<PAGE>
Filed Pursuant to Rule 497(e)
Registration File No.: 33-37562
<PAGE>
DEAN WITTER
MULTI-STATE MUNICIPAL
SERIES TRUST
PROSPECTUS-MARCH 29, 1995
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Dean Witter Multi-State Municipal Series Trust (the "Fund") is an open-end
non-diversified management investment company currently consisting of ten
separate series: the Arizona Series, the California Series, the Florida
Series, the Massachusetts Series, the Michigan Series, the Minnesota Series,
the New Jersey Series, the New York Series, the Ohio Series and the
Pennsylvania Series (the "State Series"). The investment objective of the
State Series is to provide a high level of current income exempt from both
federal and the designated State income taxes consistent with the
preservation of capital. Each Series ("Series") seeks to achieve its
investment objective by investing principally in investment grade tax-exempt
securities of municipal issuers in the designated state. (See "Investment
Objective and Policies.")
The Fund, on behalf of each Series, is authorized to reimburse Dean Witter
Distributors Inc. ("DWD") for specific expenses incurred in promoting the
distribution of the Fund's shares pursuant to a Plan of Distribution pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act").
Reimbursement may in no event exceed an amount equal to payments at the
annual rate of 0.15% of the average daily net assets of each Series.
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated March 29, 1995, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone number listed below. The
Statement of Additional Information is incorporated herein by reference.
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
Financial Highlights .................................................. 4
The Fund and its Management ........................................... 8
Investment Objective and Policies ..................................... 8
Investment Restrictions ............................................... 12
Purchase of Fund Shares ............................................... 13
Shareholder Services .................................................. 15
Redemptions and Repurchases ........................................... 16
Dividends, Distributions and Taxes .................................... 17
Performance Information ............................................... 22
Additional Information ................................................ 23
Appendix .............................................................. 24
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
DEAN WITTER
MULTI-STATE MUNICIPAL
SERIES TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR (800) 526-3143
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Dean Witter Distributors Inc., Distributor
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
<CAPTION>
<S> <C>
The Fund The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end, non-
diversified management investment company currently consisting of ten separate series: the Arizona Series,
the California Series, the Florida Series, the Massachusetts Series, the Michigan Series, the Minnesota Series,
the New Jersey Series, the New York Series, the Ohio Series and the Pennsylvania Series. Each Series invests
principally in investment grade, tax-exempt securities of the designated State.
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Shares Offered Shares of beneficial interest with $0.01 par value (see page 23).
- ------------------ -------------------------------------------------------------------------------------------------------------
Offering Price The price of the shares offered by this prospectus varies with the changes in the value of the Fund's
innvestments. The offering price, determined once daily as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open, is equal to the net asset value plus a sales charge of 4.0% of the offering
price, scaled down on purchases of $25,000 or over (see page 13).
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Minimum Minimum initial investment, $1,000. Minimum subsequent investment, $100 (see page 13).
Purchase
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Investment The investment objective of each Series is to provide a high level of current income exempt from both federal
Objective and the designated state income taxes consistent with preservation of capital.
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Investment Dean Witter InterCapital Inc., ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-three investment companies and other portfolios with assets of
approximately $66.9 billion at December 31, 1994 (see page 8).
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Management Fee The Investment Manager receives a monthly fee at the annual rate of 0.35% of daily net assets of each Series
(see page 8).
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Dividends and Income dividends are declared daily and paid monthly; capital gains distributions, if any, may be distributed
Capital Gains annually or retained for reinvestment by the Fund. Dividends and distributions are automatically reinvested in
Distributions additional shares at net asset value (without sales charge), unless the shareholder elects to receive cash (see
pages 15 and 17).
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Plan of The Fund is authorized to reimburse Dean Witter Distributors Inc. (the "Distributor") for specific expenses
Distribution incurred in promoting the distribution of the Fund's shares pursuant to a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of each Series of the Fund (see page 14).
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Sales Charge 4.0% of offering price (4.17% of amount invested); reduced charges on purchases of $25,000 or more (see pages
13-14).
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Redemption Shares are redeemable by the shareholder at net asset value. An account may be involuntarily redeemed if
shares owned have a net asset value of less than $100 (see page 16).
<PAGE>
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Risks and The value of each Series' portfolio securities, and therefore the net asset value per share of each Series,
Other may increase or decrease due to various factors, principally changes in prevailing interest rates and the
Considerations ability of the issuers of the portfolio securities of each Series to pay interest and principal on such
obligations. Additionally, because the Fund is a non-diversified investment company, a relatively high
percentage of the assets of each Series may be invested in a limited number of issuers within a single state,
thereby causing a greater fluctuation of the net asset value of each Series as a result of changes in the
financial condition or in the market's assessment of the various issuers. Each Series, to the extent permitted
by applicable state law, also may invest in futures and options which may be considered speculative in nature
and involve greater risks than those customarily assumed by certain other investment companies which do not
invest in such instruments. Since each Series concentrates regulatory developments affecting the ability of the
issuers of that particular State to pay interest or repay principal. During periods of significant economic
slowdowns, the securities of any particular State will be subject to a greater degree of credit risk in which
the ratings of such securities have been or may be downgraded or placed on a credit watch, thereby affecting
their market value. Investors should refer to the Appendix for specific information regarding the economic
situation of their particular State. (See pages 10-12 and the Appendix on page 24). Certain of the federal, and
any applicable state, alternative minimum tax. (see page 10).
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</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
2
<PAGE>
<PAGE>
SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The expenses and fees set forth in the table are for
the year ended November 30, 1994, except as otherwise noted.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES (FOR EACH SERIES)
Maximum Sales Charge Imposed on Purchases ............... 4.0%
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge ................................... None
Redemption Fees ......................................... None
Exchange Fee ............................................ None
</TABLE>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)*
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
SERIES SERIES SERIES SERIES SERIES
---------- ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Management Fees*
(after fee waiver) ... .3408% .3424% .3400% .0696% .0997%
12b-1 Fees** .......... .1401 .1479 .1449 .1444 .1456
Other Expenses*
(after expense
assumption) .......... .1389 .0879 .1208 .2860 .2547
Total Series Operating
Expenses* ............ .6198% .5782% .6057% .5000% .5000%
<CAPTION>
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
SERIES SERIES SERIES SERIES SERIES
----------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Management Fees*
(after fee waiver) ... .0 % .3368% .0319% .1363% .3341%
12b-1 Fees** .......... .1448 .1460 .1447 .1447 .1479
Other Expenses*
(after expense
assumption) .......... .3552 .1538 .3234 .2190 .1573
Total Series Operating
Expenses* ............ .5000% .6366% .5000% .5000% .6393%
<FN>
** The 12b-1 fee is characterized as a service fee within the meaning of
National Association of Securities Dealers, Inc. ("NASD") guidelines.
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
SERIES SERIES SERIES SERIES SERIES
---------- ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
1 year .... $ 46 $ 46 $ 46 $ 45 $ 45
3 years ... 59 58 59 55 55
5 years ... 73 71 72 67 67
10 years ... 114 109 113 100 100
<CAPTION>
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
SERIES SERIES SERIES SERIES SERIES
----------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
1 year .... $ 45 $ 46 $ 45 $ 45 $ 46
3 years ... 55 60 55 55 60
5 years ... 67 74 67 67 74
10 years ... 100 116 100 100 117
</TABLE>
* The annual Operating Expenses are based upon the actual expenses
incurred by the Fund during the fiscal year ended November 30, 1994. The
Investment Manager had undertaken to waive management fees and assume
expenses to the extent that they exceeded 0.50% of the daily net assets with
respect to each Series of the Fund until January 1, 1994, and, with respect
to the Massachusetts Series, Michigan Series, Minnesota Series, New York
Series and Ohio Series has undertaken to extend such waiver until January 1,
1996.
Total operating expenses for each Series for the fiscal year of the Fund
ended November 30, 1994, assuming no waiver of the management fees and no
assumption of other expenses for the entire year, would have been:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
SERIES SERIES SERIES SERIES SERIES
---------- ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Management Fees ....... .3500% .3500% .3500% .3500% .3500%
12b-1 Fees ............ .1401 .1479 .1449 .1444 .1456
Other Expenses ........ .1389 .0879 .1208 .2860 .2546
Total Series Operating
Expenses* ............ .6290% .5858% .6157% .7804% .7502%
<CAPTION>
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
SERIES SERIES SERIES SERIES SERIES
----------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Management Fees ....... .3500% .3500% .3500% .3500% .3500%
12b-1 Fees ............ .1448 .1460 .1447 .1447 .1479
Other Expenses ........ .4174 .1538 .3234 .2191 .1573
Total Series Operating
Expenses* ............ .9122% .6498% .8181% .7138% .6552%
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR LESS
THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management" and "Purchase of Fund Shares" in this
Prospectus.
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period ended November 30 for each Series have
been audited by Price Waterhouse LLP, independent accountants. This data
should be read in conjunction with the financial statements, notes thereto,
and the unqualified report of independent accountants which are contained in
the Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report to
Shareholders, which may be obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM
PERIOD ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS
NOVEMBER 30 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS
- ----------------- ----------- ------------ -------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Arizona Series
1991** $ 9.60 $0.36 $ 0.17 $ 0.53 $(0.36) --
1992 9.77 0.64 0.41 1.05 (0.64) --
1993 10.18 0.58 0.56 1.14 (0.58) $(0.02)
1994 10.72 0.55 (1.29) (0.74) (0.55) (0.01)
California Series
1991* 9.60 0.60 0.39 0.99 (0.60) --
1992 9.99 0.67 0.34 1.01 (0.67) (0.01)
1993 10.32 0.61 0.68 1.29 (0.61) --
1994 11.00 0.58 (1.48) (0.90) (0.58) (0.14)
Florida Series
1991* 9.60 0.55 0.28 0.83 (0.55) --
1992 9.88 0.64 0.41 1.05 (0.64) --
1993 10.29 0.59 0.64 1.23 (0.59) --
1994 10.93 0.56 (1.33) (0.77) (0.56) --
Massachusetts Series
1991* 9.60 0.54 0.38 0.92 (0.54) --
1992 9.98 0.66 0.42 1.08 (0.66) (0.04)
1993 10.36 0.60 0.72 1.32 (0.60) --
1994 11.08 0.56 (1.38) (0.82) (0.56) (0.10)
Michigan Series
1991* 9.60 0.54 0.36 0.90 (0.54) --
1992 9.96 0.65 0.46 1.11 (0.65) (0.01)
1993 10.41 0.61 0.64 1.25 (0.61) --
1994 11.05 0.56 (1.41) (0.85) (0.56) (0.18)
<FN>
- ---------------
* January 15, 1991 (commencement of operations) to November 30, 1991.
** April 30, 1991 (commencement of operations) to November 30, 1991.
*** After application of the Fund's expense limitation.
+ Does not reflect the deduction of sales load.
(1) Not annualized.
(2) Annualized.
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS (AFTER EXPENSES ASSETS (BEFORE EXPENSES
WERE ASSUMED) WERE ASSUMED)***
------------------------ ------------------------
NET
ASSET NET ASSETS
TOTAL DIVIDENDS VALUE TOTAL AT END OF NET NET PORTFOLIO
AND END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER
DISTRIBUTIONS PERIOD RETURN+ (000'S) EXPENSES INCOME EXPENSES INCOME RATE
- --------------- -------- ------------ ----------- ---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.36) $ 9.77 5.66%(1) $ 20,733 0.15%(2) 6.32%(2) 1.43%(2) 5.04%(2) 8%(1)
(0.64) 10.18 11.08 38,812 0.15 6.33 0.74 5.74 15
(0.60) 10.72 11.42 59,877 0.48 5.40 0.65 5.22 5
(0.56) 9.42 (7.16) 47,628 0.62 5.33 0.63 5.32 11
(0.60) 9.99 10.29 (1) 41,568 0.15 (2) 6.53 (2) 0.97 (2) 5.71 (2) 24 (1)
(0.68) 10.32 10.23 95,604 0.15 6.36 0.67 5.84 5
(0.61) 11.00 12.77 139,308 0.48 5.57 0.60 5.45 11
(0.72) 9.38 (8.65) 112,450 0.58 5.59 0.59 5.58 12
(0.55) 9.88 8.84 (1) 17,719 0.15 (2) 6.45 (2) 1.27 (2) 5.33 (2) 10 (1)
(0.64) 10.29 10.92 51,560 0.15 6.19 0.73 5.62 6
(0.59) 10.93 12.20 84,494 0.48 5.39 0.63 5.23 3
(0.56) 9.60 (7.29) 71,458 0.61 5.34 0.62 5.33 3
(0.54) 9.98 9.87 (1) 3,205 0.15 (2) 6.50 (2) 2.50 (2) 4.08 (2) 40 (1)
(0.70) 10.36 11.19 10,113 0.14 6.26 1.25 5.16 10
(0.60) 11.08 13.06 18,344 0.48 5.47 0.84 5.10 12
(0.66) 9.60 (7.71) 15,507 0.50 5.35 0.78 5.07 10
(0.54) 9.96 9.54 (1) 6,630 0.15 (2) 6.54 (2) 1.73 (2) 4.96 (2) 46 (1)
(0.66) 10.41 11.78 13,809 0.14 6.28 1.01 5.42 9
(0.61) 11.05 12.28 22,083 0.48 5.53 0.80 5.20 15
(0.74) 9.46 (8.07) 19,831 0.50 5.44 0.75 5.19 9
</TABLE>
5
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
- -----------------------------------------------------------------------------
Selected data and ratios for a share of beneficial interest outstanding
throughout each period for their respective years ended November 30:
<TABLE>
<CAPTION>
NET ASSET
VALUE NET NET REALIZED TOTAL FROM
PERIOD ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS
NOVEMBER 30 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS TO SHAREHOLDERS
- ------------------- ----------- ------------ -------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Minnesota Series
1991* $ 9.60 $0.51 $ 0.19 $ 0.70 $(0.51) --
1992 9.79 0.63 0.32 0.95 (0.63) --
1993 10.11 0.58 0.67 1.25 (0.58) --
1994 10.78 0.55 (1.42) (0.87) (0.55) $(0.08)
New Jersey Series
1991* 9.60 0.55 0.35 0.90 (0.55) --
1992 9.95 0.66 0.44 1.10 (0.66) (0.04)
1993 10.35 0.60 0.62 1.22 (0.60) (0.03)
1994 10.94 0.55 (1.39) (0.84) (0.55) (0.08)
New York Series
1991* 9.60 0.54 0.46 1.00 (0.54) --
1992 10.06 0.68 0.34 1.02 (0.68) (0.06)
1993 10.34 0.62 0.69 1.31 (0.62) --
1994 11.03 0.57 (1.52) (0.95) (0.57) (0.05)
Ohio Series
1991* 9.60 0.53 0.25 0.78 (0.53) --
1992 9.85 0.66 0.41 1.07 (0.66) (0.01)
1993 10.25 0.60 0.72 1.32 (0.60) --
1994 10.97 0.55 (1.43) (0.88) (0.55) (0.12)
Pennsylvania Series
1991* 9.60 0.53 0.30 0.83 (0.53) --
1992 9.90 0.66 0.44 1.10 (0.66) --
1993 10.34 0.61 0.67 1.28 (0.61) --
1994 11.01 0.56 (1.39) (0.83) (0.56) (0.06)
<FN>
- ---------------
* January 15, 1991 (commencement of operations) to November 30, 1991.
*** After application of the Fund's expense limitation.
+ Does not reflect the deduction of sales load.
(1) Not annualized.
(2) Annualized.
