantees) may not under present
law exceed $25 million. The total of unpaid guaranteed loan amounts and unpaid
principal of direct loans may not exceed $500 million. A 1996 issue of $168.74
million ($161.16 million outstanding) of taxable bonds refunded outstanding
bonds and provided additional funds for the program. A 1998 issue of
approximately $102.0 million of taxable forward purchase refunding bonds were
issued to refund, as of 2006, term bonds of the 1996 issue stated to mature in
2016 and 2021. The highest future fiscal year debt service on the outstanding
bonds of those issues, which are payable through 2021, is approximately $16.2
million in 2008.
Only a portion of State capital needs can be met by direct GRF
appropriations; therefore, additional State borrowing for capital purposes has
been and will be required. Until recently, under constitutional limitations most
of that borrowing has been by lease-rental supported obligations such as those
issued by OPFC and OBA and, in some cases, by the Treasurer.
The capital appropriations and capital reappropriations acts for the
2001-02 biennium authorized additional borrowings for the various categories,
including over $930 million in general obligations for education purposes.
The State is a party to various legal proceedings seeking damages or
injunctive relief. The State also is party to certain litigation questioning the
constitutionality of the State's system of school funding. The Ohio Supreme
Court concluded in 1997 that major aspects of the system are unconstitutional.
It ordered the State to provide for and fund sufficiently a system complying
with the Ohio Constitution, staying its order to permit time for responsive
corrective actions by the General Assembly. The Court has indicated that
property taxes may still play a role in, but "can no longer be the primary
means" of, school funding. The Court remanded the case to the trial court to
hear evidence and render an opinion on the constitutionality of the enacted
legislation which opinion could then be appealed directly to the Ohio Supreme
Court. A hearing in the trial court was subsequently held on the
constitutionality of the legislation enacted since 1992 to enhance school
funding consistent with the Supreme Court decision.
In February 1999, the trial court ruled that the State continues to be not
in compliance with the constitutional requirements, and ordered the State
"forthwith to provide for and fund a system of funding public elementary and
secondary education in compliance with the Ohio Constitution and the 1997
directive of the Ohio Supreme Court." The court also ordered the State Board of
Education and the State Superintendent of Public Instruction to prepare and
submit to the General Assembly proposals for compliance with the trial court
orders and the Supreme Court directive.
The State has filed with the Ohio Supreme Court a notice of appeal of the
trial court's decision. The trial court has granted the State's request for a
stay, pending appeal, of implementation of its order (except that portion
calling for State agency proposals). It is not possible at this time to state
what the results of any appeal might be, or, should plaintiffs prevail on
appeal, the effect on the State's present school funding system.
Litigation pending in the Ohio Court of Claims contests the Ohio
Department of Job and Family Services (OJFS), formerly the Department of Human
Services, prior Medicaid financial eligibility rules for married couples when
one spouse is living in a nursing facility and the other resides in the
community. ODHS promulgated new eligibility rules effective January 1, 1996.
ODHS appealed an order of the federal court directing it to provide notice to
persons potentially affected by the former rules from 1990 through 1995, and the
Court of Appeals rules in favor of ODHS; plaintiff's petition for certiorari was
not granted by the U.S. Supreme Court. As the Court of Claims case, it is not
possible to state the period (beyond the current Fiscal Year) during which
necessary additional Medicaid expenditures would have to be made. Plaintiffs
have estimated total additional Medicaid expenditures at $600,000,000 for the
retroactive period and, based on current law, it is estimated that the State's
share of those additional expenditures would be approximately $240,000,000. In
April 1999, the Court of Claims decertified the action there as a class action,
but on appeal, in April 2000, the Ohio Court of Appeals reversed the Court of
Claims grant of the motion to decertify. The State is seeking to appeal this
decision, and it filed a notice of appeal and memorandum seeking jurisdiction in
the Ohio Supreme Court on May 15, 2000.
State Employees and Retirement Systems. The State has established five
public retirement systems to provide retirement, disability retirement and
survivor benefits. The Public Employees Retirement System ("PERS"), the largest
of the five, covers both State and local public employees. The State Teachers
Retirement System ("STRS") and School Employees Retirement System ("SERS")
primarily cover school district and public higher education employees. The
Highway Patrol Retirement System ("HPRS") covers State troopers, and the Police
and Firemen's and Disability and Pension Fund System ("PFDPS") covers local
safety forces.
As the most recent year reported by the particular system, the unfunded
accrued liabilities of STRS (6/30/99) and SERS (6/30/99) were $5.639 billion and
$203.2 million, respectively, and the unfunded accrued liabilities of PERS
(12/31/98), HPRS (12/31/98) and PFDPS (12/31/98) were $1.125 billion, $36.3
million and $1.47 billion, respectively.
State Municipalities. Ohio has a mixture of urban and rural population,
that is approximately three-quarters urban. There are 943 incorporated cities
and villages (municipalities with populations under 5,000) in the State; six
cities have populations of over 100,000 and eighteen over 50,000.
A 1979 act established procedures for identifying and assisting those few
cities and villages experiencing defined "fiscal emergencies." A commission
composed of state and local officials, and private sector members experienced in
business and finance appointed by the Governor, is to monitor the fiscal affairs
of a municipality facing substantial financial problems. That act requires the
municipality to develop, subject to approval and monitoring by its commission, a
financial plan to eliminate deficits and cure any defaults and otherwise remedy
fiscal emergency conditions, and to take other actions required under its
financial plan. It also provides enhanced protection for the municipality's
bonds and notes and, subject to the act's stated standards and controls, permits
the State to purchase limited amounts of the municipality's short-term
obligations (used only once, in 1980).
Over the years, the act's "fiscal emergency" provisions have been applied
to 12 cities and to 14 villages. As of June 1, 2000, five municipalities remain
under the procedure. A new preliminary "fiscal watch" status has recently been
added, with two municipalities in this status as of June 1, 2000.
The fiscal emergency legislation was recently amended to extend its
potential application to counties (88 in the State) and townships. This
extension is on an "if and as needed" basis, and not aimed at particular
identified existing fiscal problems of those subdivisions.
Summary. Many factors affect or could affect the financial condition of
the State and other issuers of debt obligations, many of which are not within
the control of the State or such issuers. There can be no assurance that such
factors and the resulting impact on State and local governmental finances will
not affect adversely the market value of Ohio Municipal Obligations held in the
portfolio of the Fund or the ability of the respective obligors to make required
payments on such obligations.
Pennsylvania Series
General. Pennsylvania historically has been dependent on heavy industry,
although declines in the coal, steel and railroad industries have led to
diversification of the Commonwealth's economy over the last thirty years. Recent
sources of economic growth in Pennsylvania are in the service sector, including
trade, medical and health services, education and financial institutions.
Agriculture continues to be an important component of the Commonwealth's
economic structure, with nearly one-third of the Commonwealth's total land area
devoted to cropland, pasture and farm woodlands.
In 1999, the population of Pennsylvania was 11.99 million, ranking fifth
in the nation. According to the U.S. Bureau of the Census, Pennsylvania
experienced a slight increase from the 1990 estimate of 11.89 million.
Pennsylvania has a high proportion of persons between 24 and 65 years old, and
is highly urbanized, with almost 80% of the 1990 census population residing in
the 15 Metropolitan Statistical Areas of the Commonwealth. The cities of
Philadelphia and Pittsburgh, the Commonwealth's largest metropolitan statistical
areas, together comprise approximately 44% of the Commonwealth's total
population.
The Commonwealth's workforce is estimated at 5.9 million people, ranking
as the sixth largest labor pool in the nation. Pennsylvania's average annual
unemployment rate remained below the national average between 1986 and 1990.
Slower economic growth caused the rate to rise to 7.0% in 1991 and 7.6% in 1992.
The resumption of faster economic growth resulted in a decrease in the
Commonwealth's unemployment rate to 4.3% in 1999. From 1994 through 1998,
Pennsylvania's annual average unemployment rate was below that of the Middle
Atlantic Region, but slightly higher than that of the United States as a whole.
As of December 1999, the seasonally adjusted unemployment rate for the
Commonwealth was 4.1%, equal to that of the United States as a whole.
Personal income in the Commonwealth for 1998 was $321.5 billion, an
increase of 4.1% over the previous year. During the same period, national
personal income increased at a rate of 5.0%.
Financial Accounting. Pennsylvania utilizes the fund method of accounting
and over 150 funds have been established for the purpose of recording receipts
and disbursements, of which the General Fund is the largest. Most of the
operating and administrative expenses are payable from the General Fund. The
Motor License Fund is a special revenue fund that receives tax and fee revenues
relating to motor fuels and vehicles, and except for one-half cent per gallon of
the liquid fuels tax which is deposited in the Liquid Fuels Tax Fund for
distribution to local municipalities, all such revenues are required to be used
for highway purposes. Other special revenue funds have been established to
receive specified revenues appropriated to specific departments, boards and/or
commissions. Such funds include the Game, Fish, Boat, Banking Department, Milk
Marketing, State Farm Products Show, State Racing and State Lottery Funds. The
General Fund, all special revenue funds, the Debt Service Funds and the Capital
Project Funds combine to form the Governmental Fund Types.
