File No. 33-61738
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 3 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3 [X]
(Check appropriate box or boxes.)
PREMIER INSURED MUNICIPAL BOND FUND
(Formerly, Premier California Insured Municipal Bond Fund)
(Exact Name of Registrant as Specified in Charter)
c/o The Dreyfus Corporation
200 Park Avenue, New York, New York 10166
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 922-6000
Daniel C. Maclean III, Esq.
200 Park Avenue
New York, New York 10166
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b) of Rule 485
----
on (date) pursuant to paragraph (b) of Rule 485
----
60 days after filing pursuant to paragraph (a) of Rule 485
----
on (date) pursuant to paragraph (a) of Rule 485
----
Registrant has registered an indefinite number of shares of its
beneficial interest under the Securities Act of 1933 pursuant to
Section 24(f) of the Investment Company Act of 1940. Registrant's Rule 24f-2
Notice for the fiscal year ended July 31, 1994 was filed on September 29,
1994.
PREMIER INSURED MUNICIPAL BOND FUND
(Formerly, Premier California Insured Municipal Bond Fund)
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part A of
Form N-1A Caption Page
_________ _______ ____
1 Cover Page Cover
2 Synopsis 3
3 Condensed Financial Information 5
4 General Description of Registrant 9
5 Management of the Fund 24
6 Capital Stock and Other Securities 42
7 Purchase of Securities Being Offered 25
8 Redemption or Repurchase 32
9 Pending Legal Proceedings *
Items in
Part B of
Form N-1A
- ---------
10 Cover Page Cover
11 Table of Contents Cover
12 General Information and History B-29
13 Investment Objectives and Policies B-2
14 Management of the Fund B-9
15 Control Persons and Principal B-11
Holders of Securities
16 Investment Advisory and Other B-12
Services
_____________________________________
NOTE: * Omitted since answer is negative or inapplicable.
PREMIER INSURED MUNICIPAL BOND FUND
(Formerly, Premier California Insured Municipal Bond Fund)
Cross-Reference Sheet Pursuant to Rule 495(a) (continued)
Items in
Part B of
Form N-1A Caption Page
_________ _______ _____
17 Brokerage Allocation B-25
18 Capital Stock and Other Securities B-29
19 Purchase, Redemption and Pricing B-14, B-17,
of Securities Being Offered B-21
20 Tax Status *
21 Underwriters B-24
22 Calculations of Performance Data B-25
23 Financial Statements B-__
Items in
Part C of
Form N-1A
_________
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under C-3
Common Control with Registrant
26 Number of Holders of Securities C-3
27 Indemnification C-3
28 Business and Other Connections of C-4
Investment Adviser
29 Principal Underwriters C-10
30 Location of Accounts and Records C-13
31 Management Services C-13
32 Undertakings C-13
_____________________________________
NOTE: * Omitted since answer is negative or inapplicable.
PREMIER INSURED MUNICIPAL BOND FUND
PROSPECTUS NOVEMBER __, 1994
Premier Insured Municipal Bond Fund (the "Fund") is an open-end,
management investment company, known as a mutual fund. Its goal is to
maximize current income exempt from Federal and, where applicable, from State
personal income taxes to the extent consistent with the preservation of
capital.
The Fund permits you to invest in any of six separate non-diversified
portfolios (each, a "Series"): the National Series, the California Series,
the Connecticut Series, the Florida Series, the New Jersey Series and the New
York Series. Each Series invests primarily in a portfolio of Municipal
Obligations (as defined below) that are insured as to the timely payment of
principal and interest by recognized insurers of Municipal Obligations. Each
Series, other than the National Series will invest primarily in Municipal
Obligations issued by issuers in the State after which it is named. It is
anticipated that substantially all dividends paid by each Series will be
exempt from Federal income tax and also, where applicable, will be exempt
from the personal income tax of the State after which the Series is named.
By this Prospectus, Class A and Class B shares of each Series are
being offered. Class A shares are subject to a sales charge imposed at the
time of purchase and Class B shares are subject to a contingent deferred
sales charge imposed on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights, as described herein.
The Fund offers these alternatives to permit an investor to choose the method
of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and
other circumstances.
The Fund provides free redemption checks with respect to Class A
shares, which you can use in amounts of $500 or more for cash or to pay
bills. You can purchase or redeem Fund shares by telephone using the TELETRANS
FER Privilege.
The Dreyfus Corporation professionally manages the Fund's portfolio.
This Prospectus sets forth concisely information about the Fund that
you should know before investing. It should be read and retained for future
reference.
Part B (also known as the Statement of Additional Information), dated
November __, 1994, which may be revised from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be
of interest to some investors. It has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. For a free copy,
write to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-
0144, or call 1-800-554-4611. When telephoning, ask for Operator 666.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. MUTUAL
FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
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.
TABLE OF CONTENTS
Fee Table.................................. 3
Condensed Financial Information............ 5
Alternative Purchase Methods............... 8
Description of the Fund.................... 9
Management of the Fund..................... 24
How to Buy Fund Shares..................... 25
Shareholder Services....................... 29
How to Redeem Fund Shares.................. 32
Distribution Plan and Shareholder Services Plan......36
Dividends, Distributions and Taxes......... 37
Performance Information.................... 41
General Information........................ 42
<TABLE>
<CAPTION>
FEE TABLE
NATIONAL CONNECTICUT
SERIES SERIES
--------------------- ----------------------
CLASS A CLASS B CLASS A CLASS B
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).............................. 4.50% - 4.50% -
Maximum Deferred Sales Charge Imposed on Redemption
(as a percentage of the amount subject to charge)................ - 3.00% - 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees................................................... .55% .55% .55% .55%
12b-1 Fees........................................................ - .50% - .50%
Other Expenses.................................................... .__% .__% .__% .__%
Total Series Operating Expenses................................... .__% .__% .__% .__%
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except
where noted, redemption at the end of each time period:
CLASS A CLASS B CLASS A CLASS B
--------- --------- --------- ---------
1 YEAR............................................................. $___ $___/$__* $___ $___/$__*
3 YEARS............................................................ $___ $___/$__* $___ $___/$__*
5 YEARS............................................................ $___ $___/$__* $___ $___/$__*
10 YEARS........................................................... $___ $___/$___* $___ $___/$___*
*Assuming no redemption of Class B shares.
FLORIDA CALIFORNIA
SERIES SERIES
--------------------- ----------------------
CLASS A CLASS B CLASS A CLASS B
--------- --------- --------- ---------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................. 4.50% - 4.50% -
Maximum Deferred Sales Charge Imposed on Redemption
(as a percentage of the amount subject to charge)............... - 3.00% - 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees................................................... .55% .55% .55% .55%
12b-1 Fees........................................................ - .50% - .50%
Other Expenses.................................................... .__% .__% .__% .__%
Total Series Operating Expenses................................... .__% .__% .__% .__%
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except
where noted, redemption at the end of each time period:
CLASS A CLASS B CLASS A CLASS B
--------- --------- --------- ---------
1 YEAR............................................................. $___ $___/$__* $___ $___/$__*
3 YEARS............................................................ $___ $___/$__* $___ $___/$__*
5 YEARS............................................................ $___ $___/$__* $___ $___/$__*
10 YEARS........................................................... $___ $___/$___* $___ $___/$___*
*Assuming no redemption of Class B shares.
#
NEW JERSEY NEW YORK
SERIES SERIES
--------------------- ----------------------
CLASS A CLASS B CLASS A CLASS B
--------- --------- --------- ---------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).............................. 4.50% - 4.50% -
Maximum Deferred Sales Charge Imposed on Redemption
(as a percentage of the
amount subject to charge)............................................. - 3.00% - 3.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees................................................... .55% .55% .55% .55%
12b-1 Fees........................................................ - .50% - .50%
Other Expenses.................................................... .__% .__% .__% .__%
Total Series Operating Expenses................................... .__% .__% .__% .__%
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) except
where noted, redemption at the end of each time period:
CLASS A CLASS B CLASS A CLASS B
--------- --------- --------- ---------
1 YEAR............................................................. $___ $____/$__* $___ $____/$__*
3 YEARS............................................................ $___ $____/$__* $___ $____/$__*
5 YEARS............................................................ $___ $____/$__* $___ $____/$__*
10 YEARS........................................................... $___ $___/$___* $___ $___/$___*
*Assuming no redemption of Class B shares.
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREAT
ER OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNU
AL RETURN, EACH SERIES' ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTU
AL RETURN GREATER OR LESS THAN 5%.
The purpose of the foregoing table is to assist you in
understanding the various costs and expenses that investors will bear,
directly or indirectly, the payment of which will reduce investors'
return on an annual basis. Other Expenses and Total Series Operating
Expenses are based on estimated amounts for the current fiscal year.
Long-term investors in Class B shares could pay more in 12b-1 fees than
the economic equivalent of paying a front-end sales charge. The
information in the foregoing table does not reflect any fee waivers or
expense reimbursement arrangements that may be in effect. Certain Service
Agents (as defined below) may charge their clients direct fees for
effecting transactions in the relevant Series' shares; such fees are not
reflected in the foregoing table. See "Management of the Fund," "How to
Buy Fund Shares" and "Distribution Plan and Shareholder Services Plan ."
#
CONDENSED FINANCIAL INFORMATION
The information in the following tables have been audited
(except where indicated) by Ernst & Young LLP, the Fund's independent
auditors, whose reports thereon appear in the Statement of Additional
Information. Further financial data and related notes are included in the
Statement of Additional Information, available upon request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a
share of beneficial interest outstanding, total investment return, ratios
to average net assets and other supplemental data for each Series for the
periods indicated. This information has been derived from information
provided in the Series' financial statements.
<TABLE>
<CAPTION>
CALIFORNIA SERIES
----------------------
PERIOD FROM AUGUST 19,
1993 (COMMENCEMENT OF
OPERATIONS) TO JULY 31, 1994
CLASS A CLASS B
PER SHARE DATA: SHARES SHARES
-------- --------
<S> <C> <C>
Net asset value, beginning of period............................... $ $
-------- --------
INVESTMENT OPERATIONS:
Investment income-net..............................................
Net unrealized gain (loss) on investments..........................
-------- --------
TOTAL FROM INVESTMENT OPERATIONS...............................
-------- --------
DISTRIBUTIONS;
Dividends from investment income-net...............................
-------- --------
Net asset value, end of period.....................................
-------- --------
-------- --------
TOTAL INVESTMENT RETURN(1)(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets(2).........................
Ratio of net investment income to average net assets(2)............
Decrease reflected in above ratios due to undertakings by
The Dreyfus Corporation (limited to the expense limitation
provision of the Management Agreement)(2)......................
Portfolio Turnover Rate............................................
Net Assets, end of period (000's Omitted)..........................
-------------
(1) Exclusive of sales charge.
(2) Annualized.
CONNECTICUT SERIES
----------------------
PERIOD FROM MAY 5,
1994 (COMMENCEMENT OF
OPERATIONS) TO JULY 31, 1994
CLASS A CLASS B
PER SHARE DATA: SHARES SHARES
-------- --------
Net asset value, beginning of period............................... $ $
-------- --------
INVESTMENT OPERATIONS:
Investment income-net..............................................
Net unrealized gain on investments.................................
-------- --------
TOTAL FROM INVESTMENT OPERATIONS...............................
-------- --------
DISTRIBUTIONS;
Dividends from investment income-net...............................
-------- --------
Net asset value, end of period.....................................
-------- --------
-------- --------
TOTAL INVESTMENT RETURN(1)(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets(3).........................
Ratio of net investment income to average net assets(3)............
Decrease reflected in above ratios due to undertakings by
The Dreyfus Corporation (limited to the expense limitation
provision of the Management Agreement)(3)......................
Portfolio Turnover Rate(2).........................................
Net Assets, end of period (000's Omitted)..........................
- ------------------------------------
(1) Exclusive of sales charge.
(2) Not Annualized.
(3) Annualized.
FLORIDA SERIES
----------------------
PERIOD FROM MAY 4,
1994 (COMMENCEMENT OF
OPERATIONS) TO JULY 31, 1994
CLASS A CLASS B
PER SHARE DATA: SHARES SHARES
-------- --------
Net asset value, beginning of period............................... $ $
-------- --------
INVESTMENT OPERATIONS:
Investment income-net..............................................
Net unrealized gain on investments.................................
-------- --------
TOTAL FROM INVESTMENT OPERATIONS...............................
-------- --------
DISTRIBUTIONS;
Dividends from investment income-net...............................
-------- --------
Net asset value, end of period.....................................
-------- --------
-------- --------
TOTAL INVESTMENT RETURN(1)(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets(3).........................
Ratio of net investment income to average net assets(3)............
Decrease reflected in above ratios due to undertakings
by the Manager(3)..............................................
Portfolio Turnover Rate............................................
Net Assets, end of period (000's Omitted)..........................
- ---------------------------------------
(1) Exclusive of sales charge.
(2) Not Annualized.
(3) Annualized.
#
NATIONAL SERIES
----------------------
PERIOD FROM MAY 4,
1994 (COMMENCEMENT OF
OPERATIONS) TO JULY 31, 1994
CLASS A CLASS B
PER SHARE DATA: SHARES SHARES
-------- --------
Net asset value, beginning of period............................... $ $
-------- --------
INVESTMENT OPERATIONS:
Investment income-net..............................................
Net unrealized gain on investments.................................
-------- --------
TOTAL FROM INVESTMENT OPERATIONS...............................
-------- --------
DISTRIBUTIONS;
Dividends from investment income-net...............................
-------- --------
Net asset value, end of period.....................................
-------- --------
-------- --------
TOTAL INVESTMENT RETURN(1)(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets(3).........................
Ratio of net investment income to average net assets(3)............
Decrease reflected in above ratios due to undertakings by
the Manager (limited to the expense limitation provision
of the management agreement)(3)................................
Portfolio Turnover Rate............................................
Net Assets, end of period (000's Omitted)..........................
- --------------------------------------
(1) Exclusive of sales charge.
(2) Not Annualized.
(3) Annualized.
NEW JERSEY SERIES
----------------------
PERIOD FROM MAY 4,
1994 (COMMENCEMENT OF
OPERATIONS) TO JULY 31, 1994
CLASS A CLASS B
PER SHARE DATA: SHARES SHARES
-------- --------
Net asset value, beginning of period............................... $ $
-------- --------
INVESTMENT OPERATIONS:
Investment income-net..............................................
Net unrealized gain on investments.................................
-------- --------
TOTAL FROM INVESTMENT OPERATIONS...............................
-------- --------
DISTRIBUTIONS;
Dividends from investment income-net...............................
-------- --------
Net asset value, end of period.....................................
-------- --------
-------- --------
TOTAL INVESTMENT RETURN(1)(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets(3).........................
Ratio of net investment income to average net assets(3)............
Decrease reflected in above ratios due to undertakings by
the Manager (limited to the expense limitation provision
of the management agreement)(3)................................
Portfolio Turnover Rate............................................
Net Assets, end of period (000's Omitted)..........................
- ----------------------------------------
(1) Exclusive of sales charge.
(2) Not Annualized.
(3) Annualized.
(3) Annualized.
#
NEW YORK SERIES
----------------------
PERIOD FROM MAY 6,
1994 (COMMENCEMENT OF
OPERATIONS) TO JULY 31, 1994
CLASS A CLASS B
PER SHARE DATA: SHARES SHARES
-------- --------
Net asset value, beginning of period............................... $ $
-------- --------
INVESTMENT OPERATIONS:
Investment income-net..............................................
Net unrealized gain on investments.................................
-------- --------
TOTAL FROM INVESTMENT OPERATIONS...............................
-------- --------
DISTRIBUTIONS;
Dividends from investment income-net...............................
-------- --------
Net asset value, end of period.....................................
-------- --------
-------- --------
TOTAL INVESTMENT RETURN(1)(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets(3).........................
Ratio of net investment income to average net assets(3)............
Decrease reflected in above ratios due to undertakings by
the Manager (limited to the expense limitation provision
of the management agreement)(3)................................
Portfolio Turnover Rate............................................
Net Assets, end of period (000's Omitted)..........................
- ----------------------------------------
(1) Exclusive of sales charge.
(2) Not Annualized.
(3) Annualized.
</TABLE>
Further information about each Series' performance is
contained in each Series' annual report for the fiscal year
ending July 31, 1994, which may be obtained without charge by writing to
the address or calling the number set forth on the cover page of this
prospectus.
ALTERNATIVE PURCHASE METHODS
The Fund offers you two methods of purchasing each Series'
shares; you may choose the Class of shares that best suits your needs,
given the amount of your purchase, the length of time you expect to hold
your shares and any other relevant circumstances. Each Class A and Class
B share of a Series represents an identical pro rata interest in that
Series' investment portfolio.
As to each Series, Class A shares are sold at net asset value
per share plus a maximum initial sales charge of 4.50% of the public
offering price imposed at the time of purchase. The initial sales charge
may be reduced or waived for certain purchases. See "How to Buy Fund
Shares-Class A Shares." These shares are subject to an annual service fee
at the rate of .25 of 1% of the value of the average daily net assets of
Class A. See "Distribution Plan and Shareholder Services Plan-Shareholder
Services Plan ."
As to each Series, Class B shares are sold at net asset value
per share with no initial sales charge at the time of purchase; as a
result, the entire purchase price is immediately invested in the Series.
Class B shares are subject to a maximum 3% contingent deferred sales
charge ("CDSC"), which is assessed only if you redeem Class B shares
within five years of purchase. See "How to Buy Fund Shares-Class B
Shares" and "How to Redeem Fund Shares-Contingent Deferred Sales
Charge-Class B Shares." These shares also are subject to an annual
service fee at the rate of .25 of 1% of the value of the average daily
net assets of Class B. In addition, Class B shares are subject to an
annual distribution fee at the rate of .50 of 1% of the value of the
average daily net assets of Class B. See "Distribution Plan and
Shareholder Services Plan." The distribution fee paid by Class B will
cause such Class to have a higher expense ratio and to pay lower
#
dividends than Class A. Approximately six years after the
date of purchase, Class B shares of a Series automatically will convert
to Class A shares of such Series, based on the relative net asset values
for shares of each Class, and will no longer be subject to the
distribution fee. Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted on a pro
rata basis together with other Class B shares, in the proportion that a
shareholder's Class B shares converting to Class A shares bears to the
total Class B shares not acquired through the reinvestment of dividends
and distributions.
You should consider whether, during the anticipated life of
your investment in the Fund, the accumulated distribution fee and CDSC on
Class B shares prior to conversion would be less than the initial sales
charge on Class A shares purchased at the same time, and to what extent,
if any, such differential would be offset by the return of Class A. In
this regard, generally, Class B shares may be more appropriate for
investors who invest less than $100,000 in Fund shares. Additionally,
investors qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class A shares because the accumulated continuing distribution
fees on Class B shares may exceed the initial sales charge on Class A
shares during the life of the investment. Generally, Class A shares may
be more appropriate for investors who invest $250,000 or more in Fund
shares.
DESCRIPTION OF THE FUND
GENERAL
The Fund is a "series fund," which is a mutual fund divided
into separate portfolios. Each portfolio is treated as a separate entity
for certain matters under the Investment Company Act of 1940 and for
other purposes, and a shareholder of one Series is not deemed to be a
shareholder of any other Series. As described below, for certain matters
Fund shareholders vote together as a group; as to others they vote
separately by Series. When used herein, the term "State" refers to the
State, if applicable, after which a Series is named.
INVESTMENT OBJECTIVE
The Fund's goal is to maximize current income exempt from
Federal income tax and, where applicable, from State personal income
taxes for residents of the States of California, Connecticut, Florida,
New Jersey and New York, to the extent consistent with the preservation
of capital. To accomplish this goal, each Series invests primarily in
debt securities issued by States, territories and possessions of the
United States and the District of Columbia and their political
subdivisions, authorities and corporations, the interest from which is,
in the opinion of bond counsel to the issuer, exempt from Federal income
taxes ( "Municipal Obligations") that are insured as to the timely
payment of principal and interest by recognized insurers of Municipal
Obligations . In addition, the California Series, the Connecticut Series,
the Florida Series, the New Jersey Series and the New York Series
(collectively, the "State Series") invests primarily in such Municipal
Obligations of the State after which the relevant Series is named the
interest from which is, in the opinion of bond counsel to the issuer,
exempt from Federal and, if applicable, such State's personal income
taxes (collectively, "State Municipal Obligations" or when the context so
requires, "California Municipal Obligations," "Connecticut Municipal
Obligations," "Florida Municipal Obligations," etc.). To the extent
acceptable insured State Municipal Obligations at any time are
unavailable for investment, a State Series will invest temporarily in
State Municipal Obligations that are not subject to insurance, insured
Municipal Obligations and/or other debt securities the interest from
which is, in the opinion of bond counsel to the issuer, exempt from
Federal, but not State, income tax. With respect to the National Series,
to the extent acceptable insured Municipal Obligations at any time are
unavailable for investment, such Series will invest temporarily in
Municipal Obligations that are not subject to insurance and/or other debt
securities the interest from which is, in the opinion of bond counsel to
the issuer, exempt from Federal income tax. Each Series' investment
objective cannot be changed without approval by the holders of a majority
(as defined in the Investment Company Act of 1940) of such Series'
outstanding voting shares. There can be no assurance that the Series'
investment objective will be achieved.
#
MUNICIPAL OBLIGATIONS
Municipal Obligations generally include debt obligations
issued to obtain funds for various public purposes as well as certain
industrial development bonds issued by or on behalf of public
authorities. Municipal Obligations are classified as general obligation
bonds, revenue bonds and notes. General obligation bonds are secured by
the issuer's pledge of its faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are payable from the revenue
derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue
source, but not from the general taxing power. Tax exempt industrial
development bonds, in most cases, are revenue bonds that do not carry the
pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Notes
are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Municipal Obligations
include municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment issued by
municipalities. Municipal Obligations bear fixed, floating or variable
rates of interest which are determined in some instances by formulas
under which the Municipal Obligation's interest rate will change directly
or inversely to changes in interest rates of an index, or multiples
thereof, in many cases subject to a maximum and minimum. Certain
Municipal Obligations are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated
from the related Municipal Obligation and purchased and sold separately.
MANAGEMENT POLICIES
It is a fundamental policy of the Fund that it will invest at
least 80% of the value of each Series' net assets (except when
maintaining a temporary defensive position) in Municipal Obligations.
Generally, at least 65% of the value of each Series' net assets (except
when maintaining a temporary defensive position) will be invested in
bonds and debentures that are insured Municipal Obligations which, with
respect to the State Series, are issued by issuers in the State after
which such Series is named. See "Insurance Feature" and "Risk
Factors-Investing in State Municipal Obligations" below, and "Dividends,
Distributions and Taxes." No Series will be limited in the maturities of
the securities in which it will invest; currently the longest available
maturity of Municipal Obligations is 40 years.
Municipal Obligations purchased by each Series will be rated
no lower than Baa by Moody's Investors Service, Inc. ("Moody's") or BBB
by Standard & Poor's Corporation ("S&P") or Fitch Investors Service, Inc.
("Fitch"). Municipal Obligations rated BBB by S&P or Fitch or Baa by
Moody's are considered investment grade obligations; those rated BBB by
S&P or Fitch are regarded as having an adequate capacity to pay principal
and interest, while those rated Baa by Moody's are considered medium
grade obligations which lack outstanding investment characteristics and
have speculative characteristics. Each Series also may invest in
securities which, while not rated, are determined by The Dreyfus
Corporation to be of comparable quality to the rated securities in which
the Series may invest. Each Series also may invest in Taxable Investments
of the quality described below. Under normal market conditions, the
weighted average maturity of each Series' portfolio is expected to exceed
ten years.
In addition to usual investment practices, each Series may
use speculative investment techniques such as short-selling and lending
portfolio securities. Each Series also may purchase, hold or deal in
futures contracts and options on futures contracts, as permitted by
applicable law. See "Investment Techniques" below, and "Dividends,
Distributions and Taxes."
Each Series may invest more than 25% of the value of its
total assets in Municipal Obligations which are related in such a way
that an economic, business or political development or change affecting
one such security also would affect the other securities; for example,
securities the interest upon which is paid from revenues of similar types
of projects or, with respect to the National Series also, securities
whose issuers are located in the same state. As a result, each Series may
be subject to greater risk as compared to a fund that does not follow
this practice.
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From time to time, a Series may invest more than 25% of the
value of its total assets in industrial development bonds which, although
issued by industrial development authorities, may be backed only by the
assets and revenues of the non-governmental users. Interest on Municipal
Obligations (including certain industrial development bonds) which are
specified private activity bonds, as defined in the Internal Revenue Code
of 1986, as amended (the "Code"), issued after August 7, 1986, while
exempt from Federal income tax, is a preference item for the purpose of
the alternative minimum tax. Where a regulated investment company
receives such interest, a proportionate share of any exempt-interest
dividend paid by the investment company may be treated as such a
preference item to shareholders. Each Series may invest without
limitation in such Municipal Obligations if The Dreyfus Corporation
determines that their purchase is consistent with the Fund's investment
objective. See "Risk Factors-Other Investment Considerations."
Each Series also may purchase floating and variable rate
demand notes and bonds, which are tax exempt obligations ordinarily
having stated maturities in excess of one year, but which permit the
holder to demand payment of principal at any time, or at specified
intervals. Variable rate demand notes include master demand notes which
are obligations that permit the Series to invest fluctuating amounts, which
may change daily without penalty, pursuant to direct arrangements between
such Series, as lender, and the borrower. The interest rates on these
obligations fluctuate from time to time. Frequently, such obligations are
secured by letters of credit or other credit support arrangements
provided by banks. Use of letters of credit or other credit support
arrangements will not adversely affect the tax exempt status of these
obligations. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not
secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Each obligation purchased by the Fund
for a Series will meet the quality criteria established for the purchase
of Municipal Obligations. The Dreyfus Corporation, on behalf of the Fund,
will consider on an ongoing basis the creditworthiness of the issuers of
the floating and variable rate demand obligations in each Series'
portfolio. No Series will invest more than 15% of the value of its net
assets in floating or variable rate demand obligations as to which the
Series cannot exercise the demand feature on not more than seven days'
notice if there is no secondary market available for these obligations,
and in other illiquid securities.
Each Series may purchase from financial institutions
participation interests in Municipal Obligations (such as industrial
development bonds and municipal lease/purchase agreements). A
participation interest gives the Series an undivided interest in the
Municipal Obligation in the proportion that the Series' participation
interest bears to the total principal amount of the Municipal Obligation.