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS (AFTER EXPENSES ASSETS (BEFORE EXPENSES
WERE ASSUMED) WERE ASSUMED)***
------------------------ ------------------------
NET
ASSET NET ASSETS
TOTAL DIVIDENDS VALUE TOTAL AT END OF NET NET PORTFOLIO
AND END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER
DISTRIBUTIONS PERIOD RETURN+ (000'S) EXPENSES INCOME EXPENSES INCOME RATE
- --------------- -------- ------------ ----------- ---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.51) $ 9.79 7.42%(1) $ 3,131 0.15%(2) 6.04%(2) 2.65%(2) 2.87%(2) 4%(1)
(0.63) 10.11 9.91 6,420 0.14 6.16 1.46 4.85 23
(0.58) 10.78 12.64 11,538 0.48 5.39 1.04 4.83 8
(0.63) 9.28 (8.42) 9,793 0.50 5.41 0.91 5.00 14
(0.55) 9.95 9.59 (1) 15,812 0.15 (2) 6.43 (2) 1.21 (2) 5.36 (2) 36 (1)
(0.70) 10.35 11.34 32,123 0.15 6.36 0.79 5.71 19
(0.63) 10.94 12.03 54,499 0.48 5.41 0.69 5.20 7
(0.63) 9.47 (7.96) 45,497 0.64 5.38 0.65 5.37 6
(0.54) 10.06 10.73 (1) 3,976 0.15 (2) 6.44 (2) 2.22 (2) 4.37 (2) 51 (1)
(0.74) 10.34 10.35 9,604 0.15 6.45 1.23 5.37 21
(0.62) 11.03 12.91 15,955 0.48 5.61 0.88 5.21 11
(0.62) 9.46 (8.96) 14,522 0.50 5.48 0.82 5.16 14
(0.53) 9.85 8.35 (1) 6,267 0.15 (2) 6.38 (2) 2.04 (2) 4.48 (2) 22 (1)
(0.67) 10.25 11.12 13,686 0.15 6.41 1.01 5.56 23
(0.60) 10.97 13.19 24,849 0.48 5.45 0.78 5.14 20
(0.67) 9.42 (8.34) 20,693 0.50 5.31 0.71 5.10 18
(0.53) 9.90 8.77 (1) 12,147 0.15 (2) 6.46 (2) 1.54 (2) 5.07 (2) 12 (1)
(0.66) 10.34 11.47 31,509 0.15 6.31 0.81 5.65 3
(0.61) 11.01 12.64 53,378 0.48 5.54 0.68 5.33 5
(0.62) 9.56 (7.84) 47,557 0.64 5.37 0.66 5.35 19
</TABLE>
7
<PAGE>
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Multi-State Municipal Series Trust (the "Fund") is an
open-end, non-diversified management investment company consisting of ten
separate series: the Arizona Series, the California Series, the Florida
Series, the Massachusetts Series, the Michigan Series, the Minnesota Series,
the New Jersey Series, the New York Series, the Ohio Series and the
Pennsylvania Series. The Fund is a trust of the type commonly known as a
"Massachusetts business trust" and was organized under the laws of
Massachusetts on October 29, 1990.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048,
is the Fund's Investment Manager. The Investment Manager, which was
incorporated in July, 1992, is a wholly-owned subsidiary of Dean Witter,
Discover & Co. ("DWDC"), a balanced financial services organization providing
a broad range of nationally marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-three investment companies, thirty of
which are listed on the New York Stock Exchange, with combined assets of
approximately $64.9 billion at December 31, 1994. The Investment Manager also
manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $2.0 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. InterCapital has retained Dean Witter Services Company
Inc. to perform the aforementioned administrative services for the Fund. The
Fund's Trustees review the various services provided by the Investment
Manager to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, each Series
of the Fund pays the Investment Manager monthly compensation calculated daily
by applying the annual rate of 0.35% to the net assets of each Series. The
Investment Manager assumed all expenses (except for the 12b-1 and brokerage
fees) and waived the management fees with respect to each Series of the Fund
for the period November 30, 1992 to January 1, 1993; the Investment Manager
waived management fees and assumed expenses with respect to each Series of
the Fund to the extent they exceeded 0.50% of the daily net assets from
January 1, 1993 to January 1, 1994; the Investment Manager continued to waive
management fees and assume expenses with respect to the Massachusetts,
Michigan, Minnesota, New York and Ohio Series of the Fund to the extent they
exceeded 0.50% of the daily net assets of each respective Series from January
1, 1994 to January 1, 1996. For the fiscal year ended November 30, 1994, the
Arizona Series, California Series, Florida Series, Massachusetts Series,
Michigan Series, Minnesota Series, New Jersey Series, New York Series, Ohio
Series and Pennsylvania Series accrued total compensation to the Investment
Manager of 0.34%, 0.34%, 0.34%, 0.07%, 0.10%, 0.0%, 0.34%, 0.03%, 0.14% and
0.33% respectively of average daily net assets and the total expenses of each
respective Series amounted to 0.62%, 0.58%, 0.61%, 0.50%, 0.50%, 0.50%,
0.64%, 0.50%, 0.50% and 0.64%, respectively, of the average daily net assets
of each Series.
The Fund's expenses include: the fee of the Investment Manager; the fee
pursuant to the Plan of Distribution (see "Purchase of Fund Shares"); taxes;
certain legal, transfer agent, custodian and auditing fees; and printing and
other expenses relating to the Fund's operations which are not expressly
assumed by the Investment Manager under its Management Agreement with the
Fund.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the State Series is to provide a high level of
current income exempt from both federal and the designated State income taxes
consistent with preservation of capital. It is a fundamental policy that
under normal conditions each Series will invest at least 80% of its total
assets in securities, the interest on which is exempt from federal income
taxes and the income taxes of the designated State. This policy and the
investment objective may not be changed with respect to any Series without
the approval of the holders of a majority of the shares of that Series. There
is no assurance that the investment objective of any Series will be achieved.
Each Series seeks to achieve its investment objective by investing
principally in tax-exempt, investment grade securities of municipal issuers
in that designated State as well as any debt obligations (such as debt
obligations of governmental entities and territories such as Puerto Rico,
Guam and the Virgin Islands) that generate interest income which is exempt
from federal income taxes and the income taxes of the designated State.
Tax-exempt securities primarily consist of Municipal Bonds, Municipal Notes
and Municipal Commercial Paper. Each Series may only invest in (a) Municipal
Bonds which are rated at the time of purchase within the four highest grades
by either Moody's Investors Service Inc. ("Moody's") or
8
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<PAGE>
Standard & Poor's Corporation ("S&P"); (b) Municipal Notes which at the time
of purchase are rated in the two highest grades by either Moody's or S&P, or,
if not rated, have outstanding one or more issues of Municipal Bonds rated as
set forth in clause (a) above; (c) Municipal Commercial Paper which at the
time of purchase is rated P-1 by Moody's or A-1 by S&P; and (d) unrated
securities which at the time of purchase are judged by the Investment Manager
to be of comparable quality to the securities described in this paragraph. A
description of the ratings referred to above is contained in the Appendix to
the Statement of Additional Information. Certain of the tax-exempt securities
in which each Series may invest without limit may subject certain investors
to the federal alternative minimum tax or any applicable state alternative
minimum tax and, therefore, a substantial portion of the income produced by
each Series may be taxable to such investors under any federal or any
applicable state alternative minimum tax. The State Series, therefore, may
not be a suitable investment for investors who are subject to the alternative
minimum tax. The suitability of the State Series for these investors will
depend upon a comparison of the after-tax yield likely to be provided from
each designated Series to comparable tax-exempt investments not subject to
such tax and also to comparable fully taxable investments in light of each
investor's tax position. See "Dividends, Distributions and Taxes."
Up to 20% of the total assets of each Series may be invested in taxable
money market instruments, tax-exempt securities of other states and
municipalities and options and futures. With respect to tax-exempt securities
of other states, only investment grade securities which satisfy the standards
enumerated above for Municipal Bonds, Notes and Paper, will be purchased.
(This investment percentage is subject to applicable state laws and may be
limited further by specific requirements of certain states. It is the
intention of each Series to meet the applicable requirements of its
respective State. See "Dividends, Distributions and Taxes--State Taxation").
However, each Series may invest more than 20% of its total assets in taxable
money market instruments and the tax-exempt securities of other states and
municipalities in order to maintain a temporary "defensive" position, when,
in the opinion of the Investment Manager, prevailing market or financial
conditions (including unavailability of securities of requisite quality) so
warrant. (The types of investments in which each Series may invest when
maintaining a temporary "defensive" position may be limited by applicable
State requirements). With respect to the purchase of tax-exempt securities of
other states for defensive purposes, only the highest grade Municipal Bonds,
Notes and Paper, will be purchased. The types of taxable money market
instruments in which the State Series may invest are limited to the following
short-term fixed income securities (maturing in one year or less from the
time of purchase): (i) obligations of the United States Government, its
agencies, instrumentalities or authorities; (ii) commercial paper rated P-1
by Moody's or A-1 by S&P; (iii) certificates of deposit of domestic banks
with assets of $1 billion or more; and (iv) repurchase agreements with
respect to any of the securities in which each Series may invest.
Municipal Bonds and Municipal Notes are debt obligations of a state, and
its agencies and municipalities which generally have maturities, at the time
of their issuance, of either one year or more (Bonds) or from six months to
three years (Notes). Municipal Commercial Paper refers to short-term
obligations of municipalities which may be issued at a discount and are
sometimes referred to as Short-Term Discount Notes. Any Municipal Bond or
Municipal Note which depends directly or indirectly on the credit of the
Federal Government, its agencies or instrumentalities shall be considered to
have a Moody's rating of Aaa. An obligation shall be considered a Municipal
Bond, Municipal Note or Municipal Commercial Paper only if, in the opinion of
bond counsel to the issuer at the time of issuance, the interest payable
therefrom is exempt from both regular federal income tax and the regular
personal income tax of a designated State.
The foregoing percentage and rating limitations apply at the time of
acquisition of a security based on the last previous determination of the net
asset value of each respective Series. Any subsequent change in any rating by
a rating service or change in percentages resulting from market fluctuations
or other changes in total assets of a Series will not require elimination of
any security from the portfolio of such Series. Therefore, each Series may
hold securities which have been downgraded to ratings of Ba or BB or lower by
Moody's or S&P. However such investments may not exceed 5% of the total
assets of any Series. Any investments which exceed this limitation will be
eliminated from the portfolio within a reasonable period of time (such time
as the Investment Manager determines that it is practicable to sell the
investment without undue market or tax consequences to a Series). Municipal
Obligations rated below investment grade by Moody's or S&P are considered to
be speculative investments, some of which may not be currently paying any
interest and may have extremely poor prospects of ever attaining any real
investment standing.
Investments in Municipal Bonds rated either BBB by S&P or Baa by Moody's
(investment grade bonds--the lowest rated permissible investments by the
Fund) have speculative characteristics and, therefore, changes in economic
conditions or other circumstances are more likely to weaken their capacity to
make principal and interest payments than would be the case with investments
in securities with higher credit ratings.
The ratings assigned by Moody's and S&P represent their opinions as to the
quality of the securities which they undertake to rate (see the Appendix to
the Statement of Additional Information). It should be emphasized, however,
that the ratings are general and not absolute standards of quality.
9
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<PAGE>
There are no restrictions on the maturities of most of the tax-exempt
securities that may be purchased by each Series and therefore the average
portfolio maturity of each Series is not subject to any limit. As a general
matter, the longer the average portfolio maturity, the greater will be the
impact of fluctuations in interest rates on the values of the portfolio
securities of each Series and the respective net asset value per share of
that Series.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940 ("the Act") and as such is not limited by the
Act in the proportion of its assets that it may invest in the obligations of
a single issuer. However, each Series of the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code (the "Code"). See "Dividends,
Distributions and Taxes." In order to qualify, among other requirements, each
Series will limit its investments so that at the close of each quarter of the
taxable year, (i) not more than 25% of the market value of the total assets
of such Series will be invested in the securities of a single issuer, within
a single State, and (ii) with respect to 50% of the market value of its total
assets not more than 5% of the value of its total assets will be invested in
the securities of a single issuer within a single State, and each Series will
not own more than 10% of the outstanding voting securities of a single
issuer. (Since the types of securities ordinarily purchased by each Series
are nonvoting securities, there is generally no limit on the percentage of an
issuer's obligations that a Series may own). To the extent that these
requirements permit a relatively high percentage of each Series' assets to be
invested in the obligations of a limited number of issuers within a single
State, the value of the portfolio securities of each Series will be more
susceptible to any single economic, political or regulatory occurrence than
the portfolio securities of a diversified investment company. Additionally,
each Series' net asset value will fluctuate to a greater extent than that of
a diversified investment company as a result of changes in the financial
condition or in the market's assessment of the various issuers. The tax
limitations described in this paragraph are not fundamental policies and may
be revised to the extent applicable Federal income tax requirements are
revised.
The Fund, on behalf of each Series, may invest more than 25% of the total
assets of each Series in Municipal Obligations known as private activity
bonds. Such Obligations include health facility obligations, housing
obligations, industrial revenue obligations (including pollution control
obligations), electric utility obligations and water and sewer obligations,
provided that the percentage of the total assets of any Series in private
activity bonds in any one category does not exceed 25% of the total assets of
that Series. The ability of issuers of such obligations to make timely
payments of principal and interest will be affected by events and conditions
affecting these projects such as cyclicality of revenues and earnings,
regulatory and environmental restrictions and economic downturns, which may
result generally in a lowered need for such facilities and a lowered ability
of such users to pay for the use of such facilities. The Fund may purchase
Municipal Obligations which had originally been issued by the same issuer as
two separate series of the same issue with different interest rates, but
which are now linked together to form one series.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds, notes or commercial paper. General
obligation bonds, notes or commercial paper are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Issuers of general obligation bonds, notes or commercial paper
include a state, its counties, cities, towns and other governmental units.
Revenue bonds, notes or commercial paper are payable from the revenues
derived from a particular facility or class of facilities or, in some cases,
from specific revenue sources. Revenue bonds, notes or commercial paper are
issued for a wide variety of purposes, including the financing of electric,
gas, water and sewer systems and other public utilities; industrial
development and pollution control facilities; single and multi-family housing
units; public buildings and facilities; air and marine ports, transportation
facilities such as toll roads, bridges and tunnels; and health and
educational facilities such as hospitals and dormitories. They rely primarily
on user fees to pay debt service, although the principal revenue source is
often supplemented by additional security features which are intended to
enhance the creditworthiness of the issuer's obligations.
Included within the revenue bonds category are participations in lease
obligations or installment purchase contracts (hereinafter collectively
called "lease obligations") of municipalities. State and local agencies or
authorities issue lease obligations to acquire equipment and facilities.
<PAGE>
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases, and installment purchase or
conditional sale contracts (which may provide for title to the leased asset
to pass eventually to the issuer), have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for
the issuance of debt. Certain lease obligations contain "non-appropriation"
clauses that provide that the governmental issuer has no obligation to make
future payments under the lease or contract unless money is appropriated for
such purpose by the appropriate legislative body on an annual or other
periodic basis. Consequently, continued lease payments on those lease
obligations containing "non-appropriation" clauses are dependent on future
legislative actions. If such legislative actions do not occur, the holders of
the lease obligation may experience difficulty in exercising their rights,
including disposition of the property.
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<PAGE>
In addition, lease obligations represent a relatively new type of
financing that has not yet developed the depth of marketability associated
with more conventional municipal obligations, and, as a result, certain of
such lease obligations may be considered illiquid securities. To determine
whether or not the Fund will consider such securities to be illiquid (the
Fund may not invest more than ten percent of its net assets in illiquid
securities), the Trustees of the Fund have established guidelines to be
utilized by the Fund in determining the liquidity of a lease obligation. The
factors to be considered in making the determination include: 1) the
frequency of trades and quoted prices for the obligation; 2) the number of
dealers willing to purchase or sell the security and the number of other
potential purchasers; 3) the willingness of dealers to undertake to make a
market in the security; and 4) the nature of the marketplace trades,
including, the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of the transfer.
The Trust may also purchase "certificates of participation," which are
securities issued by a particular municipality or municipal authority to
evidence a proportionate interest in base rental or lease payments relating
to a specific project to be made by a municipality, agency or authority. The
risks and characteristics of investments in certificates of participation are
similar to the risks and characteristics of lease obligations discussed
above.
Since each Series concentrates its investments in Municipal Obligations of
a particular State and its authorities and municipalities, each Series is
affected by any political, economic or regulatory developments affecting the
ability of issuers in that particular State to make timely payments of
interest and principal. For a more detailed discussion of the risks
associated with investments in a particular State, see the Appendix at the
back of this Prospectus.
VARIABLE RATE OBLIGATIONS. The interest rates payable on certain Municipal
Bonds and Municipal Notes are not fixed and may fluctuate based upon changes
in market rates. Municipal obligations of this type are called "variable
rate" obligations. The interest rate payable on a variable rate obligation is
adjusted either at predesigned periodic intervals or whenever there is a
change in the market rate of interest on which the interest rate payable is
based.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Series may purchase
tax-exempt securities on a when-issued or delayed delivery basis; i.e., the
price is fixed at the time of commitment but delivery and payment can take
place a month or more after the date of the transaction. These securities are
subject to market fluctuation and no interest accrues to the purchaser prior
to settlement. At the time any Series makes the commitment to purchase such
securities, it will record the transaction and thereafter reflect the value
each day of such security in determining its net asset value. There is no
overall limit on the percentage of the Fund's assets which may be committed
to the purchase of securities on a when-issued, delayed delivery or forward
commitment basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis may increase the volatility of the Fund's net asset
value.
HEDGING ACTIVITIES
Subject to applicable state law, the Fund, on behalf of each Series except
the New Jersey Series, may enter into financial futures contracts, options on
such futures and municipal bond index futures contracts for hedging purposes.
FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FUTURES. With respect to each
applicable Series, the Fund may invest in financial futures contracts and
related options thereon. Each Series may sell a financial futures contract or
purchase a put option on such futures contract, if the Investment Manager
anticipates interest rates to rise, as a hedge against a decrease in the
value of a particular Series' portfolio securities. If the Investment Manager
anticipates that interest rates will decline, a Series may purchase a
financial futures contract or a call option thereon to protect against an
increase in the price of the securities that Series intends to purchase.