The Tax Stabilization Reserve Fund was established in 1986 and provided
with initial funding from General Fund appropriations. The Tax Stabilization
Reserve Fund receives 15% of any budgetary basis fiscal year-end surplus of the
General Fund and all proceeds from the disposition of assets of the Commonwealth
not designated for deposit elsewhere. It is to be used for emergencies
threatening the health, safety or welfare of citizens or to offset unanticipated
revenue shortfalls due to economic downturns. Assets of the fund may be used
upon recommendation by the Governor and an approving vote by two-thirds of the
members of each house of the General Assembly. The fund balance was in excess of
$943.3 million as of June 30, 1999.
Enterprise funds are maintained for departments or programs operated like
private enterprises. The largest of the Enterprise funds is the State Stores
Fund, which is used for the receipts and disbursements of the Commonwealth's
liquor store system. Sale and distribution of all liquor within Pennsylvania is
a government enterprise.
Financial information for the funds is maintained on a budgetary basis of
accounting ("Budgetary"). Since 1984, the Commonwealth has also prepared
financial statements in accordance with generally accepted accounting principles
("GAAP"). The GAAP statements have been audited jointly by the Auditor General
of the Commonwealth and an independent public accounting firm. The Budgetary
information is adjusted at fiscal year end to reflect appropriate accruals for
financial reporting in conformity with GAAP. The Commonwealth maintains a June
30th fiscal year end.
The Constitution of Pennsylvania provides that operating budget
appropriations may not exceed the actual and estimated revenues and available
surplus in the fiscal year for which funds are appropriated. Annual budgets are
enacted for the General Fund and for certain special revenue funds which
represent the majority of expenditures of the Commonwealth.
Assets in the Commonwealth's governmental fund types rose during fiscal
1999 by 21.0 percent to $9,238.6 million. Liabilities for the governmental fund
types during fiscal 1999 increased by 6.3 percent to $4,086.8 million. A larger
gain in assets than in liabilities during fiscal 1999 for governmental fund
types produced a 35.9 percent increase in equity and other credits at June 30,
1999. Equity and other credits at the end of fiscal 1999 totaled $5,151.8
million, up from $3,791.8 million at the end of fiscal 1998. The five-year
period ending with fiscal 1999 was a time of economic growth with modest rates
of growth at the beginning of the period and larger increases during the most
recent years. Throughout the period, inflation has remained relatively low,
helping to restrain expenditure growth. Favorable economic conditions have
helped total revenues and other sources rise at an average annual rate of 5.8
percent during the five-year period. Taxes, the largest revenue source,
increased at an average annual rate of 4.3 percent during the five-year period.
License and fee revenues rose at a 7.1 percent average annual rate, largely
because of various motor vehicle fee increases effective for fiscal 1998. Other
revenues, mostly charges for sales and services and investment income, increased
at an average annual rate of 20.3 percent during the period. Expenditure and
other uses during the fiscal 1995 through fiscal 1999 period rose at a 4.8
percent average annual rate, led by a 9.6 percent average annual increase for
protection of person and property costs. Though still high, the growth rate for
this program has declined from previous year's rates as the increased costs to
acquire, staff and operate expanded prison facilities becomes part of the
expenditure base. Public health and welfare programs, the largest single
category of expenditures, have experienced a 5.8 percent average annual increase
for expenditures, slightly above the average for total expenditures. Capital
outlay has increased by an annual average rate of 20.8 percent during the
five-year period. Increased amounts committed to community and economic
development projects through the capital budget are largely responsible for the
growth rate.
Revenues and Expenditures. Pennsylvania's Governmental Fund Types receive
over 54% of their revenues from taxes levied by the Commonwealth. Interest
earnings, licenses and fees, lottery ticket sales, liquor store profits,
miscellaneous revenues, augmentations and federal government grants supply the
balance of the receipts to these funds. Revenues not required to be deposited in
another fund are deposited in the General Fund. The major tax sources for the
General Fund are the 6% sales and use tax (34.4% of General Fund revenues in
fiscal 1999), the 2.8% personal income tax (34.8% of General Fund revenues in
fiscal 1999) and the 9.99% corporate net income tax (9.0% of General Fund
revenues in fiscal 1999). Tax and fee proceeds relating to motor fuels and
vehicles are constitutionally dedicated to highway purposes and are deposited
into the Motor License Fund. The major sources of revenues for the Motor License
Fund include the liquid fuels tax and the oil company franchise tax. That Fund
also receives revenues from fees levied on heavy trucks and from taxes on fuels
used for aviation purposes. These latter revenues are restricted to the repair
and construction of highway bridges and aviation programs, respectively.
Revenues from lottery ticket sales are deposited in the State Lottery Fund and
are reserved by statute for programs to benefit senior citizens.
Pennsylvania's major expenditures include funding for education ($7.5
billion of fiscal 1998 expenditures, and $7.85 billion and $8.05 billion of the
fiscal 1999 and 2000 budgets, respectively) and public health and human services
($13.5 billion of fiscal 1998 expenditures, and $15.1 billion and $15.2 billion
of the fiscal 1999 and 2000 budgets, respectively).
General Fund: Financial Condition/Results of Operations.
-------------------------------------------------------
Five Year Overview (GAAP Basis). During the five-year period from fiscal
1995 through fiscal 1999, revenues and other sources increased by an average
6.0% annually. Tax revenues during this same period increased by an annual
average of 4.2%. The largest growth rate during the five year period was for
other revenues. Those revenues increased at an average annual rate of 24.4%.
Increases in charges for sales and services and in investment income constitute
the largest portion of other revenues and are the principal reason for this rate
of growth. Intergovernmental revenues rose by an 8.0% annual average rate of
increase. An accounting change in fiscal 1996 that made food stamp coupon
revenue from the federal government an item of intergovernmental revenue is
responsible for a major portion of this increase. Expenditures and other uses
during the fiscal 1995 through fiscal 1999 period rose at an average annual rate
of 5.0%. Program costs for economic development and assistance increased an
average 12.1% annually, the largest growth rate of all programs. Protection of
persons and property programs increased by an average annual rate of 10.3%. This
rate of increase reflects the costs to acquire, staff and operate expanded
prison facilities to house a larger prison population. Public health and welfare
program costs increased at a 5.9% average annual rate during the period. Efforts
to control costs for various social programs and the presence of favorable
economic conditions have helped restrain these costs.
The fund balance at June 30, 1999 totaled $2,863.4 million, an increase of
$905 million over the $1,958.9 million balance at June 30, 1998. The fiscal 1999
year-end unreserved-undesignated balance of $1,235.7 million is the largest such
balance recorded since audited GAAP reporting was instituted in 1984 for the
Commonwealth.
Fiscal 1997 Financial Results (GAAP Basis): For fiscal 1997, assets
increased $563.4 million and liabilities declined $166.3 million to produce a
$729.7 million increase in fund balance at June 30, 1997. The fund balance
increase during fiscal 1997 has brought a restoration of an
undesignated-unreserved balance. The $187.3 million undesignated-unreserved
balance was the first recorded since fiscal 1994. Total revenues and other
sources rose 3.5% for fiscal 1997. An increase of 5.5% in tax revenue aided by
an improving State economy was partially offset by a $175.2 million decline in
intergovernmental revenues. Expenditures and other uses increased 1.0% for the
fiscal year. As in the past several fiscal years, expenditure increases were led
by protection of persons and property program costs. Fiscal 1997 costs for this
program rose by 4.7%, the largest increase for a program. General government
program costs for fiscal 1997 declined by 14.3% from the fiscal year earlier. A
reduction in estimated expenditures for maintaining the Commonwealth's
self-insured worker's compensation program is largely responsible for the
decline.
Fiscal 1997 Financial Results (Budgetary Basis): The unappropriated
balance of Commonwealth revenues increased during the 1997 fiscal year by $432.9
million; higher than estimated revenues and slightly lower expenditures than
budgeted caused the increase. The unappropriated balance rose from an adjusted
amount of $158.5 million at the beginning of fiscal 1997, to $591.4 million
(prior to reserves for transfer to the Tax Stabilization Reserve Fund) at the
close of the fiscal year. Transfers to the Tax Stabilization Reserve Fund for
fiscal 1997 operations were $188.7 million, of which $88.7 million represents
the normal 15% of the ending unappropriated balance, plus an additional $100.0
million authorized by the General Assembly when it enacted the fiscal 1998
budget. Commonwealth revenues (prior to tax refunds) during the fiscal year
totaled $17.3206 billion, which was $576.1 million (3.4%) above the budget
estimate. Revenue from taxes was the largest contributor to higher than
estimated receipts. Tax revenue in fiscal 1997 grew 6.1% over tax revenues in
fiscal 1996. Personal income collections were $236.3 million over estimate
representing a 6.9% increase over fiscal 1996 receipts. Receipts of the sales
and use tax were $185.6 million over estimate representing a 6.2% increase.
Collections of corporate taxes also exceeded their estimates for the fiscal
year. Non-tax revenues were $19.8 million (5.8%) over estimate mostly due to
higher than anticipated interest earnings. Expenditures from Commonwealth
revenues (excluding pooled financing expenditures) during fiscal 1997 totaled
$16.3477 billion and were close to the estimate made in February 1997.