These instruments may have fixed, floating or variable rates of interest.
If the participation interest is unrated, the participation interest will
be backed by an irrevocable letter of credit or guarantee of a bank that
the Board of Trustees has determined meets the prescribed quality
standards for banks set forth below, or the payment obligation otherwise
will be collateralized by U.S. Government securities. For certain
participation interests, the Series will have the right to demand payment,
on not more than seven days' notice, for all or any part of the Series'
participation interest in the Municipal Obligation, plus accrued interest.
As to these instruments, each Series intends to exercise its right to
demand payment only upon a default under the terms of the Municipal
Obligation, as needed to provide liquidity to meet redemptions, or to
maintain or improve the quality of its investment portfolio. No Series
will invest more than 15% of the value of its net assets in participation
interests that do not have this demand feature if there is no secondary
market available for these participation interests, and in other illiquid
securities.
Each Series may purchase tender option bonds. A tender option
bond is a Municipal Obligation (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing interest at a
fixed rate substantially higher than prevailing short-term
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tax exempt rates, that has been coupled with the agreement of
a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the security
holders the option, at periodic intervals, to tender their securities to
the institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees
equal to the difference between the Municipal Obligation's fixed coupon
rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities,
coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder
effectively holds a demand obligation that bears interest at the
prevailing short-term tax exempt rate. The Dreyfus Corporation, on behalf
of the Fund, will consider on an ongoing basis the creditworthiness of
the issuer of the underlying Municipal Obligation, of any custodian and
of the third party provider of the tender option. In certain instances
and for certain tender option bonds, the option may be terminable in the
event of a default in payment of principal or interest on the underlying
Municipal Obligations and for other reasons. No Series will invest more
than 15% of the value of its net assets in securities that are illiquid,
which would include tender option bonds as to which it cannot exercise
the tender feature on not more than seven days' notice if there is no
secondary market available for these obligations.
Each Series may acquire "stand-by commitments" with respect
to Municipal Obligations held in its portfolio. Under a stand-by
commitment, the Fund obligates a broker, dealer or bank to repurchase, at
the Fund's option, specified securities at a specified price and, in this
respect, stand-by commitments are comparable to put options. The exercise
of a stand-by commitment therefore, is subject to the ability of the
seller to make payment on demand. A Series will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend
to exercise its rights thereunder for trading purposes. The Fund may pay
for stand-by commitments if such action is deemed necessary, thus
increasing to a degree the cost of the underlying Municipal Obligation
and similarly decreasing such security's yield to investors. Each Series
also may acquire call options on specific Municipal Obligations. A Series
generally would purchase these call options to protect the Series from
the issuer of the related Municipal Obligation redeeming, or other holder
of the call option from calling away, the Municipal Obligation before
maturity. The sale by a Series of a call option that it owns on a
specific Municipal Obligation could result in the receipt of taxable
income by that Series.
Each Series may purchase custodial receipts representing the
right to receive certain future principal and interest payments on
Municipal Obligations which underlie the custodial receipts. A number of
different arrangements are possible. In a typical custodial receipt
arrangement, an issuer or a third party owner of Municipal Obligations
deposits such obligations with a custodian in exchange for two classes of
custodial receipts. The two classes have different characteristics, but,
in each case, payments on the two classes are based on payments received
on the underlying Municipal Obligations. One class has the
characteristics of a typical auction rate security, where at specified
intervals its interest rate is adjusted, and ownership changes, based on
an auction mechanism. This class's interest rate generally is expected to
be below the coupon rate of the underlying Municipal Obligations and
generally is at a level comparable to that of a Municipal Obligation of
similar quality and having a maturity equal to the period between
interest rate adjustments. The second class bears interest at a rate that
exceeds the interest rate typically borne by a security of comparable
quality and maturity; this rate also is adjusted, but in this case
inversely to changes in the rate of interest of the first class. If the
interest rate on the first class exceeds the coupon rate of the
underlying Municipal Obligations, its interest rate will exceed the rate
paid on the second class. In no event will the aggregate interest paid
with respect to the two classes exceed the interest paid by the
underlying Municipal Obligations. The value of the second class and
similar securities should be expected to fluctuate more than the value of
a Municipal Obligation of comparable quality and maturity and their
purchase by the Series should increase the volatility of its net asset
value and, thus, its
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price per share. These custodial receipts are sold in private
placements. Each Series also may purchase directly from issuers, and not
in a private placement, Municipal Obligations having characteristics
similar to custodial receipts. These securities may be issued as part of
a multi-class offering and the interest rate on certain classes may be
subject to a cap or floor.
Each Series may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale and repurchase agreements providing
for settlement in more than seven days after notice. As to these
securities, the Series investing in such securities is subject to a risk
that should the Series desire to sell them when a ready buyer is not
available at a price the Fund deems representative of their value, the
value of such Series' net assets could be adversely affected. However, if
a substantial market of qualified institutional buyers develops pursuant
to Rule 144A under the Securities Act of 1933, as amended, for certain of
these securities held by the Series, the Fund intends to treat such
securities as liquid securities in accordance with procedures approved by
the Fund's Board of Trustees. Because it is not possible to predict with
assurance how the market for restricted securities pursuant to Rule 144A
will develop, the Fund's Board of Trustees has directed The Dreyfus
Corporation to monitor carefully each Series' investments in such
securities with particular regard to trading activity, availability of
reliable price information and other relevant information. To the extent
that, for a period of time, qualified institutional buyers cease
purchasing restricted securities pursuant to Rule 144A, a Series'
investing in such securities may have the effect of increasing the level
of illiquidity in such Series' investments during such period.
Each Series may invest in zero coupon securities which are
debt securities issued or sold at a discount from their face value which
do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The
amount of the discount varies depending on the time remaining until
maturity or cash payment date, prevailing interest rates, liquidity of
the security and perceived credit quality of the issuer. Zero coupon
securities also may take the form of debt securities that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. The market prices of zero coupon securities
generally are more volatile than the market prices of interest-bearing
securities and are likely to respond to a greater degree to changes in
interest rates than interest-bearing securities having similar maturities
and credit qualities. See "Risk Factors-Other Investment Considerations"
below, and "Dividends, Distributions and Taxes" in the Statement of
Additional Information.
From time to time, on a temporary basis other than for
temporary defensive purposes (but not to exceed 20% of the value of a
Series' net assets) or for temporary defensive purposes, each Series may
invest in taxable short-term investments ("Taxable Investments")
consisting of: notes of issuers having, at the time of purchase, a
quality rating within the two highest grades of Moody's, S&P or Fitch;
obligations of the U.S. Government, its agencies or instrumentalities;
commercial paper rated not lower than P-1 by Moody's, A-1 by S&P or F-1
by Fitch; certificates of deposit of U.S. domestic banks, including
foreign branches of domestic banks, with assets of one billion dollars or
more; time deposits; bankers' acceptances and other short-term bank
obligations; and repurchase agreements in respect of any of the
foregoing. Dividends paid by a Series that are attributable to income
earned by the Series from Taxable Investments will be taxable to
investors. See "Dividends, Distributions and Taxes." Except for temporary
defensive purposes, at no time will more than 20% of the value of a
Series' net assets be invested in Taxable Investments. When a State
Series has adopted a temporary defensive position, including when
acceptable State Municipal Obligations are unavailable for investment by
a State Series, in excess of 35% of such Series' net assets may be
invested in securities that are not exempt from State personal income
taxes, if applicable. Under normal market conditions, each Series
anticipates that not more than 5% of the value of its total assets will
be invested in any
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one category of Taxable Investments. In certain states,
dividends and distributions paid by a Series that are attributable to
interest income earned by the Series from direct obligations of the
United States may not be subject to state income tax. Taxable Investments
are more fully described in the Statement of Additional Information, to
which reference hereby is made.
INVESTMENT TECHNIQUES
The Fund, on behalf of a Series, may employ, among others,
the investment techniques described below. Use of certain of these
techniques may give rise to taxable income. Options and futures
transactions involve so-called "derivative securities."
WHEN-ISSUED SECURITIES
New issues of Municipal Obligations usually are offered on a
when-issued basis, which means that delivery and payment for such
Municipal Obligations ordinarily take place within 45 days after the date
of the commitment to purchase. The payment obligation and the interest
rate that will be received on the Municipal Obligations are fixed at the
time the Fund enters into the commitment. The Fund will make commitments
to purchase such Municipal Obligations only with the intention of
actually acquiring the securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable, although any gain
realized on such sale would be taxable. The Fund will not accrue income
in respect of a when-issued security prior to its stated delivery date.
No additional when-issued commitments will be made for a Series if more
than 20% of the value of such Series' net assets would be so committed.
Municipal Obligations purchased on a when-issued basis and
the securities held in a Series' portfolio are subject to changes in
value (both generally changing in the same way, i.e., appreciating when
interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and
changes, real or anticipated, in the level of interest rates. Municipal
Obligations purchased on a when-issued basis may expose a Series to risk
because they may experience such fluctuations prior to their actual
delivery. Purchasing Municipal Obligations on a when-issued basis can
involve the additional risk that the yield available in the market when
the delivery takes place actually may be higher than that obtained in the
transaction itself. A segregated account of the Fund consisting of cash,
cash equivalents or U.S. Government securities or other high quality
liquid debt securities at least equal at all times to the amount of the
when-issued commitments will be established and maintained at the Fund's
custodian bank. Purchasing Municipal Obligations on a when-issued basis
when a Series is fully or almost fully invested may result in greater
potential fluctuation in the value of such Series' net assets and its net
asset value per share.
FUTURES TRANSACTIONS-IN GENERAL
Neither the Fund nor any Series is a commodity pool. However,
as a substitute for a comparable market position in the underlying
securities and for hedging purposes, each Series may engage, to the
extent permitted by applicable regulations, in futures and options on
futures transactions, as described below.
A Series' commodities transactions must constitute bona fide
hedging or other permissible transactions pursuant to regulations
promulgated by the Commodity Futures Trading Commission. In addition, a
Series may not engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity
options, other than for bona fide hedging transactions, would exceed 5%
of the liquidation value of such Series' assets, after taking into
account unrealized profits and unrealized losses on such contracts it has
entered into; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. Pursuant to regulations and/or published
positions of the Securities and Exchange Commission, a Series may be
required to segregate cash or high quality money market instruments in
connection with its commodities transactions in an amount generally equal
to the value of the underlying commodity. To the extent a Series engages
in the use of futures and
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options on futures for other than bona fide hedging purposes,
the Series may be subject to additional risk.
Initially, when purchasing or selling futures contracts the
Fund will be required to deposit with its custodian in the broker's name
an amount of cash or cash equivalents up to approximately 10% of the
contract amount. This amount is subject to change by the exchange or
board of trade on which the contract is traded and members of such
exchange or board of trade may impose their own higher requirements. This
amount is known as "initial margin" and is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund
upon termination of the futures position, assuming all contractual
obligations have been satisfied. Subsequent payments, known as "variation
margin," to and from the broker will be made daily as the price of the
index or securities underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." At any time prior to
the expiration of a futures contract, the Fund may elect to close the
position by taking an opposite position at the then prevailing price,
which will operate to terminate the Fund's existing position in the
contract.
Although the Fund intends to purchase or sell futures
contracts only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached
in a particular contract, no trades may be made that day at a price
beyond the limit or trading may be suspended for specified periods during
the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially
subjecting the Series engaging in the futures transaction to a
substantial loss. If it is not possible, or the Fund determines not, to
close a futures position in anticipation of adverse price movements, the
Fund will be required to make daily cash payments of variation margin. In
such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may offset partially or completely losses
on the futures contract. However, no assurance can be given that the
price of the securities being hedged will correlate with the price
movements in a futures contract and thus provide an offset to losses on
the futures contract.
In addition, to the extent a Series is engaging in a futures
transaction as a hedging device, due to the risk of an imperfect
correlation between securities in a Series' portfolio that are the
subject of a hedging transaction and the futures contract used as a
hedging device, it is possible that the hedge will not be fully effective
in that, for example, losses on the portfolio securities may be in excess
of gains on the futures contract or losses on the futures contract may be
in excess of gains on the portfolio securities that were the subject of
the hedge. In futures contracts based on indexes, the risk of imperfect
correlation increases as the composition of a Series' portfolio varies
from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being
hedged and movements in the price of futures contracts, a Series may buy
or sell futures contracts in a greater or lesser dollar amount than the
dollar amount of the securities being hedged if the historical volatility
of the futures contract has been less or greater than that of the
securities. Such "over hedging" or "under hedging" may adversely affect a
Series' net investment results if market movements are not as anticipated
when the hedge is established.
An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if
the option is a put) at a specified exercise price at any time during the
option exercise period. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if
the option is a call and a long position if the option is a put). Upon
exercise of the option, the assumption of offsetting futures positions by
the writer and holder of the option will be accompanied by delivery of
the accumulated cash balance in the writer's futures margin account which
rep
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resents the amount by which the market price of the futures
contract, at exercise, exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures
contract.
Call options sold by a Series with respect to futures
contracts will be covered by, among other things, entering into a long
position in the same contract at a price no higher than the strike price
of the call option, or by ownership of the instruments underlying, or
instruments the prices of which are expected to move relatively
consistently with the instruments underlying, the futures contract. Put
options sold by a Series with respect to futures contracts will be
covered when, among other things, cash or liquid securities are placed in
a segregated account to fulfill the obligation undertaken.
Each Series may utilize municipal bond index futures to
protect against changes in the market value of the Municipal Obligations
in the Series' portfolio or which it intends to acquire. Municipal bond
index futures contracts are based on an index of long-term Municipal
Obligations. The index assigns relative values to the Municipal
Obligations included in an index, and fluctuates with changes in the
market value of such Municipal Obligations. The contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount
of cash based upon the difference between the value of the index at the
close of the last trading day of the contract and the price at which the
index contract was originally written. The acquisition or sale of a
municipal bond index futures contract enables the Fund to protect a
Series' assets from fluctuations in rates on tax exempt securities
without actually buying or selling such securities.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES
CONTRACTS
Each Series may purchase and sell interest rate futures
contracts and options on interest rate futures contracts as a substitute
for a comparable market position, and to hedge against adverse movements
in interest rates.
To the extent the Series has invested in interest rate
futures contracts or options on interest rate futures contracts as a
substitute for a comparable market position, such Series will be subject
to the investment risks of having purchased the securities underlying the
contract.
Each Series may purchase call options on interest rate
futures contracts to hedge against a decline in interest rates and may
purchase put options on interest rate futures contracts to hedge its
portfolio securities against the risk of rising interest rates.
If, a Series has hedged against the possibility of an
increase in interest rates adversely affecting the value of securities
held in such Series' portfolio and rates decrease instead, such Series'
will lose part or all of the benefit of the increased value of the
securities which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Series has
insufficient cash, it may have to sell securities to meet daily variation
margin requirements at a time when it may be disadvantageous to do so.
These sales of securities may, but will not necessarily, be at increased
prices which reflect the decline in interest rates.
Each Series may sell call options on interest rate futures
contracts to partially hedge against declining prices of its portfolio
securities. If the futures price at expiration of the option is below the
exercise price, the Series will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in such Series' portfolio holdings. Each Series may sell put
options on interest rate futures contracts to hedge against increasing
prices of the securities which are deliverable upon exercise of the
futures contract. If the futures price at expiration of the option is
higher than the exercise price, the Series will retain the full amount of
the option premium which provides a partial hedge against any increase in
the price of securities which such Series intends to purchase. If a put
or call option sold by a Series is exercised, the Series will incur a
loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures
positions, such Series' losses from existing options on futures may to
some extent be reduced or increased by changes in the value of its
portfolio securities.
Each Series also may sell options on interest rate futures
contracts as part of closing purchase
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transactions to terminate such Series' options positions. No
assurance can be given that such closing transactions can be effected or
that there will be a correlation between price movements in the options
on interest rate futures and price movements in the Series' portfolio
securities which are the subject of the hedge. In addition, a Series'
purchase of such options will be based upon predictions as to anticipated
interest rate trends, which could prove to be inaccurate.
SHORT-SELLING
Each Series may make short sales, which are transactions in
which the Series sells a security it does not own in anticipation of a
decline in the market value of that security. To complete such a
transaction, the Series must borrow the security to make delivery to the
buyer. The Series then is obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. The price
at such time may be more or less than the price at which the security was
sold by the Series. Until the security is replaced, the Series is
required to pay to the lender amounts equal to any interest or other
distributions which accrue during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale
will be retained by the broker, to the extent necessary to meet margin
requirements, until the short position is closed out.
Until the Series replaces a borrowed security in connection
with a short sale, the Series will: (a) maintain daily a segregated
account, containing cash or U.S. Government securities, at such a level
that (i) the amount deposited in the account plus the amount deposited
with the broker as collateral will equal the current value of the
security sold short and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not
be less than the market value of the security at the time it was sold
short; or (b) otherwise cover its short position.
A Series will incur a loss as a result of the short sale if
the price of the security increases between the date of the short sale
and the date on which the Series replaces the borrowed security. A Series
will realize a gain if the security declines in price between those
dates. This result is the opposite of what one would expect from a cash
purchase of a long position in a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any
premium or amounts in lieu of interest or other distributions the Series
may be required to pay in connection with a short sale.
The Fund anticipates that the frequency of short sales will
vary substantially in different periods, and it does not intend that any
specified portion of a Series' assets, as a matter of practice, will be
invested in short sales. However, no securities will be sold short if,
after effect is given to any such short sale, the total market value of
all securities sold short would exceed 25% of the value of a Series' net
assets. No Series may sell short the securities of any single issuer
listed on a national securities exchange to the extent of more than 5% of
the value of such Series' net assets. No Series may sell short the
securities of any class of an issuer to the extent, at the time of the
transaction, of more than 5% of the outstanding securities of that class.
In addition to the short sales discussed above, each Series
may make short sales "against the box," a transaction in which a Series
enters into a short sale of a security which such Series owns. The
proceeds of the short sale will be held by a broker until the settlement
date at which time the Series delivers the security to close the short
position. The Series receives the net proceeds from the short sale. At no
time will a Series have more than 15% of the value of its net assets in
deposits on short sales against the box.
LENDING PORTFOLIO SECURITIES
From time to time, each Series may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. As to each Series,
such loans may not exceed 33-1/3% of the value of such Series' total
assets. In connection with such loans, the Fund will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of
credit which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. Each
Series can increase its income through the investment of such collateral.
The Series continues to be entitled to pay
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ments in amounts equal to the interest or other distributions
payable on the loaned security and receives interest on the amount of the
loan. Such loans will be terminable at any time upon specified notice. As
to each Series, the Fund might experience risk of loss if the institution
with which it has engaged in a portfolio loan transaction breaches its
agreement with the Fund.
BORROWING MONEY
As a fundamental policy, each Series is permitted to borrow
to the extent permitted under the Investment Company Act of 1940.
However, each Series currently intends to borrow money only for temporary
or emergency (not leveraging) purposes, in an amount up to 15% of the
value of such Series' total assets (including the amount borrowed) valued
at the lesser at cost or market, less liabilities (not including the
amount borrowed) at the time the borrowing is made. While borrowings
exceed 5% of a Series' total assets, such Series will not make any
additional investments.
CERTAIN FUNDAMENTAL POLICIES
Each Series may (i) borrow money to the extent permitted
under the Investment Company Act of 1940; and (ii) invest up to 25% of
the value of its total assets in the securities of issuers in a single
industry, provided that there is no such limitation on investments in
Municipal Obligations and, for temporary defensive purposes, obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. This paragraph describes fundamental policies that
cannot be changed as to a Series without approval by the holders of a
majority (as defined in the Investment Company Act of 1940) of such
Series' outstanding voting shares. See "Investment Objective and
Management Policies-Investment Restrictions" in the Statement of
Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
Each Series may (i) pledge, hypothecate, mortgage or
otherwise encumber its assets, but only to secure permitted borrowings;
and (ii) invest up to 15% of the value of its net assets in repurchase
agreements providing for settlement in more than seven days after notice
and in other illiquid securities (which securities could include
participation interests (including municipal lease/purchase agreements)
that are not subject to the demand feature described above, and floating
and variable rate demand obligations as to which the Fund cannot exercise
the related demand feature described above and as to which there is no
secondary market). See "Investment Objective and Management
Policies-Investment Restrictions" in the Statement of Additional
Information.
INSURANCE FEATURE
At the time they are purchased by a Series, the Municipal
Obligations held in such Series' portfolio that are subject to insurance
will be insured as to timely payment of principal and interest under an
insurance policy (i) purchased by the Series or by a previous owner of
the Municipal Obligation ("Mutual Fund Insurance") or (ii) obtained by
the issuer or underwriter of the Municipal Obligation ("New Issue
Insurance"). The insurance of principal refers to the face or par value
of the Municipal Obligation and is not affected by nor does it insure the
price paid therefor by the Series or the market value thereof. The value
of each Series' shares is not insured.
New Issue Insurance is obtained by the issuer of the
Municipal Obligations and all premiums respecting such securities are
paid in advance by such issuer. Such policies are non-cancelable and
continue in force so long as the Municipal Obligations are outstanding
and the insurer remains in business.
Certain types of Mutual Fund Insurance obtained by the Fund
are effective only so long as the Fund is in existence, the insurer
remains in business and the Municipal Obligations described in the policy
continue to be held by the Series. The Fund, on behalf of the Series,
will pay the premiums with respect to such insurance. Depending upon the
terms of the policy, in the event of a sale of any Municipal Obligation
so insured by a Series, the Mutual Fund Insurance may terminate as to
such Municipal Obligation on the date of sale and in such event the
insurer may be liable only for those payments of principal and interest
which then
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are due and owing. Other types of Mutual Fund Insurance may
not have this termination feature. Each Series may purchase Municipal
Obligations with this type of insurance from parties other than the
issuer and the insurance would continue for the Series' benefit.
Typically, the insurer may not withdraw coverage on insured
securities held by a Series, nor may the insurer cancel the policy for
any reason except failure to pay premiums when due. The insurer may
reserve the right at any time upon 90 days' written notice to the Fund to
refuse to insure any additional Municipal Obligations purchased by a
Series after the effective date of such notice. The Fund's Board of
Trustees has reserved the right to terminate the Mutual Fund Insurance
policy for any Series if it determines that the benefits to such Series
of having its portfolio insured are not justified by the expense
involved. See "Risk Factors-Special Investment Considerations" below.
Mutual Fund Insurance and New Issue Insurance may be obtained
from Financial Guaranty Insurance Company ("Financial Guaranty"),
Municipal Bond Investors Assurance Corporation ("MBIA"), AMBAC Indemnity
Corporation ("AMBAC Indemnity") and Capital Guaranty Insurance Company
("Capital Guaranty"), although the Fund may purchase insurance from, or
each Series may purchase Municipal Obligations insured by, other
insurers.
The following information regarding these insurers has been
derived from information furnished by the insurers. The Fund has not
independently verified any of the information, but the Fund is not aware
of facts which would render such information inaccurate.
Financial Guaranty is a New York stock insurance company
regulated by the New York State Department of Insurance and authorized to
provide insurance in 50 states and the District of Columbia. Financial
Guaranty is a wholly-owned subsidiary of FGIC Corporation, a Delaware
holding company, which is a wholly-owned subsidiary of General Electric
Capital Corporation. Financial Guaranty, in addition to providing
insurance for the payment of interest on and principal of Municipal
Obligations held in unit investment trust and mutual fund portfolios,
provides New Issue Insurance and insurance for secondary market issues of
Municipal Obligations and for portions of new and secondary market issues
of Municipal Obligations. As of September 30, 1993, Financial Guaranty's
total capital and surplus was approximately $745 million(unaudited). The
claims-paying ability of Financial Guaranty is rated "AAA" by S&P, "Aaa"
by Moody's and "AAA" by Fitch.
MBIA is the principal operating subsidiary of MBIA Inc., the
principal shareholders of which are The Aetna Casualty and Surety
Company, The Fund American Companies, Inc., subsidiaries of CIGNA
Corporation, and Credit Locale France, CAECL S.A. Approximately 35% of
the outstanding common stock of MBIA Inc. is owned by such shareholders
and the remainder is publicly-held. Neither MBIA Inc. nor its
shareholders are obligated to pay the debts of or claims against MBIA.
MBIA is a limited liability corporation domiciled in New York and
licensed to do business in 50 states and the District of Columbia. As of
September 30, 1993, MBIA had admitted assets of approximately $3.0
billion, total liabilities of approximately $2.0 billion and total
capital and surplus of approximately $951 million (all figures
unaudited). The claims-paying ability of MBIA is rated "AAA" by S&P and
"Aaa" by Moody's.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance
company, regulated by the Office of the Commissioner of Insurance of the
State of Wisconsin and licensed to do business in 50 states, the District
of Columbia and the Commonwealth of Puerto Rico. AMBAC Indemnity is a
wholly-owned subsidiary of AMBAC Inc., a 100% publicly-held company.
AMBAC Indemnity had admitted assets of approximately $1.9 billion
(unaudited) and statutory capital of approximately $1.1 billion
(unaudited) as of September 30, 1993. Statutory capital consists of AMBAC
Indemnity's statutory contingency reserve and policyholders' surplus. The
claims-paying ability of AMBAC Indemnity is rated "AAA" by S&P and "Aaa"
by Moody's.
Capital Guaranty is an "Aaa/AAA" rated monoline stock
insurance company incorporated in the State of Maryland, and is a
wholly-owned subsidiary of Capital Guaranty
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Corporation, a Maryland insurance holding company. Capital
Guarantee Corporation is a publicly owned company whose shares are
traded on the New York Stock Exchange. Capital Guaranty is authorized to
provide insurance in 49 states, the District of Columbia, and three U.S.
territories. As of September 30, 1993, the total statutory policyholders'
surplus and contingency reserve of Capital Guaranty was $181,383,432
(unaudited) and the total admitted assets were $270,021,126 (unaudited).
Additional information concerning the insurance feature
appears in the Statement of Additional Information to which your
attention is directed.
RISK FACTORS
INVESTING IN STATE MUNICIPAL OBLIGATIONS (STATE SERIES ONLY)
You should consider carefully the special risks inherent in
each State Series' investment in its respective State's Municipal
Obligations. Certain of the States have experienced financial
difficulties, the recurrence of which could result in defaults or decline
in the market values of various Municipal Obligations in which such Series
invests. If there should be a default or other financial crises relating
to a State or an agency or municipality thereof, the market value and
marketability of outstanding State Municipal Obligations in a State
Series' portfolio and interest income to such Series could be adversely
affected. You should obtain and review a copy of the Statement of
Additional Information which more fully sets forth these and other risk
factors.