These futures contracts and related options thereon will be used only as a
hedge against anticipated interest rate changes.
Unlike a financial futures contract, which requires the parties to buy and
sell a security on a set date, an option on such a futures contract entitles
its holder to decide on or before a future date whether to enter into such a
contract (a long position in the case of a call option and a short position
in the case of a put option). If the holder decides not to enter into the
contract, the premium paid for the option on the contract is lost. Since the
value of the option is fixed at the point of sale, there are no daily
payments of cash to reflect the change in the value of the underlying
contract as there is by a purchaser or seller of a futures contract. The
value of the option does change and is reflected in the net asset value of
the Series for which it was purchased.
<PAGE>
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities subject
to such futures contracts may correlate imperfectly with the behavior of the
cash prices of each Series' portfolio securities. The risk of imperfect
correlation will be increased by the fact that the financial futures
contracts in which a Series may invest are on taxable securities rather than
tax-exempt securities, and there is no guarantee that the prices of taxable
securities will move in a similar manner to the prices of tax-exempt
securities.
Another risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements
or the time span within which the movements take place. For
11
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<PAGE>
example, if the Fund, on behalf of any Series, sold financial futures
contracts for the sale of securities in anticipation of an increase in
interest rates, and then interest rates went down instead, causing bond
prices to rise, that Series would lose money on the sale.
In addition to the risks that apply to all options transactions (see the
Statement of Additional Information for a description of the characteristics
of, and the risks of investing in, options on debt securities), there are
several special risks relating to options on futures. In particular, the
ability to establish and close out positions on such options will be subject
to the development and maintenance of a liquid secondary market. It is not
certain that this market will develop or be maintained.
MUNICIPAL BOND INDEX FUTURES. Each applicable Series may utilize municipal
bond index futures contracts for hedging purposes. The strategies in
employing such contracts will be similar to that discussed above with respect
to financial futures and options thereon. A municipal bond index is a method
of reflecting in a single number the market value of many different municipal
bonds and is designed to be representative of the municipal bond market
generally. The index fluctuates in response to changes in the market values
of the bonds included within the index. Unlike futures contracts on
particular financial instruments, transactions in futures on a municipal bond
index will be settled in cash, if held until the close of trading in the
contract. However, like any other futures contract, a position in the
contract may be closed out by a purchase or sale of an offsetting contract
for the same delivery month prior to expiration of the contract.
No Series may enter into futures contracts or related options thereon if
immediately thereafter the amount committed to margin plus the amount paid
for option premiums exceeds 5% of the value of that Series' total assets. The
Fund, on behalf of any Series, may not purchase or sell futures contracts or
related options if immediately thereafter more than one-third of the net
assets of that Series would be hedged.
OPTIONS. The Fund on behalf of any applicable Series, may purchase or sell
(write) options on debt securities as a means of achieving additional return
or hedging the value of a Series of the Fund's portfolio. The Fund, on behalf
of a Series, would only buy options listed on national securities exchanges.
The Fund, will not purchase options on behalf of any Series if, as a result,
the aggregate cost of all outstanding options exceeds 10% of the Fund's total
assets.
PORTFOLIO MANAGEMENT
The portfolio of each Series is managed by the Investment Manager with a view
to achieving its investment objective. The Fund is managed within
InterCapital's Municipal Fixed Income Group, which manages 39 tax-exempt
municipal funds and fund portfolios, with approximately $10.5 billion in
assets as of January 31, 1995. James F. Willison, Senior Vice President of
InterCapital and Manager of InterCapital's Municipal Fixed Income Group, has
been the primary portfolio manager of the Fund since its inception and has
been a portfolio manager at InterCapital for over five years. Securities are
purchased and sold principally in response to the Investment Manager's
current evaluation of an issuer's ability to meet its debt obligations in the
future, and the Investment Manager's current assessment of future changes in
the levels of interest rates on tax-exempt securities of varying maturities.
There are a number of state tax restrictions which limit the ability of the
Investment Manager to trade the portfolio securities of a particular Series
and which affect the composition of the portfolio of such Series. It is the
policy of the Investment Manager to adhere to any restrictions affecting a
particular Series. See "Dividends, Distributions and Taxes--State Taxation."
Securities purchased by each Series are, generally, sold by dealers acting
as principal for their own accounts. (Pursuant to an order issued by the
Securities and Exchange Commission, the Fund may effect principal
transactions in certain taxable money market instruments with Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of the Investment Manager.
In addition, the Fund may incur brokerage commissions on transactions
conducted through DWR. Brokerage commissions are not normally charged on
purchases and sales of municipal obligations, but such transactions may
involve transaction costs in the form of spreads between bid and asked
prices. It is anticipated that the annual portfolio turnover rate of each
Series will not exceed 100%.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund, on behalf of each Series, as fundamental
policies. Under the Act, a fundamental policy may not be changed without the
vote of a majority of the outstanding voting securities of each Series, as
defined in the Act.
For purposes of the investment policies and restrictions of the Fund: (a)
an "issuer" of a security is the entity whose assets and revenues are committed
to the payment of interest and principal on that particular security, provided
that the guarantee of a security will be considered a separate security; (b) a
"taxable security" is any security the interest on which is subject to regular
federal income tax; and (c) all percentage limitations apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage
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<PAGE>
resulting from market fluctuations or other changes in total assets does not
require elimination of any security from the portfolio.
Each Series may not:
1. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which each Series may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements; and (c)
by lending its portfolio securities.
2. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities or to municipal obligations, including those issued by the
designated State of each Series or its political subdivisions.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor") an affiliate of the Investment Manager,
shares of each Series of the Fund are distributed by the Distributor and
offered by DWR and other dealers who have entered into selected dealer
agreements with the Distributor ("Selected Broker-Dealers"). The principal
executive office of the Distributor is located at Two World Trade Center, New
York, New York 10048.
The minimum initial purchase is $1,000. Minimum subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter
Multi-State Municipal Series Trust, (name of Series), directly to Dean Witter
Trust Company (the "Transfer Agent") at P.O. Box 1040, Jersey City, NJ 07303
or by contacting an account executive of DWR or other Selected Broker-Dealer.
In the case of purchases made pursuant to Systematic Payroll Deduction
plans, the Fund, in its discretion, may accept such purchases without regard
to any minimum amounts which would otherwise be required if the Fund has
reason to believe that additional investments will increase the investment in
all accounts under such plans to at least $1,000. Certificates for shares of
each Series purchased will not be issued unless a request is made by the
shareholder in writing to the Transfer Agent. The offering price for each
Series will be the net asset value per share of that Series next determined
following receipt of an order (see "Determination of Net Asset Value" below),
plus a sales charge (expressed as a percentage of the offering price) on a
single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
-------------------------------
PERCENTAGE OF APPROXIMATE
PUBLIC PERCENTAGE OF
AMOUNT OF SINGLE TRANSACTION OFFERING PRICE AMOUNT INVESTED
- --------------------------------- -------------- ---------------
<S> <C> <C>
Less than $25,000 ................ 4.00% 4.17%
$25,000 but less than $50,000 ... 3.50 3.63
$50,000 but less than $100,000 .. 3.25 3.36
$100,000 but less than $250,000 . 2.75 2.83
$250,000 but less than $500,000 . 2.50 2.56
$500,000 but less than $1,000,000 1.75 1.78
$1,000,000 and over .............. 0.50 0.50
</TABLE>
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or
her spouse and their children under the age of 21 purchasing shares for his
or her own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified
under Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue
Code of a single employer or of employers who are "affiliated persons" of
each other within the meaning of Section 2(a)(3)(c) of the Act; or (g) any
other organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount. Shares of each Series of the Fund may be
sold at their net asset value per share, without the imposition of a sales
charge, to employee benefit plans established by DWR and SPS Transaction
Services, Inc. (an affiliate of DWR) for their employees as qualified under
Section 401 (K) of the Internal Revenue Code.
Sales personnel are compensated for selling shares of the Fund at the time
of their sale by the Distributor and/or Selected Broker-Dealer. In addition,
some sales personnel of the Selected Broker-Dealer will receive various types
of non-cash compensation as special sales incentives, including trips,
educational and/or business seminars and merchandise.
<PAGE>
Shares of each Series of the Fund are sold through the Distributor on a
normal five business day settlement basis; that is, payment is due on the
fifth business day (settlement date) after the order is placed with the
Distributor. Shares of each Series purchased through the Distributor are
entitled to dividends beginning on the next business day following settlement
date. Since DWR and other Selected Broker-Dealers forward investors' funds on
settlement date, they will benefit from the temporary use of the funds if
payment is made prior thereto. Shares purchased through the Transfer Agent
are entitled to dividends beginning on the next business day following
receipt of an order. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to
13
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<PAGE>
receive capital gains distributions if their order is received by close of
business on the day prior to the record date for such distributions. The Fund
and/or the Distributor reserve the right to reject any purchase order.
REDUCED SALES CHARGES
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced sales
charges in accordance with the above schedule by combining purchases of
shares of a Series of the Fund in single transactions with the purchase of
shares of another Series of the Fund. The sales charge payable on the
purchase of shares of a Series of the Fund and any other Series will be at
the respective rate applicable to the total amount of the combined concurrent
purchases.
RIGHT OF ACCUMULATION. The above persons and entities may also benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of shares of a Series purchased in a single
transaction, together with shares previously purchased (including shares of
another Series) which are held at the time of such transaction, amounts to
$25,000 or more.
The Distributor must be notified by the shareholder at the time a purchase
order is placed that the purchase qualifies for the reduced charge under the
Right of Accumulation. Similar notification must be made in writing by the
shareholder when such an order is placed by mail. The reduced sales charge
will not be granted if: (a) such notification is not furnished at the time of
the order; or (b) a review of the records of the Distributor or the Transfer
Agent fails to confirm the investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of shares of any Series of
the Fund from the Distributor. The cost of shares of any Series of the Fund
which were previously purchased at a price including a front-end sales charge
during the 90-day period prior to the date of receipt by the Distributor of
the Letter of Intent, which are still owned by the shareholder, may also be
included in determining the applicable reduction.
For further information concerning purchases of the Fund's shares, contact
the Distributor or consult the Statement of Additional Information.
PLAN OF DISTRIBUTION
The Fund has entered into a Plan of Distribution pursuant to Rule 12b-1 under
the Act, whereby the expenses of certain activities and services by DWR and
others who engage in or support distributions of Fund Shares or who service
shareholder accounts, including overhead and telephone expenses incurred in
connection with the distribution of the Fund's shares, are reimbursed.
Reimbursements for these expenses will be made in monthly payments by the
Fund to the Distributor, which will in no event exceed an amount equal to a
payment at the annual rate of 0.15 of 1% of the average daily net assets of
each Series of the Fund. Expenses incurred by the Distributor pursuant to the
Plan in any fiscal year will not be reimbursed by the Fund through payments
accrued in any subsequent fiscal year. No interest or other financing charges
will be incurred on any distribution expense incurred by the Distributor
under the Plan or on any unreimbursed expenses due to the Distributor
pursuant to the Plan. The fee payable pursuant to the Plan, equal to 0.15% of
the Fund's average daily net assets, is characterized as a service fee within
the meaning of NASD guidelines. The Arizona Series, California Series,
Florida Series, Massachusetts Series, Michigan Series, Minnesota Series, New
Jersey Series, New York Series, Ohio Series and Pennsylvania Series accrued a
total of $79,297, $193,303, $118,900, $25,842, $31,438, $16,700, $75,697,
$22,495, $36,275 and $77,808, respectively under the Plan for the fiscal year
ended November 30, 1994. This accrual is an amount equal to 0.14% of the
daily net assets of each respective Series of the Fund (0.15% of the daily
net assets of the Michigan Series, New Jersey Series and the Pennsylvania
Series).
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Series of the Fund is determined once
daily at 4:00 p.m., New York time on each day that the New York Stock
Exchange is open by taking the value of all assets of each Series of the
Fund, subtracting all of their respective liabilities, dividing by the number
of shares of the respective Series outstanding and adjusting to the nearest
cent. The net asset value per share of each Series will not be determined on
Good Friday and on such other federal and non-federal holidays as are
observed by the New York Stock Exchange.
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Portfolio securities (other than short-term taxable debt securities,
futures and options) are valued for the Fund by an outside independent
pricing service approved by the Fund's Trustees. The service utilizes a
computerized grid matrix of tax-exempt securities and evaluations by its
staff in determining what it believes is the fair value of the Fund's
portfolio securities. The Board believes that timely and reliable market
quotations are generally not readily available to the Fund for purposes of
valuing tax-exempt securities and that the valuations supplied by the pricing
service are more likely to approximate the fair value of such securities.
Short-term taxable debt securities with remaining maturities of sixty days
or less at the time of purchase are valued at amortized cost, unless the
Trustees determine such does not reflect the securities' fair value, in which
case these securities will be valued at their fair value as determined by the
Trustees.
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SHAREHOLDER SERVICES
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AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of each respective Series of the Fund, (or if specified by the
Shareholder, any other Series of the Fund or any other open-end investment
company for which InterCapital serves as Investment Manager (collectively
with the Fund, the "Dean Witter Funds")), unless the shareholder requests
they be paid in cash. Each purchase of shares of each Series of the Fund is
made upon the condition that the Transfer Agent is thereby automatically
appointed as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and
distributions will be paid in shares of each respective Series of the Fund at
net asset value per share (or in cash if the shareholder so requests) on the
monthly payment date, which will be no later than the last business day of
the month for which the dividend or distribution is payable. Processing of
dividend checks begins immediately following the monthly payment date.
Shareholders who have requested to receive dividends in cash will normally
receive their monthly dividend check during the first ten days of the
following month.
EASYINVEST(TRADEMARK). Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund.
SYSTEMATIC WITHDRAWAL PLAN. A withdrawal plan is available for shareholders
who own or purchase shares of any Series of the Fund having a minimum value
of $10,000 based upon the then current offering price. The plan provides for
monthly or quarterly (March, June, September and December) checks in any
dollar amount, not less than $25, or in any whole percentage of the account
balance, on an annualized basis.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege" allowing
the exchange of shares of a Series of the Fund for shares of any other Series
of the Fund, shares of other Dean Witter Funds sold with a front-end (at time
of purchase) sales charge ("FESC Funds"), for shares of Dean Witter Funds
sold with a contingent deferred sales charge ("CDSC Funds"), and for shares
of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term
Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced
Income Fund, Dean Witter Balanced Growth Fund and five Dean Witter Funds
which are money market funds (the foregoing eight non-FESC and non-CDSC funds
are hereinafter referred to as the "Exchange Funds"). Exchanges may be made
after the shares of a Series of the Fund acquired by purchase (not by
exchange or dividend reinvestment) have been held for thirty days. There is
no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment. However, shares of CDSC funds, including shares acquired in
exchange for shares of FESC funds, may not be exchanged for shares of FESC
funds. Thus, shareholders who exchange their Fund shares for shares of CDSC
funds may subsequently exchange those shares for shares of other CDSC funds
or Exchange Funds but may not reacquire FESC fund shares by exchange.
An exchange to another FESC fund or to a CDSC fund or to an Exchange Fund
is on the basis of the next calculated net asset value per share of each fund
after the exchange order is received. When exchanging into a money market
fund from a Series of the Fund, shares of the Series are redeemed out of the
Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following business day. Subsequent exchanges
between any of the Exchange Funds, FESC and CDSC funds can be effected on the
same basis (except that CDSC fund shares may not be exchanged for shares of
FESC funds). Shares of a CDSC fund acquired in exchange for shares of an FESC
fund (or in exchange for shares of other Dean Witter Funds for which shares
of an FESC fund have been exchanged) are not subject to any contingent
deferred sales charge upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of a Series' other shareholders
and, at the Investment Manager's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor.
Although the Fund does not have any specific definition of what constitutes a
pattern of frequent exchanges, and will consider all relevant factors in
determining whether a particular situation is abusive and contrary to the
best interests of a Series and its other shareholders, investors should be
aware that the Fund and each of the other Dean Witter Funds may in their
discretion limit or otherwise restrict the number of times this Exchange
Privilege may be exercised by any investor. Any such restriction will be made
by the Fund on a prospective basis only, upon notice to the shareholder not
later than ten days following such shareholder's most recent exchange.
The Exchange Privilege may be terminated or revised at any time by the
Fund and/or any of such Dean
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Witter Funds for which shares of a Series of the Fund have been exchanged,
upon such notice as may be required by applicable regulatory agencies.