Fiscal 1998 Financial Results (GAAP Basis): For fiscal 1998, general fund
(including the Tax Stabilization Reserve Fund) assets increased $705.1 million
and liabilities rose by $111.1 million during the fiscal year. These changes
contributed to a $310.3 million rise in the undesignated-unreserved balance for
June 30, 1998, to $497.6 million, at that time the highest level achieved since
audited GAAP reporting was instituted in 1984. Fiscal 1998 total revenues and
other sources rose 4.3% led by an 11.1% increase in other revenues, largely
charges for sales and services and investment income. Tax revenues rose 4.2%.
Expenditures and other uses during fiscal 1998 rose by 4.5%. Program areas with
the largest percentage increase for the fiscal year were economic development
and assistance (21.3%), transportation (19.3%) and general government (14.3%). A
decline in general government expenditures for fiscal 1997 due to lower
expenditures for the Commonwealth's self-insured worker's compensation program
causes the percentage increase for general government expenditures for fiscal
1998 to be exaggerated.
Fiscal 1998 Financial Results (Budgetary Basis): Operations during the
1998 fiscal year increased the unappropriated balance of Commonwealth revenues
during that period by $86.4 million to $488.7 million at June 30, 1998 (prior to
transfers to the Tax Stabilization Reserve Fund). Higher than estimated
revenues, offset in part by increased reserves for tax refunds and by slightly
lower expenditures than budgeted were responsible for the increase. Transfers to
the Tax Stabilization Reserve Fund for fiscal 1998 operations total $223.3
million consisting of $73.3 million representing the required transfer of 15% of
the ending unappropriated surplus balance, plus an additional $150.0 million
authorized by the General Assembly when it enacted the fiscal 1999 budget. With
these transfers, the balance in the Tax Stabilization Reserve Fund exceeds
$668.0 million and represents 3.7% of fiscal 1998 revenues. Commonwealth
revenues (prior to tax refunds) during the fiscal year totaled $18.1232 billion,
or $676.1 million (3.9%) above the estimate made at the time the budget was
enacted. Tax revenue received in fiscal 1998 grew 4.8% over tax revenues
received during fiscal 1997. This rate of increase includes the effect of
legislated tax reductions that affected receipts during both fiscal years and
therefore understates the actual underlying rate of growth of tax revenue during
fiscal 1998. Personal income tax collections were $416.6 million over estimate
representing an 8.5% increase over fiscal 1997 receipts. Sales and use tax
receipts were $6.2 million over estimate representing a 1.9% increase. Aggregate
receipts from corporate taxes also exceeded the estimate for the fiscal year.
Non-tax revenues were $27.5 million (8.6%) over estimate, mostly due to greater
than anticipated interest earnings for the fiscal year. Reserves established
during fiscal 1998 for tax refunds totaled $910 million. This amount is a $370
million increase over tax refund reserves for fiscal 1997 representing an
increase of 68.5% due to a change in which tax refund liabilities are recognized
on a budgetary basis. Expenditures from all fiscal 1998 appropriations of
Commonwealth revenues totaled $17,229.8 million, an increase of 4.5% over fiscal
1997 appropriation expenditures.
Fiscal 1999 Financial Results (GAAP Basis): For fiscal 1999, assets
increased $1,024 million, 20.6% over the prior fiscal year. An increase of
$1,118 million of temporary investments represented the largest asset increase
for the period. Liabilities rose $119.5 million representing a 4% increase over
the prior period. The increase of assets over liabilities for fiscal 1999 caused
the fund balance as of June 30, 1999 to increase by $904.5 million over the fund
balance as of June 30, 1998. The total fund balance as of June 30, 1999 was
$2,863.4 million, the largest fund balance achieved since audited GAAP reporting
was instituted in 1984 for the Commonwealth.
The increase to fund balance resulted from a $2,057.4 million increase in
revenues and other sources offset by $1,766.8 million of higher expenditures,
other uses and equity transfers. Tax revenues increased 4.2% for the fiscal year
while other revenues, largely investment income and charges for sales and
services, increased by 24.4%. Public health and welfare program expenses
accounted for the largest expenditure increase for the fiscal year, $943.3
million representing a 5.9% increase. The largest percentage increases in
expenditures for the fiscal year were in capital outlay (19.8%), economic
development and assistance programs (12.1%), and protection of persons and
property programs (10.3%).
Fiscal 1999 Financial Results (Budgetary Basis): The 1999 fiscal year
ended with an unappropriated surplus (prior to the transfer to the Tax
Stabilization Reserve Fund) of $702.9 million, an increase of $214.2 million
from June 30, 1998. Transfers to the Tax Stabilization Reserve Fund totaled
$255.4 million for fiscal year 1999 consisting of $105.4 million representing
the statutory 15% of the fiscal year-end unappropriated surplus and an
additional $150 million from the unappropriated surplus authorized by the
General Assembly. The $447.5 million balance of the unappropriated surplus was
carried over to fiscal year 2000. The higher unappropriated surplus was
generated by tax revenues that were $712.0 million (3.9%) above estimate and
$61.0 million of non-tax revenue (18.4%) above estimate. Higher than anticipated
appropriation lapses also contributed to the higher surplus. A portion of the
higher revenues and appropriation lapses were used for supplemental fiscal 1999
appropriations totaling $357.8 million. Of this amount, $200 million was
appropriated for general obligation debt service above current needs; $59
million to accrue the fourth quarterly Commonwealth contribution to the School
Employees' Retirement System; and $90 million to the Public Welfare department
to pay additional medical assistance costs estimated to occur in the 1999 fiscal
year. These supplemental appropriations represent expected one-time obligations.
Including the supplemental appropriations and net of appropriation lapses,
expenditures for fiscal 1999 totaled $18,144.9 million, a 5.9% increase over
expenditures during fiscal 1998.
Revenues from taxes for the fiscal year rose 3.9% after tax reductions
enacted with the 1999 fiscal year budget that were estimated to be $241.0
million for the fiscal year. The sales and use tax represented the largest
portion of the above-estimate of revenues. Receipts from this tax were $331.3
million, or 5.3% above the estimate and 7.4% above the prior fiscal year's
receipts. Personal income tax receipts, especially those from estimated and
final taxpayer filings, boosted receipts $299.5 million, or 4.7% above estimate
for the fiscal year. Taxes paid through employee withholding were slightly below
estimate. For the fiscal year, personal income tax receipts were 7.2% above
those of the prior fiscal year. Among the taxes paid by corporations, only
capital stock and franchise tax receipts exceeded estimates. Revenues from this
tax were $144.5 million (15.1%) over estimate. The corporate net income tax and
the various selective business taxes all recorded receipts below estimate. In
aggregate, they were a net $68.5 million below estimate. Non-tax revenues, led
by interest earnings due to higher investable balances, were $61.0 million
(18.4%) above estimate.
Appropriations enacted for fiscal 1999 when the budget was originally
adopted were 4.1% ($713.2 million) above the appropriations enacted for fiscal
1998 (including supplemental appropriations). In May 1999, along with the
adoption of the fiscal 2000 budget, supplemental fiscal 1999 appropriations
described above totaling $357.8 million were enacted. With these additional
appropriated amounts, total appropriations for fiscal 1999 represent a 6.2%
increase over fiscal 1998 appropriations. Appropriation lapses of $222.6 million
and additional Commonwealth revenues above budget estimates provided the funding
for the additional appropriations. Appropriation lapses in fiscal 1998 and 1997
were $161.8 million and $200.6 million, respectively.
Proposed Fiscal 2000 Budget: The General Fund budget for the 2000 fiscal
year was approved by the General Assembly in May 1999. The adopted budget
includes appropriations from Commonwealth revenues of $19,061.5 million and
estimated revenues (net of estimated tax refunds and enacted tax changes) of
$18.699.9 million. Funds to cover the $361.6 million difference between
estimated revenues and projected spending will be obtained from a partial draw
down of the fiscal 1999 year-end balance. The level of proposed spending
represents an increase of 3.8% over the spending authorized for fiscal 1999 of
$18,367.6 million. Enacted tax changes effective for fiscal 2000 total a net
reduction of $380.2 million for the General Fund.
The estimate of Commonwealth revenues in the enacted budget for fiscal
1999 is based on an economic forecast for real gross domestic product to grow at
a 1.4% rate. Growth of real gross domestic product is expected to be restrained
by a slowing of the rate of consumer spending to a level consistent with
personal income gains and by smaller gains in business investment in response to
falling capacity utilization and profits. Slowing economic growth is expected to
cause the unemployment rate to rise through the fiscal year but inflation is
expected to remain moderate. Trends for the Pennsylvania economy are expected to
maintain their close association with national economic trends. Personal income
growth is anticipated to remain slightly below that of the U.S. while the
Pennsylvania unemployment rate is anticipated to be very close to the national
rate.
Commonwealth revenues (excluding the estimated cost of enacted tax
reductions) are projected to increase by 2.8% over fiscal 1999 receipts. Tax
revenues are expected to rise by 3.2%. Appropriations from Commonwealth funds
increase by 3.8% over are fiscal 1999 appropriations. Program areas that have
been proposed to receive funding increases above the 3.8 % average include
corrections, basic education, special education, and medical assistance. Enacted
tax cuts for fiscal 2000 total an estimated $380.2 million in the General Fund.