CALIFORNIA SERIES
The special risks inherent in an investment in California
Municipal Obligations result from certain amendments to the California
Constitution and other statutes that limit the taxing and spending
authority of California governmental entities, as well as from the
general financial condition of the State of California. Since the start
of the State's 1990-91 fiscal year, the State has experienced the worst
economic, fiscal and budget conditions since the 1930s. As a result, the
State has experienced recurring budget deficits for four of the last five
fiscal years ending with 1991-92. Revenues and expenditures were
essentially equal in 1992-93 but the original budget for that year
projected revenues exceeding expenditures by $2.6 billion. By June 30,
1993, according to California's Department of Finance, the State's
Reserve for Economic Uncertainties had an accumulated deficit, on a
budget basis, of approximately $2.8 billion. A further consequence of the
large budget imbalances over the last three fiscal years has been that
the State depleted its available cash resources and has had to use a
series of external borrowings to meet its cash needs. As a result of the
deterioration in the State's budget and cash situation in fiscal years
1991-92 and 1992-93, between October 1991 and October 1992, the rating on
the State's general obligation bonds was reduced by S&P from AAA to A+,
by Moody's from Aaa to Aa and by Fitch from AAA to AA. These and other
factors may have the effect of impairing the ability of the issuers of
California Municipal Obligations to pay interest on, or repay principal
of, such California Municipal Obligations.
CONNECTICUT SERIES
Connecticut's economy relies in part on activities that may
be adversely affected by cyclical change, and recent declines in defense
spending have had a significant impact on unemployment levels. Although
the State recorded General Fund surpluses in its fiscal years 1985
through 1987, Connecticut reported deficits from its General Fund
operations for the fiscal years 1988 through 1991. Together with the
deficit carried forward from the State's 1990 fiscal year, the total
General Fund deficit for the 1991 fiscal year was $965.7 million. The
total deficit was funded by the issuance of General Obligation Economic
Recovery Notes. The Comptroller estimated that the State ended the 1993
fiscal year with a Genera Fund operating surplus of $3.1 million. The
Comptroller, however, estimated the cumulative projected deficit under
GAAP for the fiscal year ended June 30, 1993 to have been approximately
$494.6 million. As a result of recurring budgetary problems, S&P
downgrated the State's general obligation bonds from AA+ to AA in April
1990 and to AA- in September 1991. Moody's and Fitch currently rate
Connecticut's bonds Aa and AA+, respectively.
FLORIDA SERIES
The Florida Constitution and Statutes mandate that the State
budget as a whole, and each
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separate fund within the State budget, be kept in balance
from currently available revenues each fiscal year. Florida's
Constitution permits issuance of Florida Municipal Obligations pledging
the full faith and credit of the State, with a vote of the electors, to
finance or refinance fixed capital outlay projects authorized by the
Legislature, provided that the outstanding principal does not exceed 50%
of the total tax revenues of the State for the two preceding years.
Florida's Constitution also provides that the Legislature shall
appropriate monies sufficient to pay debt service on State bonds pledging
the full faith and credit of the State as the same becomes due. All State
tax revenues, other than trust funds dedicated by Florida's Constitution
for other purposes, would be available for such an appropriation, if
required. Revenue bonds may be issued by the State or its agencies
without a vote of Florida's electors only to finance or refinance the
cost of State fixed capital outlay projects which may be payable solely
from funds derived directly from sources other than State tax revenues.
Fiscal year 1993-94 total General Revenue and Working Capital Funds
available are estimated to be $13.548 billion, which will result in
estimated unencumbered reserves of $276.3 million at the end of fiscal
1993-94. The General Revenue and Working Capital Funds ended the 1992-93
fiscal year with estimated unencumbered reserves of $441.4 million.
NEW JERSEY SERIES
Although New Jersey enjoyed a period of economic growth with
unemployment levels below the national average during the mid-1980's, its
economy slowed down well before the onset of the national recession in
July 1990. Reflecting the economic downturn, New Jersey's unemployment
rate rose from 3.6% in the first quarter of 1989 to 9.1% in April of
1993. As a result of New Jersey's fiscal weakness, in July 1991, S&P
lowered its rating of the State's general obligation debt from AAA to
AA+.
NEW YORK SERIES
The special risks inherent in investing in New York Municipal
Obligations result from the financial condition of New York State, and
certain of its public bodies and municipalities, including New York City.
Beginning in early 1975, New York State, New York City and other State
entities faced serious financial difficulties which jeopardized the
credit standing and impaired the borrowing abilities of such entities and
contributed to high interest rates on, and lower market prices for, debt
obligations issued by them. A recurrence of such financial difficulties
or a failure of certain financial recovery programs could result in
defaults or declines in the market values of various New York Municipal
Obligations in which the New York Series may invest. If there should be a
default or other financial crisis relating to New York State, New York
City, a State or City agency, or a State municipality, the market value
and marketability of outstanding New York Municipal Obligations in the
New York Series' portfolio and the interest income to such Series could
be adversely affected. Moreover, the significant slowdown in the New York
regional economy in the early 1990's added substantial uncertainty to
estimates of the State's tax revenues, which, in part, caused New York
State to overestimate its General Fund tax receipts in the 1992 fiscal
year by $575 million. The 1992 fiscal year was the fourth consecutive
year in which New York State incurred a cash-basis operating deficit in
the General Fund and issued deficit notes. The State's 1992-93 fiscal
year was characterized by national and regional economies that performed
better than projected in April 1992. National gross domestic product,
State personal income, and employment and unemployment in the State are
estimated to have performed better than originally projected in April
1992. After reflecting a 1992-93 year-end deposit to the refund reserve
account of $671 million, reported 1992-93 General Fund receipts were $45
million higher than originally projected in April 1992. If not for that
year-end transaction, which had the effect of reducing 1992-93 receipts by
$671 million and making those receipts available in 1993-94, General Fund
receipts would have been $716 million higher than originally projected.
There can be no assurance that New York will not face substantial
potential budget gaps in future years. In January 1992, Moody's lowered
from A to Baa1 the ratings on certain appropriation-backed debt of New
York State and its agencies. The State's general
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obligation, State-guaranteed and New York State Local
Government Assistance Corporation bonds continued to be rated A by
Moody's. In January 1992, S&P lowered from A to A- its ratings of New
York State general obligation bonds and stated that it continues to
assess the ratings outlook as negative. The ratings of various agency
debt, state moral obligations, contractual obligations, lease purchase
obligations and State guarantees also were lowered. In February 1991,
Moody's lowered its rating on New York City's general obligation bonds
from A to Baa1. The rating changes reflected the rating agencies'
concerns about the financial condition of New York State and City, the
heavy debt load of the State and City, and economic uncertainties in the
region.
SPECIAL INVESTMENT CONSIDERATIONS
The insurance feature is intended to reduce financial risk,
but the cost thereof and the restrictions on investments imposed by the
guidelines in the insurance policy will result in a reduction in the
yield on the Municipal Obligations purchased by a Series.
Because coverage under certain Mutual Fund Insurance policies
may terminate upon sale of a security from a Series' portfolio, insurance
with this termination feature should not be viewed as assisting the
marketability of securities in the Series' portfolio, whether or not the
securities are in default or subject to a serious risk of default. The
Dreyfus Corporation intends to retain any Municipal Obligations subject
to such insurance which are in default or, in the view of The Dreyfus
Corporation, in significant risk of default and to recommend to the Board
of Trustees that the Fund place a value on the insurance which will be
equal to the difference between the market value of the defaulted
security and the market value of similar securities of minimum investment
grade (i.e., rated Baa by Moody's or BBB by S&P or Fitch) which are not
in default. To the extent that a Series holds defaulted securities
subject to Mutual Fund Insurance with this termination feature, it may be
limited in its ability in certain circumstances to purchase other
Municipal Obligations. While a defaulted Municipal Obligation is held in
a Series' portfolio, such Series continues to pay the insurance premium
thereon but also is entitled to collect interest payments from the insurer
and retains the right to collect the full amount of principal from the
insurer when the security comes due.
Unlike certain Mutual Fund Insurance policies, New Issue
Insurance does not terminate with respect to a Municipal Obligation once
it is sold by a Series. Therefore, the Fund expects that the market
value, and thus the marketability, of a defaulted security covered by New
Issue Insurance generally will be greater than the market value of an
otherwise comparable defaulted security covered by Mutual Fund Insurance
with the termination feature. The Fund, at its option, may purchase from
Financial Guaranty secondary market insurance ("Secondary Market
Insurance") on any Municipal Obligation purchased by a Series. By
purchasing Secondary Market Insurance, the Fund would obtain, upon
payment of a single premium, insurance against nonpayment of scheduled
principal and interest for the remaining term of the Municipal
Obligation, regardless of whether the Series then owned such security.
Such insurance coverage would be non-cancelable and would continue in
force so long as the security so insured is outstanding and the insurer
remains in business. The purpose of acquiring Secondary Market Insurance
would be to enable a Series to sell a Municipal Obligation to a third
party as a high rated insured Municipal Obligation at a market price
greater than what otherwise might be obtainable if the security were sold
without the insurance coverage.
OTHER INVESTMENT CONSIDERATIONS
Even though interest-bearing securities are investments which
promise a stable stream of income, the prices of such securities are
inversely affected by changes in interest rates and, therefore, are
subject to the risk of market price fluctuations. Certain securities that
may be purchased by the Series, such as those with interest rates that
fluctuate directly or indirectly based on multiples of a stated index,
are designed to be highly sensitive to changes in interest rates and can
subject the holders thereof to extreme reductions of yield and possibly
loss of principal. The values of fixed-income securities also may be
affected by changes in the credit rating or financial
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condition of the issuing entities. Once the rating of a
portfolio security has been changed, the Fund will consider all
circumstances deemed relevant in determining whether to continue to hold
the security. Certain securities purchased by the Series, such as those
rated Baa by Moody's and BBB by S&P or Fitch, may be subject to such risk
with respect to the issuing entity and to greater market fluctuations
than certain lower yielding, higher rated fixed-income securities.
Obligations which are rated Baa are considered medium grade obligations;
they are neither highly protected nor poorly secured, and are considered
by Moody's to have speculative characteristics. Bonds rated BBB by S&P
are regarded as having adequate capacity to pay interest and repay
principal, and while such bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than in higher rated categories. Bonds rated
BBB by Fitch are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on
these bonds and, therefore, impair timely payment. See "Appendix B" in the
Statement of Additional Information. Each Series' net asset value
generally will not be stable and should fluctuate based upon changes in
the value of such Series' portfolio securities.
Federal income tax law requires the holder of a zero coupon
security or of certain pay-in- kind bonds to accrue income with respect
to these securities prior to the receipt of cash payments. To maintain
its qualification as a regulated investment company and avoid liability
for Federal income taxes, a Series may be required to distribute such
income accrued with respect to these securities and may have to dispose
of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.
Certain municipal lease/purchase obligations in which the
Series may invest may contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease payments in future
years unless money is appropriated for such purpose on a yearly basis.
Although "non-appropriation" lease/purchase obligations are secured by
the leased property, disposition of the leased property in the event of
foreclosure might prove difficult. In evaluating the credit quality of a
municipal lease/purchase obligation that is unrated, The Dreyfus
Corporation will consider, on an ongoing basis, a number of factors
including the likelihood that the issuing municipality will discontinue
appropriating funding for the leased property.
Certain provisions in the Code relating to the issuance of
Municipal Obligations may reduce the volume of Municipal Obligations
qualifying for Federal tax exemption. One effect of these provisions
could be to increase the cost of the Municipal Obligations available for
purchase by the Fund and thus reduce the available yield. Shareholders
should consult their tax advisers concerning the effect of these
provisions on an investment in the Fund. Proposals that may restrict or
eliminate the income tax exemption for interest on Municipal Obligations
may be introduced in the future. If any such proposal were enacted that
would reduce the availability of Municipal Obligations for investment by
the Fund so as to adversely affect Fund shareholders, the Fund would
reevaluate its investment objective and policies and submit possible
changes in the Fund's structure to shareholders for their consideration.
If legislation were enacted that would treat a type of Municipal
Obligation as taxable, the Fund would treat such security as a
permissible Taxable Investment within the applicable limits set forth
herein.
Each Series' classification as a "non-diversified" investment
company means that the proportion of such Series' assets that may be
invested in the securities of a single issuer is not limited by the
Investment Company Act of 1940. A "diversified" investment company is
required by the Investment Company Act of 1940 generally to invest, with
respect to 75% of its total assets, not more than 5% of such assets in
the securities of a single issuer. However, each Series intends to
conduct its operations so as to qualify as a "regulated investment
company" for purposes of the Code, which requires that, at the end of
each quarter of its taxable year, (i) at least 50% of the market value of
its total assets be invested in cash, U.S. Government securities, the
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securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the
value of such Series' total assets, and (ii) not more than 25% of the
value of its total assets be invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other
regulated investment companies). Since a relatively high percentage of
each Series' assets may be invested in the securities of a limited number
of issuers, the Series' portfolio securities may be more susceptible to
any single economic, political or regulatory occurrence than the
portfolio securities of a diversified investment company.
Investment decisions for the Fund are made independently from
those of other investment companies advised by The Dreyfus Corporation.
However, if such other investment companies are prepared to invest in, or
desire to dispose of, Municipal Obligations or Taxable Investments at the
same time as the Fund, available investments or opportunities for sales
will be allocated equitably to each investment company. In some cases,
this procedure may adversely affect the size of the position obtained for
or disposed of by the Fund or the price paid or received by the Fund.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New
York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary
of Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of August 31, 1994, The Dreyfus Corporation
managed or administered approximately $70 billion in assets for more than
1.9 million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the
Fund, subject to the overall authority of the Fund's Board of Trustees in
accordance with Massachusetts law.
Mellon is a publicly owned multibank holding company
incorporated under Pennsylvania law in 1971 and registered under the
Federal Bank Holding Company Act of 1956, as amended. Mellon provides a
comprehensive range of financial products and services in domestic and
selected international markets. Mellon is among the twenty-five largest
bank holding companies in the United States based on total assets.
Mellon's principal wholly-owned subsidiaries are Mellon Bank, N.A.,
Mellon Bank (DE) National Association, Mellon Bank (MD), The Boston
Company, Inc., AFCOCredit Corporation and a number of companies known as
Mellon Financial Services Corporations. Through its subsidiaries, Mellon
managed more than $130 billion in assets as of July 31, 1994, including
approximately $6 billion in mutual fund assets. As of July 31, 1994,
various subsidiaries of Mellon provided non-investment services, such as
custodial or administration services, for more than $___ billion in
assets including $___ billion in mutual fund assets.
The primary Portfolio Manager for the California Series is
Stephen C. Kris, who has been an employee of The Dreyfus Corporation
since 1988. The primary Portfolio Manager for each of the Connecticut
Series, the Florida Series, the National Series, the New Jersey Series
and the New York Series is L. Lawrence Troutman, who has been an employee
of The Dreyfus Corporation since 1985. The Fund's other Portfolio
Managers are identified under "Management of the Fund" in the Fund's
Statement of Additional Information. The Dreyfus Corporation also
provides research services for the Fund as well as for other funds
advised by The Dreyfus Corporation through a professional staff of
portfolio managers and security analysts.
Under the terms of the Management Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of
.55 of 1% of the value of each Series' average daily net assets. From
time to time, The Dreyfus Corporation may waive receipt of its fees
and/or voluntarily assume certain expenses of a Series, which would have
the effect of lowering the overall expense ratio of that Series and
increasing yield to investors at the time such amounts are waived or
assumed, as the case may be. The Fund will not pay The Dreyfus
Corporation at a later time for
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any amounts it may waive, nor will the Fund reimburse The
Dreyfus Corporation for any amounts it may assume. For the period August
19, 1993 (commencement of operations of the California Series) through
July 31, 1994, no management fee was paid by the Fund with respect to the
California Series pursuant to undertakings in effect. For the period May
5, 1994 (commencement of operations of the Connecticut Series) through
July 31, 1994, no management fee was paid by the Fund with respect to the
Connecticut Series pursuant to undertakings in effect. For the period May
4, 1994 (Commencement of operations of each of the Florida, National and
New Jersey Series') through July 31, 1994, no management fee was paid by
the Fund with respect to the Florida, National and New Jersey Series
pursuant to undertakings in effect. For the period from May 6, 1994
(commencment of operations of the New York Series) through July 31, 1994,
no management fee was paid by the Fund with respect to the New York Series
pursuant to undertakings in effect.
EXPENSES
All expenses incurred in the operation of the Fund are borne
by the Fund, except to the extent specifically assumed by the Manager.
The expenses borne by the Fund include: organizational costs, taxes,
interest, loan commitment fees, interest and distributions paid on
securities sold short, brokerage fees and commissions, if any, fees of
Trustees who are not officers, directors, employees or holders of 5% or
more of the outstanding voting securities of the Manager, Securities and
Exchange Commission fees, state Blue Sky qualification fees, advisory
fees, charges of custodians, transfer and dividend disbursing agents'
fees, certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of independent pricing services, costs
of maintaining the Fund's existence, costs attributable to investor
services (including, without limitation, telephone and personnel
expenses), costs of shareholders' reports and meetings, and any
extraordinary expenses. Class A and Class B shares are subject to an
annual service fee for ongoing personal services relating to shareholder
accounts and services related to the maintenance of shareholder accounts.
In addition, Class B shares are subject to an annual distribution fee for
advertising, marketing and distributing Class B shares pursuant to a
distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940. See "Distribution Plan and Shareholder
Services Plan." Expenses attributable to a particular Series are charged
against the assets of that Series; other expenses of the Fund are
allocated among the Series on the basis determined by the Board of
Trustees, including, but not limited to, proportionately in relation to
the net assets of each Series.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay Service
Agents in respect of these services.
The Shareholder Services Group, Inc., a subsidiary of First
Data Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is
the Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent").
The Bank of New York, 110 Washington Street, New York, New York 10286, is
the Fund's Custodian.
HOW TO BUY FUND SHARES
The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor is a wholly-owned subsidiary of Institutional
Administration Services, Inc., a provider of mutual fund administration
services, the parent company of which is Boston Institutional Group, Inc.
Fund shares may be purchased only by clients of certain
financial institutions (which may include banks), securities dealers
("Selected Dealers") and other industry professionals (collectively,
"Service Agents"), except that full-time or part-time employees of The
Dreyfus Corporation or any of its affiliates or subsidiaries, directors
of The Dreyfus Corporation, Board members of a fund advised by The
Dreyfus Corporation, including members of the Fund's Board, or the spouse
or minor child of any of the foregoing may purchase Class A shares
directly through the Distributor. Subsequent purchases may be sent
directly to the Transfer Agent or your Service Agent. Service Agents may
receive different levels of compensation for selling different Classes of
shares. Management understands that some Service Agents may impose
certain conditions on their clients which are different from those
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described in this Prospectus, and to the extent permitted by
applicable regulatory authority, may charge their clients direct fees
which would be in addition to any amounts which might be received under
the Shareholder Services Plan. Each Service Agent has agreed to transmit
to its clients a schedule of such fees. You should consult your Service
Agent in this regard.
When purchasing Series' shares, you must specify whether the
purchase is for Class A or Class B shares. Share certificates are issued
only upon your written request. No certificates are issued for fractional
shares. It is not recommended that the Fund be used as a vehicle for
Keogh, IRA or other qualified retirement plans. The Fund reserves the
right to reject any purchase order.
The minimum initial investment is $1,000. Subsequent
investments must be at least $100. The initial investment must be
accompanied by the Fund's Account Application.
You may purchase Series' shares by check or wire, or through
the TELETRANSFER Privilege described below. Checks should be made payable
to "Premier Insured Municipal Bond Fund,"and should specify the Series in
which you are investing. Payments to open new accounts which are mailed
should be sent to Premier Insured Municipal Bond Fund, P.O. Box 9387,
Providence, Rhode Island 02940-9387, together with your Account
Application indicating which Class of shares is being purchased. For
subsequent investments, your Fund account number should appear on the
check and an investment slip should be enclosed and sent to Premier
Insured Municipal Bond Fund, P.O. Box 105, Newark, New Jersey 07101-0105.
Neither initial nor subsequent investments should be made by third party
check. Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank
having a correspondent bank in New York City. Immediately available funds
may be transmitted by wire to The Bank of New York, together with the
applicable Series' DDA# as shown below, for purchase of Fund shares in
your name.
FOR CLASS A SHARES
DDA# 8900088311/Premier Insured Municipal Bond Fund/National
Series-Class A shares
DDA# 8900118172/Premier Insured Municipal Bond
Fund/California Series-Class A shares
DDA# 8900088346/Premier Insured Municipal Bond
Fund/Connecticut Series-Class A shares
DDA# 8900088362/Premier Insured Municipal Bond Fund/Florida
Series-Class A shares
DDA# 8900088389/Premier Insured Municipal Bond Fund/New
Jersey Series-Class A shares
DDA# 8900088400/Premier Insured Municipal Bond Fund/New York
Series-Class A shares
FOR CLASS B SHARES
DDA# 8900115440/Premier Insured Municipal Bond Fund/National
Series-Class B shares
DDA# 8900115270/Premier Insured Municipal Bond
Fund/California Series-Class B shares
DDA# 8900115459/Premier Insured Municipal Bond
Fund/Connecticut Series-Class B shares
DDA# 8900115467/Premier Insured Municipal Bond Fund/Florida
Series-Class B shares
DDA# 8900115475/Premier Insured Municipal Bond Fund/New
Jersey Series-Class B shares
DDA# 8900115491/Premier Insured Municipal Bond Fund/New York
Series-Class B shares
The wire must include your Fund account number (for new accounts,
your Taxpayer Identification Number ("TIN") should be included instead),
account registration and dealer number, if applicable. If your initial
purchase of Fund shares is by wire, please call 1-800-645-6561 after
completing your wire payment to obtain your Fund account number. Please
include your Fund account number on the Fund's Account Application and
promptly mail the Account Application to the Fund, as no redemptions will
be permitted until the Account Application is received. You may obtain
further information about remitting funds in this manner from your bank.
All payments should be made in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. A charge will be imposed if
any check used for investment in your account does not clear. The Fund
makes available to certain large institutions the ability to issue
purchase instructions through compatible computer facilities.
Subsequent investments also may be made by electronic
transfer of funds from an account maintained in a bank or other domestic
financial institution that is an Automated Clearing House member. You
must direct the institution to transmit immediately available funds
#
through the Automated Clearing House to The Bank of New York
with instructions to credit your Fund account. The instructions must
specify your Fund account registration and your Fund account number
PRECEDED BY THE DIGITS "1111."
Shares of each Series are sold on a continuous basis. Net
asset value per share of each Class is determined as of the close of
trading on the floor of the New York Stock Exchange (currently 4:00 p.m.,
New York time), on each day the New York Stock Exchange is open for
business. For purposes of determining net asset value, options and
futures contracts will be valued 15 minutes after the close of trading on
the floor of the New York Stock Exchange. Net asset value per share of
each Class is computed by dividing the value of the net assets of each
Series represented by such Class (i.e., the value of assets of each
Series less liabilities) by the total number of Series' shares of such
Class outstanding. Each Series' investments are valued each business day
by an independent pricing service approved by the Board of Trustees and
are valued at fair value as determined by the pricing service. The
pricing service's procedures are reviewed under the general supervision
of the Board of Trustees. For further information regarding the methods
employed in valuing the Series' investments, see "Determination of Net
Asset Value" in the Statement of Additional Information.
Federal regulations require that you provide a certified TIN
upon opening or reopening an account. See "Dividends, Distributions and
Taxes" and the Fund's Account Application for further information
concerning this requirement. Failure to furnish a certified TIN to the
Fund could subject you to a $50 penalty imposed by the Internal Revenue
Service (the "IRS").
If an order is received in proper form by the Transfer Agent
by the close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m., New York time) on any business day, Fund shares
will be purchased at the public offering price determined as of the close
of trading on the floor of the New York Stock Exchange on that day.
Otherwise, Fund shares will be purchased at the public offering price
determined as of the close of trading on the floor of the New York Stock
Exchange on the next business day, except where shares are purchased
through a dealer as provided below.
Orders for the purchase of Fund shares received by dealers by
the close of trading on the floor of the New York Stock Exchange on any
business day and transmitted to the Distributor by the close of its
business day (normally 5:15 p.m., New York time) will be based on the
public offering price per share determined as of the close of trading on
the floor of the New York Stock Exchange on that day. Otherwise, the
orders will be based on the next determined public offering price. It is
the dealer's responsibility to transmit orders so that they will be
received by the Distributor before the close of its business day.
CLASS A SHARES-The public offering price for Class A shares
of each Series is the net asset value per share of that Class plus a
sales load as shown below:
<TABLE>
<CAPTION>
TOTAL SALES LOAD
-------------------------------
AS A % OF AS A % OF DEALERS' REALLOWANCE
OFFERING PRICE NET ASSET VALUE AS A % OF
AMOUNT OF TRANSACTION PER SHARE PER SHARE OFFERING PRICE
-------------------------------- -------------- --------------- --------------------
<S> <S> <C> <C> <C>
Less than $50,000....................... 4.50 4.70 4.25
$50,000 to less than $100,000........... 4.00 4.20 3.75
$100,000 to less than $250,000.......... 3.00 3.10 2.75
$250,000 to less than $500,000.......... 2.50 2.60 2.25
$500,000 to less than $1,000,000........ 2.00 2.00 1.75
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or
more of Class A shares. However, if you purchase Class A shares without an
initial sales charge as part of an investment of a least $1,000,000 and
redeem those shares within two years after purchase, a CDSC of 1% will be
imposed at the time of redemption. The terms contained in the section of
the Fund's Prospectus entitled "How to Redeem Fund Shares -- Contingent
Deferred Sales
#
Charge -- Class B" (other than the amount of the CDSC and its
time periods) are applicable to the Class A shares subject to a CDSC.
Letter of Intent and Right of Accumulation apply to such purchases of
Class A shares.