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions
on exchange of shares of any Series of the Fund pledged in their margin
account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated
for federal income tax purposes the same as a repurchase or redemption of
shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in
situations where there is an exchange of shares within ninety days after the
shares are purchased. The Exchange Privilege is only available in states
where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of a Series of the Fund for shares of any
other Series of the Fund or for Shares of any of the Dean Witter Funds (for
which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their DWR or other Selected Broker-Dealer account
executive (no Exchange Privilege Authorization Form is required). Other
shareholders (and those shareholders who are clients of DWR or another
Selected Broker-Dealer but who wish to make exchanges directly by writing or
telephoning the Transfer Agent) must complete and forward to the Transfer
Agent an Exchange Privilege Authorization Form, copies of which may be
obtained from the Transfer Agent, to initiate an exchange. If the
Authorization Form is used, exchanges may be made in writing or by contacting
the Transfer Agent at (800) 526-3143 (toll free). The Fund will employ
reasonable procedures to confirm that exchange instructions communicated over
the telephone are genuine. Such procedures may include requiring various
forms of personal identification such as name, mailing address, social
security or other tax identification number and DWR or other Selected
Broker-Dealer account number (if any). Telephone instructions may also be
recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. Telephone exchange
instructions will be accepted if received by the Transfer Agent between 9:00
a.m. and 4:00 p.m. New York time, on any day the New York Stock Exchange is
open. Any shareholder wishing to make an exchange who has previously filed an
Exchange Privilege Authorization Form and who is unable to reach the Fund by
telephone should contact his or her DWR or other Selected Broker-Dealer
account executive, if appropriate, or make a written exchange request.
Shareholders are advised that during periods of drastic economic or market
changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean
Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
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REDEMPTION. Shares of each Series of the Fund can be redeemed for cash at any
time at their respective current net asset value per share next determined
(without any redemption or other charge). If shares are held in a
shareholder's account without a share certificate, a written request for
redemption is required. If certificates are held by the shareholder(s), the
shares may be redeemed by surrendering the certificate(s) with a written
request for redemption along with any additional information required by the
Transfer Agent.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the
net asset value next determined (see "Purchase of Fund Shares--Determination
of Net Asset Value") after such repurchase order is received. Repurchase
orders received by DWR and other Selected Broker-Dealers by 4:00 p.m., New
York time, on any business day will be priced at the net asset value per
share that is based on that day's close. Selected Broker-Dealers may charge
for their services in connection with the repurchase, but the Fund, DWR and
the Distributor do not charge a fee. Payment for shares repurchased may be
made by the Fund to DWR and other Selected Broker-Dealers for the account of
the shareholder. The offer by DWR and other Selected Broker-Dealers to
repurchase shares from dealers or shareholders may be suspended by them at
any time. In that event, shareholders may redeem their shares through the
Fund's Transfer Agent as set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented for
repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended at times when normal
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trading is not taking place on the New York Stock Exchange. If the shares to
be redeemed have recently been purchased by check, payment of the redemption
proceeds may be delayed for the minimum time needed to verify that the check
used for investment has been honored (not more than fifteen days from the
time of receipt of the check by the Transfer Agent). Shareholders maintaining
margin accounts with DWR or another Selected Broker-Dealer are referred to
their account executive regarding restrictions on redemption of shares of the
Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares redeemed
or repurchased and has not previously exercised this reinstatement privilege
may, within thirty days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund at the net asset value (without a sales charge) next
determined after a reinstatement request, together with the proceeds, is
received by the Transfer Agent.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on sixty days'
notice and at net asset value, the shares of any shareholder whose shares
have a value of less than $100 as a result of redemptions or repurchases, or
such lesser amount as may be fixed by the Trustees. However, before the Fund
redeems such shares and sends the proceeds to the shareholder, it will notify
the shareholder that the value of the shares is less than $100 and allow the
shareholder sixty days in which to make an additional investment in an amount
which will increase the value of his or her account to $100 or more before
the redemption is processed.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. The Fund declares, on behalf of each Series,
dividends from net investment income on each day the New York Stock Exchange
is open for business (see "Purchase of Fund Shares"). Such dividends are
payable monthly. Each Series intends to distribute substantially all of its
net investment income on an annual basis.
Each Series of the Fund will distribute at least once each year all net
short-term capital gains, if there are any, after utilization of any capital
loss carryovers. Each Series may, however, determine either to distribute or
to retain all or part of any net long-term capital gains in any year for
reinvestment. All dividends and capital gains distributions will be paid in
additional Series' shares (without sales charge) and automatically credited
to the shareholder's account without issuance of a share certificate unless
the shareholder requests in writing that all dividends and distributions be
paid in cash. (See "Shareholder Services--Automatic Investment of Dividends
and Distributions.") Taxable capital gains may be generated by transactions
in options and futures contracts engaged in by any Series of the Fund. Any
dividends or distributions declared in the last quarter of any calendar year
which are paid in the following year prior to February 1, will be deemed
received by shareholders of record in the prior quarter in the prior year.
TAXES. Because each Series of the Fund intends to distribute substantially
all of its net investment income and capital gains to shareholders and
intends to otherwise remain qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code as amended (the "Code"), it is not
expected that any Series will be required to pay any federal income tax (if
any Series does retain any net long-term capital gains it will pay federal
income tax thereon, and shareholders will be required to include such
undistributed gains in their taxable income and will be able to claim their
share of the tax paid by that Series as a credit against their individual
federal income tax).
The Code may subject interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. This alternative minimum tax may be
incurred due to interest received on "private activity bonds" (in general,
bonds that benefit non-government entities) issued after August 7, 1986
which, although tax-exempt, are used for purposes other than those generally
performed by governmental units (e.g., bonds used for commercial or housing
purposes). Income received on such bonds is classified as a "tax preference
item", under the alternative minimum tax, for both individual and corporate
investors. A portion of each Series' investments may be made in such "private
activity bonds," with the result that a portion of the exempt-interest
dividends paid by each Series will be an item of tax preference to
shareholders of that Series subject to the alternative minimum tax. In
addition, certain corporations which are subject to the alternative minimum
tax may have to include a portion of exempt-interest dividends in calculating
their alternative minimum taxable income in situations where the "adjusted
current earnings" of the corporation exceeds its alternative minimum taxable
income.
Under the Revenue Reconciliation Act of 1993, all or a portion of the
Fund's gain from the sale or redemption of tax-exempt obligations purchased
at a market discount after April 30, 1993 will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary
income dividends received by shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and any capital gains distributions including
information indicating the percentage of the dividend distributions for such
fiscal year which constitutes exempt-interest dividends and the percentage,
if any, that is taxable, and the percentage, if any, of the exempt-interest
dividends which constitutes an item of tax preference.
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Shareholders who are required to pay taxes on their income will normally
be subject to federal and state income tax on dividends paid from interest
income derived from taxable securities and on distributions of net capital
gains they receive from the Fund. For federal income tax purposes,
distributions of long-term capital gains, if any, are taxable to shareholders
as long-term capital gains, regardless of how long a shareholder has held
shares of any Series of the Fund and regardless of whether the distribution
is received in additional shares or in cash. If a shareholder receives a
distribution that is taxed as a long-term capital gain on shares held for six
months or less and sells those shares at a loss, the loss will be treated as
a long-term capital loss to the extent of the capital gains distribution. To
avoid being subject to a 31% federal backup withholding tax on taxable
dividends and capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished
and certified as to accuracy.
The foregoing relates primarily to federal income taxation as in effect as
of the date of this Prospectus. Distributions from investment income and
capital gains, including exempt-interest dividends, may be subject to state
taxes in states other than the state of each designated Series, and also to
local taxes. Shareholders should consult their tax advisors as to the
applicability of the above to their own tax situation and as to the tax
consequences to them of an investment in any Series of the Fund.
STATE TAXATION. The following general considerations are relevant to
investors in each Series of the Fund indicated below. Shareholders of each
designated Series should consult their tax advisers about other state and
local tax consequences of their investments in such Series.
ARIZONA. Under a ruling issued by the Arizona Department of Revenue in 1984,
distributions from the Arizona Series that are received by shareholders that
are Arizona taxpayers will not be subject to Arizona income tax to the extent
that those distributions are attributable to interest on tax-exempt
obligations of the State of Arizona or interest on obligations of the United
States. Distributions from the Arizona Series attributable to obligations of
the governments of Puerto Rico, the Virgin Islands and Guam should also be
excludible from Arizona income tax. Other distributions from the Arizona
Series, including those related to short-term and long-term capital gains,
generally will be taxable under Arizona law when received by Arizona
taxpayers. Interest on indebtedness incurred (directly or indirectly) by a
shareholder to purchase or carry shares of the Arizona Series should not be
deductible for Arizona income tax purposes to the extent that the Arizona
Series holds tax-exempt obligations of the State of Arizona, obligations of
the United States, and obligations of Puerto Rico, the Virgin Islands and
Guam.
The foregoing discussion assumes that in each taxable year the Arizona
Series qualifies and elects to be taxed as a regulated investment company for
federal income tax purposes. In addition, the following discussion assumes
that in each taxable year the Arizona Series qualifies to pay exempt-interest
dividends by complying with the requirement of the Code that at least 50% of
its assets at the close of each quarter of its taxable year is invested in
state, municipal or other obligations, the interest on which is excluded from
gross income for federal income tax purposes pursuant to section 103(a) of
the Code.
CALIFORNIA. In any year in which the Fund qualifies as a regulated investment
company under the Internal Revenue Code and is exempt from federal income
tax, (i) the California Series will also be exempt from the California
corporate income and franchise taxes to the extent it distributes its income
and (ii), provided 50% or more of the value of the total assets of the
California Series at the close of each quarter of its taxable year consists
of obligations the interest on which (when held by an individual) is exempt
from personal income taxation under California law. The California Series
will be qualified under California law to pay "exempt-interest" dividends
which will be exempt from the California personal income tax.
The portion of dividends constituting exempt-interest dividends is that
portion derived from interest on obligations which pay interest excludable
from California personal income under California law. The total amount of
California exempt-interest dividends paid by the California Series to all of
its shareholders with respect to any taxable year cannot exceed the amount of
interest received by the California Series during such year on such
obligations less any expenses and expenditures (including dividends paid to
corporate shareholders) deemed to have been paid from such interest. Any
dividends paid to corporate shareholders subject to the California franchise
or corporate income tax will be taxed as ordinary dividends to such
shareholders.
Individual shareholders of the California Series who reside in California
will not be subject to California personal income tax on distributions
received from the California Series to the extent such distributions are
attributable to interest received by the California Series during its taxable
year on obligations, the interest on which (when held by an individual) is
exempt from taxation under California law.
<PAGE>
Because, unlike federal law, California law does not impose personal
income tax on an individual's Social Security benefits, the receipt of
California exempt-interest dividends will have no effect on an individual's
California personal income tax.
Individual shareholders will normally be subject to federal and California
personal income tax on dividends paid from interest income derived from
taxable securities and distributions of net capital gains. In addition,
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distributions other than exempt-interest dividends to such shareholders are
includable in income subject to the California alternative minimum tax. For
federal income tax and California personal income tax purposes, distributions
of long-term capital gains, if any, are taxable to shareholders as long-term
capital gains, regardless of how long a shareholder has held shares of the
California Series and regardless of whether the distribution is received in
additional shares or in cash. In addition, unlike federal law, the
shareholders of the California Series will not be subject to tax, or receive
a credit for tax paid by the California Series, on undistributed capital
gains, if any.
Interest on indebtedness incurred by shareholders or related parties to
purchase or carry shares of an investment company paying exempt-interest
dividends, such as the California Series, generally will not be deductible by
the investor for federal or state personal income tax purposes. In addition,
as a result of California's incorporation of certain provisions of the Code,
a loss realized by a shareholder upon the sale of shares held for six months
or less may be disallowed to the extent of any exempt-interest dividends
received with respect to such shares. Moreover, any loss realized upon the
redemption of shares within six months from the date of purchase of such
shares and following receipt of a long-term capital gains distribution will
be treated as long-term capital loss to the extent of such long-term capital
gains distribution. Finally, any loss realized upon the redemption of shares
within 30 days before or after the acquisition of other shares of the Trust
may be disallowed under the "wash sale" rules.
Distributions from investment income and long-term and short-term capital
gains will not be excludable from taxable income in determining the
California corporate franchise tax for corporate shareholders. Such
distributions may also be includable in income subject to the alternative
minimum tax. In addition, distributions from investment income and long-term
and short-term capital gains may be subject to state taxes in states other
than California, and to local taxes.
FLORIDA. Under existing Florida law, neither the State of Florida nor any of
its political subdivisions or other governmental authorities may impose an
income tax on individuals. Accordingly, individual shareholders of the
Florida Series will not be subject to any Florida state or local income taxes
on income derived from investments in the Florida Series. However, such
income may be subject to state or local income taxation under applicable
state or local laws in jurisdictions other than Florida. In addition, the
income received from the Florida Series may be subject to estate taxes under
present Florida law and certain corporations may be subject to the taxes
imposed by Chapter 220, Florida Statutes, on interest, income or profits on
debt obligations owned by corporations as defined in said Chapter 220.
The State of Florida also imposes an annual tax of 2 mills on each dollar
($2.00 per $1,000) of the just valuation of all intangible personal property
that has a taxable situs within the State. However, the entire value of a
shareholder's interest in the Florida Series will be exempt from Florida's
intangible personal property tax if, as is intended, all of the investments
and other assets held by the Florida Series on the applicable assessment date
are exempt individually from the intangible personal property tax. [It
presently is the policy and intention of the Fund and the Investment Manager
to manage the Florida Series in such a manner as to ensure that on each
annual assessment date the Florida Series will consist of only those
investments and other assets which are exempt from the Florida intangible
personal property tax. Accordingly, it is unlikely that any shareholder of
the Florida Series will ever be subject to such tax. In the event that the
Florida Series includes investments or other assets on the annual assessment
date which may subject shareholders to the Florida intangible personal
property tax, the Fund shall so notify the Shareholders.]
<PAGE>
MASSACHUSETTS. Under existing Massachusetts law, provided the Massachusetts
Series qualifies as a "regulated investment company" under the Code, the
Massachusetts Series will not be subject to Massachusetts income or excise
taxation. Shareholders of the Massachusetts Series that are individuals,
estates or trusts and are subject to the Massachusetts personal income tax
will not be subject to such tax on distributions of the Massachusetts Series
that qualify as "exempt-interest dividends" under Section 852(b)(5) of the
Code and are attributable to interest received by the Massachusetts Series on
obligations issued by The Commonwealth of Massachusetts and its
municipalities, political subdivisions and governmental agencies and
instrumentalities, or by Puerto Rico, the U.S. Virgin Islands or Guam, which
pay interest excludable from gross income under the Code and exempt from
Massachusetts personal income taxation. Other distributions to such
shareholders will generally be included in income subject to the
Massachusetts personal income tax, except for (1) distributions, if any,
attributable to interest received by the Massachusetts Series on direct
obligations of the United States and (2) distributions, if any, attributable
to gain realized by the Massachusetts Series on the sale of certain
Massachusetts obligations issued pursuant to Massachusetts statutes that
specifically exempt such gain from Massachusetts taxation. Dividends from the
Massachusetts Series that qualify as capital gain dividends under Section
852(b)(3)(C) of the Code, other than such dividends described in the second
clause of the preceding sentence, will be treated as long-term capital gains
for Massachusetts personal income tax purposes.
As a result of a change in the Massachusetts tax laws, applicable to
taxable years beginning on or after January 1, 1996, gain income from the
sale or exchange of shares of the Massachusetts Series will be taxed at a
stepped down rate depending on the number of years such shares have been
held. For purposes of determining the holding period, shares acquired prior
to 1/1/96 shall
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be deemed to have been acquired on 1/1/95, or on the date of actual
acquisition, whichever is later.
In determining the Massachusetts excise tax on corporations subject to
Massachusetts taxation, distributions from the Massachusetts Series, whether
attributable to taxable or tax-exempt income or gain realized by the
Massachusetts Series, will not be excluded from a corporate shareholder's net
income and, in the case of a shareholder that is an intangible property
corporation, shares of the Massachusetts Series will not be excluded from net
worth.
MICHIGAN. Under existing Michigan law, to the extent that the distributions
from the Michigan Series qualify as "exempt-interest dividends" of a
regulated investment company under Section 852(b)(5) of the Code which are
attributable to interest on tax-exempt obligations of the State of Michigan,
its political or governmental subdivisions, or its governmental agencies or
instrumentalities ("Michigan Obligations"), or obligations of the United
States or its agencies or possessions that are exempt from state taxation,
such distributions will also not be subject to Michigan income tax or
Michigan single business tax. Under existing Michigan law, an owner of a
share of an investment company (such as the Michigan Series) will be
considered the owner of a pro rata share of the assets of the investment
company. As such, yield from such shares, for intangibles tax purposes, will
not include the interest or dividends received from Michigan Obligations or
obligations of the United States or its agencies or possessions. In addition,
Michigan Series shares owned by certain financial institutions or by certain
other persons subject to the Michigan single business tax are exempt from the
Michigan intangibles tax.