The major components of the tax reductions are: (i) the tax rate for the capital
stock and franchise taxes by one mill to 10.99 mills ($91.6 million); (ii)
repeal the gross receipts tax on regulated gas companies ($78.4 million); (iii)
lower the current $300 minimum capital stock and franchise tax to $200 ($16.2
million); (iv) raise the annual cap on net operating loss credits per taxpayer
from $1.0 million to $2.0 million ($35.5 million); (v) increase the weighting
from 50% to 60% of the sales factor used in the apportionment formula to
calculate Pennsylvania taxable income for corporate net income purposes ($31.5
million); (vi) restructure the public utility realty tax ($54.6 million); and
(vii) expand the income limit to qualify for personal income tax forgiveness by
$500 to $6,500 per dependent ($7.5 million). Most major changes are effective
January 1, 1999.
Subsequent to the enactment of the fiscal year 2000 budget, $153.6 million
of additional appropriations were authorized. The largest of these additional
appropriations were $82.6 million for disaster relief purposes and $64.7 million
for the first of a five-year environmental protection program. The need for
additional appropriations during the fiscal year of approximately $58.5 million
has been identified but has not yet been authorized. All additional
appropriations are anticipated to be able to be funded from lapses of
appropriation authority during the fiscal year. Current estimates for such
lapses of appropriations total $200 million but will be revised for the
Governor's fiscal year 2001 budget request.
Through December 1999, actual General Fund Commonwealth revenues have
exceeded estimated receipts by $177.0 million, 2.1%. Revenues from taxes are
$135.5 million above estimate led by collections from the sales and use tax that
are $70.4 million above estimate. Non-tax collections, principally investment
earnings, are $41.5 million above estimate. In December 1999, it was estimated
that Commonwealth revenues for the 2000 fiscal year may exceed the estimate by
approximately $309 million.
As of December 1999, including the subsequent actions and estimates
described above, the Commonwealth estimates the fiscal year 2000 ending
unappropriated surplus balance (prior to transfer to the Tax Stabilization
Reserve Fund) to be $382.7 million, a $296.8 million increase over the $85.9
million estimated for the enacted budget. The revised estimate projects a $57.4
million transfer to the Tax Stabilization Reserve Fund for fiscal year 2000.
Motor License Fund: The State Constitution requires that all proceeds of
motor fuels taxes, vehicle registration fees, license taxes, operators' license
fees and other excise taxes imposed on products used in motor transportation
shall be used exclusively for construction, reconstruction, maintenance and
repair of and safety on highways and bridges and for the payment of debt service
on obligations incurred for such purposes. The Motor License Fund is the fund
through which most such revenues are accounted for and expended. Portions of
certain taxes whose receipts are deposited into the Motor License Fund are
legislatively restricted to specific transportation program. These receipts are
accounted for in restricted accounts in the Motor License Fund and are not
included in the budgetary basis presentations or discussion on the Motor License
Fund. The Motor License Fund budgetary basis includes only unrestricted revenue
available for annual appropriation for highway and bridge purposes.
The fund balance (GAAP Basis) at June 30, 1999 was $711.6 million, a $46.7
million increase from the June 30, 1998 fund balance. Fiscal 1999 was fourth
consecutive year with a fund balance increase. Revenues and other sources
increased during fiscal 1999 by $280.6 million due to increases in all major
revenue categories. Over the five fiscal years of fiscal 1995 through fiscal
1999, revenues and other sources have averaged an annual 5.1% increase. A
substantial portion of that growth occurred in fiscal 1998 due to tax and fee
increases enacted in April 1997. Expenditures and other uses during the period
from fiscal 1995 through fiscal 1999 have averaged a 4.5% increase. The long
lead time required to program additional transportation spending has restrained
the growth rate of expenditures compared to revenues. These trends produced a
rising fund balance. Current budget projections show higher expenditures and
slow revenue growth in future fiscal years. Consequently, the fund balance is
expected to decline in future years.
Commonwealth Debt. Current constitutional provisions permit Pennsylvania
to issue the following types of debt: (i) debt to suppress insurrection or
rehabilitate areas affected by disaster, (ii) electorate approved debt, (iii)
debt for capital projects subject to an aggregate debt limit of 1.75 times the
annual average tax revenues of the preceding five fiscal years, (iv) tax
anticipation notes payable in the fiscal year of issuance. All debt except tax
anticipation notes must be amortized in substantial and regular amounts.
Net outstanding general obligation debt totaled $4,924.5 million at June
30, 1999, an increase of $197.0 million from June 30, 1998. Over the 10-year
period ended June 30, 1999, total outstanding general obligation debt increased
at an annual rate of 0.5%, but for the five years ended June 30, 1999, it has
decreased at the annual rate of 0.6%. All outstanding general obligation bonds
of the Commonwealth are rated "AA" by S&P, "Aa3" by Moody's, and "AA" by Fitch.
The ratings reflect only the views of the rating agencies.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes, subject to applicable
statutory and constitutional limitations generally imposed on bonds. The
principal amount issued, when added to that already outstanding, may not exceed
in aggregate 20% of the revenues estimated to accrue to the appropriate fund in
the fiscal year. The Commonwealth is not permitted to fund deficits between
fiscal years with any form of debt, and all year-end deficit balances must be
funded within the succeeding fiscal year's budget. Pennsylvania issued a total
of $225.0 million of tax anticipation notes for the account of the General Fund
in fiscal 1998, and none in fiscal 1999. The term of such borrowings may not
exceed three years. As of September 30, 1999, there were $46.9 million of bond
anticipation notes outstanding, all of which matured by February 2, 2000.
State-related Obligations. Certain state-created agencies have statutory
authorization to incur debt for which no legislation providing for state
appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of, or revenues derived from, the various
projects financed and the debt of such agencies is not an obligation of
Pennsylvania although some of the agencies are indirectly dependent on
Commonwealth appropriations. The following agencies had debt currently
outstanding as of June 30, 1999: Delaware River Joint Toll Bridge Commission
($51.4 million), Delaware River Port Authority ($623.2 million), Pennsylvania
Economic Development Financing Authority ($1,239.7 million), Pennsylvania Energy
Development Authority ($42.1 million), Pennsylvania Higher Education Assistance
Agency ($1,783.8 million), Pennsylvania Higher Educational Facilities Authority
($3,522.5 million), Pennsylvania Industrial Development Authority ($373.8
million), Pennsylvania Infrastructure Investment Authority ($186.9 million),
Pennsylvania Turnpike Commission ($1,573.1million), Philadelphia Regional Port
Authority ($57.9 million), and the State Public School Building Authority
($347.5 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 ($2,749.3 million of revenue bonds as of
June 30, 1999), and an amount of funds sufficient to alleviate any deficiency
that may arise in the debt service reserve fund for bonds issued by The
Hospitals and Higher Education Facilities Authority of Philadelphia ($1.0
million of the loan principal was outstanding as of June 30, 1999.)
Litigation. Certain litigation is pending against the Commonwealth that
could adversely affect the ability of the Commonwealth to pay debt service on
its obligations. Brief descriptions of some of these cases are presented below.
In 1978, the General Assembly approved a limited waiver of sovereign
immunity. Damages for any loss are limited to $250,000 for each person and
$1,000,000 for each accident. The Supreme Court of Pennsylvania has held that
this limitation is constitutional. Approximately 3,500 suits against the
Commonwealth remain open. Tort claim payments for the departments and agencies,
other than the Department of Transportation, are paid from departmental and
agency operating and program appropriations. Tort claim payments for the
Department of Transportation are paid from an appropriation from the Motor
License Fund. The Motor License Fund tort claim appropriation for fiscal 2000 is
$20.0 million.
Dom Giordano v. Tom Ridge, Governor, et. al.
In February 1999, Dom Giordano, a taxpayer of the Commonwealth of
Pennsylvania, filed a petition for review requesting that the Commonwealth Court
of Pennsylvania declare that Chapter 5 (relating to sports facilities financing)
of the Capital Facilities Debt Enabling Act (enacted by Act 1999-1) violates
Article VIII, ss.ss. 7 and 8, of the Pennsylvania Constitution. The Commonwealth
Court dismissed the petitioner's action with prejudice. The petitioner has
appealed the Commonwealth Court's ruling to the Supreme Court.
Powell v. Ridge
In March 1998, several residents of the City of Philadelphia on behalf of
themselves and their school-aged children, along with the School District of
Philadelphia, the Philadelphia Superintendent of Schools, the chairman of the
Philadelphia Board of Education, the City of Philadelphia, the Mayor of
Philadelphia, and several membership organizations interested in the
Philadelphia public schools, brought suit in the United States District Court
for the Eastern District of Pennsylvania against the Governor, the Secretary of
Education, the chairman of the State Board of Education, and the State
Treasurer. The plaintiffs claim that the Commonwealth's system for funding
public schools has the effect of discriminating on the basis of race and
violates Title VI of the Civil Rights Act of 1964.
The plaintiffs have asked the court to declare the funding system to be
illegal, to enjoin the defendants from violating the regulation in the future
and to award counsel fees and costs.