Full-time employees of NASD member firms and full-time
employees of other financial institutions that have entered into an
agreement with Dreyfus Service Corporation pertaining to the sale of Fund
shares (or which otherwise have a brokerage related or clearing
arrangement with an NASD member firm or financial institution with
respect to the sale of Fund shares) may purchase Class A shares for
themselves directly or pursuant to an employee benefit plan or other
program, or for their spouses or minor children, at net asset value,
provided that they have furnished Dreyfus Service Corporation with such
information as it may request from time to time in order to verify
eligibility for this privilege. This privilege also applies to full-time
employees of financial institutions affiliated with NASD member firms
whose full-time employees are eligible to purchase Class A shares at net
asset value. In addition, Class A shares are offered at net asset value
to full-time or part-time employees of The Dreyfus Corporation or any of
its affiliates or subsidiaries, directors of The Dreyfus Corporation,
Board members of a fund advised by The Dreyfus Corporation, including
members of the Fund's Board, or the spouse or minor child of any of the
foregoing.
In fiscal 1994, _______________ retained $______ from sales
loads on Class A shares. The dealer reallowance may be changed from time
to time but will remain the same for all dealers. Dreyfus Service
Corporation, at its expense, may provide additional promotional
incentives to dealers that sell shares of funds advised by The Dreyfus
Corporation which are sold with a sales load, such as the Fund. In some
instances, those incentives may be offered only to certain dealers who
have sold or may sell significant amounts of shares.
CLASS B SHARES-The public offering price for Class B shares
of each Series is the net asset value per share of that Class. No initial
sales charge is imposed at the time of purchase. A CDSC is imposed,
however, on certain redemptions of Class B shares as described under "How
to Redeem Fund Shares." Dreyfus Service Corporation compensates certain
Service Agents for selling Class B shares at the time of purchase from
Dreyfus Service Corporation's own assets. The proceeds of the CDSC and
the distribution fee, in part, are used to defray these expenses. For the
fiscal year ended July 31, 1994, no amounts were retained by ______________
from the CDSC imposed on Class B shares.
RIGHT OF ACCUMULATION
CLASS A SHARES-Reduced sales loads apply to any purchase of
Class A shares, shares of certain other funds advised by The Dreyfus
Corporation which are sold with a sales load and shares acquired by a
previous exchange of such shares (hereinafter referred to as "Eligible
Funds"), by you and any related "purchaser" as defined in the Statement
of Additional Information, where the aggregate investment, including such
purchase, is $50,000 or more. If, for example, you previously purchased
and still hold Class A shares of the Fund, or of any other Eligible Fund
or combination thereof, with an aggregate current market value of $40,000
and subsequently purchase Class A shares of the Fund or an Eligible Fund
having a current value of $20,000, the sales load applicable to the
subsequent purchase would be reduced to 4% of the offering price. All
present holdings of Eligible Funds may be combined to determine the
current offering price of the aggregate investment in ascertaining the
sales load applicable to each subsequent purchase.
To qualify for reduced sales loads, at the time of purchase
you or your Service Agent must notify the Distributor if orders are made
by wire, or the Transfer Agent if orders are made by mail. The reduced
sales load is subject to confirmation of your holdings through a check of
appropriate records.
TELETRANSFER PRIVILEGE
You may purchase Fund shares (minimum $500, maximum $150,000
per day) by telephone if you have checked the appropriate box and
supplied the necessary information on
#
the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. The proceeds will be transferred
between the bank account designated in one of these documents and your
Fund account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so
designated. The Fund may modify or terminate this Privilege at any time
or charge a service fee upon notice to shareholders. No such fee
currently is contemplated.
If you have selected the TELETRANSFER Privilege, you may
request a TELETRANSFER purchase by telephoning 1-800-221-4060 or, if you
are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may
not be available to clients of certain Service Agents and some Service
Agents may impose certain conditions on their clients which are different
from those in this Prospectus. You should consult your Service Agent in
this regard.
EXCHANGE PRIVILEGE
The Exchange Privilege enables clients of certain Service
Agents to purchase, in exchange for Class A or Class B shares of a
Series, shares of the same Class in one of the other Series, or of the
same Class in certain other funds managed or administered by The Dreyfus
Corporation, to the extent such shares are offered for sale in your state
of residence. These funds have different investment objectives which may
be of interest to you. You also may exchange your Fund shares that are
subject to a CDSC for shares of Dreyfus Worldwide Dollar Money Market
Fund, Inc. The shares so purchased will be held in a special account
created solely for this purpose (the "Exchange Account"). Exchanges of
shares from an Exchange Account only can be made into certain other Funds
managed or administered by The Dreyfus Corporation. No CDSC is charge
when an investor exchanges into an Exchange Account; however, the
applicable CDSC will be imposed when shares are redeemed from an Exchange
Account or other applicable Fund account. Upon redemption, the applicable
CDSC will be calculated without regard to the time such shares were held
in an Exchange Account. See "How to Redeem Fund Shares." In addition to
the limited Exchange and Auto-Exchange Privileges noted herein, Exchange
Account shares are eligible for the Dividend Sweep Privilege and the
Automatic Withdrawal Plan, and may receive redemption proceeds only by
Federal wire or by check. If you desire to use this Privilege, you should
consult your Service Agent or the Distributor to determine if it is
available and whether any other conditions are imposed on its use.
To use this Privilege, your Service Agent acting on your
behalf must give exchange instructions to the Transfer Agent in writing,
by wire or by telephone. If you previously have established the Telephone
Exchange Privilege, you may telephone exchange instructions by calling
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
See "How to Redeem Fund Shares-Procedures." Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund
into which the exchange is being made. Prospectuses may be obtained from
the Distributor. Except in the case of Personal Retirement Plans, the
shares being exchanged must have a current value of at least $500;
furthermore, when establishing a new account by exchange, the shares
being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.
Telephone exchanges may be made only if the appropriate "YES" box has
been checked on the Account Application, or a separate signed Shareholder
Services Form is on file with the Transfer Agent. Upon an exchange into a
new account, the following shareholder services and privileges, as
applicable and where available, will be automatically carried over to the
fund into which the exchange is made; Exchange Privilege, Check
Redemption Privilege, TELETRANSFER Privilege and the dividend/capital
gain distribution option (except for Dividend Sweep) selected by the
investor.
#
Shares will be exchanged at the next determined net asset
value; however, a sales load may be charged with respect to exchanges of
Class A shares into funds sold with a sales load. No CDSC will be imposed
on Class B shares at the time of an exchange; however, Class B shares
acquired through an exchange will be subject on redemption to the higher
CDSC applicable to the exchanged or acquired shares. The CDSC applicable
on redemption of the acquired Class B shares will be calculated from the
date of the initial purchase of the Class B shares exchanged. If you are
exchanging Class A shares into a fund that charges a sales load, you may
qualify for share prices which do not include the sales load or which
reflect a reduced sales load, if the shares from which you are exchanging
were: (a) purchased with a sales load, (b) acquired by a previous
exchange from shares purchased with a sales load, or (c) acquired through
reinvestment of dividends or distributions paid with respect to the
foregoing categories of shares. To qualify, at the time of your exchange
your Service Agent must notify the Distributor. Any such qualification is
subject to confirmation of your holdings through a check of appropriate
records. See "Shareholder Services" in the Statement of Additional
Information. No fees currently are charged shareholders directly in
connection with exchanges, although the Fund reserves the right, upon not
less than 60 days' written notice, to charge shareholders a nominal fee
in accordance with rules promulgated by the Securities and Exchange
Commission. The Fund reserves the right to reject any exchange request in
whole or in part. The Exchange Privilege may be modified or terminated at
any time upon notice to shareholders.
The exchange of shares of one fund or Series for shares of
another is treated for Federal income tax purposes as a sale of the
shares given in exchange by the shareholder and, therefore, an exchanging
shareholder may realize a taxable gain or loss.
AUTO-EXCHANGE PRIVILEGE
Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for Class
A or Class B shares of a Series, in shares of the same Class of one of
the other Series or of other funds in the Premier Family of Funds or
certain other funds in the Dreyfus Family of Funds of which you are
currently an investor. The amount you designate, which can be expressed
either in terms of a specific dollar or share amount ($100 minimum), will
be exchanged automatically on the first and/or fifteenth day of the month
according to the schedule you have selected. Shares will be exchanged at
the then-current net asset value; however, a sales load may be charged
with respect to exchanges of Class A shares into funds sold with a sales
load. No CDSC will be imposed on Class B shares at the time of an
exchange; however, Class B shares acquired through an exchange will be
subject on redemption to the higher CDSC applicable to the exchanged or
acquired shares. The CDSC applicable on redemption of the acquired Class
B shares will be calculated from the date of the initial purchase of the
Class B shares exchanged. See "Shareholder Services" in the Statement of
Additional Information. The right to exercise this Privilege may be
modified or canceled by the Fund or the Transfer Agent. You may modify or
cancel your exercise of this Privilege at any time by mailing written
notification to Premier Insured Municipal Bond Fund, P.O. Box 6587,
Providence, Rhode Island 02940-6587. The Fund may charge a service fee
for the use of this Privilege. No such fee currently is contemplated. The
exchange of shares of one fund for shares of another is treated for
Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss. For more information concerning this Privilege and
the funds in the Premier Family of Funds or Dreyfus Family of Funds
eligible to participate in this Privilege, or to obtain an Auto-Exchange
Authorization Form, please call toll free 1-800-645-6561.
AUTOMATIC ASSET BUILDER
AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring
funds from the bank account designated by you. At your option, the bank
account designated by you will be debited in the specified amount, and
Fund shares will be pur
#
chased, once a month, on either the first or fifteenth day,
or twice a month, on both days. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be
so designated. To establish an AUTOMATIC Asset Builder account, you must
file an authorization form with the Transfer Agent. You may obtain the
necessary authorization form from the Distributor. You may cancel your
participation in this Privilege or change the amount of purchase at any
time by mailing written notification to Premier Insured Municipal Bond
Fund, P.O. Box 6587, Providence, Rhode Island 02940-6587, and the
notification will be effective three business days following receipt. The
Fund may modify or terminate this Privilege at any time or charge a
service fee. No such fee currently is contemplated.
GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into
your Fund account. You may deposit as much of such payments as you elect.
To enroll in Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment
that you desire to include in the Privilege. The appropriate form may be
obtained from the Distributor or your Service Agent. Death or legal
incapacity will terminate your participation in this Privilege. You may
elect at any time to terminate your participation by notifying in writing
the appropriate Federal agency. Further, the Fund may terminate your
participation upon 30 days' notice to you.
DIVIDEND OPTIONS
Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by the Fund in
shares of the same Class of another fund in the Premier Family of Funds
or the Dreyfus Family of Funds of which you are a shareholder. Shares of
the other fund will be purchased at the then-current net asset value;
however, a sales load may be charged with respect to investments in
shares of a fund sold with a sales load. If you are investing in a fund
that charges a sales load, you may qualify for share prices which do not
include the sales load or which reflect a reduced sales load. If you are
investing in a fund that charges a CDSC, the shares purchased will be
subject on redemption to the CDSC, if any, applicable to the purchased
shares. See "Shareholder Services" in the Statement of Additional
Information. Dividend ACH permits you to transfer electronically on the
payment date dividends or dividends and capital gain distributions, if
any, from the Fund to a designated bank account. Only an account
maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. Banks may charge fee for this
service.
For more information concerning these Privileges, or to
request a Dividend Options Form, please call toll free 1-800-645-6561.
You may cancel these Privileges by mailing written notification to
Premier Insured Municipal Bond Fund, P.O. Box 9671, Providence, Rhode
Island 02940-6587. To select a new fund after cancellation, you must
submit a new Dividend Options Form. Enrollment in or cancellation of
these Privileges is effective three business days following receipt.
These Privileges are available only for existing accounts and may not be
used to open new accounts. Minimum subsequent investments do not apply
for Dividend Sweep. The Fund may modify or terminate these Privileges at
any time or charge a service fee. No such fee currently is contemplated.
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits you to request
withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. An
application for the Automatic Withdrawal Plan can be obtained from the
Distributor. There is a service charge of 50cents for each withdrawal
check. The Automatic Withdrawal Plan may be ended at any time by you, the
Fund or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
#
Class B shares withdrawn pursuant to the Automatic Withdrawal
Plan will be subject to any applicable CDSC. Purchases of additional
Class A shares where a sales load is imposed concurrently with
withdrawals of Class A shares generally are undesirable.
LETTER OF INTENT-CLASS A SHARES
By signing a Letter of Intent form, available from the
Distributor, you become eligible for the reduced sales load applicable to
the total number of Eligible Fund shares purchased in a 13-month period
pursuant to the terms and conditions set forth in the Letter of Intent. A
minimum initial purchase of $5,000 is required. To compute the applicable
sales load, the offering price of shares you hold (on the date of
submission of the Letter of Intent) in any Eligible Fund that may be used
toward "Right of Accumulation" benefits described above may be used as a
credit toward completion of the Letter of Intent. However, the reduced
sales load will be applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount
indicated in the Letter of Intent for payment of a higher sales load if
you do not purchase the full amount indicated in the Letter of Intent.
The escrow will be released when you fulfill the terms of the Letter of
Intent by purchasing the specified amount. If your purchases qualify for
a further sales load reduction, the sales load will be adjusted to
reflect your total purchase at the end of 13 months. If total purchases
are less than the amount specified, you will be requested to remit an
amount equal to the difference between the sales load actually paid and
the sales load applicable to the aggregate purchases actually made. If
such remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will
redeem an appropriate number of Class A shares held in escrow to realize
the difference. Signing a Letter of Intent does not bind you to purchase,
or the Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but you must complete the intended
purchase to obtain the reduced sales load. At the time you purchase Class
A shares, you must indicate your intention to do so under a Letter of
Intent. Purchases pursuant to a Letter of Intent will be made at the
then-current net asset value plus the applicable sales load in effect at
the time such Letter of Intent was executed.
HOW TO REDEEM FUND SHARES
GENERAL
You may request redemption of your Class A or Class B shares
at any time. Redemption requests should be transmitted to the Transfer
Agent as described below. When a request is received in proper form, the
Fund will redeem the shares at the next determined net asset value as
described below. If you hold Fund shares of more than one Class, any
request for redemption must specify the Class of shares being redeemed.
If you fail to specify the Class of shares to be redeemed or if you own
fewer shares of the Class than specified to be redeemed, the redemption
request may be delayed until the Transfer Agent receives further
instructions from you or your Service Agent.
The Fund imposes no charges (other than any applicable CDSC)
when shares are redeemed directly through the Distributor. Service Agents
may charge a nominal fee for effecting redemptions of Fund shares. Any
certificates representing Fund shares being redeemed must be submitted
with the redemption request. The value of the shares redeemed may be more
or less than their original cost, depending upon the Series' then-current
net asset value.
The Fund ordinarily will make payment for all shares redeemed
within seven days after receipt by the Transfer Agent of a redemption
request in proper form, except as provided by the rules of the Securities
and Exchange Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY
CHECK, BY THE TELETRANSFER PRIVILEGE OR THROUGH AUTOMATIC ASSET BUILDER
AND SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER
AGENT, THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON
BANK CLEARANCE OF YOUR
#
PURCHASE CHECK, TELETRANSFER PURCHASE OR AUTOMATIC ASSET
BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUND WILL NOT HONOR REDEMPTION CHECKS UNDER THE CHECK
REDEMPTION PRIVILEGE, AND WILL REJECT REQUESTS TO REDEEM SHARES PURSUANT
TO THE TELETRANSFER PRIVILEGE, FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER
RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE TELETRANSFER
PURCHASE OR THE AUTOMATIC ASSET BUILDER ORDER AGAINST WHICH SUCH
REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY IF YOUR SHARES
WERE PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A SUFFICIENT
COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR
TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL
ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER
RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed until
the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its
option upon not less than 30 days' written notice if your account's net
asset value is $500 or less and remains so during the notice period.
CONTINGENT DEFERRED SALES CHARGE-CLASS B SHARES
A CDSC payable to the Distributor is imposed on any
redemption of Class B shares of a Series which reduces the current net
asset value of your Class B shares to an amount which is lower than the
dollar amount of all payments by you for the purchase of Class B shares
of such Series held by you at the time of redemption. No CDSC will be
imposed to the extent that the net asset value of the Class B shares
redeemed does not exceed (i) the current net asset value of Class B
shares acquired through reinvestment of dividends or capital gain
distributions, plus (ii) increases in the net asset value of your Class B
shares above the dollar amount of all your payments for the purchase of
Class B shares of such Series held by you at the time of redemption.
If the aggregate value of Class B shares redeemed has
declined below their original cost as a result of the Series'
performance, a CDSC may be applied to the then-current net asset value
rather than the purchase price.
In circumstances where the CDSC is imposed, the amount of the
charge will depend on the number of years from the time you purchased the
Class B shares until the time of redemption of such shares. Solely for
purposes of determining the number of years from the time of any payment
for the purchase of Class B shares, all payments during a month will be
aggregated and deemed to have been made on the first day of the month.
The following table sets forth the rates of the CDSC:
<TABLE>
<CAPTION>
YEAR SINCE CDSC AS A % OF AMOUNT
PURCHASE PAYMENT INVESTED OR REDEMPTION
WAS MADE PROCEEDS
------------------- ------------------------
<S> <C> <C>
First...................................................... 3.00
Second..................................................... 3.00
Third...................................................... 2.00
Fourth..................................................... 2.00
Fifth...................................................... 1.00
Sixth...................................................... 0.00
</TABLE>
In determining whether a CDSC is applicable to a redemption,
the calculation will be made in a manner that results in the lowest
possible rate. It will be assumed that the redemption is made first of
amounts representing shares acquired pursuant to the reinvestment of
dividends and distributions; then of amounts representing the increase
in net asset value of Class B shares above the total amount of payments
for the purchase of Class B shares made during the preceding five years;
then of amounts representing the cost of shares purchased five years prior
to the redemption; and finally, of amounts representing the cost of shares
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held for the longest period of time within the applicable
five-year period.
For example, assume an investor purchased 100 shares at $10
per share for a cost of $1,000. Subsequently, the shareholder acquired
five additional shares through dividend reinvestment. During the second
year after the purchase the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value
had appreciated to $12 per share, the value of the investor's shares
would be $1,260 (105 shares at $12 per share). The CDSC would not be
applied to the value of the reinvested dividend shares and the amount
which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 3%
(the applicable rate in the second year after purchase) for a total CDSC
of $7.20.
WAIVER OF CDSC
The CDSC will be waived in connection with (a) redemptions
made within one year after the death or disability, as defined in Section
72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in qualified or non-qualified employee benefit plans or
other programs where (i) the employers or affiliated employers
maintaining such plans or programs have a minimum of 250 employees
eligible for participation in such plans or programs, or (ii) such plan's
or program's aggregate investment in the Dreyfus Family of Funds or other
products made available through the Distributor exceeds one million
dollars, (c) redemptions as a result of a combination of any investment
company with the Fund by merger, acquisition of assets or otherwise, (d)
a distribution following retirement under a tax-deferred retirement plan
or upon attaining age 70-1/2 in the case of an IRA or Keogh plan or
custodial account pursuant to Section 403(b) of the Code, and (e)
redemptions by such shareholders as the Securities and Exchange
Commission or its staff may permit. If the Fund's Trustees determine to
discontinue the waiver of the CDSC, the disclosure in the Fund's
prospectus will be revised appropriately. Any Fund shares subject to a
CDSC which were purchased prior to the termination of such waiver will
have the CDSC waived as provided in the Fund's prospectus at the time of
the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of
redemption you must notify the Transfer Agent or your Service Agent must
notify the Distributor. Any such qualification is subject to confirmation
of your entitlement.
PROCEDURES
You may redeem Fund shares by using the regular redemption
procedure through the Transfer Agent, using the Check Redemption
Privilege with respect to Class A shares only, through the TELETRANSFER
Privilege or, if you are a client of a Selected Dealer, through the
Selected Dealer. If you have given your Service Agent authority to
instruct the Transfer Agent to redeem shares and to credit the proceeds
of such redemptions to a designated account at your Service Agent, you
may redeem shares only in this manner and in accordance with the regular
redemption procedure described below. If you wish to use the other
redemption methods described below, you must arrange with your Service
Agent for delivery of the required application(s) to the Transfer Agent.
Other redemption procedures may be in effect for clients of certain
Service Agents. The Fund makes available to certain large institutions
the ability to issue redemption instructions through compatible computer
facilities.
Your redemption request may direct that the redemption
proceeds be used to purchase shares of other funds advised or
administered by The Dreyfus Corporation that are not available through
the Exchange Privilege. The applicable CDSC will be charged upon the
redemption of Class B shares. Your redemption proceeds will be invested
in shares of the other fund on the next business day. Before you make
such a request, you must obtain and should review a copy of the current
prospectus of the fund being purchased. Prospectuses may be obtained from
the Distributor. The prospectus will contain information concerning
minimum investment requirements and other conditions that may apply to
your purchase.
You may redeem or exchange Fund shares by telephone if you
have checked the appro
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priate box on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. If you select the
TELETRANSFER redemption or telephone exchange privilege, you authorize the
Transfer Agent to act on telephone instructions from any person
representing himself or herself to be you, or a representative of your
Service Agent, and reasonably believed by the Transfer Agent to be genuine.
The Fund will require the Transfer Agent to employ reasonable procedures,
such as requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such procedures, the
Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent instructions. Neither the Fund nor the
Transfer Agent will be liable for following telephone instructions
reasonably believed to be genuine.
During times of drastic economic or market conditions, you
may experience difficulty in contacting the Transfer Agent by telephone
to request a TELETRANSFER redemption or an exchange of Fund shares. In
such cases, you should consider using the other redemption procedures
described herein. Use of these other redemption procedures may result in
your redemption request being processed at a later time than it would
have been if TELETRANSFER redemption had been used. During the delay, the
Fund's net asset value may fluctuate.
REGULAR REDEMPTION
Under the regular redemption procedure, you may redeem shares
by written request mailed to Premier Insured Municipal Bond Fund, P.O.
Box 6587, Providence, Rhode Island 02940-6587. Written redemption
requests must specify the Class of shares being redeemed. Redemption
requests must be signed by each shareholder, including each owner of a
joint account, and each signature must be guaranteed. The Transfer Agent
has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from
domestic banks, brokers, dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and
savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP") and the Stock Exchanges Medallion Program. If
you have any questions with respect to signature-guarantees, please
contact your Service Agent or call the telephone number listed on the
cover of this Prospectus.
Redemption proceeds of at least $1,000 will be wired to any
member bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE-CLASS A SHARES
If you hold Class A shares, you may request on the Account
Application, Shareholder Services Form or by later written request that
the Fund provide Redemption Checks drawn on the Fund's account.
Redemption Checks may be made payable to the order of any person in the
amount of $500 or more. Potential fluctuations in the net asset value of
Class A shares should be considered in determining the amount of the
check. Redemption Checks should not be used to close your account.
Redemption Checks are free, but the Transfer Agent will impose a fee for
stopping payment of a Redemption Check upon your request or if the
Transfer Agent cannot honor the Redemption Check due to insufficient
funds or other valid reason. You should date your Redemption Checks with
the current date when you write them. Please do not postdate your
Redemption Checks. If you do, the Transfer Agent will honor, upon
presentment, even if presented before the date of the check, all
postdated Redemption Checks which are dated within six months of
presentment for payment, if they are otherwise in good order. Class A
shares for which certificates have been issued may not be redeemed by
Redemption Check. This Privilege may be modified or terminated at any
time by the Fund or the Transfer Agent upon notice to holders of Class A
shares.
TELETRANSFER PRIVILEGE
You may redeem Fund shares (minimum $500 per day) by
telephone if you have checked the appropriate box and supplied the
necessary information on the Fund's Account Application or
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have filed a Shareholder Services Form with the Transfer
Agent. The proceeds will be transferred between your Fund account and the
bank account designated in one of these documents. Only such an account
maintained in a domestic financial institution which is an Automated
Clearing House member may be so designated. Redemption proceeds will be
on deposit in your account at an Automated Clearing House member bank
ordinarily two days after receipt of the redemption request or, at your
request, paid by check (maximum $150,000 per day) and mailed to your
address. Holders of jointly registered Fund or bank accounts may redeem
through the TELETRANSFER Privilege for transfer to their bank account
only up to $250,000 within any 30-day period. The Fund reserves the right
to refuse any request made by telephone, including requests made shortly
after a change of address, and may limit the amount involved or the
number of such requests. The Fund may modify or terminate this Privilege
at any time or charge a service fee upon notice to shareholders. No such
fee currently is contemplated.
If you have selected the TELETRANSFER Privilege, you may
request a TELETRANSFER redemption of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
Shares issued in certificate form are not eligible for this Privilege.
REDEMPTION THROUGH A SELECTED DEALER
If you are a customer of a Selected Dealer, you may make
redemption requests to your Selected Dealer. If the Selected Dealer
transmits the redemption request so that it is received by the Transfer
Agent prior to the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), the redemption request
will be effective on that day. If a redemption request is received by the
Transfer Agent after the close of trading on the floor of the New York
Stock Exchange, the redemption request will be effective on the next
business day. It is the responsibility of the Selected Dealer to transmit
a request so that it is received in a timely manner. The proceeds of the
redemption are credited to your account with the Selected Dealer. See
"How to Buy Fund Shares" for a discussion of additional conditions or
fees that may be imposed upon redemption.
In addition, the Distributor will accept orders from Selected
Dealers with which it has sales agreements for the repurchase of shares
held by shareholders. Repurchase orders received by dealers by the close
of trading on the floor of the New York Stock Exchange on any business
day and transmitted to the Distributor prior to the close of its business
day (normally 5:15 p.m., New York time) are effected at the price
determined as of the close of trading on the floor of the New York Stock
Exchange on that day. Otherwise, the shares will be redeemed at the next
determined net asset value. It is the responsibility of the Selected
Dealer to transmit orders on a timely basis. The Selected Dealer may
charge the shareholder a fee for executing the order. This repurchase
arrangement is discretionary and may be withdrawn at any time.
REINVESTMENT PRIVILEGE-CLASS A SHARES
Upon written request, you may reinvest up to the number of
Class A shares you have redeemed, within 30 days of redemption, at the
then-prevailing net asset value without a sales load, or reinstate your
account for the purpose of exercising the Exchange Privilege. The
Reinvestment Privilege may be exercised only once.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Class A and Class B shares are subject to a Shareholder
Services Plan and only Class B shares are subject to a Distribution Plan.