To the extent that distributions of the Michigan Series are derived from
other income, including long-or short-term capital gains, the distributions
will not be exempt from Michigan income tax or Michigan single business tax.
Certain Michigan cities have adopted Michigan's uniform city income tax
ordinance, which under the Michigan city income tax act is the only income
tax ordinance that may be adopted by cities in Michigan. To the extent the
distributions on the Michigan Series are not subject to Michigan income tax,
they are not subject to any Michigan city's income tax.
MINNESOTA. Under existing Minnesota law, provided the Minnesota Series
qualifies as a "regulated investment company" under the Code, individual
shareholders of the Minnesota Series resident in Minnesota who are subject to
the regular Minnesota personal income tax will not be subject to such regular
Minnesota tax on Minnesota Series dividends to the extent that such
distributions qualify as exempt-interest dividends of a regulated investment
company under Section 852(b)(5) of the Code which are derived from interest
on tax-exempt obligations of the State of Minnesota, or its political or
governmental subdivisions, municipalities, governmental agencies or
instrumentalities. The foregoing will apply, however, only if the portion of
the exempt-interest dividends from such Minnesota sources that is paid to all
shareholders represents 95% or more of the exempt-interest dividends that are
paid by the Minnesota Series. If the 95% test is not met, all exempt-interest
dividends that are paid by the Minnesota Series will be subject to the
regular Minnesota personal income tax. Even if the 95% test is met, to the
extent that exempt-interest dividends that are paid by the Minnesota Series
are not derived from the Minnesota sources described in the first sentence of
this paragraph, such dividends will be subject to the regular Minnesota
personal income tax. Other distributions of the Minnesota Series, including
distributions from net short-term and long-term capital gains, are generally
not exempt from the regular Minnesota personal income tax.
Minnesota presently imposes an alternative minimum tax on resident
individuals that is based, in part, on their federal alternative minimum
taxable income, which includes federal tax preference items. The Code
provides that interest on specified private activity bonds is a federal tax
preference item, and that an exempt-interest dividend of a regulated
investment company constitutes a federal tax preference item to the extent of
its proportionate share of the interest on such private activity bonds.
Accordingly, individual shareholders of the Minnesota Series resident in
Minnesota may be subject to the Minnesota alternative minimum tax as a result
of the receipt of exempt-interest dividends that are attributable to such
private activity bond interest, even though they are also derived from the
Minnesota sources described in the paragraph above. In addition, the entire
portion of exempt-interest dividends that is derived from sources other than
the Minnesota sources described in the paragraph above is subject to the
Minnesota alternative minimum tax. Further, should the 95% test that is
described in the paragraph above fail to be met, all of the exempt-interest
dividends that are paid by the Minnesota Series, including all of those that
are derived from the Minnesota sources described in the paragraph above, will
be subject to the Minnesota alternative minimum tax.
<PAGE>
Subject to certain limitations that are set forth in the Minnesota rules,
Minnesota Series dividends, if any, that are derived from interest on certain
United States obligations are not subject to the regular Minnesota personal
income tax or the Minnesota alternative minimum tax, in the case of
individual shareholders of the Minnesota Series who are resident in
Minnesota.
Minnesota Series distributions, including exempt-interest dividends, are
not excluded in determining the Minnesota franchise tax on corporations that
is measured by taxable income and alternative minimum taxable income.
Minnesota Series distributions may also be taken into account in certain
cases in determining the minimum fee that is imposed on corporations, S
corporations and partnerships.
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Interest on indebtedness incurred or continued by a shareholder of the
Minnesota Series to purchase or carry shares of the Minnesota Series will
generally not be deductible for regular Minnesota personal income tax
purposes or Minnesota alternative minimum tax purposes, in the case of
individual shareholders of the Minnesota Series who are resident in
Minnesota.
Shares of the Minnesota Series will not be subject to the Minnesota
personal property tax.
NEW JERSEY. Under existing New Jersey law, as long as the New Jersey Series
qualifies as a "qualified investment fund," shareholders of the New Jersey
Series will not be required to include in their New Jersey gross income
distributions from the New Jersey investment fund to the extent that such
distributions are attributable to interest or gain from obligations (1)
issued by or on behalf of New Jersey or any county, municipality, school or
other district, agency, authority, commission, instrumentality, public
corporation, body corporate and politic or political subdivision of New
Jersey, or (2) statutorily free from New Jersey or local taxation under other
acts of New Jersey or under the laws of the United States.
A "qualified investment fund" is any investment company or trust
registered with the Securities Exchange Commission, or any series of such
investment company or trust, which, for the calendar year in which the
distribution is paid, (a) has no investments other than interest-bearing
obligations, obligations issued at a discount, and cash and cash items,
including receivables; and (b) has not less than 80% of the aggregate
principal amount of all its investments, excluding cash and cash items
(including receivables), in obligations of the types described in the
preceding paragraph.
The foregoing exclusion applies only to shareholders who are individuals,
estates, and trusts, subject to the New Jersey gross income tax. That tax
does not apply to corporations, and while certain qualifying distributions
are exempt from corporation income tax, all distributions will be reflected
in the net income tax base for purposes of computing the corporation business
tax. Gains resulting from the redemption or sale of shares of the New Jersey
Series will also be exempt from the New Jersey gross income tax.
At this time, the New Jersey Division of Taxation has taken the position
that financial futures contracts, options on futures contracts and municipal
bond index futures contracts do not constitute interest-bearing obligations,
obligations issued at a discount, or cash and cash items, including
receivables. Accordingly, the inclusion of such investments would cause all
distributions from the New Jersey Series for the taxable year to become
taxable. The Fund reserves the right to make such investments on behalf of
the New Jersey Series at such time as permitted under New Jersey law.
The regulations require that 80% of the aggregate principal amount of all
investments, excluding cash and cash items, must be in tax-exempt obligations
free from federal and New Jersey income taxes at the end of each quarter of
the taxable year. Failure to meet the New Jersey 80% aggregate principal
amount test, even if necessary to maintain a "defensive" position would cause
all distributions from the New Jersey Series for the taxable year to become
taxable.
The New Jersey Series will notify shareholders by February 15 of each
calendar year as to the portion of its distributions for the preceding
calendar year that is exempt from federal income and New Jersey income taxes.
NEW YORK. Under existing New York law, individual shareholders who are New
York residents will not incur any federal, New York State or New York City
income tax on the amount of exempt-interest dividends received by them from
the Series which represents a distribution of income from New York tax-exempt
securities whether taken in cash or reinvested in additional shares.
Exempt-interest dividends are included, however, in determining what portion,
if any, of a person's Social Security benefits are subject to federal income
tax.
Interest on indebtedness incurred or continued to purchase or carry shares
of an investment company paying exempt-interest dividends, such as the Fund,
may not be deductible by the investor for State or City personal income tax
purposes.
Shareholders will normally be subject to federal, New York State or New
York City income tax on dividends paid from interest income derived from
taxable securities and on distributions of net capital gains. For federal and
New York State or New York City income tax purposes, distributions of net
long-term capital gains, if any, are taxable to shareholders as long-term
capital gains, regardless of how long the shareholder has held the Fund
shares and regardless of whether the distribution is received in additional
shares or in cash. Distributions from investment income and capital gains,
including exempt-interest dividends, may be subject to New York franchise
taxes if received by a corporation doing business in New York, to state taxes
in states other then New York and to local taxes.
<PAGE>
OHIO. Under existing Ohio law, provided the Ohio Series qualifies as a
"regulated investment company" under the Code, the Ohio Series will not be
subject to the Ohio personal income tax, the Ohio corporation franchise tax,
or to income taxes imposed by municipalities and other political subdivisions
in Ohio. Individual shareholders of the Ohio Series who are subject to the
Ohio personal income taxes will not be subject to such taxes on distributions
with respect to shares of the Ohio Series to the extent that such
distributions are directly attributable to interest on obligations issued by
the State of Ohio, its counties and municipalities, authorities,
instrumentalities or other political subdivisions ("Ohio Obligations").
Corporate shareholders of the Ohio Series that are subject to the Ohio
corporation franchise tax computed on the net income basis will not be
subject to such tax on
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distributions with respect to shares of the Ohio Series to the extent that
such distributions either (a) are attributable to interest on Ohio
obligations, or (b) represent "exempt-interest dividends" as defined in
Section 852 of the Code. Shares of the Ohio Series will, however, be included
in a corporate shareholder's tax base for purposes of computing the Ohio
corporation franchise tax on the net worth basis.
Distributions with respect to the Ohio Series that are attributable to
interest on obligations of the United States or its territories or
possessions (including the Governments of Puerto Rico, the Virgin Islands,
and Guam), or of any authority, commission or instrumentality of the United
States that is exempt from state income taxes under the laws of the United
States, will not be subject to the Ohio personal income tax, the Ohio
corporation franchise tax (to the extent computed on the net income basis),
or to taxes imposed by municipalities and other political subdivisions in
Ohio.
Capital gains distributed by the Ohio Series attributable to any profits
made on the sale, exchange, or other disposition by the Ohio Series of Ohio
Obligations will not be subject to the Ohio personal income tax, the Ohio
corporation franchise tax (to the extent computed on the net income basis),
or to taxes imposed by municipalities and other political subdivisions in
Ohio.
Interest on indebtedness incurred or continued (directly or indirectly) by
a shareholder of the Ohio Series to purchase or carry shares of the Ohio
Series will not be deductible for Ohio personal income tax purposes.
PENNSYLVANIA. Individual shareholders of the Pennsylvania Series resident in
the Commonwealth of Pennsylvania ("Commonwealth"/"Pennsylvania") will not be
subject to Pennsylvania personal income tax on distributions received from
the Pennsylvania Series to the extent such distributions are attributable to
interest on tax-exempt obligations of the Commonwealth, its agencies,
authorities and political subdivisions or obligations of the United States or
of the Governments of Puerto Rico, the Virgin Islands and Guam. Other
distributions from the Pennsylvania Series, including capital gains generally
and interest on securities not described in the preceding sentence, generally
will not be exempt from Pennsylvania Personal Income Tax.
Other than the School District of Philadelphia, political subdivisions of
the Commonwealth have not been authorized to impose an unearned income tax
upon resident individuals. Individual shareholders who reside in the
Philadelphia School District will not be subject to the School District
Unearned Income Tax on (i) distributions received from the Pennsylvania
Series to the extent that such distributions are exempt from Pennsylvania
Personal Income Tax, or (ii) distributions of capital gains income by the
Pennsylvania Series.
Corporate shareholders who are subject to the Pennsylvania Corporate Net
Income Tax will not be subject to that tax on distributions by the
Pennsylvania Series that qualify as "exempt-interest dividends" under Section
852(b)(5) of the U.S. Internal Revenue Code or are attributable to interest
on obligations of the United States or agencies or instrumentalities thereof.
For Capital Stock/Foreign Franchise Tax purposes, corporate shareholders must
normally reflect their investment in the Pennsylvania Series and the
dividends received thereon in the determination of the taxable value of their
capital stock.
The Pennsylvania Series will not be subject to Corporate Net Income Tax or
other corporate taxation in Pennsylvania.
Most Pennsylvania counties are authorized to impose a tax on intangible
personal property of their residents, and many do so. Shares in the
Pennsylvania Series constitute intangible personal property. However, shares
in the Pennsylvania Series will not be subject to intangible personal
property taxation to the extent that the intangible personal property owned
in the portfolio of the Pennsylvania Series would not be subject to such
taxation if owned directly by a resident of Pennsylvania. The Pennsylvania
Series will invest predominantly in obligations of the Commonwealth, its
agencies, authorities and political subdivisions, or obligations of the
United States or the Governments of Puerto Rico, the Virgin Islands or Guam,
which obligations are not subject to intangible personal property taxation in
Pennsylvania. Only the fraction, if any, of the value of the Pennsylvania
Series' portfolio not invested in securities described in the preceding
sentence would be subject to any applicable intangible personal property tax.
<PAGE>
PERFORMANCE INFORMATION
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From time to time each Series of the Fund may quote its "yield" and/or its
"total return" in advertisements and sales literature. Both the yield and the
total return of each Series of the Fund are based on historical earnings and
are not intended to indicate future performance. The yield of each Series of
the Fund is computed by dividing the net investment income of that Series
over a 30-day period by an average value (using the average number of shares
entitled to receive dividends and the net asset value per share at the end of
the period), all in accordance with applicable regulatory requirements. Such
amount is compounded for six months and then annualized for a twelve-month
period to derive the yield of that Series. Each Series may also quote its
tax-equivalent yield, which is calculated by determining the pre-tax yield
which, after being taxed at a stated rate, would be equivalent to the yield
determined as described above.
The "average annual total return" of each Series of the Fund refers to a
figure reflecting the average
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annualized percentage increase (or decrease) in the value of an initial
investment in a Series of the Fund of $1,000 over the life of such Series of
the Fund. Average annual total return reflects all income earned by such
Series, any appreciation or depreciation of the assets of such Series, all
expenses incurred by such Series and all sales charges incurred by
shareholders redeeming shares, for the stated periods. It also assumes
reinvestment of all dividends and distributions paid by such Series.
In addition to the foregoing, each Series of the Fund may advertise its
total return over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the front-end sales charge which, if
reflected, would reduce the performance quoted. Each Series may also
advertise the growth of hypothetical investments of $10,000, $50,000 and
$100,000 in shares of that Series by adding 1 to that Series' aggregate total
return to date and multiplying by $9,600, $48,375 and $97,250 ($10,000,
$50,000 and $100,000 adjusted for 4.00%, 3.25% and 2.75% sales charges,
respectively). Each Series of the Fund from time to time may also advertise
its performance relative to certain performance rankings and indexes compiled
by independent organizations (such as Lipper Analytical Services Inc.)
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of a Series of the Fund are
of $0.01 par value and are equal as to earnings, assets and voting privileges
with respect to such Series.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees.
Presently, there are ten Series of the Fund. The Declaration of Trust
permits the Trustees to authorize the creation of additional series shares
(the proceeds of which would be invested in separate, independently managed
portfolios) and additional classes of shares within any series (which would
be used to distinguish among the rights of different categories of
shareholders, as might be required by future regulations or other unforeseen
circumstances).
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Fund and requires that notice of such disclaimer be given in each instrument
entered into or executed by the Fund and provides for indemnification out of
the Fund's property for any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund itself would be unable to meet its obligations. Given the above
limitations on shareholder personal liability and the nature of the Fund's
assets and operations, the possibility of the Fund being unable to meet its
obligations is remote and, in the opinion of Massachusetts counsel to the
Fund, the risk to Fund shareholders of personal liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no Dean Witter Fund is engaged at
the same time in a purchase or sale of the same security. The Code of Ethics
bans the purchase of securities in an initial public offering, and also
prohibits engaging in futures and option transactions and profiting on
short-term trading (that is, a purchase within 60 days of a sale or a sale
within 60 days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account
within 30 days before or after any transaction in any Dean Witter Fund
managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the recent report by the Investment Company Institute
Advisory Group on Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed to
the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
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APPENDIX
SPECIAL INVESTMENT CONSIDERATIONS OF EACH STATE SERIES
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ARIZONA SERIES
The Arizona Series will invest principally in securities of political
subdivisions and other issuers of the State of Arizona the interest on which
is exempt from federal and Arizona income taxes. As a result, the ability of
such Arizona issuers to meet their obligations with respect to such
securities generally will be influenced by the political, economic and
regulatory developments affecting the state of Arizona and the particular
revenue streams supporting such issuers' obligations. If any of such
political subdivisions are unable to meet their financial obligations, the
income derived by the Arizona Series, the ability to preserve or realize
appreciation of the Arizona Series' capital, and the liquidity of the Arizona
Series could be adversely affected. The following summary respecting the
State of Arizona is only general in nature and does not purport to be a
description of the investment considerations and factors which may have an
effect on the obligations of a particular issuer in which the Arizona Series
may invest.
Arizona's population increased by approximately 35% during the 10-year
period from 1980 to 1990, ranking Arizona as the third fastest growing state
in the country for the period. The rate of growth, however, has slowed
substantially in recent years increasing by approximately 10% from 1990 to
1994. Although slowed, Arizona's rate of growth remains above the national
average. This growth in population will require corresponding increases in
revenues of Arizona issuers to meet increased demands for infrastructure
development and various services, and the performance of the State's economy
will be critical to providing such increased revenues.
The State's principal economic sectors include services, manufacturing
dominated by electrical, transportation and military equipment, government,
tourism and the military. State unemployment rates have remained generally
comparable to the national average in recent years. Arizona's economy appears
to be recovering from the difficulties caused in the late eighties by the
severe drop in real estate values and the lack of stability of Arizona-based
financial institutions which caused many of such institutions to be placed
under control of the Resolution Trust Corporation. Arizona's economy is
expanding at a moderate but consistent rate. Restrictive government spending,
weak export markets, resizing of the defense industry and layoffs in the
private sector are expected to continue to restrain the pace of expansion.