The District Court allowed two petitioners to intervene. The Philadelphia
Federation of Teachers intervened on the side of the plaintiffs, while several
leaders of the Pennsylvania General Assembly intervened on the side of the
defendants. In addition, the U.S. Department of Justice intervened to defend
against a claim made by the legislator intervenors that a statute waiving
states' immunity under the Eleventh Amendment to the U.S. Constitution for Title
VI claims is unconstitutional.
The District Court found that the plaintiffs had failed to state a claim
under the Title VI regulation at issue or under 42 U.S.C. ss. 1983 and dismissed
the action in its entirety with prejudice. The plaintiffs appealed. In August
1999, the U.S. Court of Appeals for the Third Circuit reversed the District
Court's dismissal of the action and remanded the case for further proceedings
including the filing of an answer. The defendants and legislator intervenors
have filed petitions for writ of certiorari with the U.S. Supreme Court. In
December 1999, the Supreme Court denied the petition.
County of Allegheny v. Commonwealth of Pennsylvania
In December 1987, the Supreme Court of Pennsylvania held in County of
Allegheny v. Commonwealth of Pennsylvania, that the statutory scheme for county
funding of the judicial system is in conflict with the Pennsylvania
Constitution. However, the Supreme Court of Pennsylvania stayed its judgment to
afford the General Assembly an opportunity to enact appropriate funding
legislation consistent with its opinion and ordered that the prior system of
county funding shall remain in place until this is done.
The Court appointed retired Justice Frank J. Montemuro, Jr. as special
master to devise and submit a plan for implementation. The Interim Report of the
Master recommended a four phase transition to state funding of a unified
judicial system, during each of which specified court employees would transfer
into the state payroll system. Phase I recommended that the General Assembly
provide for an administrative structure of local court administrators to be
employed by the Administrative Office of Pennsylvania Courts, a state agency.
Numbering approximately 165 people statewide, local court administrators are
employees of the counties in which they work. On April 22, 1998, the General
Assembly enacted the General Appropriation Act of 1998, including an
appropriation to the Supreme Court of approximately $12 million for funding
county court administrators. This appropriation was designed to enable the
Commonwealth to implement Phase I. Release of the funding was delayed until
substantive legislation could be enacted to facilitate the employees' transfer
to State employment. A similar appropriation was made by the General
Appropriation Act of 1999. Thereafter, on June 22, 1999, the Governor approved
Act 1999-12 under which approximately 165 county-level court administrators are
to become employees of the Commonwealth. Act 12 also triggered the release of
the appropriations that had been made for this purpose in 1998 and 1999.
Pennsylvania Association of Rural and Small Schools (PARSS) v. Ridge
In 1991, an association of rural and small schools, several individual
school districts, and a group of parents and students, filed suit against the
Governor and the Secretary of Education. The litigation challenges the
constitutionality of the Commonwealth's system for funding local school
districts. The litigation consists of two parallel cases, one in the
Commonwealth Court, and one in the United States District Court for the Middle
District of Pennsylvania. The federal court case has been stayed indefinitely,
pending resolution of the state court case.
Commonwealth Court held that Pennsylvania's system for funding public
schools is constitutional under both the education clause and the equal
protection clause of the Pennsylvania Constitution. On October 1, 1999, the
Supreme Court of Pennsylvania affirmed the Commonwealth Court's decision. In
December 1999, the Supreme Court denied the petitioners' motion for
reconsideration. The parallel federal action remains pending.
Ridge v. State Employees' Retirement Board
In 1993 and in 1995, Joseph H. Ridge, former judge of the Allegheny Court
of Common Pleas filed suit in the Commonwealth Court alleging that the State
Employees' Retirement Board's use of gender distinct actuarial factors for
benefits based upon his pre-August 1, 1983 service violates Article I, Section
26 (equal protection) and Article I, Section 28 (equal rights) of the
Pennsylvania Constitution. He seeks "topped up" benefits equal to those that a
similarly situated female would be receiving. Due to the constitutional nature
of the claim, it is possible that a decision adverse to the State Employees'
Retirement Board would be applicable to other members of the State Employees'
Retirement System and Public School Employees' Retirement System who accrued
service between the effective date of the state constitutional provisions and
before August 1, 1983, and who have received, are receiving, or will receive
benefits less than those received by other members of the systems because of
their sex or the sex of their survivor annuitants.
The Commonwealth Court granted the State Employees' Retirement Board's
preliminary objections to Judge Ridge's claims for punitive damages, attorneys
fees and compensatory damages other than a recalculation of his pension benefits
should he prevail. In 1996, the Commonwealth Court heard oral argument en banc
on Judge Ridge's motion for judgment of the pleadings. On February 13, 1997, the
Commonwealth Court, after oral argument en banc, denied Judge Ridge's motion for
judgment on the pleadings. The case is currently in discovery.
Philadelphia. The City of Philadelphia is the largest city in the
Commonwealth, with an estimated population of 1,585,577 according to the 1990
Census. Philadelphia functions both as a city of the first class and a county
for the purpose of administering various governmental programs.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class cities in
remedying fiscal emergencies was enacted by the General Assembly and approved by
the Governor in June 1991. PICA is designed to provide assistance through the
issuance of funding debt to liquidate budget deficits and to make factual
findings and recommendations to the assisted city concerning its budgetary and
fiscal affairs. An intergovernmental cooperation agreement between Philadelphia
and PICA was approved by City Council and the PICA Board and signed by the Mayor
in January, 1992. At the present time, Philadelphia is operating under a five
year fiscal plan approved by PICA on June 15, 1999.
PICA had $1,014.1 million of its Special Tax Revenue Bonds outstanding as
of June 30, 1999. This financial assistance has included the refunding of
certain City general obligation bonds, funding of capital projects and the
liquidation of the cumulative general fund balance deficit of Philadelphia as of
June 30, 1992, of $224.9 million.
Texas Series
General. Beginning in late 1982, the decline of the State's oil and gas
industry, the devaluation of the Mexican peso and the generally soft national
economy combined to cause a significant reduction in the rate of growth of State
revenues. During late 1985 and early 1986, the price of oil fell dramatically
worldwide. This drop in oil prices created a ripple that caused other sectors of
the State's economy, such as real estate, to decline. As a result of an increase
in non-performing loans in the energy and real estate sectors, major Texas bank
holding companies, individual banks and savings and loans experienced losses or
sharp downturns in profitability and many sought Federal assistance from the
FDIC.
Since the early 1990's, the State's economy has rebounded in several areas
and has significantly improved its performance since the deep recession of the
1980's. As a result of budget trimming and increasing taxes, and the improving
Texas economy, the State finished fiscal years ended August 31, 1990, 1991,
1992, 1993, 1994, 1995, 1996, 1997 and 1998 with surpluses in the General
Revenue Fund of $767 million, $1.005 billion, $609 million, $1.623 billion,
$2.225 billion, $2.101 billion, $2.270 billion, $2.685 billion and $3.330
billion, respectively.
Texas ended the 1999 fiscal year with a General Revenue Fund cash balance
of $4.337 billion, a 30% increase over the 1998 fiscal year balance. Net
revenues and other cash sources totaled $72 billion, while net expenditures
totaled $71 billion. Total tax collections received by the General Revenue Fund
increased by 4.3% over fiscal 1998. In the fiscal year 1999, the General Revenue
Fund accounted for most of the State's net revenue. Driven by Medicaid spending
and other Health and Human Services programs requiring federal matching
revenues, federal receipts were the State's number one source of income in
fiscal 1999. Sales tax, accounting for over 55% of total tax revenue, was
second. Licenses, fees, fines and penalties are now the third largest source of
revenue to the State, with motor fuels taxes and motor vehicle sales/rental
taxes following as fourth largest and fifth largest, respectively. The remainder
of the State's revenues are derived primarily from interest and investment
income, lottery proceeds, cigarette and tobacco, franchise, oil and gas
severance and other taxes. State revenue also benefited from $1.1 billion in
tobacco litigation settlement proceeds received from major U.S. tobacco
companies. The State has no personal or corporate income tax, although the State
does impose a corporate franchise tax based on the amount of a corporation's
capital and "earned surplus," which includes corporate net income and officers'
and directors' compensation.
In the past decade, the Texas economy has seen a major shift from oil and
gas industry reliance to diversification into the technology and computer
industry. In 1981, the gas, oil and chemical industry accounted for 26% of the
State's total output of goods and services. Today, those businesses account for
less than 12% of the State's economy. Fifteen years ago, the Texas oil and gas
industry was about six times as large as the State's high technology industry.
Today, the oil and gas industry is only slightly larger than the high technology
industry, and depending upon the definition of high technology that one employs,
there are now more Texans employed in high technology industries than there are
in oil and gas related mining and manufacturing activities.
The State's unemployment rate fell for the sixth straight year in 1998,
dropping to its lowest level since 1979. After climbing to an average of over
7.5% in 1992 the unemployment rate successively fell to 6.0% in 1995, 5.6% in
1996, and 5.4% in 1997, before shrinking even further to a rate of 4.8% in 1998.
For the first quarter 1999, the rate stood at 4.6%. The new jobs in Texas are
largely in industries perceived to have better-than-average prospects for
continued growth, such as knowledge-based manufacturing and services. This mix
of job growth in Texas should provide a strong base for sustainable growth in
the future.