DISTRIBUTION PLAN
Under the Distribution Plan, adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund pays the Distributor
for distributing Class B shares at an annual rate of .50 of 1% of the
value of the average daily net assets of Class B. Under the Distribution
Plan, the Distributor may make payments to Service Agents in respect of
these services. The Distributor determines the amounts to be paid to
Service Agents. Service Agents receive such fees in respect of the
average daily value of Class B shares owned by their clients. From time
to time, the
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Distributor may defer or waive receipt of fees under the
Distribution Plan while retaining the ability to be paid by the Fund
under the Distribution Plan thereafter. The fees payable to the
Distributor under the Distribution Plan for distributing Class B shares
and for payments to Service Agents are payable without regard to actual
expenses incurred.
SHAREHOLDER SERVICES PLAN
Under the Shareholder Services Plan, the Fund pays Dreyfus
Service Corporation, a wholly-owned subsidiary of The Dreyfus Corporation,
for the provision of certain services to the holders of Class A and Class
B shares a fee at the annual rate of .25 of 1% of the value of the average
daily net assets of Class A and Class B. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder
accounts. Dreyfus Service Corporation may make payments to Service Agents
in respect of these services. Dreyfus Service Corporation determines the
amounts to be paid to Service Agents. Each Service Agent is required to
disclose to its clients any compensation payable to it by the Fund
pursuant to the Shareholder Services Plan and any other compensation
payable by their clients in connection with the investment of their assets
in Class A or Class B shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Each Series of the Fund ordinarily declares dividends from
its net investment income on each day the New York Stock Exchange is open
for business. Fund shares begin earning income dividends on the day
immediately available funds ("Federal Funds" (monies of member banks
within the Federal Reserve System which are held on deposit at a Federal
Reserve Bank)) are received by the Transfer Agent in written or
telegraphic form. If a purchase order is not accompanied by remittance in
Federal Funds, there may be a delay between the time the purchase order
becomes effective and the time the shares purchased start earning
dividends. If your payment is not made in Federal Funds, it must be
converted into Federal Funds. This usually occurs within one business day
of receipt of a bank wire and within two business days of receipt of a
check drawn on a member bank of the Federal Reserve System. Checks drawn
on banks which are not members of the Federal Reserve System may take
considerably longer to convert into Federal Funds.
Dividends usually are paid on the last calendar day of each
month and are automatically reinvested in additional shares of the Series
and the Class from which they are paid at net asset value without a sales
load or, at your option, paid in cash. Each Series' earnings for
Saturdays, Sundays and holidays are declared as dividends on the
preceding business day. If you redeem all shares in your account at any
time during the month, all dividends to which you are entitled will be
paid to you along with the proceeds of the redemption. Distributions by
each Series from net realized securities gains, if any, generally are
declared and paid once a year, but the Series may make distributions on a
more frequent basis to comply with the distribution requirements of the
Code, in all events in a manner consistent with the provisions of the
Investment Company Act of 1940. The Fund will not make distributions from
net realized securities gains unless capital loss carryovers, if any,
have been utilized or have expired. You may choose whether to receive
dividends and distributions in cash or to reinvest in additional shares
of the Series and the Class from which they were paid at net asset value
without a sales load. All expenses are accrued daily and deducted before
declaration of dividends to investors.
Dividends paid by each Class will be calculated at the same
time and in the same manner and will be of the same amount, except that
the expenses attributable solely to Class A or Class B will be borne
exclusively by such Class. Class B shares will receive lower per share
dividends than Class A shares because of the higher expenses borne by
Class B. See "Fee Table."
FEDERAL TAX TREATMENT
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Under the Code, each Series of the Fund is treated as a
separate entity for purposes of qualification and taxation as a regulated
investment company. Except for dividends from Taxable Investments, the
Fund anticipates that substantially all dividends paid by a Series will
not be subject to Federal income tax. Dividends derived from Taxable
Investments, together with distributions from any net realized short-term
securities gains and all or a portion of any gains realized from the sale
or other disposition of certain market discount bonds, paid by the Fund
are subject to Federal income tax as ordinary income whether or not
reinvested. Distributions from net realized long-term securities gains of
a Series generally are taxable as long-term capital gains for Federal
income tax purposes if you are a citizen or resident of the United
States. Dividends and distributions attributable to gains derived from
securities transactions and from the use of certain of the investment
techniques described under "Description of the Fund - Investment
Techniques," will be subject to Federal income tax. The Code provides
that the net capital gain of an individual generally will not be subject
to Federal income tax at a rate in excess of 28%. Under the Code,
interest on indebtedness incurred or continued to purchase or carry
shares of any Series which is deemed to relate to exempt-interest
dividends is not deductible. No dividend paid by any Series will qualify
for the dividends received deduction allowable to certain U.S.
corporations.
The Code provides for the "carryover" of some or all of the
sales load imposed on Class A shares of a Series if you exchange your
Class A shares for shares of another Series or fund advised by The
Dreyfus Corporation within 91 days of purchase and such other Series or
fund reduces or eliminates its otherwise applicable sales load for the
purpose of the exchange. In this case, the amount of the sales load
charge for Class A shares, up to the amount of the reduction of the sales
load charge on the exchange, is not included in the basis of your Class A
shares for purposes of computing gain or loss on the exchange, and
instead is added to the basis of the other Series or fund shares received
on the exchange.
Although all or a substantial portion of the dividends paid
by each Series may be excluded by shareholders of the Series from their
gross income for Federal income tax purposes, each Series may purchase
specified private activity bonds, the interest from which may be (i) a
preference item for purposes of the alternative minimum tax, (ii) a
component of the "adjusted current earnings" preference item for purposes
of the corporate alternative minimum tax as well as a component in
computing the corporate environmental tax or (iii) a factor in
determining the extent to which a shareholder's Social Security benefits
are taxable. If a Series purchases such securities, the portion of the
Series' dividends related thereto will not necessarily be tax exempt to an
investor who is subject to the alternative minimum tax and/or tax on Social
Security benefits and may cause an investor to be subject to such taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and gains
from the sale or other disposition of certain market discount bonds, paid
by a Series to a foreign investor generally are subject to U.S.
nonresident withholding taxes at the rate of 30%, unless the foreign
investor claims the benefit of a lower rate specified in a tax treaty.
Distributions from net realized long-term securities gains paid by a
Series to a foreign investor as well as the proceeds of any redemptions
from a foreign investor's account, regardless of the extent to which gain
or loss may be realized, generally will not be subject to U.S.
nonresident withholding tax. However, such distributions may be subject
to backup withholding, as described below, unless the foreign investor
certifies his non-U.S. residency status.
Notice as to the tax status of your dividends and
distributions will be mailed to you annually. You also will receive
periodic summaries of your account which will include information as to
dividends and distributions from securities gains, if any, paid during
the year. These statements set forth the dollar amount of income exempt
from Federal tax and the dollar amount, if any, subject to Federal tax.
These dollar amounts will vary depending on the size and length of time
of your investment in the Fund. If a Series pays dividends derived from
taxable income, it intends to designate as taxable the same percentage of
the day's dividend as
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the actual taxable income earned on that day bears to total
income earned on that day. Thus, the percentage of the dividend
designated as taxable, if any, may vary from day to day.
Federal regulations generally require the Fund to withhold
("backup withholding") and remit to the U.S. Treasury 31% of taxable
dividends, distributions from net realized securities gains and the
proceeds of any redemption, regardless of the extent to which gain or
loss may be realized, paid to a shareholder if such shareholder fails to
certify either that the TIN furnished in connection with opening an
account is correct or that such shareholder has not received notice from
the IRS of being subject to backup withholding as a result of a failure
to properly report taxable dividend or interest income on a Federal
income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect
or if a shareholder has failed to properly report taxable dividend and
interest income on a Federal income tax return.
A TIN is either the Social Security number or employer
identification number of the record owner of the account. Any tax
withheld as a result of backup withholding does not constitute an
additional tax imposed on the record owner of the account, and may be
claimed as a credit on the record owner's Federal income tax return.
Management of the Fund believes that each Series has
qualified for the fiscal year ended July 31, 1994 as a "regulated
investment company" under the Code. The Fund intends to continue to so
qualify so long as such qualification is in the best interests of its
shareholders. Such qualification relieves the Series of any liability for
Federal income tax to the extent its earnings are distributed in
accordance with applicable provisions of the Code. In addition, each
Series of the Fund is subject to a non-deductible 4% excise tax, measured
with respect to certain undistributed amounts of taxable investment
income and capital gains.
STATE AND LOCAL TAX TREATMENT
Each State Series will invest primarily in Municipal
Obligations of the State after which the Series is named. Except to the
extent specifically noted below, dividends by a State Series are not
subject to an income tax by such State to the extent that the dividends
are attributable to interest on such Municipal Obligations. However, some
or all of the other dividends or distributions by a Series may be taxable
by those States that have income taxes, even if the dividends or
distributions are attributable to income of the Series derived from
obligations of the United States or its agencies or instrumentalities.
The Fund anticipates that a substantial portion of the
dividends paid by each State Series will not be subject to income tax of
the State after which the Series is named. However, to the extent that
you are obligated to pay State or local taxes outside of such State,
dividends earned by an investment in such Series may represent taxable
income. Also, all or a portion of the dividends paid by a Series that are
not subject to income tax of the State after which the Series is named
may be a preference item for such State's alternative minimum tax (where
imposed). Finally, you should be aware that State and local taxes, other
than those described above, may apply to the dividends, distributions or
shares of a Series.
The paragraphs below discuss the State tax treatment of
dividends and distributions by each State Series to residents of the
State after which such Series is named. Investors should consult their
own tax advisers regarding specific questions as to Federal, State and
local taxes.
CALIFORNIA SERIES
Except for dividends from Taxable Investments, the Fund
anticipates that substantially all dividends paid by the California
Series will not be subject to Federal or State of California personal
income taxes.
If, at the close of each quarter of its taxable year, at
least 50% of the value of the California Series' total assets consists of
Federal tax exempt obligations, then the California Series may designate
and pay Federal exempt-interest dividends from interest earned on all
such tax exempt obligations. Such exempt-interest dividends may be
excluded by shareholders of the California Series from their gross income
for Federal income tax purposes.
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If, at the close of each quarter of its taxable year, at
least 50% of the value of the California Series' total assets consists of
obligations which, when held by an individual, the interest therefrom is
exempt from California personal income tax, and if the California Series
qualifies as a management company under the California Revenue and
Taxation Code, then the California Series will be qualified to pay
dividends to its shareholders that are exempt from California personal
income tax (but not from California franchise tax) ("California exempt-
interest dividends"). However, the total amount of California exempt-
interest dividends paid by the California Series to a noncorporate
shareholder with respect to any taxable year cannot exceed such
shareholder's pro-rata share of interest received by the California Series
during such year that is exempt from California taxation less any expenses
and expenditures deemed to have been paid from such interest.
Unlike under Federal tax law, the California Series'
shareholders will not be subject to California personal income tax, or
receive a credit for California taxes paid by the California Series, on
undistributed capital gains. In addition, California tax law does not
consider any portion of the exempt-interest dividends paid an item of tax
preference for the purposes of computing the California alternative
minimum tax.
CONNECTICUT SERIES
Dividends paid by the Connecticut Series that qualify as
exempt-interest dividends for Federal income tax purposes are not subject
to the Connecticut income tax on individuals, trusts and estates, to the
extent that such dividends are derived from income received by the Series
as interest from Connecticut Municipal Obligations or obligations the
interest with respect to which Connecticut is prohibited by Federal law
from taxing. Dividends derived from other sources, are taxable by
Connecticut, except that distributions qualifying as capital gains
dividends for Federal income tax purposes may not be taxable by
Connecticut to the extent derived fromConnecticut Municipal Obligations.
In the case of a shareholder subject to the Connecticut income tax and
required to pay the Federal alternative minimum tax, the portion of exempt
interest dividends paid by the Series that is derived from income
received by the Series as interest from Connecticut Municipal Obligations
or obligations the interest with respect to which Connecticut is
prohibited by Federal law from taxing and that is treated as a preference
item for purposes of the Federal alternative minimum tax is not subject
to the net Connecticut minimum tax.
Dividends qualifying as exempt-interest dividends for Federal
income tax purposes that are distributed by the Series to entities taxed
as corporations under the Connecticut corporation business tax are not
exempt from that tax.
The shares of the Series are not subject to property taxation
by the State of Connecticut or its political subdivisions.
FLORIDA SERIES
Dividends or distributions paid by the Florida Series to a
Florida individual resident are not taxable by Florida. However, Florida
imposes an intangible personal property tax on shares of the Series owned
by a Florida resident on January 1 of each year unless such shares
qualify for an exemption from the tax.
Dividends qualifying as exempt-interest dividends for Federal
income tax purposes as well as other federally taxable dividends and
distributions that are distributed by the Series to entities taxed as
corporations under Florida law may not be exempt from the Florida
corporate income tax.
The Fund has applied for a Technical Assistance Advisement
from the State of Florida, Department of Revenue, to the effect that
Florida Series' shares owned by a Florida resident will be exempt from
the intangible personal property tax so long as the Series' portfolio
includes only assets, such as notes, bonds, and other obligations issued
by the State of Florida or its municipalities, counties, and other taxing
districts, the United States Government, and its agencies, Puerto Rico,
Guam, and the U.S. Virgin Islands, and other assets which are exempt from
that tax.
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NEW JERSEY SERIES
The New Jersey Series intends to be a "qualified investment
fund" within the meaning of the New Jersey gross income tax. The primary
criteria for constituting a "qualified investment fund" are that (i) such
Series is an investment company registered with the Securities and
Exchange Commission, which for the calendar year in which the dividends
and distributions (if any) are paid, has no investments other than
interest-bearing obligations, obligations issued at a discount, and cash
and cash items, including receivables, and financial options, futures and
forward contracts, or other similar financial instruments relating to
interest-bearing obligations, obligations issued at a discount or bond
indexes related thereto and (ii) at the close of each quarter of the
taxable year, the Series has not less than 80% of the aggregate principal
amount of all of its investments, excluding financial options, futures
and forward contracts, or other similar financial instruments related to
interest-bearing obligations, obligations issued at a discount or bond
indexes related thereto, cash and cash items, which cash items shall
include receivables, in New Jersey Municipal Obligations, territorial
obligations and certain other specified securities. Additionally, a
qualified investment fund must comply with certain continuing reporting
requirements.
If the New Jersey Series qualifies as a qualified investment
fund and the New Jersey Series complies with its reporting obligations,
(a) dividends and distributions paid by the Series to a New Jersey
resident individual shareholder will not be subject to New Jersey gross
income tax to the extent that the dividends and distributions are
respectively attributable to income earned by the Series as interest on
or gain from New Jersey Municipal Obligations or territorial obligations,
and (b) gain from the sale of shares in the Series by a New Jersey
resident individual shareholder will not be subject to the New Jersey
gross income tax.
Shares of the New Jersey Series are not subject to property
taxation by New Jersey or its political subdivisions.
NEW YORK SERIES
Except for dividends from Taxable Investments, the Fund
anticipates that substantially all dividends paid by the New York Series
will not be subject to Federal, New York State or New York City personal
income taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance for each Class of
shares may be calculated on several bases, including current yield, tax
equivalent yield, average annual total return and/or total return. These
total return figures reflect changes in the price of the shares and
assume that any income dividends and/or capital gains distributions made
by the Fund during the measuring period were reinvested in shares of the
same Class. Class A total return figures include the maximum initial
sales charge and Class B total return figures include any applicable
CDSC. These figures also take into account any applicable service and
distribution fees. As a result, at any given time, the performance of
Class B should be expected to be lower than that of Class A. Performance
for each Class will be calculated separately.
Current yield refers to each Series' annualized net investment
income per share over a 30-day period, expressed as a percentage of the
maximum offering price per share in the case of Class A or the net asset
value per share in the case of Class B at the end of the period. For
purposes of calculating current yield, the amount of net investment income
per share during that 30-day period, computed in accordance with regulatory
requirements, is compounded by assuming that it is reinvested at a constant
rate over a six-month period. An identical result is then assumed to have
occurred during a second six-month period which, when added to the result
for the first six months, provides an "annualized" yield for an entire one-
year period. Calculations of each Series' current yield may reflect
absorbed expenses pursuant to any undertaking that may be in effect. See
"Management of the Fund."
Tax equivalent yield is calculated by determining the pre-tax
yield which, after being taxed
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at a stated rate, would be equivalent to a stated current
yield calculated as described above.
Average annual total return is calculated pursuant to a
standardized formula which assumes that an investment in a Series was
purchased with an initial payment of $1,000 and that the investment was
redeemed at the end of a stated period of time, after giving effect to
the reinvestment of dividends and distributions during the period. The
return is expressed as a percentage rate which, if applied on a
compounded annual basis, would result in the redeemable value of the
investment at the end of the period. Advertisements of each Series'
performance will include such Series' average annual total return of
Class A and Class B for one, five and ten year periods, or for shorter
periods depending upon the length of time during which each Series has
operated. Computations of average annual total return for periods of less
than one year represent an annualization of a Series' actual total return
for the applicable period. A Series' actual total return for its first
full year of operation cannot be predicted and is therefore likely to be
different from any such annualized computation.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the
income and principal changes for a specified period and dividing by the
maximum offering price per share in the case of Class A or the net asset
value per share in the case of Class B at the beginning of the period.
Advertisements may include the percentage rate of total return or may
include the value of a hypothetical investment at the end of the period
which assumes the application of the percentage rate of total return.
Total return also may be calculated by using the net asset value per
share at the beginning of the period instead of the maximum offering
price per share at the beginning of the period for Class A shares or
without giving effect to any applicable CDSC at the end of the period for
Class B shares. Calculations based on the net asset value per share do
not reflect the deduction of the applicable sales charge which, if
reflected, would reduce the performance quoted.
Performance will vary from time to time and past results are
not necessarily representative of future results. Investors should
remember that performance is a function of portfolio management in
selecting the type and quality of portfolio securities and is affected by
operating expenses. Performance information, such as that described
above, may not provide a basis for comparison with other investments or
other investment companies using a different method of calculating
performance.
Comparative performance information may be used from time to
time in advertising the Fund's shares, including data from Lipper
Analytical Services, Inc., Moody's Bond Survey Bond Index, Lehman
Brothers Municipal Bond Index, Morningstar, Inc. and other industry
publications.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust
under the laws of the Commonwealth of Massachusetts pursuant to an
Agreement and Declaration of Trust (the "Trust Agreement") dated March
12, 1992, and commenced operations on August 19, 1993. On December 8,
1993, the Fund's name was changed from Premier California Insured
Municipal Bond Fund to Premier Insured Municipal Bond Fund. The Fund is
authorized to issue an unlimited number of shares of beneficial interest,
par value $.001 per share. Each Series' shares are classified into two
classes-Class A and Class B. Each share has one vote and shareholders
will vote in the aggregate and not by class except as otherwise required
by law or when class voting is permitted by the Board of Trustees. Holders
of Class A and Class B shares will be entitled to vote on matters submitted
to shareholders pertaining to the Shareholder Services Plan and only
holders of Class B shares will be entitled to vote on matters submitted
to shareholders pertaining to the Distribution Plan.
To date, the Trustees have authorized the creation of six
Series of shares. All consideration received by the Fund for shares of
one of the Series and all assets in which such consideration is invested,
will belong to that Series (subject only to the rights of creditors of
the Fund) and
#
will be subject to the liabilities related thereto. The
income attributable to, and the expenses of, one Series would be treated
separately from those of the other Series.
Rule 18f-2 under the Investment Company Act of 1940 provides
that any matter required to be submitted under the provisions of the
Investment Company Act of 1940 or applicable state law or otherwise, to
the holders of the outstanding voting securities of an investment company
such as the Fund will not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of
each Series affected by such matter. Rule 18f-2 further provides that a
Series shall be deemed to be affected by a matter unless it is clear that
the interests of each Series in the matter are identical or that the
matter does not affect any interest of such Series. However, the Rule
exempts the selection of independent accountants and the election of
trustees from the separate voting requirements of the Rule.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or
executed by the Fund or a Trustee. The Trust Agreement provides for
indemnification from the Fund's property for all losses and expenses of
any shareholder held personally liable for the obligations of the Fund.
Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund
itself would be unable to meet its obligations, a possibility which
management believes is remote. Upon payment of any liability incurred by
the Fund, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Fund. The Trustees intend to
conduct the operations of the Fund in such a way so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of
the Fund. As discussed under "Management of the Fund" in the Statement of
Additional Information, the Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to
remove Trustees.
The Transfer Agent maintains a record of your ownership and
will send you confirmations and statements of account.
Shareholder inquiries may be made to your Service Agent or by
writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York
11556-0144.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND
IN THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE
FUND'S SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR
TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
#
PREMIER INSURED MUNICIPAL BOND FUND
CLASS A AND CLASS B SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
NOVEMBER __, 1994
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of Premier Insured Municipal Bond Fund (the "Fund"), dated November __,
1994, as it may be revised from time to time. To obtain a copy of the
Fund's Prospectus, please write to the Fund at 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144.
The Dreyfus Corporation (the "Manager") serves as the Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies . . . . . . . . . . . . . B-2
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . B-9
Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . B-12
Purchase of Fund Shares. . . . . . . . . . . . . . . . . . . . . . . . B-14
Distribution Plan and Shareholder Services Plan. . . . . . . . . . . . B-15
Redemption of Fund Shares. . . . . . . . . . . . . . . . . . . . . . . B-17
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . B-19
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . B-21
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . B-22
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . B-24
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . B-25
Information About the Fund . . . . . . . . . . . . . . . . . . . . . . B-29
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors . . . . . . . . . . . . . . B-29
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-30
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-65
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . B-71
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . B-__
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Description of the Fund."
The average distribution of investments (at value) in Municipal
Obligations by ratings for each Series for the periods noted below, computed on
a monthly basis, was as follows:
<TABLE>
<CAPTION>
Fitch Investors Moody's Investors Standard & Poor's
Service, Inc. Service, Inc. Corporation California Connecticut Florida
("Fitch") or ("Moody's") or ("S&P") Series(1) Series(2) Series(3)
<S> <C> <C> <C> <C> <C>
AAA Aaa AAA 100.0% 100.0% 79.7%
F-1+ VMIG1/MIG1 SP-1+/SP-1 - - 20.3%
Fitch Investors Moody's Investors Standard & Poor's
Service, Inc. Service, Inc. Corporation National New Jersey New York
("Fitch") or ("Moody's") or ("S&P") Series(3) Series(3) Series(4)
AAA Aaa AAA 100.0% 100.0% 100.0%
F-1+ VMIG1/MIG1 SP-1+/SP-1 - - -
_______________
(1) for the period from August 19, 1993 (commencement of operations) to July 31, 1994.
(2) for the period from May 5, 1994 (commencement of operations) to July 31, 1994.
(3) for the period from May 4, 1994 (commencement of operations) to July 31, 1994.
(4) for the period from May 6, 1994 (commencement of operations) to July 31, 1994.
</TABLE>
Municipal Obligations. The term "Municipal Obligations" generally
includes debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses
and lending such funds to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or
on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated
housing facilities, sports facilities, convention or trade show
facilities, airport, mass transit, industrial, port or parking facilities,
air or water pollution control facilities and certain local facilities for
water supply, gas, electricity or sewage or solid waste disposal; the
interest paid on such obligations may be exempt from Federal income tax,
although current tax laws place substantial limitations on the size of
such issues. Such obligations are considered to be Municipal Obligations
if the interest paid thereon qualifies as exempt from Federal income tax
in the opinion of bond counsel to the issuer. There are, of course,
variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of one year, but
which permit the holder to demand payment of principal at any time or at
specified intervals. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon
a specified number of days' notice to the holders thereof. The interest
rate on a floating rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time
such rate is adjusted. The interest rate on a variable rate demand
obligation is adjusted automatically at specified intervals.
Municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations") have special risks not
ordinarily associated with Municipal Obligations. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation
ordinarily is backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated
for such purpose on a yearly basis. Although "non-appropriation" lease
obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. The staff of
the Securities and Exchange Commission currently considers certain lease
obligations to be illiquid. Determination as to the liquidity of such
securities is made in accordance with guidelines established by the Fund's
Board. Pursuant to such guidelines, the Board has directed the Manager to
monitor carefully the Fund's investment in such securities with particular
regard to (1) the frequency of trades and quotes for the lease obligation;
(2) the number of dealers willing to purchase or sell the lease obligation
and the number of other potential buyers; (3) the willingness of dealers
to undertake to make a market in the lease obligation; (4) the nature of
the marketplace trades including the time needed to dispose of the lease
obligation, the method of soliciting offers and the mechanics of transfer;
and (5) such other factors concerning the trading market for the lease
obligation as the Manager may deem relevant. In addition, in evaluating
the liquidity and credit quality of a lease obligation that is unrated,
the Fund's Board has directed the Manager to consider (a) whether the
lease can be cancelled; (b) what assurance there is that the assets
represented by the lease can be sold; (c) the strength of the lessee's
general credit (e.g., its debt, administrative, economic, and financial
characteristics); (d) the likelihood that the municipality will
discontinue appropriating funding for the leased property because the
property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of nonappropriation"); (e)
the legal recourse in the event of failure to appropriate; and (f) such
other factors concerning credit quality as the Manager may deem relevant.
Accordingly, no Series will invest more than 15% of the value of its net
assets in lease obligations that are illiquid and in other illiquid
securities. See "Investment Restriction No. 11" below.
A Series will purchase tender option bonds only when the Fund is
satisfied that the custodial and tender option arrangements, including the
fee payment arrangements, will not adversely affect the tax exempt status
of the underlying Municipal Obligations and that payment of any tender
fees will not have the effect of creating taxable income for the Series.
Based on the tender option bond agreement, the Fund expects to be able to
value the tender option bond at par; however, the value of the instrument
will be monitored to assure that it is valued at fair value.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a
particular offering, maturity of the obligation, and rating of the issue.
The imposition of the Fund's management fee, as well as other operating
expenses, including fees paid under the Fund's Shareholder Services Plan
with respect to Class A and Class B shares and the Distribution Plan with
respect to Class B shares only, will have the effect of reducing the yield
to investors.
Insurance Feature. The Mutual Fund Insurance policies provide for a
policy period of one year which the insurer typically renews for
successive annual periods at the request of the Fund for so long as the
Fund is in compliance with the terms of the relevant policy. The
insurance premiums are payable monthly by the Fund and are adjustable for
purchases and sales of covered Municipal Obligations during the month on a
daily basis. Premium rates for each issue of Municipal Obligations
covered by the Mutual Fund Insurance are fixed for as long as the Fund
owns the security, although similar Municipal Obligations purchased at
different times may have different premiums. In addition to the payment
of premiums, each Mutual Fund Insurance policy requires that the Fund
notify the insurer on a daily basis as to all Municipal Obligations in the
insured portfolio and permits the insurer to audit its records. The
insurer cannot cancel coverage already in force with respect to Municipal
Obligations owned by the Fund and covered by the Mutual Fund Insurance
policy, except for nonpayment of premiums.