Arizona is required by law to maintain a balanced budget. To achieve this
objective, the State has, in the past, utilized a combination of spending
reductions and tax increases. Arizona's budget was balanced for the two
fiscal years ended June 30, 1992 and 1993 and resulted in a surplus for the
fiscal year ended June 30, 1994. A portion of the surplus was used to fund a
tax relief package effective for the 1994 tax year. However, the condition of
the national economy will continue to be a significant factor influencing
Arizona's budget during the upcoming fiscal year.
For additional information relating to State imposed restrictions on
indebtedness of certain Arizona issuers, see the Statement of Additional
Information.
CALIFORNIA SERIES
Because the California Series will concentrate its investments in California
tax-exempt securities, it will be affected by any political, economic or
regulatory developments affecting the ability of California issuers to pay
interest or repay principal. Various developments regarding the California
Constitution and State statutes which limit the taxing and spending authority
of California governmental entities may impair the ability of California
issuers to maintain debt service on their obligations. The following
information constitutes only a brief summary and is not intended as a
complete description. See the Statement of Additional Information for a more
detailed discussion.
California is the most populous state in the nation with a total
population at the 1990 census of 29,976,000. Growth has been incessant since
World War II, with population gains in each decade since 1950 of between 18%
and 49%. During the last decade, population rose 20%. The State now comprises
12% of the nation's population and 13.3% of its total personal income. Its
economy is broad and diversified with major concentrations in high technology
research and manufacturing, aerospace and defense-related manufacturing,
trade, real estate, and financial services. After experiencing strong growth
throughout much of the 1980s, the State was adversely affected by both the
national recession and the cutbacks in aerospace and defense spending which
had a severe impact on the economy in Southern California. Although the
national economic recovery continued at a strong pace in the fourth quarter
of 1994, California is still experiencing the effects of a recession.
However, the State's budget for fiscal year 1994-95 assumes that the State
will begin to recover from recessionary conditions in 1994, with a modest
upturn in 1994 and continuing in 1995.
<PAGE>
These economic difficulties have exacerbated the structural budget
imbalance which has been evident since fiscal year 1985-1986. Since that
time, budget shortfalls have become increasingly more difficult to solve and
the State has recorded
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General Fund operating deficits in five of the past six fiscal years. Many of
these problems have been attributable to the fact that the great population
influx has produced increased demand for education and social services at a
far greater pace than the growth in the State's tax revenues. Despite
substantial tax increases, expenditure reductions and the shift of some
expenditure responsibilities to local government, the budget condition
remains problematic.
In July 1991, California increased taxes by adding two new marginal tax
rates, at 10% and 11%, effective for tax years 1991 through 1995. After 1995,
the maximum personal income tax rate is scheduled to return to 9.3%, and the
alternative minimum tax rate is scheduled to drop from 8.5% to 7%. In
addition, legislation in July 1991 raised the sales tax by 1.25%. 0.5% was a
permanent addition to counties, but with the money earmarked to trust funds
to pay for health and welfare programs whose administration was transferred
to counties. This tax increase will be cancelled if a court rules that such
transfer and tax increase violate any constitutional requirements. 0.5% of
the State tax rate was scheduled to expire on June 30, 1993, but was extended
for six months for the benefit of counties and cities. On November 2, 1993,
voters made this half-percent levy a permanent source of funding for local
government. The 1994-95 State budget does not include any additional increase
in the sales tax rate.
On July 8, 1994, the Governor signed into law a $57.5 billion budget
which, among other things, (a) reduces welfare grants and aid to families and
to the aged, blind and disabled, and (b) relies on the State's ability to
obtain $2.8 billion in new reimbursement from the federal government for the
State's cost of serving illegal immigrants. Although the State legislature
has passed a standby measure which could trigger automatic budget reductions
if the State's fiscal condition worsens over the next two years, the
stability of the budget would be jeopardized if the State is unable to obtain
the hoped-for federal funds.
The current budget includes General Fund spending of $40.9 billion, up
4.2% from the level of spending during the 1993-94 fiscal year. The budget
also envisions General Fund spending climbing another 8.4% in the 1995-96
fiscal year. The budget forecasts levels of revenues and expenditures which
will result in operating surpluses in both 1994-95 and 1995-96, leading to
the elimination of an estimated $2.0 billion accumulated budget deficit by
June 30, 1996.
Because of the State of California's continuing budget problems, the
State's General Obligation bonds were downgraded in July 1994 from A1 to Aa
by Moody's, from A+ to A by Standard & Poor's, and from AA to A by Fitch
Investors Service, Inc. All three rating agencies expressed uncertainty in
the State's ability to balance its budget by 1996.
The effect of these various constitutional and statutory amendments and
budget developments upon the ability of California issuers to pay interest
and principal on their obligations remains unclear and in any event may
depend upon whether a particular California tax-exempt security is a general
or limited obligation bond and on the type of security provided for the bond.
It is possible that other measures affecting the taxing or spending authority
of California or its political subdivisions may be approved or enacted in the
future.
For a more detailed discussion of the State of California economic
factors, see the Statement of Additional Information.
FLORIDA SERIES
The following information is provided only for general information purposes
and is not intended to be a description or summary of the investment
considerations and factors which may have an affect on the Florida Series or
the obligations of the issuers in which the Florida Series may invest.
Prospective investors must read the entire prospectus to obtain information
essential to the making of an informed investment decision.
The Florida Series invests primarily in municipal securities and
obligations of counties, cities, school districts, special districts, and
other government authorities and issuers of the State of Florida, the
interest on which is excludable from gross income for federal income tax
purposes. The municipal securities market of Florida is very diverse and
includes obligations that are issued by a number of different issuers and
which are payable from a variety of revenue sources. Accordingly, the ability
of Florida issuers to meet their obligations with respect to such municipal
securities is influenced by various political, legal, economic and regulatory
factors affecting such issuers, the State of Florida and the repayment
sources supporting municipal obligations. If any of such issuers cannot
satisfy their repayment obligations, for any reason, the income, value and
liquidity of the Florida Series may be adversely affected.
<PAGE>
Florida presently is the fourth largest state in the United States and
continues to be one of the most rapidly growing states. Between 1980 and
1990, Florida's population increased by approximately 3.2 million people, the
second largest population increase for any state during the decade
(California was first). During such period of time, Florida's total
percentage growth in population was 32.7%, the fourth largest percentage
increase among states. Florida's population has continued to grow since 1990,
but at a slower pace than during the 1980s and prior decades. As of April 1,
1994, Florida's population had grown approximately 7.3 percent since April 1,
1990. This slowing in population growth is due primarily to the general
economic slowdown that affected Florida and the entire nation during such
period.
Florida's principal economic sectors include services and tourism, retail,
light manufacturing, particularly in the electronic, chemical and
transportation areas, finance and insurance, real estate, transportation and
communications,
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agriculture, government and the military. Florida's unemployment figures
continue to be slightly higher than the national average. As the national
economy continues to gain strength, so should Florida's economy. Most of
Florida's economic sectors are expected to grow in the future and in light of
Florida's geographic location and diverse population, it is anticipated that
Florida will benefit greatly from the expanding world markets, especially
Latin America.
The State of Florida and its political subdivisions are each required by
law to maintain balanced budgets. In order to satisfy this requirement,
Florida government entities have utilized a combination of spending
reductions and revenue enhancements. From time to time, tax and/or spending
limitation initiatives are introduced by the Florida Legislature or are
proposed by the citizens of the State in the form of amendments to the
Florida Constitution. Some have already become law within the State and
others are likely to become law. The impact of such measures cannot be
ascertained with any certainty but may have some effect on various issuers of
municipal securities in the State of Florida.
MASSACHUSETTS SERIES
Between 1982 and 1988 The Commonwealth of Massachusetts had a strong economy
which was evidenced by low unemployment and high personal income growth as
compared to national trends. The Commonwealth experienced a significant
economic slowdown from 1988 through 1992, with particular deterioration
recently in the construction, real estate, insurance, financial and
manufacturing sectors, including certain high technology areas. Economic
activity has since improved and led to improvements in the housing industry
and employment rates. Unemployment had risen to 8.5% in 1992, as compared to
a national average of 7.4%; but in the last quarter of 1993 decreased to 6.6%
as compared to the national rate of 6.4%, and further decreased to 6.4% at
the end of fiscal 1994.
The recent economic growth has resulted in the growth of state tax
revenues in 1993 and in 1994. Tax revenues for fiscal year 1995 are currently
projected to be approximately 6% above fiscal year 1994. The Commonwealth had
a budgetary deficit for fiscal year 1989 and 1990 of $466.4 million and
$1,362.7 billion respectively. Deficits were avoided in fiscal 1991 and 1992,
and a surplus was achieved both in 1993 and in 1994. In 1992, Standard &
Poor's and Moody's raised their ratings of the Commonwealth's general
obligation bonds from BBB and Baa1, respectively, to A and A, respectively
and Standard & Poor's further raised such ratings to A+ in 1993. From time to
time, the rating agencies may further change their ratings in response to
budgetary matters or other economic indicators. Growth of tax revenues in the
Commonwealth is limited by law. Effective July 1, 1990, limitations were
placed on the amount of direct bonds the Commonwealth could have outstanding
in a fiscal year, and the amount of the total appropriation in any fiscal
year that may be expended for debt service on general obligation debt of the
Commonwealth (other than certain debt incurred to pay the fiscal 1990 deficit
and certain Medicaid reimbursement payments for prior fiscal years) was
limited to ten percent. Moreover, Massachusetts local governmental entities
are subject to certain limitations on their taxing power that could affect
their ability or the ability of the Commonwealth to meet their respective
financial obligations.
If either Massachusetts or any of its local governmental entities is
unable to meet its financial obligations, the income derived by the
Massachusetts Series, the Series' net asset value, the Series' ability to
preserve or realize capital appreciation or the Series' liquidity could be
adversely affected.
For a more detailed discussion of the Commonwealth of Massachusetts
economic factors, see the Statement of Additional Information.
MICHIGAN SERIES
The information set forth below is derived from official statements prepared
in connection with the issuance of obligations of the State of Michigan and
other sources that are generally available to investors. The information is
provided as general information intended to give a recent historical
description and is not intended to indicate further or continuing trends in
the financial or other positions of the State of Michigan. Such information
constitutes only a brief summary, relates primarily to the State of Michigan,
does not purport to include details relating to all potential issuers within
the State of Michigan whose securities may be purchased by the Michigan
Series and does not purport to be a complete description.
<PAGE>
The principal sectors of Michigan's economy are durable goods
manufacturing (including automobile and office equipment manufacturing),
tourism and agriculture. Employment of Michigan's labor force in durable
goods manufacturing has dropped from 33% in 1960 to 14.2% in 1993. However,
manufacturing (including auto-related manufacturing) continues to be an
important part of Michigan's economy. Those industries are highly cyclical
and are expected to operate at somewhat less than full capacity in 1995.
Historically, during periods of economic decline or slow economic growth, the
cyclical nature of those industries has adversely affected the revenue
streams of Michigan and its political subdivisions because it has adversely
impacted certain tax sources, particularly sales taxes, income taxes and
single business taxes.
The State reports its financial condition using generally accepted
accounting principles. Michigan's Fiscal Year begins on October 1 and ends on
September 30 of the following year.
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Michigan ended fiscal year 1988-89 with a General Fund surplus of $61.1
million. Michigan ended fiscal years 1989-90 and 1990-91 with negative
General Fund balances of $310.3 million and $169.4 million, respectively. As
required by the Michigan Constitution, each of those deficits were included
in the succeeding year's General Fund budget. Michigan ended fiscal years
1991-92 and 1992-93 with General Fund surpluses of $24 million and $280.1
million, respectively. During fiscal years 1990-91 and 1991-92, Michigan
utilized $230 million and $170.1 million, respectively, from its
Counter-Cyclical Budget and Economic Stabilization Fund (BSF) to add to the
General Fund balances in those years. In fiscal year 1992-93, the State of
Michigan made a deposit of $312.2 million into the BSF, the first since 1986.
The unreserved balance for the BSF as of the end of fiscal years 1990-91,
1991-92 and 1992-93 were $182.2 million, $20.1 million and $303.4 million,
respectively.
In fiscal year 1993-94, General Fund revenues increased by approximately
$500 million, an increase of approximately 6.6%, from the amount of revenues
collected during fiscal year 1992-93. The final amount of the General Fund
surplus will not be known until the State closes its books for fiscal year
1993-94 in late January 1995. The State of Michigan, however, has already
transferred approximately $345 million into the BSF out of the surpluses from
all of its funds for fiscal year 1993-94. In June 1994, the Michigan
Legislature adopted the budget for fiscal year 1994-95. As of January 12,
1995, the State of Michigan estimated that, in the absence of any future tax
cuts, the aggregate of the surpluses in all of its funds at the end of fiscal
year 1994-95 would be approximately $295 million.
As of January 25, 1995, general obligation bonds of the State of Michigan
were rated "AA" by Standard and Poor's Ratings Group, "A1" by Moody's
Investors Service and "AA" by Fitch Investors Service. To the extent that the
portfolio of the Michigan Series is comprised of revenue obligations of the
State of Michigan or revenue or general obligations of local governments or
State or local authorities, rather than general obligations of the State of
Michigan, ratings on such components of the Michigan Series will be different
from those given to the general obligations of the State of Michigan and
their value may be independently affected by economic factors not directly
impacting the State.
For a more detailed discussion of the State of Michigan economic factors,
see the Statement of Additional Information.
MINNESOTA SERIES
The information set forth below is derived from official statements prepared
in connection with the issuance of obligations of the State of Minnesota and
other sources that are generally available to investors. The information is
provided as general information intended to give a recent historical
description and is not intended to indicate further or continuing trends in
the financial or other positions of the State of Minnesota. Such information
constitutes only a brief summary, relates primarily to the State of
Minnesota, does not purport to include details relating to all potential
issuers within the State of Minnesota whose securities may be purchased by
the Minnesota Series, and does not purport to be a complete description.
The State of Minnesota has experienced certain budgeting and financial
problems since 1980.
The State Accounting General Fund balance at June 30, 1987, was positive
$168.5 million. The Commissioner of Finance, in his November 1986 forecast,
estimated an Accounting General Fund balance at June 30, 1989, of negative
$800 million. The Legislature in May 1987 enacted measures expected to yield
approximately $700 million in additional revenues for the 1987-1989 biennium
by broadening the bases of corporate income and sales taxes and raising the
rate of the cigarette excise tax to 38 cents a pack from 23 cents. The
corporate tax rate was lowered to 9.5% from 12%, and a minimum tax was
imposed.
Accounting General Fund appropriations for the 1987-1989 biennium were
$11.35 billion, an increase of 9.4%. A $250 million budget reserve also was
approved.
The 1988 Legislature increased 1987-1989 expenditures a total of $223.8
million and increased revenues a total of $125.5 million.
The Accounting General Fund balance, at June 30, 1989, was positive $360
million.
The 1989 Legislature authorized $13.35 billion in spending for the
1989-1991 biennium, a 16.2% increase over the previous biennium, after
excluding intergovernmental fund transfers. In addition, the Legislature
approved a $550 million budget reserve.
<PAGE>
The 1989 Legislature passed an omnibus tax bill that included $272 million
in property tax relief and a $72 million increase in tax revenues. The
Governor vetoed the omnibus tax bill, demanding that a larger share of
property tax relief go to business and that the state-subsidized property tax
system be reformed. At a special session in the fall of 1989, a bill was
enacted that included $267 million in property tax relief and a $79 million
increase in tax revenues.
The Commissioner of Finance, in his November 1989 forecast, estimated the
Accounting General Fund balance at June 30, 1991, at negative $161 million.
The Commissioner forecast an $89 million decline in revenues, a $60 million
increase in human services expenditures and a net $29 million decrease due to
other fiscal changes.
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The 1990 Legislature enacted budget changes that resulted in a $127
million net savings for the 1989-1991 biennium. A total of $178 million in
spending reductions were enacted, and increased fees and other revenue
changes accounted for a $12 million gain. New spending totaling $63 million
was approved.
A November 1990 forecast estimated a $197 million shortfall for the
biennium ending June 30, 1991, and a $1.2 billion shortfall for the biennium
ending June 30, 1993 due to spending pressures and reduced revenues. A March
1991 forecast reduced the estimated shortfall for the biennium ending June
30, 1993, to $1.1 billion.
In January 1991 the Legislature made $197 million in spending reductions
for the biennium ended June 30, 1991. The State Accounting General Fund
balance at June 30, 1991, was $31 million.