In the overall race for new job growth, Texas has been the national leader
for most of the 1990's, adding more jobs than any other state during that
period, and accounting for nearly 12% of the nation's total job growth. Total
employment in Texas has been steadily improving since 1991. After making
seasonal adjustments, total non-farm employment stood at 9.18 million at the end
of June 1999.
Over the past twelve months, 99% of the net new jobs tacked on to Texas
employment rolls were in service-oriented sectors. From June 1998 to June 1999,
health, business, and miscellaneous services added 113,300 jobs, an increase of
4.8%. Because of the rapid growth of Internet and cellular communications,
transportation, communications, and public utilities (TCPU) added 4.1%
employment growth. The boom in high tech communications allowed TCPU to add
22,000 jobs during the past year, despite a loss of 800 jobs in utilities, where
the effects of deregulation will take time to unfold. In response to strong
investment and real estate markets, finance, insurance, and real estate (FIRE)
added 19,000 net jobs, or a gain of 3.8%. Only wholesale and retail trade and
government, among the service-producing industries, grew more slowly than the
overall economy. Trade added 47,900 (2.3%) while government added 38,200 jobs
(2.5%). Although local government experienced 3.8% job growth over the past
year, the state government sector lost 1,400 jobs, or -0.5%. Civilian federal
government employment in Texas turned around eight straight years of employment
losses and added jobs at a rate of 1.1%.
Texas' economy, as measured by its State product, accounts for 7.7% of the
total economy of the United States, an increase from 5% in 1963. The State
economy continues to grow at a faster rate than that of the national economy,
and the Comptroller of Public Accounts predicts that the overall Texas economic
growth will outpace national economic growth by an average of 1.2% annually
during the period 1999-2020.
State Debt. Except as specifically authorized, the Texas Constitution
generally prohibits the creation of debt by or on behalf of the State, with two
exceptions: (i) debt created to supply casual deficiencies in revenues which
does not exceed in the aggregate, at any one time, $200,000 and (ii) debt to
repel invasion, suppress insurrection, defend the State in war or pay existing
debt. In addition, the State Constitution prohibits the Legislature from lending
the credit of the State to or in aid of any person, including municipalities, or
pledging the credit of the State in any manner for the payment of the
liabilities of any individual, association of individuals, corporation or
municipality. The limitations of the State Constitution do not prohibit the
issuance of revenue bonds. Furthermore, obligations which are payable from funds
expected to be available during the current budget period do not constitute
"debt" within the meaning of the Texas Constitution. Short term obligations such
as the Tax and Revenue Anticipation Notes issued by the State Comptroller, which
mature within the biennium in which the notes were issued, are not deemed to be
debt within the meaning of the state constitutional prohibition.
At various times, State voters, by constitutional amendment, have authorized
the issuance of debt by the State, including general obligation indebtedness for
which the full faith and credit and the taxing power of the State may be
pledged. In some cases, the authorized indebtedness may not be issued without
the approval of the Legislature, but in other cases, the constitutional
amendments are self-operating and the debt may be issued without specific
legislative action.
Two recent legislative developments regarding State debt should be noted.
On November 4, 1997, a proposition was passed which incorporated the provisions
of Texas Revised Civil Statutes Article 717k-7(8) into Article III of the Texas
Constitution. The statute, which is now contained in Section 49-j of Article
III, prohibits the Legislature from authorizing additional state debt payable
from general revenues, including authorized but unissued bonds and lease
purchase contracts in excess of $250,000 or for a term of greater than five
years, if the resulting annual debt service exceeds 5% of an amount equal to the
average amount of general revenue for the three immediately preceding years,
excluding revenues constitutionally dedicated for purposes other than payment of
debt service. Self-supporting general obligation bonds, although backed by the
full faith and credit of the State, are reasonably expected to be paid from
other revenue sources and are not expected to create a general revenue draw.
Also on November 4, 1997, voters passed a proposition to extend the State's full
faith and credit to the Texas Tomorrow Fund, and established the fund as a
constitutionally protected fund. The Texas Tomorrow fund is dedicated to the
prepayment of higher education tuition and fees.
Limitations on Taxing Powers. The State Constitution prohibits the State
from levying ad valorem taxes on property for general revenue purposes. Property
taxes are levied exclusively by county and local taxing authorities. There is
also a constitutional prohibition on enacting a personal income tax unless
approved by the majority of voters in a referendum.
The State Constitution also limits the rate of growth of appropriations
from tax revenues not dedicated by the Constitution during any biennium to the
estimated rate of growth for the State's economy. The Legislature may avoid the
constitutional limitation if it finds, by a majority vote of both houses, that
an emergency exists. The State Constitution authorizes the Legislature to
provide by law for the implementation of this restriction, and the Legislature,
pursuant to such authorization, has defined the estimated rate of growth in the
State's economy to mean the estimated increase in State personal income.
Petroleum Production and Mining. The Texas economy and the oil and gas
industry have been historically linked since the discovery of the Spindletop
Field in southeast Texas in 1901. Dramatic increases in the price of oil in
1973-74 and 1979-81 propelled Texas into a leadership position in national
economic growth. This situation, however, changed rapidly for Texas during the
1980's. The Texas economy reeled in 1982-83 and again in 1986 as the price of
West Texas Intermediate crude oil declined over 50% from $30 per barrel in
November 1985 to under $12 per barrel in July 1986. The 1986 crash in oil prices
caused economic turmoil, but spawned rapid diversification in the State economy,
and the shrunken importance of oil and gas has made the State's economy more
similar to that of the nation as a whole. Still, at 12% of the State's gross
product, oil and gas remains a major factor in the state's economic mix.
Financial Institutions. Consolidations and mergers continue to shrink the
number of Texas banks, but balance sheets in recent years have been
predominantly positive. FDIC banking reports appear to show a large drop in
Texas banking employment and assets during 1998, but the change is due primarily
to a large Texas bank merger, which moved a major headquarters out of state. In
general, after a decade of sharp contrasts, the Texas banking industry is
enjoying relative stability and healthy returns on assets. Texas banks have
reduced unnecessary expenses, improved efficiency, enjoyed reduced deposit
insurance premiums, and taken advantage of healthy growth in the State's economy
over the past few years. Texas bank failures peaked in 1989, reaching 134 or
two-thirds of all bank closing in the nation, but then declined to 29 in 1993.
In the five years following 1993, only two banks failed in the State of Texas,
both of which occurred in 1996.
Overall, Texas financial institutions have been profitable in the 1990's.
For 1999, the Texas Department of Banking reported "low past-dues, high
liquidity, strong profit margins, and substantial capital," resulting in an
"excellent" general condition of the State's banking industry. The Texas banking
industry has made substantial strides toward recovery during the 1990's. The
ratio of net income to net assets represented an annualized return on assets of
1.7% in commercial banks at the end of 1998. The value of non-performing loans
increased in 1996, reaching $2.7 billion, but then fell 5.9% in 1997 and an
additional 12.2% in 1998 for a final figure of slightly over $2.2 billion. These
loans have increased with growing defaults on credit cards, but represent only
2.3% of total loans.
A consolidation of banks and other financial institutions is ongoing. As a
result of the trend toward larger banks with multiple branches, Texas had 799
operating banks at the beginning of 1999, down from 1,125 at the beginning of
1992. It is expected that the number of banking organizations in the State will
continue to shrink, but the number of branch locations will continue to rise.
The trend toward consolidation is even more evident in the savings and
loan industry. After the real estate debacle of the mid to late 1980's, thrift
institutions were saddled with mountains of foreclosed property worth less than
the original loan values. Texas had 273 savings and loans in 1984, but most of
the State's thrifts lost money each year from 1986 to 1991, and the majority of
them closed their doors. Texas had only 52 savings and loan institutions in
operation at the end of 1998, despite the fact that profits have been healthy
since 1991. Texas savings and loans, benefiting from loan income and a decline
of non-performing assets to 1.0%, saw unprofitable institutions decline to 5.8%
at the end of 1998. Total assets rose to $52.7 billion in 1998, up from $42.9
billion in 1992. Additionally, aggregate increases were seen in loans, deposits,
and equity capital in 1998. The percentage yield on assets declined slightly,
from 8.2% in 1997 to 7.8% in 1998.
Property Values and Taxes. Various State laws place limits upon the
amounts of tax that can be levied upon the property subject to ad valorem taxes
within various taxing units, such as cities, counties and the districts which
have ad valorem taxing powers (including [without limitation] school and
hospital districts). Similarly, the amounts of sales and use taxes which can be
levied and the types of property and services to which sales and use taxes apply
are subject to legal restrictions.
The total value of real and personal taxable property reached $708.9
billion as of January 1, 1997, according to records maintained by the
Comptroller's property tax division. This represents a 2.3% increase in the tax
base from the previous year, and the fifth consecutive year that total value
rose after previous year-to-year value declines stretching back into the
mid-1980's.