Municipal Obligations are eligible for Mutual Fund Insurance if, at
the time of purchase by the Fund, they are identified separately or by
category in qualitative guidelines furnished by the insurer and are in
compliance with the aggregate limitations set forth in such guidelines.
Premium variations are based in part on the rating of the security being
insured at the time the Fund purchases such security. The insurer may
prospectively withdraw particular securities from the classifications of
securities eligible for insurance or change the aggregate amount
limitation of each issue or category of eligible Municipal Obligations but
must continue to insure the full amount of such securities previously
acquired so long as they remain in the Fund's portfolio. The qualitative
guidelines and aggregate amount limitations established by the insurer
from time to time will not necessarily be the same as the Fund or the
Manager would use to govern selection of securities for the Fund's
portfolio. Therefore, from time to time such guidelines and limitations
may affect portfolio decisions.
New Issue Insurance provides that in the event of a municipality's
failure to make payment of principal or interest on an insured Municipal
Obligation, the payment will be made promptly by the insurer. There are
no deductible clauses or cancellation provisions, and the tax exempt
status of the securities is not affected. The premiums, whether paid by
the issuing municipality or the municipal bond dealer underwriting the
issue, are paid in full for the life of the Municipal Obligation. The
statement of insurance is attached to or printed on the instrument
evidencing the Municipal Obligation purchased by the Fund and becomes part
of the Municipal Obligation. The benefits of the insurance accompany the
Municipal Obligations in any resale.
Ratings of Municipal Obligations. Subsequent to its purchase by the
Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the
Fund, but the Manager will consider such event in determining whether the
Fund should continue to hold the Municipal Obligations. To the extent
that the ratings given by Moody's, S&P or Fitch for Municipal Obligations
may change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
the Series investments in accordance with the investment policies
contained in the Fund's Prospectus and this Statement of Additional
Information. The ratings of Moody's, S&P and Fitch represent their
opinions as to the quality of the Municipal Obligations which they
undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.
Although these ratings may be an initial criterion for selection of
portfolio investments, the Manager also will evaluate these securities.
Futures Contracts and Options on Futures Contracts. Upon exercise of
an option on a futures contract, the writer of the option delivers to the
holder of the option the futures position and the accumulated balance in
the writer's futures margin account, which represents the amount by which
the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on
the futures contract. The potential loss related to the purchase of
options on futures contracts is limited to the premium paid for the option
(plus transaction costs). Because the value of the option is fixed at the
time of sale, there are no daily cash payments to reflect changes in the
value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of
the relevant Series.
Lending Portfolio Securities. To a limited extent, each Series may
lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value
of the securities loaned. By lending its portfolio securities, a Series
can increase its income through the investment of the cash collateral.
For purposes of this policy, the Fund considers collateral consisting of
U.S. Government securities or irrevocable letters of credit issued by
banks whose securities meet the standards for investment by the Series to
be the equivalent of cash. Such loans may not exceed 33-1/3% of the value of
the Series' total assets. From time to time, the Series may return to the
borrower or a third party which is unaffiliated with the Fund, and which
is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Series must receive at least 100% cash collateral from the
borrower; (2) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral;
(3) the Series must be able to terminate the loan at any time; (4) the
Series must receive reasonable interest on the loan, as well as any
interest or other distributions payable on the loaned securities, and any
increase in market value; and (5) the Series may pay only reasonable
custodian fees in connection with the loan. These conditions may be
subject to future modification.
Taxable Investments. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Treasury Bills have initial maturities of one year or less;
Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of greater than ten years. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of
the U.S. Treasury; others, such as those of the Federal Home Loan Banks,
by the right of the issuer to borrow from the U.S. Treasury; others, such
as those issued by the Federal National Mortgage Association, by
discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the credit of
the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. Principal and interest may fluctuate based on
generally recognized reference rates or the relationship of rates. While
the U.S. Government provides financial support to such U.S. Government -
sponsored agencies or instrumentalities, no assurance can be given that it
will always do so, since it is not so obligated by law. The Fund will
invest in such securities only when it is satisfied that the credit risk
with respect to the issuer is minimal.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs.
Certificates of deposit are negotiable certificates representing the
obligation of a bank to repay funds deposited with it for a specified
period of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Investments in time deposits generally are limited to London branches of
domestic banks that have total assets in excess of one billion dollars.
Time deposits which may be held by the Fund will not benefit from
insurance from the Bank Insurance Fund or the Savings Association
Insurance Fund administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face
amount of the instrument upon maturity. Other short-term bank obligations
may include uninsured, direct obligations bearing fixed, floating or
variable interest rates.
Repurchase agreements involve the acquisition by the Series of an
underlying debt instrument, subject to an obligation of the seller to
repurchase, and the Series to resell, the instrument at a fixed price,
usually not more than one week after its purchase. The Fund's custodian
or sub-custodian will have custody of, and will hold in a segregated
account, securities acquired by the Fund under a repurchase agreement.
Repurchase agreements are considered by the staff of the Securities and
Exchange Commission to be loans by the Series which enters into them. In
an attempt to reduce the risk of incurring a loss on a repurchase
agreement, a Series will enter into repurchase agreements only with
domestic banks with total assets in excess of one billion dollars or
primary government securities dealers reporting to the Federal Reserve
Bank of New York, with respect to securities of the type in which the
Series may invest, and will require that additional securities be
deposited with it if the value of the securities purchased should decrease
below resale price. The Manager will monitor on an ongoing basis the
value of the collateral to assure that it always equals or exceeds the
repurchase price. Certain costs may be incurred by the Series in
connection with the sale of the securities if the seller does not
repurchase them in accordance with the repurchase agreement. In addition,
if bankruptcy proceedings are commenced with respect to the seller of the
securities, realization on the securities by the Series may be delayed or
limited. The Fund will consider on an ongoing basis the creditworthiness
of the institutions with which the Series enter into repurchase
agreements.
Risk Factors
Investing in State Municipal Obligations (State Series only).
Investors should review Appendix A which sets forth additional information
relating to investing in State Municipal Obligations.
Investment Restrictions. The Fund has adopted investment
restrictions numbered 1 through 7 as fundamental policies which will apply
to each Series. These restrictions cannot be changed as to a Series
without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended (the "Act")) of such Series'
outstanding voting shares. Investment restrictions numbered 8 through 12
are not fundamental policies and may be changed by vote of a majority of
the Trustees at any time. No Series may:
1. Invest more than 25% of the value of its assets in the securities
of issuers in any single industry; provided that there shall be no
limitation on the purchase of Municipal Obligations and, for temporary
defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
2. Borrow money, except to the extent permitted under the Act. For
purposes of this Investment Restriction, the entry into options, forward
contracts, futures contracts, including those relating to indexes, and
options on futures contracts or indexes shall not constitute borrowing.
3. Purchase or sell real estate, commodities or commodity contracts,
or oil and gas interests, but this shall not prevent the Fund from
investing in Municipal Obligations secured by real estate or interests
therein, or prevent the Fund from purchasing and selling options, forward
contracts, futures contracts, including those relating to indexes, and
options on futures contracts or indexes.
4. Underwrite the securities of other issuers, except that the
Series may bid separately or as part of a group for the purchase of
Municipal Obligations directly from an issuer for its own portfolio to
take advantage of the lower purchase price available, and except to the
extent the Series may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
5. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements; however, the Fund
may lend each Series' portfolio securities in an amount not to exceed 33-
1/3% of the value of the Series' total assets. Any loans of portfolio
securities will be made according to guidelines established by the
Securities and Exchange Commission and the Fund's Board of Trustees.
6. Issue any senior security (as such term is defined in Section
18(f) of the Act), except to the extent that the activities permitted in
Investment Restrictions numbered 2, 3 and 10 may be deemed to give rise to
a senior security.
7. Purchase securities on margin, but the Series may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indexes, and options on
futures contracts or indexes.
8. Purchase securities other than Municipal Obligations and Taxable
Investments and those arising out of transactions in futures and options
or as otherwise provided in the Fund's Prospectus.
9. Invest in securities of other investment companies, except to the
extent permitted under the Act.
10. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings and to the
extent related to the deposit of assets in escrow in connection with the
purchase of securities on a when-issued or delayed-delivery basis and
collateral and initial or variation margin arrangements with respect to
options, forward contracts, futures contracts, including those related to
indexes, and options on futures contracts or indexes.
11. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are
illiquid (which securities could include, if there is no secondary market,
participation interests (including municipal lease/purchase agreements)
that are not subject to the demand feature described in the Fund's
Prospectus, and floating and variable rate demand obligations as to which
the Fund cannot exercise the demand feature described in the Fund's
Prospectus on less than seven days' notice), if, in the aggregate, more
than 15% of the value of the Series' net assets would be so invested.
12. Invest in companies for the purpose of exercising control.
For purposes of Investment Restriction No. 1, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together
as an "industry."
As a fundamental policy, the Fund may invest, notwithstanding any
other investment restriction (whether or not fundamental), all of a
Series' assets in the securities of a single open-end management
investment company with substantially the same fundamental investment
objective, policies and restrictions as such Series. The Fund will notify
shareholders at least 60 days prior to any implementation of such policy.
If a percentage restriction is adhered to at the time of investment,
a later increase in percentage resulting from a change in values or assets
will not constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Series shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interests of a Series and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of such Series shares in the
state involved.
MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below. No Trustee of the Fund is an "interested person" of the
Fund (as defined in the Act).
Trustees of the Fund
CLIFFORD L. ALEXANDER, JR., Trustee. President of Alexander & Associates,
Inc., a management consulting firm. From 1977 to 1981, Mr. Alexander
served as Secretary of the Army and Chairman of the Board of the
Panama Canal Company, and from 1975 to 1977, he was a member of the
Washington, D.C. law firm of Verner, Liipfert, Bernhard, McPherson
and Alexander. He is a director of American Home Products
Corporation, The Dun & Bradstreet Corporation, MCI Communications
Corporation, Mutual of America Life Insurance Company and Equitable
Resources, Inc., a producer and distributor of natural gas and crude
petroleum. His address is 400 C Street, N.E., Washington, D.C.
20002.
PEGGY C. DAVIS, Trustee. Professor of Law, New York University School of
Law. Professor Davis has been a member of the New York University
law faculty since 1983. Prior to that time, she served for three
years as a judge in the courts of New York State; was engaged for
eight years in the practice of law, working in both corporate and
non-profit sectors; and served for two years as a criminal justice
administrator in the government of the City of New York. She writes
and teaches in the fields of evidence, constitutional theory, family
law, social sciences and the law, legal process and professional
methodology and training. Her address is c/o New York University
School of Law, 249 Sullivan Street, New York, New York 10012.
ERNEST KAFKA, Trustee. A physician engaged in private practice
specializing in the psychoanalysis of adults and adolescents. Since
1981, he has served as an Instructor at the New York Psychoanalytic
Institute and, prior thereto, held other teaching positions. For
more than the past five years, Dr. Kafka has held numerous
administrative positions and has published many articles on subjects
in the field of psychoanalysis. His address is 23 East 92nd Street,
New York, New York 10128.
SAUL B. KLAMAN, Trustee. Chairman and Chief Executive Officer of SBK
Associates, which provides research and consulting services to
financial institutions. Dr. Klaman was President of the National
Association of Mutual Savings Banks until November 1983, President of
the National Council of Savings Institutions until June 1985, Vice
Chairman of Golembe Associates and BEI Golembe, Inc. until 1989 and
Chairman Emeritus of BEI Golembe, Inc. until November 1992. He also
served as an Economist to the Board of Governors of the Federal
Reserve System and on several Presidential Commissions and has held
numerous consulting and advisory positions in the fields of economics
and housing finance. His address is 431-B Dedham Street, The Gables,
Newton Center, Massachusetts 02159.
NATHAN LEVENTHAL, Trustee. President of Lincoln Center for the Performing
Arts, Inc. Mr. Leventhal was Deputy Mayor for Operations of New York
City from September 1979 to March 1984 and Commissioner of the
Department of Housing Preservation and Development of New York City
from February 1978 to September 1979. Mr. Leventhal was an associate
and then a member of the New York law firm of Poletti Freidin
Prashker Feldman and Gartner from 1974 to 1978. He was Commissioner
of Rent and Housing Maintenance for New York City from 1972 to 1973.
Mr. Leventhal serves as Chairman of Citizen Union, a leader in the
effort to reform and modernize City and State government. His
address is 70 Lincoln Center Plaza, New York, New York 10023-6583.
Each of the "non-interested" Trustees is also a trustee of General
California Municipal Money Market Fund, General New York Municipal Money
Market Fund, Premier California Municipal Bond Fund, Premier GNMA Fund,
Premier Limited Term Municipal Bond Fund, Premier Municipal Bond Fund,
Premier New York Municipal Bond Fund and Premier State Municipal Bond Fund
and a director of Dreyfus Appreciation Fund, Inc., General California
Municipal Bond Fund, Inc., General Government Securities Money Market
Fund, Inc., General Money Market Fund, Inc., General Municipal Bond Fund,
Inc., General Municipal Money Market Fund, Inc., General New York
Municipal Bond Fund, Inc. and Premier Growth Fund, Inc. Mr. Alexander is
also a director of The Dreyfus Socially Responsible Growth Fund, Inc. and
The Dreyfus Third Century Fund, Inc.
For so long as the Fund's plans described in the section captioned
"Distribution Plan and Shareholder Services Plan" remain in effect, the
Trustees of the Fund who are not "interested persons" of the Fund, as
defined in the Act, will be selected and nominated by the Trustees who are
not "interested persons" of the Fund.
Ordinarily meetings of shareholders for the purpose of electing
Trustees will not be held unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders,
at which time the Trustees then in office will call a shareholders'
meeting for the election of Trustees. Under the Act, shareholders of
record of not less than two-thirds of the outstanding shares of the Fund
may remove a Trustee through a declaration in writing or by vote cast in
person or by proxy at a meeting called for that purpose. Under the Fund's
Agreement and Declaration of Trust, the Trustees are required to call a
meeting of shareholders for the purpose of voting upon the question of
removal of any such Trustee when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
The Fund does not pay any remuneration to its officers and Trustees
other than fees and expenses of Trustees who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
the Manager, which totalled for the fiscal year ended July
31, 1994 for such Trustees as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Officer of the Distributor and an officer of other investment
companies advised or administered by the Manager. From December 1991
to July 1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., a wholly-owned subsidiary of The Boston Company,
Inc. Prior to December 1991, she served as Vice President and
Controller, and later as Senior Vice President, of The Boston Company
Advisors, Inc.
JOHN E. PELLETIER, Secretary. Senior Vice President and General Counsel
of the Distributor and an officer of other investment companies
advised or administered by the Manager. From February 1992 to July
1994, he served as Counsel for The Boston Company Advisors, Inc.
Prior thereto, he was employed as an Associate at Ropes & Gray, and
prior to August 1990, he was employed as an Associate at Sidley &
Austin.
JOSEPH S. TOWER,III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and an
officer of other investment companies advised or administered by the
Manager. From July 1988 to August 1994, he was employed by The
Boston Company, Inc. where he held various management positions in
the Corporate Finance and Treasury areas.
FREDERICK C. DEY, Assistant Treasurer. Senior Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From 1988 to August 1994, he was
Manager of the High Performance Fabric Division of Springs Industries
Inc.
ERIC B. FISCHMAN, Assistant Secretary. Associate General Counsel of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From September 1992 to August 1994, he
was an attorney with the Board of Governors of the Federal Reserve
System. Prior to September 1992, he attended the Boston University
School of Law.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From March 1992 to July 1994, she was a
Compliance Officer for The Managers Funds, a registered investment
company. From March 1990 until September 1991, she was Development
Director of The Rockland Center for the Arts and, prior thereto, was
employed as a Research Assistant for the Bureau of National Affairs.
Trustees and officers of the Fund, as a group, owned less than 1% of
the Fund's shares of beneficial interest outstanding on _________________.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
The following persons also are officers and/or directors of the
Manager: Howard Stein, Chairman of the Board and Chief Executive Officer;
Julian M. Smerling, Vice Chairman of the Board of Directors; Joseph S.
DiMartino, President, Chief Operating Officer and a director; Alan M.
Eisner, Vice President and Chief Financial Officer; David W. Burke, Vice
President and Chief Administrative Officer; Robert F. Dubuss, Vice
President; Peter A. Santoriello, Vice President; Kirk V. Stumpp, Vice
President--New Product Development; Philip L. Toia, Vice President; John
J. Pyburn, Assistant Vice President; Katherine C. Wickham, Vice President-
- -Human Resources; Maurice Bendrihem, Controller; and Mandell L. Berman,
Alvin E. Friedman, Lawrence M. Greene, Abigail Q. McCarthy and David B.
Truman, directors.
MANAGEMENT AGREEMENT
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Management
of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") with the Fund dated August 24, 1994. As to each
Series, the Agreement is subject to annual approval by (i) the Fund's Board of
Trustees or (ii) vote of a majority (as defined in the Act) of the outstanding
voting securities of such Series, provided that in either event the
continuance also is approved by a majority of the Trustees who are not
"interested persons" (as defined in the Act) of the Fund or the Manager, by
vote cast in person at a meeting called for the purpose of voting on such
approval. The Agreement was last approved by the Fund's Board of Trustees,
including a majority of the Trustees who are not "interested persons" of any
party to the Agreement, at a meeting held on May 26, 1994. The Fund's
Shareholders approved the Agreement at a shareholders meeting held on August
3, 1994. The Agreement is terminable without penalty, as to each Series, on
60 days' notice, by the Fund's Board of Trustees or by vote of the holders of
a majority of such Series' shares, or, on not less than 90 days' notice, by
the Manager. The Agreement will terminate automatically, as to the relevant
Series, in the event of its assignment (as defined in the Act).
The Manager manages each Series' portfolio of investments in
accordance with the stated policies of such Series, subject to the
approval of the Fund's Board of Trustees. The Manager is responsible for
investment decisions, and provides the Fund with Portfolio Managers who
are authorized by the Board of Trustees to execute purchases and sales of
securities. The Fund's Portfolio Managers are Joseph P. Darcy, A. Paul
Disdier, Karen M. Hand, Stephen C. Kris, Richard J. Moynihan, Jill C.
Shaffro, L. Lawrence Troutman, Samuel J. Weinstock and Monica S. Wieboldt.
The Manager also maintains a research department with a professional staff
of portfolio managers and securities analysts who provide research
services for the Fund as well as for other funds advised by the Manager.
All purchases and sales are reported for the Trustees' review at the
meeting subsequent to such transactions.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The
expenses borne by the Fund include: organizational costs, taxes,
interest, loan commitment fees, interest and distributions paid on
securities sold short, brokerage fees and commissions, if any, fees of
Trustees who are not officers, directors, employees or holders of 5% or
more of the outstanding voting securities of the Manager, Securities and
Exchange Commission fees, state Blue Sky qualification fees, advisory
fees, charges of custodians, transfer and dividend disbursing agents'
fees, certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of independent pricing services, costs
of maintaining the Fund's existence, costs attributable to investor
services (including, without limitation, telephone and personnel
expenses), costs of shareholders' reports and meetings, and any
extraordinary expenses. Class A and Class B shares are subject to an
annual service fee for ongoing personal services relating to shareholder
accounts and services related to the maintenance of shareholder accounts.
In addition, Class B shares are subject to an annual distribution fee for
advertising, marketing and distributing Class B shares pursuant to a
distribution plan adopted in accordance with Rule 12b-1 under the Act.
See "Distribution Plan and Shareholder Services Plan." Expenses
attributable to a particular Series are charged against the assets of that
Series; other expenses of the Fund are allocated among the Series on the
basis determined by the Board of Trustees, including, but not limited to,
proportionately in relation to the net assets of each Series.
The Manager pays the salaries of all officers and employees employed
by both it and the Fund, maintains office facilities and furnishes
statistical and research data, clerical help, accounting, data processing,
bookkeeping and internal auditing and certain other required services.
The Manager also may make such advertising and promotional expenditures,
using its own resources, as it from time to time deems appropriate.
As compensation for the Manager's services to the Fund, the Fund has
agreed to pay the Manager a monthly management fee at the annual rate of
.55 of 1% of the value of each Series' average daily net assets. No
management fee was paid by the Fund with respect to the California Series
for the period from August 19, 1993 (commencement of operations) to July
31, 1994. No Management fee was paid by the Fund with respect to the
Connecticut Series for the period from May 5, 1994 (commencement of
operations) to July 31, 1994. No management fee was paid by the Fund with
respect to each of the Florida Series, the National Series and the New
Jersey Series for the period from May 4, 1994 (commencement of operations)
to July 31, 1994. No management fee was paid by the Fund with respect to
the New York series for the period from May 6, 1994 (commencement of
operations) to July 31, 1994.
The Manager has agreed that if in any fiscal year the aggregate
expenses of each Series, exclusive of taxes, brokerage fees, interest on
borrowings and (with the prior written consent of the necessary state
securities commissions) extraordinary expenses, but including the
management fee, exceed the expense limitation of any state having
jurisdiction over such Series, the Fund may deduct from the payment to be
made to the Manager under the Agreement, or the Manager will bear, such
excess expense to the extent required by state law. Such deduction or
payment, if any, will be estimated daily, and reconciled and effected or
paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of a Series' net assets increases.
PURCHASE OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement dated August 24, 1994, which is renewable
annually. The Distributor also acts as distributor for the other funds in
the Premier Family of Funds, for the funds in the Dreyfus Family of Funds
and for certain other investment companies.
Using Federal Funds. The Shareholder Services Group, Inc., the
Fund's transfer and dividend disbursing agent (the "Transfer Agent"), or
the Fund may attempt to notify the investor upon receipt of checks drawn
on banks that are not members of the Federal Reserve System as to the
possible delay in conversion into Federal Funds and may attempt to arrange
for a better means of transmitting the money. If the investor is a
customer of a securities dealer ("Selected Dealer") and his order to
purchase Fund shares is paid for other than in Federal Funds, the Selected
Dealer, acting on behalf of its customer, will complete the conversion
into, or itself advance, Federal Funds generally on the business day
following receipt of the customer order. The order is effective only when
so converted and received by the Transfer Agent. An order for the
purchase of Fund shares placed by an investor with sufficient Federal
Funds or a cash balance in his brokerage account with a Selected Dealer
will become effective on the day that the order, including Federal Funds,
is received by the Transfer Agent.
Sales Loads--Class A. The scale of sales loads applies to purchases
of Class A shares made by any "purchaser," which term includes an
individual and/or spouse purchasing securities for his, her or their own
account or for the account of any minor children, or a trustee or other
fiduciary purchasing securities for a single trust estate or a single
fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the "Code")), although more
than one beneficiary is involved; or a group of accounts established by or
on behalf of the employees of an employer or affiliated employers pursuant
to an employee benefit plan or other program (including accounts
established pursuant to Sections 403(b), 408(k), and 457 of the Code); or
an organized group which has been in existence for more than six months,
provided that it is not organized for the purpose of buying redeemable
securities of a registered investment company and provided that the
purchases are made through a central administration or a single dealer, or
by other means which result in economy of sales effort or expense.
TeleTransfer Privilege. TeleTransfer purchase orders may be made
between the hours of 8:00 a.m. and 4:00 p.m., New York time, on any
business day that the Transfer Agent and the New York Stock Exchange are
open. Such purchases will be credited to the shareholder's Fund account
on the next bank business day. To qualify to use the TeleTransfer
Privilege, the initial payment for purchase of Fund shares must be drawn
on, and redemption proceeds paid to, the same bank and account as are
designated on the Account Application or Optional Services Form on file.
If the proceeds of a particular redemption are to be wired to an account
at any other bank, the request must be in writing and
signature-guaranteed. See "Redemption of Fund Shares--TeleTransfer
Privilege."
Offering Price. Based upon each Series' net asset value at the close
of business on July 31, 1994, the maximum offering price of each Series'
shares would have been as follows:
Class A shares:
NET ASSET VALUE per share. . . . . . . . . . . . . . . . . . $
Sales load for individual sales of shares
aggregating less than $50,000 - 4.5 percent
of offering price
(approximately 4.7 percent of net asset
value per share) . . . . . . . . . . . . . . . . . . . . .
Offering price to public . . . . . . . . . . . . . . . . . . $
Class B shares:
NET ASSET VALUE, redemption price and
offering price to public*. . . . . . . . . . . . . . . . . $
*Class B shares are subject to a contingent deferred sales charge on certain
redemptions. See "How to Redeem Fund Shares" in the Fund's Prospectus.
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Distribution Plan and Shareholder Services Plan."
The Class A and Class B shares are subject to a Shareholder Services
Plan and the Class B shares only are subject to a Distribution Plan.
Distribution Plan. Rule 12b-1 (the "Rule") adopted by the Securities
and Exchange Commission under the Act provides, among other things, that
an investment company may bear expenses of distributing its shares only
pursuant to a plan adopted in accordance with the Rule. The Fund's Board
of Trustees has adopted such a plan (the "Distribution Plan") with respect
to Class B shares of each Series, pursuant to which the Fund pays the
Distributor for distributing Class B shares. Under the Distribution Plan,
the Distributor may make payments to certain Selected Dealers, financial
institutions and other financial industry professionals (collectively,
"Service Agents") in respect of these services. The Fund's Board of
Trustees believes that there is a reasonable likelihood that the
Distribution Plan will benefit the Fund and holders of each Series' Class
B shares. In some states, certain financial institutions effecting
transactions in Fund shares may be required to register as dealers
pursuant to state law.