The 1991 Legislature authorized $13.886 billion in spending for the
1991-1993 biennium. Giving effect to inclusion in the Accounting General Fund
of $70 million in dedicated revenues previously budgeted in other funds and
dedication of 1.5 percent of existing sales tax as well as a new .5 percent
local option sales tax to a Local Government Trust Fund, the total increase
in authorized spending was 9.2 percent.
Tax law changes enacted by the 1991 Legislature were expected to yield
$590 million in additional revenues for the 1991-1993 biennium. Federal
conformity on individual and corporate income taxes was expected to raise $82
million; changes in top individual income tax rates and elimination of some
deductions and exemptions were expected to yield an additional $89 million;
extension of the sales tax to kennel services, telephone paging services and
some business-to-business phone services $38 million; a 5 cents a pack
cigarette tax increase to 43 cents $37.2 million; and the .5 percent sales
tax increase $370 million.
After the Legislature adjourned in May 1991, the Commissioner of Finance
estimated that at June 30, 1993, the State would have a $400 million budget
reserve, the amount approved by the 1991 Legislature, and a $103.2 million
Accounting General Fund balance.
In February 1992 the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1993, at negative $569 million. The balance
at June 30, 1995, was projected at negative $1.75 billion.
The 1992 Legislature reduced expenditures by $262 million for the biennium
ending June 30, 1993, enacted revenue measures expected to increase revenue
by $149 million, and reduced the budget reserve by $160 million to $240
million.
After the Legislature adjourned in April 1992, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1993, at $2.4
million, and projected the balance at June 30, 1995, at negative $837
million. A November 1992 forecast estimated the balance at June 30, 1993, at
positive $217 million and projected the balance at June 30, 1995, at negative
$769 million.
A March 1993 forecast projected an Accounting General Fund balance at June
30, 1995, at negative $163 million out of a budget for the biennium of
approximately $16.7 billion, and estimated a balance at June 30, 1997, at
negative $1.6 billion out of a budget of approximately $18.7 billion.
The 1993 Legislature authorized $16.519 billion in spending for the
1993-1995 biennium, an increase of 13.0 percent from 1991-1993 expenditures.
Resources for the 1993-1995 biennium were projected to be $16.895 billion,
including $657 million carried forward from the previous biennium. The
$16.238 billion in projected non-dedicated and dedicated revenues was 10.3
percent greater than in the previous biennium and included $175 million from
revenue measures enacted by the 1993 Legislature. The Legislature increased
the health care provider tax to raise $79 million, transferred $39 million
into the Accounting General Fund and improved collection of accounts
receivable to generate $41 million.
After the Legislature adjourned in May 1993, the Commissioner of Finance
estimated that at June 30, 1995, the Accounting General Fund balance would be
$16 million and the budget reserve, as approved by the 1993 Legislature,
would be $360 million. The Accounting General Fund balance at June 30, 1993,
was $463 million.
The Commissioner of Finance, in a November 1993 forecast, estimated the
Accounting General Fund balance at June 30, 1995, at $430 million, due to
projected increases in revenues and reductions in expenditures, and the
balance at June 30, 1997, at $389 million. The Commissioner recommended that
the budget reserve be increased to $500 million. He estimated that if current
laws and policies continued unchanged, revenue would grow 7.7 percent and
expenditures 6.0 percent in the 1995-1997 biennium.
<PAGE>
A March 1994 forecast projected an Accounting General Fund balance at June
30, 1995, at $623 million, principally due to a projected $235 million
increase in revenues to $16.6 billion for the biennium. The balance at June
30, 1997, was estimated to be $247 million.
The 1994 Legislature provided for a $500 million budget reserve;
appropriated to school districts $172 million to allow the districts, for
purposes of state aid calculations, to reduce the portion of property tax
collections that the school districts must recognize in the fiscal year
during which they receive the property taxes; increased expenditures $184
million; and increased expected revenues $4 million.
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Of the $184 million in increased expenditures, criminal justice
initiatives totaled $45 million, elementary and higher education $31 million,
environment and flood relief $18 million, property tax relief $55 million,
and transit $11 million. A six-year strategic capital budget plan was adopted
with $450 million in projects financed by bonds supported by the Accounting
General Fund. Other expenditure increases total $16.5 million.
Included in the expected revenue increase of $4 million were comformity
with federal tax changes to increase revenues $27.5 million, a sales tax
phasedown on replacement capital equipment and miscellaneous sales tax
exemptions decreasing revenues $17.3 million, and other measures decreasing
revenues $6.2 million.
After the Legislature adjourned in May 1994, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1995, at $130
million.
The Commissioner of Finance, in a November 1994 forecast, estimated the
Accounting General Fund balance at June 30, 1995, at $268 million, due to
projected increases in revenues and decreases in expenditures, and the
balance at June 30, 1997, at $190 million.
The State of Minnesota has no obligation to pay any bonds of its political
or governmental subdivisions, municipalities, governmental agencies, or
instrumentalities. The creditworthiness of local general obligation bonds is
dependent upon the financial condition of the local government issuer, and
the creditworthiness of revenue bonds is dependent upon the availability of
particular designated revenue sources or the financial conditions of the
underlying obligors. Although most of the bonds owned by the Minnesota Series
are expected to be obligations other than general obligations of the State of
Minnesota itself, there can be no assurance that the same factors that
adversely affect the economy of the State generally will not also affect
adversely the market value or marketability of such other obligations, or the
ability of the obligors to pay the principal of or interest on such
obligations.
At the local level, growth in the property tax base of many communities is
being slowed by an overcapacity in certain segments of the commercial real
estate market. In addition, local finances are affected by the amount of
State aid that is made available. Further, various of the issuers within the
State of Minnesota, as well as the State of Minnesota itself, whose
securities may be purchased by the Minnesota Series, may now or in the future
be subject to lawsuits involving material amounts. It is impossible to
predict the outcome of these lawsuits. Any losses with respect to these
lawsuits may have an adverse impact on the ability of these issuers to meet
their obligations.
The State's bond ratings in September, 1994 were Aa1 by Moody's and AA+ by
S&P. Economic difficulties and the resultant impact on State and local
government finances may adversely affect the market value of obligations in
the portfolio of the Minnesota Series or the ability of respective obligors
to make timely payment of the principal and interest on such obligations.
NEW JERSEY SERIES
The portfolio of the New Jersey Series contains different issues of debt
obligations issued by or on behalf of the State of New Jersey (the "State")
and counties, municipalities and other political subdivisions and other
public authorities thereof or by the Government of Puerto Rico or by their
respective authorities. Investment in the New Jersey Series should be made
with an understanding that the value of the underlying Portfolio may decline
with increases in interest rates. Prospective investors should consider the
recent financial difficulties and pressures which the State of New Jersey and
certain of its public authorities have undergone.
The New Jersey State Constitution prohibits the legislature from making
appropriations in any fiscal year in excess of the total revenue on hand and
anticipated. A debt or liability that exceeds 1% of total appropriations for
the year is also prohibited, unless it is in connection with a refinancing to
produce a debt service savings or it is approved at a general election. Such
debt must be authorized by law and applied to a single specified object or
work. These Constitutional provisions do not apply to debt incurred because
of war, insurrection or emergencies caused by disaster.
Pursuant to Article VIII, Section II, par. 2 of the New Jersey
Constitution, no monies may be drawn from the State Treasury except for
appropriations made by law. In addition, the monies for the support of State
government and all State purposes, as far as can be ascertained, must be
provided for in one general appropriation law covering one and the same
fiscal year.
<PAGE>
In addition to the Constitutional provisions, the New Jersey statutes
contain provisions concerning the budget and appropriation system. Under
these provisions, each unit of the State requests an appropriation from the
Director of the Division of Budget and Accounting, who reviews the budget
requests and forwards them with her recommendations to the Governor. The
Governor then transmits his recommended expenditures and sources of
anticipated revenue to the legislature, which reviews the Governor's Budget
Message and submits an appropriation bill to the Governor for his signature
by July 1 of each year. At the time of signing the bill, the Governor may
revise appropriations or anticipated revenues. That action can be reversed by
a two-thirds vote of each House. No supplemental appropriation may be enacted
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after adoption of the act, except where there are sufficient revenues on hand
or anticipated, as certified by the Governor, to meet the appropriation.
Finally, the Governor may, during the course of the year, prevent the
expenditure of various appropriations when revenues are below those
anticipated or when she determines that such expenditure is not in the best
interest of the State.
Reflecting the downturn, the rate of unemployment in the State rose from a
low of 3.6 percent during the first quarter of 1989 to a recessionary peak of
9.3% during 1992. Since then, the unemployment rate fell to 6.7% during the
fourth quarter of 1993. The jobless rate averaged 7.1% during the first nine
months of 1994, but this estimate is not comparable to those prior to January
because of major changes in the federal survey from which these statistics
are obtained.
Economic recovery is anticipated to be slow and uneven in New Jersey and
may lag behind such recovery in other parts of the nation. Some sectors, like
commercial and industrial construction, will lag because of continued excess
capacity. Employers in rebounding sectors may be expected to remain cautious
about hiring until they become convinced that improved business will be
sustained. Mergers or downsizing to increase profitability are a factor to be
considered. As a result, unemployment should be anticipated to recede at a
correspondingly slow pace.
One of the major reasons for cautious optimism is found in the
construction industry. Total construction contracts awarded in New Jersey
have risen by 8.6% in 1993 compared with 1992. The largest increase came from
residential construction awards, which increased by 37.7% in 1993 compared
with 1992.
The State's 1995 Fiscal Year budget became law on June 30, 1994. For
Fiscal Year 1995, the Governor has recommended appropriations of $103.5
million for principal and interest payments for general obligation bonds. Of
the $15,291.0 million appropriated in Fiscal Year 1995 from the General Fund,
the Property Tax Relief Fund, the Gubernatorial Elections Fund, the Casino
Control Fund and the Casino Revenue Fund, $5,782.2 million (37.8%) was
appropriated for State Aid to Local Governments, $3,761.6 million (24.6%) is
appropriated for Grants-in-Aid, $5,203.1 million (34.0%) for Direct State
Services, $103.5 million (0.7%) for Debt Service on State general obligation
bonds and $440.6 million (2.9%) for Capital Construction.
State Aid to Local Governments was the largest portion of Fiscal Year 1995
appropriations. In Fiscal Year 1995, $5,782.2 million of the State's
appropriations consisted of funds which are distributed to municipalities,
counties and school districts. The largest State Aid appropriation, in the
amount of $3,900.1 million, is provided for local elementary and secondary
education programs. Of this amount, $2,431.6 million was provided as
foundation aid to school districts by formula based upon the number of
students and the ability of a school district to raise taxes from its own
base. In addition, the State provides $582.5 million for special education
programs for children with disabilities. A $293.0 million program was also
funded for pupils at risk of educational failure, including basic skills
improvement. The State appropriated $474.8 million on behalf of school
districts as the employer share of the teachers' pension and benefits
programs, $263.8 million to pay for the cost of pupil transportation and
$57.4 million for transition aid, which guaranteed school districts a 6.5%
increase over the aid received in Fiscal Year 1991 and is being phased out
over six years.
Appropriations to the State Department of Community Affairs total $635.1
million in State Aid monies for Fiscal Year 1995. The principal programs
funded were the Supplemental Municipal Property Tax Act ($314.1 million), the
Municipal Revitalization Program ($165.0 million); municipal aid to urban
communities to maintain and upgrade municipal services ($40.7 million); and
the Safe and Clean Neighborhoods Program ($58.9 million). Appropriations to
the State Department of the Treasury totalled $321.3 million in State Aid
monies for Fiscal Year 1995. The principal programs funded by these
appropriations were payments under the Business Personal Property Tax
Replacement Programs ($158.7 million); the cost of senior citizens, disabled
and veterans property tax deductions and exemptions ($41.7 million); aid to
densely populated municipalities ($25.0 million); Municipal Purposes Tax
Assistance ($30.0 million); and payments to municipalities for services to
state owned property ($34.9 million).
Other appropriations of State Aid in Fiscal Year 1995 include welfare
programs ($499.1 million); aid to county colleges ($123.2 million); and aid
to county mental hospitals ($79.4 million).
The second largest portion of appropriations in Fiscal Year 1995 is
applied to Direct State Services: the operation of State government's 17
departments, the Executive Office, several commissions, the State Legislature
and the Judiciary. In Fiscal Year 1995, appropriations for Direct State
Services aggregate to $5,203.1 million. Some of the major appropriations for
Direct State Services during Fiscal Year 1995 are detailed below.
<PAGE>
At any given time, there are various numbers of claims and cases pending
against the State. State agencies and employees, seeking recovery of monetary
damages that are primarily paid out of the fund created pursuant to the Tort
Claims Act, N.J.S.A. 59:1-1 et seq. In addition, at any given time there are
various contract claims against the State and State agencies seeking recovery
of monetary damages. The State is unable to estimate its exposure for these
claims and cases. An independent study estimated an aggregate potential
exposure of $50 million for tort claims pending, as of January 1, 1982. It is
estimated that were a similar study made of claims currently pending the
amount of estimated exposure would be higher. Moreover, New Jersey is
involved in a number of other lawsuits in which adverse decisions could
materially
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affect revenue or expenditures. Such cases include challenges to its system
of educational funding, the methods by which the State Department of Human
Services shares with county governments the maintenance recoveries and costs
for residents in state psychiatric hospitals and residential facilities for
the developmentally disabled.
Other lawsuits, that could materially affect revenue or expenditures
include a suit by a number of taxpayers seeking refunds of taxes paid to the
Spill Compensation Fund pursuant to N.J.S.A. 58:10-23.11, a suit alleging
that unreasonably low Medicaid payment rates have been implemented for
long-term care facilities in New Jersey, a suit alleging unfair taxation on
interstate commerce, a suit by Essex County seeking to invalidate the State's
method of funding the judicial system and a suit seeking return of moneys
paid by various counties for maintenance of Medicaid or Medicare eligible
residents of institutions and facilities for the developmentally disabled and
a suit challenging the imposition of premium tax surcharges on insurers doing
business in New Jersey, and assessments upon property and casualty liability
insurers pursuant to the Fair Automobile Insurance Reform Act and a suit
challenging amendments to the pension laws enacted on June 30, 1994
concerning the funding of the Teachers Pension and Annuity Fund (TPAF). The
Public Employee's Retirement System (PERS), the Police and Firemen's
Retirement System (PFRS), the State Police Retirement System (SPRS) and the
Judiciary Retirement System (JRS).
Moody's, citing a developing pattern of reliance on non-recurring measures
to achieve budgetary balance, and repeated revenue shortfalls, on August 24,
1992 Moody's lowered from Aaa to Aa1 its rating assigned New Jersey general
obligation bonds. The Aa-1 rating from Moody's is equivalent to Standard &
Poor's AA rating. On August 1, 1994, Standard & Poor's affirmed its AA+
ratings on New Jersey's general obligation debt.
NEW YORK SERIES
Since the New York Series concentrates its investments in New York tax-exempt
securities, the Fund is affected by any political, economic or regulatory
developments affecting the ability of New York tax-exempt issuers to pay
interest or repay principal. Investors should be aware that certain issuers
of New York tax-exempt securities have experienced serious financial
difficulties in recent years. A reoccurrence of these difficulties may impair
the ability of certain New York issuers to maintain debt service on their
obligations.
The fiscal stability of New York State (the "State") is related to the
fiscal stability of the State's municipalities, its Agencies and Authorities
(which generally finance, construct and operate revenue-producing public
benefit facilities). This is due in part to the fact that Agencies,
Authorities and local governments in financial trouble often seek State
financial assistance. The experience has been that if New York City (the
"City") or any of the Agencies or Authorities suffers serious financial
difficulty, both the ability of the State, the City, the State's political
subdivisions, the Agencies and the Authorities to obtain financing in the
public credit markets and the market price of outstanding New York tax-exempt
securities are adversely affected.
Over the long term, the State and City face potential economic problems.
The City accounts for a large portion of the State's population and personal
income, and the City's financial health affects the State in numerous ways.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic affluence. The causes of this
relative decline are varied and complex, in many cases involving national and
international developments beyond the State's control. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and
business. The City has also had to face greater competition as other major
cities have developed financial and business capabilities which make them
less dependent on the specialized services traditionally available almost
exclusively in the City.
The State has for many years had a very high State and local tax burden
relative to other states. The existence of this tax burden limits the State's
ability to impose higher taxes in the event of future financial difficulties.
The State and its localities have used these taxes to develop and maintain
their transportation network, public schools and colleges, public health
systems, other social services and recreational facilities. Despite these
benefits, the burden of State and local taxation, in combination with the
many other causes of regional economic dislocation, has contributed to the
decisions of some business and individuals to relocate outside, or not to
locate within, the State. Certain manufacturing facilities have re-located to
other states. This trend has been partially offset by the location of some
manufacturing facilities in the State and by the expansion of existing
facilities in the State. While no sustained reversal of the State's relative
economic position has been projected, the actions taken to date, in
combination with many other causes of regional economic changes, have slowed
this trend. Further reduction in Federal spending could materially and
adversely affect the financial condition and budget projections of the
State's localities.