The increase in value of taxable property was broad-based, with 11 of 13
categories of real property posting some increases from 1996 to 1997. Both
single-family and multi-family residential property sectors displayed
significant growth in 1997. The market value of single-family residential
property climbed to $338.3 billion during 1997, a figure that was up 6.0% from
1996 levels. However, on a taxable basis, the value of single-family homes fell
by 5.3% due to increased property tax exemptions. Also in 1997, the value of
multi-family residences soared 8.2% over 1996 levels, reaching a figure of $34.1
billion, and the value of commercial and industrial real estate increased a
strong 8.1% to $154.2 billion in the same period. The value of commercial and
industrial personal property also climbed in 1997, reaching $113.6 billion for a
growth rate of 6.4%. One of the strongest gains by any property category was
seen in the value of oil, gas, and minerals properties, which rose to $37.1
billion, up 23.4% from 1996 levels. It should be cautioned however, that the
strong growth rate in the value of this type of property occurred between 1996
and 1997, and does not reflect changes that have occurred in this volatile
industry since then, including the steep drop in oil prices that occurred as
recently as December 1998.
Litigation. The State is a party to various legal proceedings relating to
its operations and governmental functions, but unrelated to the bonds or the
security for the Bonds. In the opinion of the State Comptroller of Public
Accounts, based on information provided by the State Attorney General as to the
existence and legal status of such proceedings, none of such proceedings, if
finally decided adversely to the State, would have a materially adverse effect
on the long-term financial condition of the State.
After protracted litigation over property tax in the early 1990's, the
Texas Legislature (in February 1993) approved proposed constitutional amendments
that were intended to address the constitutional deficiencies in the State's
system of funding public schools that have been noted by the courts. At an
election held on May 1, 1993, the voters of the State rejected all of the
proposed constitutional amendments.
Legislation was enacted in late May 1993 (Senate Bill 7), which included
provisions concerning the operation of school districts as well as creating a
whole new funding system for public education in the State. This bill provided
for a two-tiered education finance structure, known as the Foundation School
Program. Tier I provides that each school district is entitled to a basic
allotment of $2,300.00 per student, financed by ad valorem taxes of $.86 per
$100.00 valuation on property within the district, with any deficiency to be
made up by the state. Tier 2 provides that school districts may levy additional
ad valorem taxes of as much as $.64 per $100.00 valuation. For every cent of the
additional tax levy a district undertakes, the State guarantees of yield of
$20.55 per student, regardless of how much tax revenue is actually collected.
Senate Bill 7 also imposes a cap on a school district's taxable property at a
level of $280,000 per student. School districts with property more valuable than
$280,000 per student have various choices as to how their taxable property may
be brought within the $280,000 cap.
Senate Bill 7 was immediately challenged by numerous groups of plaintiffs,
representing hundreds of school districts, both property-rich and property-poor,
as well as many parents and local officials. After a trial on the consolidated
actions in the case of Edgewood v. Meno, the district court held that Senate
Bill 7 was constitutional, but found that the Legislature had failed to provide
efficiently for facilities. The district court accordingly denied most of the
relief sought by the plaintiffs but ordered by injunction that no bonds for any
school district could be approved, registered, or guaranteed after September 1,
1995, unless the Legislature had provided for the efficient funding of
educational facilities by that time. On appeal, the Texas Supreme Court affirmed
the constitutionality of the public school finance system enacted in Senate Bill
7 in all respects. The Supreme Court modified the district court's judgment to
provide that the relief requested by the plaintiffs was denied in all respects
and that the district court's injunction was vacated. In all other respects, the
Supreme Court affirmed the district court's judgment.
There have been attempts to substantially reduce the overall property tax
burden during the last two legislative sessions. These attempts met with only
modest success. Although there were numerous minor changes, no major property
tax reform occurred during the 1999 legislative session.
Virginia Series
The rate of economic growth in the Commonwealth of Virginia has increased
steadily over the past decade. Per capita income in Virginia has been
consistently above national levels during that time. The services sector in
Virginia generates the largest number of jobs, followed by wholesale and retail
trade, state and local government and manufacturing. Because of Northern
Virginia, with its proximity to Washington, D.C., and Hampton Roads, which has
the nation's largest concentration of military installations, the Federal
government has a greater economic impact on Virginia relative to its size than
any states other than Alaska and Hawaii.
According to statistics published by the U.S. Department of Labor,
Virginia typically has one of the lowest unemployment rates in the nation. This
is generally attributed to the balance among the various sectors represented in
the economy. Virginia is one of twenty states with a right-to-work law and is
generally regarded as having a favorable business climate marked by few strikes
or work stoppages. Virginia is also one of the least unionized among the
industrialized states.
Virginia's state government operates on a two-year budget. The
Constitution vests the ultimate responsibility and authority for levying taxes
and appropriating revenue in the General Assembly, but the Governor has broad
authority to manage the budgetary process. Once an appropriation act becomes
law, revenue collections and expenditures are constantly monitored by the
Governor, assisted by the Secretary of Finance and the Department of Planning
and Budget, to ensure that a balanced budget is maintained. If projected revenue
collections fall below amounts appropriated at any time, the Governor must
reduce expenditures and withhold allotments of appropriations (other than for
debt service and other specified purposes) to restore balance. An amendment to
the State Constitution, effective January 1, 1993, established a Revenue
Stabilization Fund. This Fund is used to offset a portion of anticipated
shortfalls in revenues in years when appropriations based on previous forecasts
exceed expected revenues in subsequent forecasts. The Revenue Stabilization Fund
consists of an amount not to exceed 10% of Virginia's average annual tax
revenues derived from taxes on income and retail sales for the three preceding
fiscal years. As of June 30, 1999, $361.5 million was on deposit in the Revenue
Stabilization Fund.
General Fund revenues are principally composed of direct taxes. In recent
fiscal years most of the total tax revenues have been derived from five major
taxes imposed by Virginia on individual and fiduciary income, state sales and
use, corporate income, public service corporations and premiums of insurance
companies.
The General Fund balance grew by $155.4 million as a result of greater
than expected revenues. Tax revenues grew at a rate of 10.5 % from fiscal 1998
to fiscal year 1999. Individual income tax revenue grew by 12.6%. Certain other
tax revenues experienced more modest growth and in one instance a decline.
Public service corporation revenues increased by 10.0%, while corporate income
tax revenue decreased at a rate of 6.7%. Sales and use tax revenue increased at
a rate of 7.6%. Overall revenue grew by 10.6% mainly in individual income tax
revenues, and non-tax revenues grew by 15.3%. Overall expenditures grew at a
rate of 14.5%, compared to 6.0% in fiscal 1998. Education expenditures grew by
$487.4 million, or 15.1%, while administration of justice expenditures increased
by $210.1 million or 55.1%. The large increase in revenues resulted in a General
Fund balance of $1,599.6 million, an increase of 10.8% over fiscal year 1998.
Of the June 30, 1999 fund balance, $555.6 million was reserved for the
Revenue Stabilization Fund. This fund is segregated from the General Fund and
can only be used for Constitutionally authorized purposes. Virginia law directs
that the fund be included as a component of the General Fund only for financial
reporting purposes. In addition, $974.8 million was designated for appropriation
or reappropriation in fiscal year 2000. This designated amount includes the
Fiscal Year 2001 contribution of $103.3 million to the Revenue Stabilization
Fund. Thus, in total $659.0 million was reserved or designated within the June
30, 1999, General Fund balance for the Revenue Stabilization Fund. Slightly over
$8 million remains in the undesignated fund balance available for future
appropriations.
General Fund revenue collections for fiscal year 1999 were above the
original budget estimates. During its 1999 Session, the General Assembly
adjusted the 1999 General Fund Revenue Estimate upward by $406.5 million. Actual
revenues exceeded estimates by $155.3 million. The additional revenue will
require that another deposit be made to the Revenue Stabilization Fund in fiscal
year 2000.
In September 1991, the Debt Capacity Advisory Committee was created by the
Governor through an executive order. The committee is charged with annually
estimating the amount of tax-supported debt that may prudently be authorized
consistent with the financial goals, capital needs and policies of Virginia. The
committee annually reviews the outstanding debt of all agencies, institutions,
boards and authorities of Virginia for which Virginia has either a direct or
indirect pledge of tax revenues or moral obligation. The Committee provides its
recommendations on the prudent use of such obligations to the Governor and the
General Assembly.
The Constitution of Virginia prohibits the creation of debt by or on
behalf of Virginia that is backed by Virginia's full faith and credit, except as
provided in Section 9 of Article X. Section 9 of Article X contains several
different provisions for the issuance of general obligation and other debt, and
Virginia is well within its limit for each:
Section 9(a)(2) provides that the General Assembly may incur general
obligation debt to meet certain types of emergencies, subject to limitations on
amount and duration; to meet casual deficits in the revenue or in anticipation
of the collection of revenues of Virginia; and to redeem a previous debt
obligation of Virginia. Total indebtedness issued pursuant to this Section may
not exceed 30% of an amount equal to 1.15 times the annual tax revenues derived
from taxes on income and retail sales, as certified by the Auditor of Public
Accounts for the preceding fiscal year.