A quarterly report of the amounts expended under the Distribution
Plan, and the purposes for which such expenditures were incurred, must be
made to the Trustees for their review. In addition, the Distribution Plan
provides that it may not be amended to increase materially the costs which
holders of Class B shares may bear for distribution pursuant to the
Distribution Plan without the approval of the holders of Class B shares
and that other material amendments of the Distribution Plan must be
approved by the Board of Trustees, and by the Trustees who are not
"interested persons" (as defined in the Act) of the Fund or the Manager
and have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreements entered into in connection with the
Distribution Plan, by vote cast in person at a meeting called for the
purpose of considering such amendments. The Distribution Plan is subject
to annual approval by such vote of the Trustees cast in person at a
meeting called for the purpose of voting on the Distribution Plan. The
Distribution Plan was last approved by the Fund's Board of Trustees,
including a majority of the Trustees who are not "interested persons," at
a meeting held on May 26, 1994 and by the Fund's Shareholders at a Shareholder
meeting on August 3, 1994. The Distribution Plan is terminable, as
to each Series, at any time by vote of a majority of the Trustees who are
not "interested persons" and have no direct or indirect financial interest
in the operation of the Distribution Plan or in any of the related
agreements entered into in connection with the Distribution Plan, or by
vote of the holders of a majority of such Series' Class B shares. For the
fiscal year ended July 31, 1994, the California Series was charged $7,552,
with respect to Class B, under the Distribution Plan. For the period from
__________ to July 31, 1994, the Connecticut Series was charged $3,052,
the Florida Series was charged $5,688, the National Series was charged
$1,713, the New Jersey Series was charged $1,438, and the New York Series
was charged $1,382, with respect to Class B, under the Distribution Plan.
Shareholder Services Plan. The Fund has adopted a Shareholder
Services Plan, pursuant to which the Fund pays Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager, for the provision
of certain services to the holders of Class A and Class B shares.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Trustees for their review. In addition, the
Shareholder Services Plan provides that it may not be amended without
approval of the Board of Trustees, and by the Trustees who are not
"interested persons" (as defined in the Act) of the Fund and have no
direct or indirect financial interest in the operation of the Shareholder
Services Plan or in any agreements entered into in connection with the
Shareholder Services Plan, by vote cast in person at a meeting called for
the purpose of considering such amendments. The Shareholder Services Plan
is subject to annual approval by such vote of the Trustees cast in person
at a meeting called for the purpose of voting on the Shareholder Services
Plan. The Shareholder Services Plan was so approved by Trustees at a
meeting held on May 26, 1994 and by Shareholders on August 3, 1994. As
to each Series, the Shareholder Services Plan is terminable at any time by
vote of a majority of the Trustees who are not "interested persons" and
who have no direct or indirect financial interest in the operation of the
Shareholder Services Plan or in any agreements entered into in connection
with the Shareholder Services Plan.
For the period from August 19, 1993 (commencement of operations of
the California Series) through July 31, 1994, no payment was made by the
Fund with respect to the California Series under the Shareholder Services
Plan pursuant to undertakings in effect. For the period May 5, 1994
(commencement of operations of the Connecticut Series) through July 31,
1994, no payment was made by the Fund with respect to the Connecticut
Series under the Shareholder Services Plan pursuant to undertakings in
effect. For the period May 4, 1994 (commencement of operations of each of
the Florida, National and New Jersey Series) through July 31, 1994, no
payment was made by the Fund with respect to the Florida, National and New
Jersey Series under the Shareholder Services Plan pursuant to undertakings
in effect. For the period from May 6, 1994 (commencement of operations of
the New York Series) through July 31, 1994, no payment was made by the
Fund with respect to the New York Series under the Shareholder Services
Plan pursuant to undertakings in effect.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Fund Shares."
Check Redemption Privilege - Class A Shares. An investor may
indicate on the Account Application or by later written request that the
Fund provide Redemption Checks ("Checks") drawn on the Fund's account.
Checks will be sent only to the registered owner(s) of the account and
only to the address of record. The Account Application or later written
request must be manually signed by the registered owner(s). Checks may be
made payable to the order of any person in an amount of $500 or more.
When a check is presented to the Transfer Agent for payment, the Transfer
Agent, as the investor's agent, will cause the Fund to redeem a sufficient
number of full and fractional Class A shares in the investor's account to
cover the amount of the Check. Dividends are earned until the Check
clears. After clearance, a copy of the Check will be returned to the
investor. Investors generally will be subject to the same rules and
regulations that apply to checking accounts, although election of this
Privilege creates only a shareholder-transfer agent relationship with the
Transfer Agent.
If the amount of the Check is greater than the value of the shares in
an investor's account, the Check will be returned marked insufficient
funds. Checks should not be used to close an account.
TeleTransfer Privilege. Investors should be aware that if they have
selected the TeleTransfer Privilege, any request for a TeleTransfer
transaction will be effected through the Automated Clearing House ("ACH")
system unless more prompt transmittal specifically is requested.
Redemption proceeds will be on deposit in the investor's account at an ACH
member bank ordinarily two business days after receipt of the redemption
request. See "Purchase of Fund Shares--TeleTransfer Privilege."
Share Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each owner of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing
agencies and savings associations, as well as from participants in the New
York Stock Exchange Medallion Signature Program, the Securities Transfer
Agents Medallion Program ("STAMP") and the Stock Exchanges Medallion
Program. Guarantees must be signed by an authorized signatory of the
guarantor and "Signature-Guaranteed" must appear with the signature. The
Transfer Agent may request additional documentation from corporations,
executors, administrators, trustees or guardians and may accept other
suitable verification arrangements from foreign investors, such as
consular verification.
Redemption Commitment. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record of a Series, limited
in amount during any 90-day period to the lesser of $250,000 or 1% of the
value of such Series' net assets at the beginning of such period. Such
commitment is irrevocable without the prior approval of the Securities and
Exchange Commission. In the case of requests for redemption in excess of
such amount, the Board of Trustees reserves the right to make payments in
whole or in part in securities or other assets in case of an emergency or
any time a cash distribution would impair the liquidity of the Series to
the detriment of the existing shareholders. In such event, the securities
would be valued in the same manner as the Series' portfolio is valued. If
the recipient sold such securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities
and Exchange Commission so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c)
for such other periods as the Securities and Exchange Commission by order
may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Shareholder Services."
Exchange Privilege. Class A and Class B shares of the Fund may be
exchanged for shares of the respective Class of certain other funds
advised or administered by the Manager. Shares of the same Class of such
funds purchased by exchange will be purchased on the basis of relative net
asset value per share as follows:
A. Class A shares of funds purchased without a sales load may be
exchanged for Class A shares of other funds sold with a sales
load, and the applicable sales load will be deducted.
B. Class A shares of funds purchased with or without a sales load
may be exchanged without a sales load for Class A shares of
other funds sold without a sales load.
C. Class A shares of funds purchased with a sales load, Class A
shares of funds acquired by a previous exchange from Class A
shares purchased with a sales load, and additional Class A
shares acquired through reinvestment of dividends or
distributions of any such funds (collectively referred to herein
as "Purchased Shares") may be exchanged for Class A shares of
other funds sold with a sales load (referred to herein as
"Offered Shares"), provided that, if the sales load applicable
to the Offered Shares exceeds the maximum sales load that could
have been imposed in connection with the Purchased Shares (at
the time the Purchased Shares were acquired), without giving
effect to any reduced loads, the difference will be deducted.
D. Class B shares of any fund may be exchanged for Class B shares
of other funds without a sales load. Class B shares of any fund
exchanged for Class B shares of another fund will be subject to
the higher applicable contingent deferred sales charge ("CDSC")
of the two funds and, for purposes of calculating CDSC rates and
conversion periods, will be deemed to have been held since the
date the Class B shares being exchanged were initially
purchased.
To accomplish an exchange under item C above, an investor's Service
Agent must notify the Transfer Agent of the investor's prior ownership of
such Class A shares and the investor's account number.
To use this Privilege, the investor's Service Agent acting on the
investor's behalf must give exchange instructions to the Transfer Agent in
writing, by wire or by telephone. Telephone exchanges may be made only if
the appropriate "YES" box has been checked on the Account Application or a
separate signed Shareholder Services Form is on file with the Transfer
Agent. By using this Privilege, the investor authorizes the Transfer
Agent to act on telephonic, telegraphic or written exchange instructions
from any person representing himself or herself to be the investor, or a
representative of the investor's Service Agent, and reasonably believed by
the Transfer Agent to be genuine. Telephone exchanges may be subject to
limitations as to the amount involved or the number of telephone exchanges
permitted. Shares issued in certificate form are not eligible for
telephone exchange.
To establish a Personal Retirement Plan by exchange, shares of the
fund being exchanged must have a value of at least the minimum initial
investment being required for the shares of the same class of the fund
into which the exchange is being made. For Dreyfus-sponsored Keogh Plans,
IRAs and Simplified Employee Pension Funds ("SEP-IRAs") with only one
participant, the minimum initial investment is $750. To exchange shares
held in Corporate Plans, 403(b)(7) Plans and SEP-IRAs with more than one
participant, the minimum initial investment is $100 if the plan has at
least $2,500 invested among shares of the same class of the funds in the
Dreyfus Family of Funds. To exchange shares held in Personal Retirement
Plans, the shares exchanged must have a current value of at least $100.
Auto-Exchange Privilege. The Auto-Exchange Privilege permits an
investor to purchase, in exchange for Class A or Class B shares of a
Series, shares of the same Class of one of the other Series or another
fund in the Premier Family of Funds or the Dreyfus Family of Funds. This
Privilege is available only for existing accounts. Shares will be
exchanged on the basis of relative net asset value as described above
under "Exchange Privilege." Enrollment in or modification or cancellation
of this Privilege is effective three business days following notification
by the investor. An investor will be notified if his account falls below
the amount designated to be exchanged under this Privilege. In this case,
an investor's account will fall to zero unless additional investments are
made in excess of the designated amount prior to the next Auto-Exchange
transaction. Shares held under IRA and other retirement plans are
eligible for this Privilege. Exchanges of IRA shares may be made between
IRA accounts and from regular accounts to IRA accounts, but not from IRA
accounts to regular accounts. With respect to all other retirement
accounts, exchanges may be made only among those accounts.
The Exchange Privilege and Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between
accounts having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained from Dreyfus Service Corporation, 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144. The Fund reserves the right to reject any
exchange request in whole or in part. The Exchange Privilege or Auto-
Exchange Privilege may be modified or terminated at any time upon notice
to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis. Withdrawal payments are the proceeds from sales of Fund shares,
not the yield on the shares. If withdrawal payments exceed reinvested
dividends and distributions, the investor's shares will be reduced and
eventually may be depleted. An Automatic Withdrawal Plan may be
established by completing the appropriate application available from the
Distributor. There is a service charge of $.50 for each withdrawal check.
Automatic Withdrawal may be terminated at any time by the investor, the
Fund or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan. Class B
shares withdrawn pursuant to the Automatic Withdrawal Plan will be subject
to any applicable CDSC.
Dividend Sweep. Dividend Sweep allows investors to invest on the
payment date their dividends or dividends and capital gain distributions,
if any, from the Fund in shares of the same Class of another fund in the
Premier Family of Funds or the Dreyfus Family of Funds of which the
investor is a shareholder. Shares of the same Class of other funds
purchased pursuant to this Privilege will be purchased on the basis of
relative net asset value per share as follows:
A. Dividends and distributions paid with respect to Class A shares
by a fund may be invested without imposition of a sales load in
Class A shares of other funds that are offered without a sales
load.
B. Dividends and distributions paid with respect to Class A shares
by a fund which does not charge a sales load may be invested in
Class A shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Dividends and distributions paid with respect to Class A shares
by a fund which charges a sales load may be invested in Class A
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum sales load
charged by the fund from which dividends or distributions are
being swept, without giving effect to any reduced loads, the
difference will be deducted.
D. Dividends and distributions paid with respect to Class B shares
by a fund may be invested without imposition of any applicable
CDSC in Class B shares of other funds and the Class B shares of
such other funds will be subject on redemption to any applicable
CDSC.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Fund Shares."
Valuation of Portfolio Securities. Each Series' investments are
valued each business day by an independent pricing service (the "Service")
approved by the Board of Trustees. When, in the judgment of the Service,
quoted bid prices for investments are readily available and are
representative of the bid side of the market, these investments are valued
at the mean between the quoted bid prices (as obtained by the Service from
dealers in such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities). Other
investments (which constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of municipal bonds of
comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may employ
electronic data processing techniques and/or a matrix system to determine
valuations. The Service's procedures are reviewed by the Fund's officers
under the general supervision of the Board of Trustees. Expenses and
fees, including the management fee (reduced by the expense limitation, if
any) and fees pursuant to the Shareholder Services Plan, with respect to
the Class A and Class B shares, and fees pursuant to the Distribution
Plan, with respect to the Class B shares only, are accrued daily and are
taken into account for the purpose of determining the net asset value of
the relevant Class of each Series' shares. Because of the difference in
operating expenses incurred by each Class, the per share net asset value
of each Class will differ.
Subject to guidelines established by the Fund's Board of Trustees,
the Manager intends to retain in the Fund's portfolio Municipal
Obligations which are insured under the Mutual Fund Insurance policy and
which are in default or in significant risk of default in the payment of
principal or interest until the default has been cured or the principal
and interest are paid by the issuer or the insurer. In establishing fair
value for these securities the Board of Trustees will give recognition to
the value of the insurance feature as well as the market value of the
securities. Absent any unusual or unforeseen circumstances, the Manager
will recommend valuing these securities at the same price as similar
securities of a minimum investment grade (i.e., rated Baa by Moody's or
BBB by S&P or Fitch).
New York Stock Exchange Closings. The holidays (as observed) on
which the New York Stock Exchange is closed currently are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Dividends,
Distributions and Taxes."
Management believes that each Series has qualified as a "regulated
investment company" under the Code for the fiscal year ended July 31,
1994, and each series intends to continue to so qualify, so long as such
qualification is in the best interests of its shareholders. As a
regulated investment company, a Series will pay no Federal income tax on
net investment income and net realized capital gains to the extent that
such income and gains are distributed to shareholders in accordance with
applicable provisions of the Code. To qualify as a regulated investment
company, a Series must pay out to its shareholders at least 90% of its net
income (consisting of net investment income from tax exempt obligations
and taxable obligations, if any, and net short-term capital gains), must
derive less than 30% of its annual gross income from gain on the sale of
securities held for less than three months, and must meet certain asset
diversification and other requirements. Accordingly, a Series may be
restricted in the selling of securities held for less than three months,
and in the utilization of certain of the investment techniques described
in the Prospectus under "Description of the Fund--Investment Techniques."
The Code, however, allows a Series to net certain offsetting positions
making it easier for a Series to satisfy the 30% test. The term
"regulated investment company" does not imply the supervision of
management or investment practices or policies by any government agency.
Any dividend or distribution paid shortly after an investor's
purchase may have the effect of reducing the net asset value of his shares
below the cost of his investment. Such a distribution would be a return
on the investment in an economic sense although taxable as stated in
"Dividends, Distributions and Taxes" in the Prospectus. In addition, the
Code provides that if a shareholder has not held his Fund shares for more
than six months (or such shorter period as the Internal Revenue Service
may prescribe by regulation) and has received an exempt-interest dividend
with respect to such shares, any loss incurred on the sale of such shares
will be disallowed to the extent of the exempt-interest dividend received.
Ordinarily, gains and losses realized from portfolio transactions
will be treated as capital gain or loss. However, all or a portion of any
gain realized from the sale or other disposition of market discount bonds
will be treated as ordinary income under Section 1276 of the Code. In
addition, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section
1258. "Conversion transactions" are defined to include certain forward,
futures, option and "straddle" transactions, transactions marketed or sold
to produce capital gains, or transactions described in Treasury
regulations to be issued in the future.
Under Section 1256 of the Code, gain or loss a Series realizes from
certain financial futures and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss.
Gain or loss will arise upon exercise or lapse of such futures and options
as well as from closing transactions. In addition, such futures and
options remaining unexercised at the end of a Series' taxable year will be
treated as sold for their then fair market value, resulting in additional
gain or loss to a Series characterized in the manner described above.
Offsetting positions held by a Series involving certain futures and
options transactions may be considered, for tax purposes, to constitute
"straddles." "Straddles" are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of "straddles" is
governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, overrides or modifies the provisions of Section 1256. As
such, all or a portion of any short or long-term capital gain from certain
"straddle" and/or conversion transactions may be recharacterized to
ordinary income.
If a Series were treated as entering into "straddles" by reason of
its engaging in certain futures or options transactions, such "straddles"
would be characterized as "mixed straddles" if the futures or options
transactions comprising a part of such "straddles" were governed by
Section 1256 of the Code. A Series may make one or more elections with
respect to "mixed straddles." Depending on which election is made, if
any, the results to a Series may differ. If no election is made to the
extent the "straddle" and conversion transaction rules apply to positions
established by the Fund, losses realized by a Series will be deferred to
the extent of unrealized gain in the offsetting position. Moreover, as a
result of the "straddle" rules, short-term capital losses on "straddle"
positions may be recharacterized as long-term capital losses, and
long-term capital gains may be treated as short-term capital gains or
ordinary income.
Investment by the Series in securities issued at a discount or
providing for deferred interest or for payment of interest in the form of
additional obligations could, under special tax rules, affect the amount,
timing and character of distributions to shareholders. For example, a
Series could be required to take into account annually a portion of the
discount (or deemed discount) at which such securities were issued and to
distribute such portion in order to maintain its qualification as a
regulated investment company. In such case, a Series may have to dispose
of securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to
parties acting as either principal or agent. Newly-issued securities
ordinarily are purchased directly from the issuer or from an underwriter;
other purchases and sales usually are placed with those dealers from which
it appears that the best price or execution will be obtained. Usually no
brokerage commissions, as such, are paid by the Fund for such purchases
and sales, although the price paid usually includes an undisclosed
compensation to the dealer acting as agent. The prices paid to
underwriters of newly-issued securities usually include a concession paid
by the issuer to the underwriter, and purchases of after-market securities
from dealers ordinarily are executed at a price between the bid and asked
price. No brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's
Investment Officers in their best judgment. The primary consideration is
prompt and effective execution of orders at the most favorable price.
Subject to that primary consideration, dealers may be selected for
research, statistical or other services to enable the Manager to
supplement its own research and analysis with the views and information of
other securities firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds
it advises and, conversely, research services furnished to the Manager by
brokers in connection with other funds the Manager advises may be used by
the Manager in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the overall expenses
of its research department.
Each Series anticipates that its annual portfolio turnover rate
generally will not exceed 100% but the turnover rate will not be a
limiting factor when each Series deems it desirable to sell or purchase
securities. Therefore, depending upon market conditions, each Series'
annual portfolio turnover rate may exceed 100% in certain years.
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Performance Information."
The current yield for the 30-day period ended July 31, 1994 for Class
A and Class B of each Series was as follows:
Current Net of Absorbed
Series Yield Expenses(1)
Class A:
California ____% ____%
Connecticut ____ ____
Florida ____ ____
National ____ ____
New Jersey ____ ____
New York ____ ____
Current Net of Absorbed
Series Yield Expenses(1)
Class B:
California ____% ____%
Connecticut ____ ____
Florida ____ ____
National ____ ____
New Jersey ____ ____
New York ____ ____
____________________________
(1) This column sets forth current yield had expenses not been absorbed.
Current yield is computed pursuant to a formula which operates as follows:
The amount of each Series' expenses accrued for the 30-day period (net of
reimbursements) is subtracted from the amount of the dividends and
interest earned computed in accordance with regulatory requirements by the
Series during the period. That result is then divided by the product of:
(a) the average daily number of shares outstanding during the period that
were entitled to receive dividends, and (b) the maximum offering price per
share in the case of Class A or the net asset value per share in the case
of Class B on the last day of the period less any undistributed earned
income per share reasonably expected to be declared as a dividend shortly
thereafter. The quotient is then added to 1, and that sum is raised to
the 6th power, after which 1 is subtracted. The current yield is then
arrived at by multiplying the result by 2.
Based upon the 1994 combined (except where noted) Federal and, where
applicable, State tax rate specified below, the tax equivalent yield for
the 30-day period ended July 31, 1994 for Class A and Class B of each
Series was as follows:
Tax Equivalent Net of Absorbed
Series Tax Rate Yield Expenses(1)
Class A:
California _____% ____% ____%
Connecticut _____ ____ ____
Florida(2) _____ ____ ____
National _____ ____ ____
New Jersey _____ ____ ____
New York _____ _____ ____
Class B:
California _____% ____% ____%
Connecticut _____ ____ ____
Florida(2) _____ ____ ____
National _____ ____ ____
New Jersey _____ ____ ____
New York _____ _____ ____
____________________________
(1) This column sets forth tax equivalent yield had expenses not been
absorbed.
(2) Federal tax rate only. No state personal income tax imposed during 1994
Tax equivalent yield is computed by dividing that portion of the current
yield (calculated as described above) which is tax exempt by 1 minus a
stated tax rate and adding the quotient to that portion, if any, of the
yield of the Series that is not tax exempt.
The tax equivalent yield quoted above represents the application of
the highest marginal personal income tax rates currently in effect. For
Federal personal income tax purposes, a 39.6% tax rate has been used. The
tax equivalent figure, however, does not include the potential effect of
any local (including, but not limited to, county, district or city) taxes,
including applicable surcharges. In addition, there may be pending
legislation which could affect such stated tax rates or yield. Each
investor should consult its tax adviser, and consider its own factual
circumstances and applicable tax laws, in order to ascertain the relevant
tax equivalent yield.
The average annual total return since inception for Class A of each
Series was as follows:
<TABLE>
<CAPTION>
.241-year period .244-year period .247-year period .951-year period
Series ended July 31, 1994 ended July 31, 1994 ended July 31, 1994 ended July 31, 1994
<S> <C> <C> <C> <C>
California - - - _____%
Connecticut - _____ - -
Florida - - _____ -
National - - _____ -
New Jersey - - _____ -
New York _____ - - -
</TABLE>
The average annual total return since inception for Class B of each
Series was as follows:
<TABLE>
<CAPTION>
.241-year period .244-year period .247-year period .951-year period
Series ended July 31, 1994 ended July 31, 1994 ended July 31, 1994 ended July 31, 1994
<S> <C> <C> <C> <C>
California - - - _____%
Connecticut - ____ - -
Florida - - ____ -
National - - ____ -
New Jersey - - ____ -
New York ____ - - -
</TABLE>
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result. A Class's
average annual total return figures calculated in accordance with such
formula assume that in the case of Class A the maximum sales load has been
deducted from the hypothetical initial investment at the time of purchase
or in the case of Class B the maximum applicable CDSC has been paid upon
redemption at the end of the period.
The total return for the periods indicated for Class A of each
Series was as follows:
Based on Maximum Based on Net Asset
Series Offering Price Value per Share
Class A:
California(1) _____% _____%
Connecticut(2) _____ _____
Florida(3) _____ _____
National(3) _____ _____
New Jersey(3) _____ _____
New York(4) _____ _____
____________________________
(1) For the period from August 19, 1993 (commencement of operations) through
July 31, 1994.
(2) For the period May 4, 1994 (commencement of operations) to
July 31, 1994.
(3) For the period May 3, 1994 (Commencement of operations) through
July 31, 1994.
(4) For the period May 5, 1994 (Commencement of operations) through
July 31, 1994.
The total return for the periods indicated for Class B of each Series
was as follows:
Based on Net Asset Based on
Class B: Value per Share Maximum CDSC
California(1) _____% _____%
Connecticut(2) _____ _____
Florida(3) _____ _____
National(3) _____ _____
New Jersey(3) _____ _____
New York _____ _____
____________________________
(1) For the period from August 19, 1993 (commencement of operations) through
July 31, 1994.
(2) For the period May 4, 1994 (commencement of operations) to
July 31, 1994.
(3) For the period May 3, 1994 (Commencement of operations) through
July 31, 1994.
(4) For the period May 5, 1994 (Commencement of operations) through
July 31, 1994.
Total return is calculated by subtracting the amount of the Series'
maximum offering price per share in the case of Class A or the net asset
value in the case of Class B at the beginning of a stated period from the
net asset value per share at the end of the period (after giving effect to
the reinvestment of dividends and distributions during the period and, in
the case of Class B, any applicable contingent deferred sales charge), and
dividing the result by the maximum offering price per share in the case of
Class A or the net asset value in the case of Class B at the beginning of
the period. Total return also may be calculated based on the net asset
value per share at the beginning of the period instead of the maximum
offering price per share at the beginning of the period for Class A shares
or without giving effect to any applicable CDSC at the end of the period
for Class B shares. In such cases, the calculation would not reflect the
deduction of the sales load with respect to Class A shares or any
applicable CDSC with respect to Class B shares which, if reflected, would
reduce the performance quoted.
From time to time, the Fund may use hypothetical tax equivalent
yields or charts in its advertising. These hypothetical yields or charts
will be used for illustrative purposes only and are not as representative
of the Fund's past or future performance.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic conditions, developments and/or
events, including those relating to actual or proposed tax legislation.
Advertising materials for the Fund may also refer to statistical or other
information concerning trends relating to investment companies, as
compiled by industry associations such as the Investment Company
Institute. From time to time, advertising materials for the Fund, also
may refer to Morningstar ratings and related analyses supporting such
ratings.
The Fund may compare its performance, directly as well as against
inflation, with that of other instruments, such as short-term Treasury
bills (which are direct obligations of the U.S. Government), FDIC-insured
bank money market accounts and FDIC-insured fixed-rate certificates of
deposit. In addition, advertising for the Fund may indicate that
investors may consider diversifying their investment portfolios in order
to seek protection of the value of their assets against inflation.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "General
Information."
Each Series share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Series' shares have no preemptive or subscription rights and are freely
transferable.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
The Manager's legislative efforts led to the 1976 Congressional
amendment to the Code permitting an incorporated mutual fund to pass
through tax exempt income to its shareholders. The Manager offered to the
public the first incorporated tax exempt fund and currently manages or
administers over $70 billion in tax exempt assets.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND INDEPENDENT AUDITORS
The Bank of New York, 110 Washington Street, New York, New York
10286, is the Fund's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, P.O. Box 9671, Providence, Rhode
Island 02940-9671, is the Fund's transfer and dividend disbursing agent.
Neither The Bank of New York nor The Shareholder Services Group, Inc. has
any part in determining the investment policies of the Fund or which
securities are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance
of the shares of beneficial interest being sold pursuant to the Fund's
Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX A
RISK FACTORS - INVESTING
IN STATE MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information
drawn from official statements relating to securities offerings of the
relevant State and various local agencies, available as of the date of
this Statement of Additional Information. While the Fund has not
independently verified such information, it has no reason to believe that
such information is not correct in all material respects.