<PAGE>
On January 6, 1992, Moody's lowered to Baa-1 from A its ratings on about
$14.2 billion of New York State appropriations backed debt. Moody's also
announced that it had put New York State general obligation debt rated A
under review for possible downgrade in the coming months. On June 27, 1994,
Moody's reconfirmed its A rating on the State's general obligation long-term
indebtedness.
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On January 13, 1992, S&P lowered its rating on New York State's general
obligation bonds from A to A-. On November 12, 1992, S&P continued its
January rating and reiterated its negative rating outlook assessment on the
State's general obligation debt. On April 26, 1993, S&P raised its outlook to
positive and, on June 27, 1994, confirmed its A-rating.
For a more detailed discussion of New York economic factors, see the
Statement of Additional Information.
The summary information furnished above and in the Statement of Additional
Information is based on official statements prepared by the State of New York
and the City of New York and their authorities in connection with their
borrowings and contains such information as the Fund deems relevant in
considering an investment in the Fund. It does not purport to be a complete
description of the considerations contained therein.
OHIO SERIES
Although manufacturing (including auto-related manufacturing) in Ohio remains
an important part of the State's economy, the greatest growth in employment
in Ohio in recent years, consistent with national trends, has been in the
non-manufacturing area. Ohio ranked third in the nation in 1990 gross state
product derived from manufacturing. Manufacturing was 27.5% of Ohio's gross
state product compared to 17.1% of that total being from "services". As a
result, economic activity in Ohio, as in many other industrially developed
states, tends to be more cyclical than in some other states and in the nation
as a whole. Agriculture also is an important segment of the economy in the
State. With 15.2 million acres (of a total land area of 26.4 million acres)
in farm land and an estimated 76,000 individual farms, it is by many measures
Ohio's leading industry, contributing nearly $5.7 billion to the State's
economy each year. This represents 13.5% of the total output, 15.9% of the
total employment (approximately 750,000 jobs) and 10.1% of the value-added
products produced in the State. Farm income alone amounted in 1993 to just
over $4.5 billion. In 1993, Ohio exported over $1.2 billion in farm products
(primarily soybeans and related soy products, and feed grains). The State has
instituted several programs to provide financial assistance to farmers.
Ohio continues as a major "headquarters" state. Of the top 500 individual
corporations (based on 1993 sales as reported in 1994 by Fortune magazine),
42 had headquarters in Ohio, placing Ohio fourth as a "headquarters" state
for industrial corporations, and of the top 500 service corporations, 24 had
headquarters in Ohio, placing Ohio tied for fifth as a "headquarters" state
for service corporations.
Payroll employment in Ohio, in the diversifying employment base, showed a
steady upward trend until 1979, then decreased until 1982. It reached a high
in the summer of 1993 after a slight decrease in 1992, then decreased
slightly but it is now at a new high. Growth in recent years has been
concentrated among non-manufacturing industries, with manufacturing
employment tapering off since its 1969 peak. Non-manufacturing industries now
employ more than three-fourths of all payroll workers (non-agricultural) in
Ohio.
Consistent with the Ohio constitutional provision that no appropriation
may be made for a period longer than two years, the State operates on the
basis of a fiscal biennium for its appropriations and expenditures. Under
current law that biennium for operating purposes runs from July 1 in an
odd-numbered year to June 30 in the next odd-numbered year; for example, the
current fiscal biennium began July 1, 1993 and ends June 30, 1995.
The Ohio Constitution imposes a duty on the 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 Ohio Constitution to $750,000. As
discussed below, the Ohio General Assembly is considering proposing to the
voters amendments to the Ohio Constitution that would increase the authority
of the General Assembly to authorize the issuance of general obligation debt
of the State without further voter approval.
Most State operations are financed through the general revenue fund (GRF),
with personal income and sales-use taxes being the major GRF sources,
totalling $5 billion and $4.4 billion in 1994, respectively. An amendment to
the Ohio Constitution, approved in November, 1994, added express exclusions
from sales or other excise taxes upon food; the estimated effect of that
amendment is a reduction in GRF revenues of $67 million annually.
<PAGE>
The Ohio Revised Code provides that if the Governor ascertains that the
available revenue receipts and balances for the GRF or other funds for the
then current Fiscal Year will in all probability be less than the
appropriations for the year, he shall issue such orders to State agencies as
will prevent their expenditures and incurred obligations from exceeding those
revenue receipts and balances. The Governor implemented this directive in
some prior years, including Fiscal Years 1992 and 1993. There is no present
constitutional limit on the rates of State-levied taxes and excises, except
for taxes on intangible property. The General Assembly is currently
considering whether to propose to the voters a constitutional amendment which
would authorize the General Assembly to approve the issuance of general
obligations of the State for capital improvements (or for the refunding of
obligations issued for capital improvements) without further voter approval,
subject to a requirement that the debt service on State obligations to be
paid from GRF resources not exceed 5% of GRF
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annual expenditures. At present the State itself does not levy any ad valorem
taxes on real or tangible personal property. Those taxes are levied by local
political subdivisions. The Ohio Constitution limits the amount of ad valorem
property taxes that may be levied by local political subdivisions in the
aggregate, without a vote of the electors or a municipal charter provision,
to 1% of the true value, and statutes further limit the amount of the
aggregate levy, without a vote or charter provision, to 10 mills per $1 of
assessed valuation.
The GRF ending (June 30) fund balance is typically reduced during less
favorable national economic periods and then increases during more favorable
economic periods. For example, following the 1974-75 nationwide recession the
1977 GRF ending fund balance was $21,600,000. The balance (without assistance
from any significant tax rate increases) was $245,700,000 in 1979, and then,
paralleling the national economic situation, was at the significantly lower
amount of $200,000 in 1981. Aided by tax increases and other actions, the
1983 GRF ending fund balance was $43,600,000. Recent biennium GRF ending fund
balances were $475,100,000 in 1989, $135,365,000 in 1991 and $111,013,000 in
1993. The first year of the current biennium, Fiscal Year 1994, ended with a
GRF fund balance of over $560,000,000.
The GRF appropriations bill for the 1994-1995 biennium was passed on June
30, 1993, and promptly signed, with selective vetoes, by the Governor. The
act provides for total GRF biennial expenditures of approximately $30.7
billion, an increase over those for the 1992-93 fiscal biennium. Authorized
expenditures in Fiscal Year 1994 were 9.2% higher than in Fiscal Year 1993
and for Fiscal Year 1995 are 6.6% higher than in Fiscal Year 1994. The
following are examples of higher authorized GRF biennial expenditures in
major programs: mental health and mental retardation 8.5%; primary and
secondary education 4.1%; human service 15.8%; justice and corrections 31.8%;
and higher education 13.2%.
Necessary GRF debt service and lease-rental appropriations for the entire
biennium were requested in the Governor's budget proposal and incorporated in
the related appropriations bill as introduced, and in the bill's versions as
passed by the House and the Senate and in the act as passed and signed. The
same is true for the separate Department of Transportation, Department of
Public Safety, and Bureau of Workers' Compensation appropriations acts,
containing lease-rental appropriations for certain DOT, DPS and BWC projects
financed by the Ohio Building Authority.
Although revenue obligations of the State or its political subdivisions
may be payable from a specific project or source, including lease rentals,
there can be no assurance that, as in any state, future economic difficulties
and the resulting impact on State and local government finances will not
adversely affect the market value of the Bonds in the portfolio of the Ohio
Series or the ability of the respective obligors to make timely payments of
principal and interest on such Bonds.
In 1981, a Budget Stabilization Fund (BSF) was created for purposes of
cash and budgetary management. In 1992, the entire balance of the BSF was
transferred to the GRF. In 1993, $21 million was deposited to the BSF and an
additional $260.3 million was deposited in 1994, giving the BSF a current
balance of $281.3 million.
Litigation contesting the Ohio system of school funding for violation of
various provisions of the Ohio Constitution is pending. The trial court has
adopted findings of fact and conclusions of law, including conclusions that
certain provisions of current Ohio law violate the Ohio Constitution, and has
directed the State "forthwith to provide for and fund a system of funding
public elementary and secondary education in compliance with the Ohio
Constitution." The trial court has, however, granted a stay of its findings
and conclusions and of its orders, except for requirements that proposals be
prepared and presented to the General Assembly for a school funding system
that complies with court-specified criteria and for periodic reports to the
trial court. An appeal of the trial court's decision has been filed.
PENNSYLVANIA SERIES
Presented below and in the Statement of Additional Information is information
concerning the Commonwealth of Pennsylvania (the "Commonwealth") and certain
issuers within the Commonwealth. Such information is based principally on
information drawn from recent official statements relating to securities
offerings by the Commonwealth and does not purport to be a complete
description of such issuers or factors that could adversely affect them. The
Investment Manager has not independently verified such information; however,
it has no reason to believe that such information is not correct in all
material respects. This information does not cover all municipal issuers
within the Commonwealth whose securities may be purchased by the Fund.
<PAGE>
Investment Securities
The Pennsylvania Series will invest principally in Commonwealth and
Commonwealth-related obligations and obligations of local government units in
the Commonwealth and obligations of related authorities. Some additional
information regarding such issuers is set forth in the Statement of
Additional Information. The market value and marketability of the obligations
of the Commonwealth and, though generally to a lesser extent, the
Commonwealth-related obligations and the local governmental unit and related
authority obligations generally will be affected by economic conditions
affecting the Commonwealth and litigation matters which may adversely affect
the Commonwealth. The market value and marketability of obligations of
issuers other than the Commonwealth may also be affected by more localized
economic changes, changes affecting the particular revenue stream supporting
such obligations and related litigation matters.
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The City of Philadelphia has been experiencing financial difficulties in
recent years, as a result of which Moody's and S&P lowered their ratings of
City of Philadelphia general obligations below investment grade. City of
Philadelphia general obligations will not be purchased as an investment
security for the Pennsylvania Series until the ratings of such obligations
meet the criteria for the Pennsylvania Series.
General Socio-Economic and Economic Information Regarding the Commonwealth
The Commonwealth is the fifth most populous state (ranking behind
California, New York, Texas and Florida) with a population of approximately
12 million for the last ten years. The Commonwealth is the headquarters for
64 major corporations and the home for more than 268,600 businesses. It has
been historically identified as a heavy industry state although that
reputation has changed recently as the industrial composition of the
Commonwealth diversified when the coal, steel and railroad industries began
to decline. The major new sources of growth in the Commonwealth are in the
service sector, including trade, medical and health services, education and
financial institutions. Manufacturing employment has fallen from 23.0% of
non-agricultural employment in 1985 to 18.4% in 1993, while service sector
employment has increased from 24.6% of non-agricultural employment in 1985 to
29.9% in 1993. From 1983 to 1990, the Commonwealth's annual average
unemployment rate dropped from 11.8% to 5.4% (below the national average for
each of the years from 1986). In 1992 and 1993, the average annual
unemployment rates for the Commonwealth were 7.5% and 7.1% respectively,
compared to rates of 7.4% and 6.8% for the United States for such years.
The Commonwealth utilizes the fund method of accounting. For purposes of
governmental accounting, a "fund" is defined as an independent fiscal and
accounting entity with a self-balancing set of accounts, for the purpose of
carrying on specific activities or attaining certain objectives in accordance
with the fund's special regulations, restrictions or limitations. In the
Commonwealth, funds are established by legislative enactment or in certain
cases by administrative action.
The General Fund, the Commonwealth's largest fund, receives all tax
revenues, non-tax revenues and federal grants and entitlements that are not
specified by law to be deposited elsewhere. The majority of the
Commonwealth's operating and administrative expenses are payable from the
General Fund. Debt service on all Commonwealth obligations, except those
issued for highway purposes or for the benefit of other special revenue
funds, is payable from the General Fund.
Revenues in the General Fund include all tax receipts, license and fee
payments, fines, penalties, interest and other revenues of the Commonwealth
not specified to be deposited elsewhere or not restricted to a specific
program or expenditure and federal revenues. Taxes levied by the Commonwealth
are the most significant source of revenues in the General Fund constituting
over 98 percent of such revenues in fiscal 1994. The major tax sources for
the General Fund are the sales tax, which accounted for $5.1 billion or 33.7%
of General Fund revenues in fiscal 1994, the personal income tax, which
accounted for $4.9 billion or 32.0% of General Fund revenues, and the
corporate net income tax which accounted for $1.6 billion or 10.2% of tax
revenues. Federal revenues are those federal receipts which pay or reimburse
the Commonwealth for funds disbursed for federally assisted programs.
The primary expenditures of the General Fund are for education (30% of
total General Fund expenditures in fiscal 1993) and public health and welfare
(51%).
The Constitution and laws of the Commonwealth require all payments from
the General Fund, with the exception of refunds of taxes, licenses, fees and
other charges, to be made only by duly enacted appropriations. Amounts
appropriated from the General Fund may not exceed its actual and estimated
revenues for the fiscal year plus any surplus available. Appropriations are
generally made for one fiscal year and are returned to the unappropriated
surplus of the fund (a lapse) if not spent or encumbered by the end of the
fiscal year. The Commonwealth's fiscal year begins July 1 and ends June 30.
(Fiscal 1993 refers to the fiscal year ending June 30, 1993.)
The five year period from fiscal 1989 through fiscal 1993 was marked by
public health and welfare costs growing at a rate double the growth rate for
all state expenditures. Rising caseloads, increased utilization of services
and rising prices joined to produce the rapid rise of public health and
welfare costs at a time when a national recession caused tax revenues to
stagnate and even decline. During the period from fiscal 1989 through fiscal
1993, public health and welfare costs rose by an average annual rate of 10.9%
while tax revenues were growing at an average annual rate of 5.5%.
Consequently, spending on other budget programs was restrained to a growth
rate below 5.0% and sources of revenues other than taxes became larger
components of fund revenues. Among those sources were transfers from other
funds and hospital and nursing home pooling of contributions to use as
federal matching funds.
<PAGE>
Tax revenues declined in fiscal 1991 as a result of the recession in the
economy. A $2.7 billion tax increase enacted for fiscal 1992 brought
financial stability to the General Fund. That tax increase included several
taxes with retroactive effective dates which generated some one-time revenues
during fiscal 1992. The absence of those revenues in fiscal 1993 contributed
to the decline in tax revenues for fiscal 1993.
The Constitution requires tax and fee revenues relating to motor fuels and
vehicles to be used for highway purposes, and the tax revenues relating to
aviation fuels to be used for aviation purposes. Accordingly, all such
revenues, except the revenues from one-half cent per gallon of the liquid
fuels tax which are deposited in the Liquid Fuels Tax Fund for
34
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distribution to local municipalities, are placed in the Motor License Fund,
as are most federal aid revenues designated for transportation programs.
Operating and administrative costs for the Department of Transportation and
other Commonwealth departments conducting transportation related programs,
including the highway patrol activities of the Pennsylvania State Police, are
also paid from the Motor License Fund. Debt service on bonds issued by the
Commonwealth for highway purposes is payable from the Motor License Fund.
Other special revenue funds have been established by law to receive
specified revenues that are appropriated to specific departments, boards
and/or commissions for payment of their operating and administrative costs.
Such funds include the Game, Fish, Boating, Banking Department, Milk
Marketing, State Farm Products Show, State Racing and State Lottery Funds.
Some of these special revenue funds are required to transfer excess revenues
to the General Fund and some receive funding, in addition to their specified
revenues, through appropriations from the General Fund. The Fish Fund
annually pays debt service on Commonwealth bonds issued for projects
constructed for the benefit of that fund.
In 1986, the General Assembly created the Tax Stabilization Reserve Fund
and the Sunny Day Fund and provided for their initial funding from General
Fund appropriations. Income for both of these funds comes from annual
appropriations of money from other Commonwealth funds and investment
earnings. The Tax Stabilization Reserve Fund is to be used for emergencies
threatening the health, safety or welfare of citizens or to offset
unanticipated revenue shortfalls due to economic downturns. The Sunny Day
Fund is available to attract new business enterprises to the Commonwealth.
Assets of each 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 State Lottery Fund is a special revenue fund for the receipt of
lottery ticket sales and lottery licenses and fees. Its revenues, after
payment of prizes, are dedicated to paying the operational and administrative
costs of the lottery and the costs of programs benefiting the elderly in
Pennsylvania.
The Commonwealth maintains trust and agency funds which are used to
administer funds received pursuant to a specific bequest or as an agent for
other governmental units or individuals.
Enterprise funds are maintained for departments or programs operated like
private enterprises. The largest of these 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.
For a more detailed discussion of certain Commonwealth of Pennsylvania
economic factors, see the Statement of Additional Information.
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DEAN WITTER
MULTI-STATE MUNICIPAL SERIES TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