Section 9(b) provides that the General Assembly may authorize the creation
of general obligation debt for capital projects. Such debt is required to be
authorized by an affirmative vote of a majority of each house of the General
Assembly and approved in a statewide election. The outstanding amount of such
debt is limited to an amount equal to 1.15 times the average annual tax revenues
derived from taxes on income and retail sales, as certified by the Auditor of
Public Accounts for the three preceding fiscal years less the total amount of
bonds outstanding. The amount of 9(b) debt that may be authorized in any single
fiscal year is limited to 25% of the limit on all 9(b) debt less the amount of
9(b) debt authorized in the current and prior three fiscal years.
Section 9(c) provides that the General Assembly may authorize the
creation of general obligation debt for revenue-producing capital projects
(so-called "double-barrel" debt). Such debt is required to be authorized by an
affirmative vote of two-thirds of each house of the General Assembly and
approved by the Governor. The Governor must certify before the enactment of the
authorizing legislation and again before the issuance of the debt that the net
revenues pledged are expected to be sufficient to pay principal of and interest
on the debt. The outstanding amount of 9(c) debt is limited to an amount equal
to 1.15 times the average annual tax revenues derived from taxes on income and
retail sales, as certified by the Auditor of Public Accounts for the three
preceding fiscal years. While the debt limits under Sections 9(b) and 9(c) are
each calculated as the same percentage of the same average tax revenues, these
debt limits are separately computed and apply separately to each type of debt.
Section 9(d) provides that the restrictions of Section 9 are not
applicable to any obligation incurred by Virginia or any of its institutions,
agencies or authorities if the full faith and credit of Virginia is not pledged
or committed to the payment of such obligation. There are currently outstanding
various types of such 9(d) revenue bonds. Certain of these bonds, however, are
paid in part or in whole from revenues received as appropriations by the General
Assembly from general tax revenues, while others are paid solely from revenues
of the applicable project. The debt repayments of the Virginia Public Building
Authority, the Virginia Port Authority, the Virginia College Building Authority
Equipment Leasing Program, the Virginia College Building Authority 21st Century
Program, the Innovative Technology Authority and the Virginia Biotechnology
Research Park Authority have been supported in large part by General Fund
appropriations.
The Commonwealth Transportation Board is a substantial issuer of bonds for
highway projects. These bonds are secured by and payable from funds appropriated
by the General Assembly from the Transportation Trust Fund for such purpose. The
Transportation Trust Fund was established by the General Assembly in 1986 as a
special non-reverting fund administered and allocated by the Transportation
Board to provide increased funding for construction, capital and other needs of
state highways, airports, mass transportation and ports. The Virginia Port
Authority has also issued bonds which are secured by a portion of the
Transportation Trust Fund.
Virginia is involved in numerous leases that are subject to appropriation
of funding by the General Assembly. Virginia also finances the acquisition of
certain personal property and equipment through installment purchase agreements.
Bonds issued by the Virginia Housing Development Authority, the Virginia
Resources Authority and the Virginia Public School Authority are designed to be
self-supporting from their individual loan programs. A portion of the Virginia
Housing Development Authority, Virginia Public School Authority bonds and the
Virginia Resources Authority bonds are secured in part by a moral obligation
pledge of Virginia. Should the need arise, Virginia may consider funding
deficiencies in the respective debt service reserves for such moral obligation
debt. To date, none of these authorities has advised Virginia that any such
deficiencies exist.
Local government in Virginia is comprised of 95 counties, 40 incorporated
cities, and 190 incorporated towns. Virginia is unique in that cities and
counties are independent, and their land areas do not overlap. The largest
expenditures by local governments in Virginia are for education, but local
governments also provide other services such as water and sewer, police and fire
protection and recreational facilities. The Virginia Constitution imposes
numerous restrictions on local indebtedness, affecting both its incurrence and
amount.
<PAGE>
APPENDIX B
Rating Categories
Description of certain ratings assigned by Standard & Poor's Ratings
Services ("S&P"), Moody's Investors Service ("Moody's"), and Fitch IBCA, Duff &
Phelps ("Fitch"):
S&P
Long-term
AAA
An obligation rated 'AAA' has the highest rating assigned by S&P. The obligor's
capacity to meet its financial commitment on the obligation is extremely strong.
AA
An obligation rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A
An obligation rated 'A' is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB
An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, and C
Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB
An obligation rated 'BB' is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B
An obligation rated 'B' is more vulnerable to nonpayment than obligations rated
'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC
An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC
An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C
A subordinated debt or preferred stock obligation rated 'C' is currently highly
vulnerable to nonpayment. The 'C' rating may be used to cover a situation where
a bankruptcy petition has been filed or similar action taken, but payments on
this obligation are being continued. A 'C' also will be assigned to a preferred
stock issue in arrears on dividends or sinking fund payments, but that is
currently paying.
D
An obligation rated 'D' is in payment default. The 'D' rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
r
The symbol 'r' is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R.
The designation 'N.R.' indicates that no rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does not rate
a particular obligation as a matter of policy.
Note: The ratings from 'AA' to 'CCC' may be modified by the addition of a plus
(+) or minus (-) sign designation to show relative standing within the major
rating categories.
Short-term
SP-1
Strong capacity to pay principal and interest. An issue determined to possess a
very strong capacity to pay debt service is given a plus sign (+) designation.
SP-2
Satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
SP-3
Speculative capacity to pay principal and interest.
Commercial paper
A-1
This designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2
Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
'A-1'.
A-3
Issues carrying this designation have an adequate capacity for timely payment.
The are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B
Issues rated B are regarded as having only speculative capacity for timely
payment.
C
This rating is assigned to short-term debt obligations with a doubtful capacity
for payment.
D
Debt rated 'D' is payment default. The 'D' rating category is used when interest
payments or principal payments are not made on the due date, even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period.
Moody's
Long-term
Aaa
Bonds 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 edged."
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 rated 'Aa' are judged to be of high quality by all standards. Together
with the 'Aaa' group they comprise what are generally 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 risk appear somewhat larger than the 'Aaa' securities.
A
Bonds rated 'A' possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa
Bonds 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 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 thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B
Bonds 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 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 rated 'Ca' represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C
Bonds 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from 'Aa' through 'Caa'. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
Prime rating system (short-term)
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
Leading market positions in well-established industries.
High rates of return on funds employed.
Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
MIG/VMIG--U.S. short-term
Municipal debt issuance ratings are designated as Moody's Investment Grade (MIG)
and are divided into three levels -- MIG 1 through MIG 3.
The short-term rating assigned to the demand feature of variable rate demand
obligations (VRDOs) is designated as VMIG. When either the long- or short-term
aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or
NR/VMIG 1.
MIG 1/VMIG1
This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes strong credit quality. Margins of protection are ample,
although not as large as in the preceding group.
MIG 3/VMIG 3
This designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to be less
well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in
this category may lack sufficient margins of protection.
Fitch
Long-term investment grade
AAA
Highest credit quality. 'AAA' ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA
Very high credit quality. 'AA' ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A
High credit quality. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB
Good credit quality. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Long-term speculative grade
BB
Speculative. 'BB' ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B
Highly speculative. 'B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C
High default risk. Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon sustained, favorable business or economic
developments. 'CC' ratings indicate that default of some kind appears probable.
'C' ratings signal imminent default.
DDD, DD, D
Default. The ratings of obligations in this category are based on their
prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. 'DDD' obligations have the highest potential for recovery,
around 90% - 100% of outstanding amounts and accrued interest. 'DD' ratings
indicate potential recoveries in the range of 50% - 90% and 'D' the lowest
recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated 'DDD' have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated 'DD' and 'D' are generally undergoing a formal
reorganization or liquidation process; those rated 'DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities rated 'D' have a
poor prospect of repaying all obligations.
Short-term
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1
Highest credit quality. Indicates the strongest capacity for timely payment of
financial commitments; may have an added "+" to denote any exceptionally strong
credit feature.
F2
Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3
Fair credit quality. The capacity for timely payment of financial commitment is
adequate; however, near-term adverse changes could result in a reduction
non-investment grade.
B
Speculative. Minimal capacity for timely payment of financial commitments
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C
High default risk. Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
D
Default. Denotes actual or imminent payment default.
'NR' indicates that Fitch does not rate the issuer or issue in question.
Notes to long-term and short-term ratings: A plus (+) or minus (-) sign
designation may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the 'AAA' long-term rating
category, to categories below 'CCC', or to short-term ratings other than 'F1.'
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 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 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 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 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 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 rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
Caa
Bonds 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 rated Ca present obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C
Bonds rated C are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Generally, Moody's provides either a generic rating or a rating with a
numerical modifier of 1 for bonds in each of the generic rating categories Aa,
A, Baa, Ba and B. Moody's also provides numerical modifiers of 2 and 3 in each
of these categories for bond issues in the health care, higher education and
other not-for-profit sectors; the modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates that the
issue is in the mid-range of the generic category; and the modifier 3 indicates
that the issue is in the low end of the generic category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). Such ratings recognize the
difference between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as MIG
1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's assigns a
MIG or VMIG rating, all categories define an investment grade situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3/VMIG 3
This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4
This designation denotes adequate quality. Protection commonly regarded as
required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating assigned
by Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and ordinarily will be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers (or related supporting institutions) rated Prime-3 (P-3) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirements for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonable foreseeable
events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default payment of interest and/or
principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for recovery
on these bonds and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA category covering 13-36 months or the DDD, DD,
or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