California Series . . . . . . . . . . . . . . . . . . B-30
Connecticut Series. . . . . . . . . . . . . . . . . . B-43
Florida Series. . . . . . . . . . . . . . . . . . . . B-45
New Jersey Series . . . . . . . . . . . . . . . . . . B-49
New York Series . . . . . . . . . . . . . . . . . . . B-51
California Series
Recent Developments. Since the start of the State's 1990-91 fiscal
year, the State has faced the worst economic, fiscal and budget conditions
since the 1930s. Construction, manufacturing (especially aerospace),
exports and financial services, among others, have all been severely
affected. Job losses have been the worst of any post-war recession.
Unemployment reached 9.2% for 1993 and is expected to remain well above
the national average through 1994. According to the State's Department of
Finance, recovery from the recession in California is not expected in
meaningful terms until late 1994, notwithstanding signs of recovery
elsewhere in the nation.
The recession has seriously affected State tax revenues, which
basically mirror economic conditions. It has also caused increased
expenditures for health and welfare programs. The State also has been
facing a structural imbalance in its budget with the largest programs
supported by the General Fund (K-12 schools and community colleges, health
and welfare, and corrections) growing at rates higher than the growth
rates for the principal revenue sources of the General Fund. As a result,
the State has experienced recurring budget deficits. The Controller
reported that expenditures exceeded revenues for four of the five fiscal
years ending with 1991-92. Revenues and expenditures were essentially
equal in the 1992-93 fiscal year, but the original budget for that fiscal
year projected revenues exceeding expenditures by $2.6 billion. By June
30, 1993, according to the Department of Finance, the State's Reserve for
Economic Uncertainties had a deficit, on a budget basis, of approximately
$2.8 billion.
A further consequence of the large budget imbalances over the last
three fiscal years has been that the State depleted its available cash
resources and has had to use a series of external borrowings to meet its
cash needs.
The Governor's Budget proposal for 1994-95 released January 7, 1994,
projected General Fund revenues and transfers in the fiscal year of $39.7
billion (a reduction of $900 million from the original 1993-94 Budget Act)
and expenditures of $39.3 billion (an increase of $800 million over the
original 1993-94 Budget Act). The Governor's Budget proposed General Fund
revenues and transfers of $41.3 billion (including $2.0 billion from the
Federal government) and expenditures of $38.8 billion in the 1994-95
fiscal year, which would leave a balance of approximately $260 million in
the budget reserve, the Special Fund for Economic Uncertainties (the
"SFEU"), at June 30, 1995 after repayment of the accumulated 1992-93
budget deficit of $2.8 billion.
On January 17, 1994, an earthquake of the magnitude of an estimated
6.8 on the Richter Scale struck Los Angeles causing significant damage to
public and private structures and facilities. The full impact of the
earthquake on Los Angeles and surrounding areas and on the State's
finances has not been determined.
As a result of the deterioration in the State's budget and cash
situation in fiscal years 1991-92 and 1992-93, the rating agencies reduced
the State's credit ratings. Between October 1991 and October 1992 the
rating on the State's general obligation bonds was reduced by S&P from
"AAA" to "A+," by Moody's from "Aaa" to "Aa" and by Fitch from "AAA" to
"AA."
State Finances. State moneys are segregated into the General Fund
and approximately 400 Special Funds. The General Fund consists of the
revenues received into the State Treasury and earnings from State
investments, which are not required by law to be credited to any other
fund. The General Fund is the principal operating fund for the majority
of governmental activities and is the depository of most major State
revenue sources.
The SFEU is funded with General Fund revenues and was established to
protect the State from unforeseen reduced levels of revenues and/or
unanticipated expenditure increases. Amounts in the Special Fund for
Economic Uncertainties may be transferred by the Controller as necessary
to meet cash needs of the General Fund. The Controller is required to
return moneys so transferred without payment of interest as soon as there
are sufficient moneys in the General Fund. For budgeting and accounting
purposes, any appropriation made from the Special Fund for Economic
Uncertainties is deemed an appropriation from the General Fund. For year-
end reporting purposes, the Controller is required to add the balance in
the Special Fund for Economic Uncertainties to the balance in the General
Fund so as to show the total monies then available for General Fund
purposes.
Inter-fund borrowing has been used for many years to meet temporary
imbalances of receipts and disbursements in the General Fund. As of June
30, 1993, there were outstanding loans in the aggregate principal amount
of $43 million to the General Fund from the SFEU and outstanding loans in
the aggregate principal amount of $3.016 billion to the General Fund from
the Special Funds. On June 30, 1993, the General Fund also had been
supplemented with the proceeds of the sale of $2.0 billion of revenue
anticipation warrants on June 23, 1993, which matured on December 23,
1993.
Articles XIIIA and XIIIB to the State Constitution and Other Revenue
Law Changes. Prior to 1977, revenues of the State government experienced
significant growth primarily as a result of inflation and continuous
expansion of the tax base of the State. In 1978, State voters approved an
amendment to the State Constitution known as Proposition 13, which added
Article XIIIA to the State Constitution, reducing ad valorem local
property taxes by more than 50%. In addition, Article XIIIA provides that
additional taxes may be levied by cities, counties and special districts
only upon approval of not less than a two-thirds vote of the "qualified
electors" of such district, and requires not less than a two-thirds vote
of each of the two houses of the State Legislature to enact any changes in
State taxes for the purpose of increasing revenues, whether by increased
rate or changes in methods of computation.
Primarily as a result of the reductions in local property tax
revenues received by local governments following the passage of
Proposition 13, the Legislature undertook to provide assistance to such
governments by substantially increasing expenditures from the General Fund
for that purpose beginning in the 1978-79 fiscal year. In recent years,
in addition to such increased expenditures, the indexing of personal
income tax rates (to adjust such rates for the effects of inflation), the
elimination of certain inheritance and gift taxes and the increase of
exemption levels for certain other such taxes had a moderating impact on
the growth in State revenues. In addition, the State has increased
expenditures by providing a variety of tax credits, including renters' and
senior citizens' credits and energy credits.
The State is subject to an annual "appropriations limit" imposed by
Article XIIIB of the State Constitution adopted in 1979. Article XIIIB
prohibits the State from spending "appropriations subject to limitation"
in excess of the appropriations limit imposed. "Appropriations subject to
limitations" are authorizations to spend "proceeds of taxes," which
consist of tax revenues, and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such
proceeds exceed "the cost reasonably borne by such entity in providing the
regulation, product or service." One of the exclusions from these
limitations is "debt service" (defined as "appropriations required to pay
the cost of interest and redemption charges, including the funding of any
reserve or sinking fund required in connection therewith, on indebtedness
existing or legally authorized as of January 1, 1979 or on bonded
indebtedness thereafter approved" by the voters). In addition,
appropriations required to comply with mandates of courts or the Federal
government and, pursuant to Proposition 111 enacted in June 1990,
appropriations for qualified capital outlay projects and appropriations of
revenues derived from any increase in gasoline taxes and motor vehicle
weight fees above January 1, 1990 levels are not included as
appropriations subject to limitation. In addition, a number of recent
initiatives were structured or proposed to create new tax revenues
dedicated to certain specific uses, with such new taxes expressly exempted
from the Article XIIIB limits (e.g., increased cigarette and tobacco taxes
enacted by Proposition 99 in 1988). The appropriations limit also may be
exceeded in cases of emergency. However, unless the emergency arises from
civil disturbance or natural disaster declared by the Governor, and the
appropriations are approved by two-thirds of the Legislature, the
appropriations limit for the next three years must be reduced by the
amount of the excess.
The State's appropriations limit in each year is based on the limit
for the prior year, adjusted annually for changes in California per capita
personal income and changes in population, and adjusted, when applicable,
for any transfer of financial responsibility of providing services to or
from another unit of government. The measurement of change in population
is a blended average of statewide overall population growth, and change in
attendance at local school and community college ("K-14") districts. As
amended by Proposition 111, the appropriations limit is tested over
consecutive two-year periods. Any excess of the aggregate "proceeds of
taxes" received over such two-year periods above the combined
appropriations limits for those two years is divided equally between
transfers to K-14 districts and refunds to taxpayers.
As originally enacted in 1979, the State's appropriations limit was
based on its 1978-79 fiscal year authorizations to expend proceeds of
taxes and was adjusted annually to reflect changes in cost of living and
population (using different definitions, which were modified by
Proposition 111). Commencing with the 1991-92 fiscal year, the State's
appropriations limit is adjusted annually based on the actual 1986-87
limit, and as if Proposition 111 had been in effect. The State
Legislature has enacted legislation to implement Article XIIIB which
defines certain terms used in Article XIIIB and sets forth the methods for
determining the State's appropriations limit. Government Code Section
7912 requires an estimate of the State's appropriations limit to be
included in the Governor's Budget, and thereafter to be subject to the
budget process and established in the Budget Act.
For the 1990-91 fiscal year, the State appropriations limit was $32.7
billion, and appropriations subject to limitation were $7.51 billion under
the limit. The limit for the 1991-92 fiscal year was $34.2 billion, and
appropriations subject to limitations were $3.8 billion under the limit.
The limit for the 1992-93 fiscal year was $35.01 billion, and the
appropriations subject to limitation were $4.2 billion under the limit.
The estimated limits for the 1993-94 and 1994-95 fiscal years are $36.60
billion and $36.61 billion, respectively, and the estimated appropriations
subject to limitation are $3.77 billion and $5.49 billion, respectively,
under the limit.
In November 1988, State voters approved Proposition 98, which changed
State funding of public education below the university level and the
operation of the State's appropriations limit, primarily by guaranteeing
K-14 schools a minimum share of General Fund revenues. Under Proposition
98 (as modified by Proposition 111, which was enacted in June 1990), K-14
schools are guaranteed the greater of (a) 40.3% of General Fund revenues
("Test 1"), (b) the amount appropriated to K-14 schools in the prior year,
adjusted for changes in the cost of living (measured as in Article XIIIB
by reference to California per capita personal income) and enrollment
("Test 2"), or (c) a third test, which would replace the second test in
any year when the percentage growth in per capita General Fund revenues
from the prior year plus .5% is less than the percentage growth in
California per capita personal income ("Test 3"). Under "Test 3," schools
would receive the amount appropriated in the prior year adjusted for
changes in enrollment and per capita General Fund revenues, plus an
additional small adjustment factor. If "Test 3" is used in any year, the
difference between "Test 3" and "Test 2" would become a "credit" to
schools which would be the basis of payments in future years when per
capita General Fund revenue growth exceeds per capita personal income
growth.
Proposition 98 permits the Legislature by two-thirds vote of both
houses, with the Governor's concurrence, to suspend the K-14 schools'
minimum funding formula for a one-year period. In the fall of 1989, the
Legislature and the Governor utilized this provision to avoid having 40.3%
of revenues generated by a special supplemental sales tax enacted for
earthquake relief go to K-14 schools. Proposition 98 also contains
provisions transferring certain State tax revenues in excess of the
Article XIIIB limit to K-14 schools.
The 1991-92 Budget Act, applying "Test 2" of Proposition 98,
appropriated approximately $18.5 billion for K-14 schools pursuant to
Proposition 98. During the course of the fiscal year, revenues proved to
be substantially below expectations. By the time the Governor's Budget
was introduced in January 1992, it became clear that per capita growth in
General Fund revenues for 1991-92 would be far smaller than the growth in
California per capita personal income and the Governor's Budget therefore
reflected a reduction in Proposition 98 funding in 1991-92 by applying
"Test 3" rather than "Test 2."
In response to the changing revenue situation and to fully fund the
Proposition 98 guarantee in both the 1991-92 and 1992-93 fiscal years
without exceeding it, the Legislature enacted several bills as part of the
1992-93 budget package which responded to the fiscal crisis in education
funding. Fiscal year 1991-92 Proposition 98 appropriations for K-14
schools were reduced by $1.083 billion. In order to not adversely impact
cash received by school districts, however, a short-term loan was
appropriated from the non-Proposition 98 State General Fund. The
Legislature then appropriated $16.6 billion to K-14 schools for 1992-93
(the minimum guaranteed by Proposition 98), but designated $1.083 billion
of this amount to "repay" the prior year loan, thereby reducing cash
outlays in 1992-93 by that amount.
In addition to reducing the 1991-92 fiscal year appropriations for K-
14 schools by $1.083 billion and converting the amount to a loan (the
"inter-year adjustment"), Chapter 703, Statutes of 1992 also made an
adjustment to "Test 1," based on the additional $1.2 billion of local
property taxes that were shifted to schools and community colleges. The
"Test 1" percentage changed from 40% to 37%. Additionally, Chapter 703
contained a provision that if an appellate court should determine that the
"Test 1" recalculation or the inter-year adjustment is unconstitutional,
unenforceable or invalid, Proposition 98 would be suspended for the 1992-
93 fiscal year, with the result that K-14 schools would receive the amount
intended by the 1992-93 Budget Act compromise.
The State Controller stated in October 1992 that, because of a
drafting error in Chapter 703, he could not implement the $1.083 billion
reduction of the 1991-92 school funding appropriation, which was part of
the inter-year adjustment. The Legislature untimely enacted corrective
legislation as part of the 1993-94 Budget package to implement the $1.083
billion inter-year adjustment as originally intended.
In the 1992-93 Budget Act, a new loan of $732 million was made to K-
12 schools in order to maintain per-average daily attendance ("ADA")
funding at the same level as 1991-92, at $4,187. An additional loan of
$241 million was made to community college districts. These loans are to
be repaid from future Proposition 98 entitlements. (The teachers'
organization lawsuit discussed above also seeks to declare invalid the
provision making $732 million a loan "repayable" from future years'
Proposition 98 funds.) Including both State and local funds, and
adjusting for the loans and repayments, on a cash basis, total Proposition
98 K-12 funding in 1992-93 increased to $21.5 billion, 2.4% more than the
amount in 1992-93 ($21.0 billion).
Based on revised State tax revenues and estimated decreased reported
pupil enrollment, the 1993-94 Budget Act projected that the 1992-93
Proposition 98 Budget Act appropriations of $16.6 billion exceeded a
revised minimum guarantee by $313 million. As a result, the 1993-94
Budget Act reverted $25 million in 1992-93 appropriations to the General
Fund. Limiting the reversion to this amount ensures that per ADA funding
for general purposes will remain at the prior year level of $4,217 per
pupil. The 1994-95 Governor's Budget subsequently proposed deficiency
funding of $121 million for school apportionments and special education,
increasing funding per pupil in 1992-93 to $4,245. The 1993-94 Budget Act
also designated $98 million in 1992-93 appropriations toward satisfying
prior years' guarantee levels, an obligation that resulted primarily from
updating State tax revenues for 1991-92, and designates $190 million as a
loan repayable from 1993-94 funding.
The 1993-94 Budget Act projected the Proposition 98 minimum funding
level at $13.5 billion based on the "Test 3" calculation where the
guarantee is determined by the change in per capita growth in General Fund
revenues, which are projected to decrease on a year-over-year basis. This
amount also takes into account increased property taxes transferred to
school districts from other local governments.
Legislation accompanying the 1993-94 Budget Act (Chapter 66/93)
provided a new loan of $609 million to K-12 schools in order to maintain
per ADA funding at $4,217 and a loan of $178 million to community
colleges. These loans have been combined with the K-14 1992-93 loans into
one loan totalling $1.760 billion. Repayment of this loan would be from
future years' Proposition 98 entitlements, and would be conditioned on
maintaining current funding levels per pupil for K-12 schools. Chapter 66
also reduced the "Test 1" percentage to 34% to reflect the property tax
shift among local government agencies.
Sources of Tax Revenue. The California personal income tax, which in
1992-93 contributed about 44% of General Fund revenues, is closely modeled
after the Federal income tax law. It is imposed on net taxable income
(gross income less exclusions and deductions). The tax is progressive
with rates ranging from 1% to 11%. Personal, dependent, and other credits
are allowed against the gross tax liability. In addition, taxpayers may
be subject to an alternative minimum tax ("AMT") which is much like the
Federal AMT. This is designed to ensure that excessive use of tax
preferences does not reduce taxpayers' liabilities below some minimum
level. Legislation enacted in July 1991 added 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 AMT rate is scheduled to drop from 8.5% to 7%.
The personal income tax is adjusted annually by the change in the
consumer price index to prevent taxpayers from being pushed into higher
tax brackets without a real increase in income.
The sales tax is imposed upon retailers for the privilege of selling
tangible personal property in California. Most retail sales and leases
are subject to the tax. However, exemptions have been provided for
certain essentials such as food for home consumption, prescription drugs,
gas, electricity and water. Sales tax accounted for about 38% of General
Fund revenue in 1992-93. Bank and corporation tax revenues comprised
about 12% of General Fund revenue in 1992-93. In 1989, Proposition 99
added a 25 cents per pack excise tax on cigarettes, and a new equivalent
excise tax on other tobacco products. Legislation enacted in 1993 added
an additional 2 cents per pack for the purpose of funding breast cancer
research.
General Financial Condition of the State. Revenues in the most
recent fiscal years have been unusually difficult to forecast with a high
degree of accuracy due in major part to the volatility in the personal
income tax. The 1986-87 through 1989-90 fiscal years were affected by
both the Federal Tax Reform Act of 1986 and subsequent conforming State
legislation. The difficulty with recent forecasts has occurred because
taxpayers have changed their behavior as a result of these events.
Capital gains are now fully taxed. This revenue component is subject to
taxpayer discretion and is very sensitive to change in tax law, market
conditions and individual circumstances. Capital gains have always been a
volatile item and, since it is contributing a greater percentage of total
revenue, it makes these collections subject to greater variance.
The State entered the 1988-89 fiscal year with essentially no budget
reserve. The 1988-89 Budget Act called for significant spending cuts to
balance expected revenues and expenditures and to provide an estimated
balance of approximately $600 million in the SFEU at year-end.
Revenues for the 1989-90 fiscal year were approximately $517.7
million less than presented in the Governor's Budget in January 1990 and
$1.021 billion less than estimated in July 1989, primarily owing to lower
than estimated receipts from individual and corporate taxes. The
shortfall in revenues was made up through the transfer of moneys from the
SFEU and a variety of expenditure reduction actions initiated by the
Administration. As a result, the SFEU was fully depleted by June 30,
1990.
The California State Controller reported that the State's General
Fund ended the 1990-91 fiscal year with a negative budgetary basis balance
of $1.316 billion. In order to pay necessary cash expenses through June
1991, including payment of $4.1 billion of 1990 Revenue Anticipation Notes
which were due June 28, 1991, the General Fund borrowed $1.390 billion
from the SFEU and $3.266 billion from other Special Funds as of the end of
the fiscal year. Data on General Fund revenues for the 1990-91 fiscal
year show that revenues in all major categories (except insurance taxes)
were lower than receipts in 1989-90, the first time this has happened on a
year-over-year basis since the 1930s.
The 1991-92 Budget Act projected General Fund expenditures of $43.4
billion and Special Fund expenditures of $10.6 billion. The Department of
Finance estimated that there would be a balance in the SFEU on June 30,
1992 of $1.2 billion. An estimated $14.3 billion "budget gap" was closed
through a combination of temporary and permanent changes in laws and one-
time budget adjustments. The major features of the budget compromise
were: program funding reductions totaling $5.1 billion; a total of $5.1
billion of increased State tax revenues; savings of $2.1 billion by
returning certain health and welfare programs to counties; and additional
miscellaneous savings or revenue gains and one-time accounting charges
totaling $2.0 billion.
The 1991-92 Budget Act was based on economic forecasts showing
recovery from the recession would begin in summer or fall of 1991, but
revenues lagged behind projections from the start of the 1991-92 fiscal
year. By the time the Governor's Budget for 1992-93 was prepared in late
1991, it was evident that the recession had been much more severe in the
State than was thought earlier, and that it was continuing longer than
anticipated. As a result, revenues for the 1991-92 fiscal year were much
lower than originally estimated and expenditures were higher, particularly
in health and welfare programs.
As a result of the revenue shortfalls accumulating for the previous
two fiscal years, the Controller in April 1992 indicated that cash
resources (including borrowing from Special Funds) would not be sufficient
to meet all General Fund obligations due on June 30 and July 1, 1992. On
June 25, 1992, the Controller issued $475 million of 1992 Revenue
Anticipation Warrants (the "1992 Warrants") in order to provide funds to
cover all necessary payments from the General Fund at the end of the 1991-
92 fiscal year and on July 1, 1992. The 1992 Warrants were paid on July
24, 1992. In addition to the 1992 Warrants the Controller reported that
as of June 30, 1992, the General Fund had borrowed $1.336 billion from the
SFEU and $4.699 billion from other Special Funds, using all but about $183
million of borrowable cash resources.
To balance the 1992-93 Governor's Budget, program reductions
totalling $4.365 billion and revenue and transfer increase of $872 million
were proposed for the 1991-92 and 1992-93 fiscal years. Economic
performance in the State continued to be sluggish after the 1992-93
Governor's Budget was prepared. By the time of the "May Revision," issued
on May 20, 1992, the Administration estimated that the 1992-93 Budget
needed to address a gap of about $7.9 billion, much of which was needed to
repay the accumulated budget deficits of the previous two years.
In early 1992, the Director of Finance acknowledged that actual
economic conditions were worse than the projections in the Governor's
Budget. Because the State had accumulated a significant budget deficit
over two consecutive years, and the continuing recession depressed revenue
estimates for the coming year, the State faced a major challenge to enact
a balanced budget. The State also began the 1992-93 fiscal year with
essentially no cash reserves. By June 1992, it was estimated that
approximately $7.9 billion of budget actions would be required to end the
1992-93 fiscal year without a budget deficit. The severity of the budget
actions needed led to a long delay in adopting the budget.
With the failure to enact a budget by July 1, 1992, the State had no
legal authority to pay many of its vendors until the budget was passed.
Starting on July 1, 1992, the Controller was required to issue "registered
warrants" in lieu of normal warrants backed by cash to pay many State
obligations. Available cash was used to pay constitutionally mandated and
priority obligations, such as debt service on bonds and revenue
anticipation warrants. Between July 1 and September 4, 1992, the
Controller issued an aggregate of approximately $3.8 billion of registered
warrants payable from the General Fund, all of which were called for
redemption by September 4, 1992 following enactment of the 1992-93 Budget
Act and issuance by the State of $3.3 billion of interim notes.
The Legislature enacted the 1992-93 Budget Bill on August 29, 1992,
and it was signed by the Governor on September 2, 1992. The 1992-93
Budget Act provided for expenditures of $57.4 billion and consisted of
General Fund expenditures of $40.8 billion and Special Fund and Bond Fund
expenditures of $16.6 billion. The Department of Finance estimated there
would be a balance in the SFEU of $28 million on June 30, 1993.
The $7.9 billion budget gap was closed through a combination of
increased revenues and transfers and expenditure cuts such as:
1. General Fund savings in health and welfare programs
totaling $1.6 billion.
2. General Fund reductions of $1.9 billion for K-12 schools
and community colleges. This was accomplished by requiring
schools to repay $1.1 billion in excess appropriations from
1991-92.
3. Redirecting property taxes from cities ($200 million) and
counties ($525 million) to schools. These shifts are
permanent and will reduce the State General Funds
obligation for schools. The State will also redirect
property taxes from special districts ($375 million) and
redevelopment agencies ($200 million) to schools. The
shift from redevelopment agencies is a one-time shift.
4. Program cuts for higher education totaling $415 million
($246 million for The University of California, $143
million for California State University, and $26 million
for the Student Aid Commission). These reductions are
partially offset by $141 million in increased student fees.
5. A total of $1.6 billion of transfers and accelerated
collections of State revenues by conforming State schedules
for estimated payments for personal income and bank and
corporate taxes with federal schedules ($105 million),
accelerating settlement of outstanding tax disputes ($300
million), reaching an agreement with the Federal government
to repay federal contractors over a ten-year period
beginning in 1992-93, rather than making a lump sum payment
in 1992-93 ($580 million), accelerating liquidation of
unclaimed properties through the sale of all unclaimed
securities received prior to July 1, 1992, rather than
maintaining them for three years ($70 million), transfers
from Special Funds ($423 million), and other miscellaneous
actions ($122 million).
6. Approximately $1.0 billion from various additional program
reductions.
In May 1993, the Department of Finance projected that the General
Fund would end the fiscal year on June 30, 1993 with an accumulated budget
deficit of about $2.8 billion, and a negative fund balance of about $2.2
billion (the difference being certain reserves for encumbrances and school
funding costs). As a result, the State issued $5 billion of revenue
anticipation notes and warrants.
The Governor's 1993-94 Budget, introduced on January 8, 1993,
proposed General Fund expenditures of $37.3 billion, with projected
revenues of $39.9 billion. It also proposed Special Fund expenditures of
$12.4 billion and Special Fund revenues of $12.1 billion. To balance the
budget in the face of declining revenues, the Governor proposed a series
of revenue shifts from local government, reliance on increased Federal aid
and reductions in state spending.
The "May Revision" of the Governor's Budget, released on May 20,
1993, indicated that the revenue projections of the January Budget
Proposal were tracking well, with the full year 1992-93 about $80 million
higher than the January projection. Personal income tax revenue was
higher than projected, sales tax was close to target, and bank and
corporation taxes were lagging behind projections. The May Revision
projected the State would have an accumulated deficit of about $2.75
billion by June 30, 1993. The Governor proposed to eliminate this deficit
over an 18-month period. He also agreed to retain the 0.5% sales tax
scheduled to expire June 30 for a six-month period, dedicated to local
public safety purposes, with a November election to determine a permanent
extension. Unlike previous years, the Governor's Budget and May Revision
did not calculate a "gap" to be closed, but rather set forth revenue and
expenditure forecasts and proposals designed to produce a balanced budget.
The 1993-94 Budget Act was signed by the Governor on June 30, 1993,
along with implementing legislation. The Governor vetoed about $71
million in spending. With enactment of the Budget Act, the State carried
out its regular cash flow borrowing program for the fiscal year, which
included the issuance of approximately $2 billion of revenue anticipation
notes maturing on June 28, 1994.
The 1993-94 Budget Act was predicated on General Fund revenues and
transfers estimated at $40.6 billion, about $700 million higher than the
January Governor's Budget, but still about $400 million below 1992-93 (and
the second consecutive year of actual decline). The principal reasons for
declining revenues were the continued weak economy and the expiration (or
repeal) of three fiscal steps taken in 1991 -- a half cent temporary sales
tax, a deferral of operating loss carry forwards, and repeal by initiative
of a sales tax on candy and snack foods.
The 1993-94 Budget Act also assumed Special Fund revenues of $11.9
billion, an increase of 2.9% over 1992-93.
The 1993-94 Budget Act included General Fund expenditures of $38.5
billion (a 6.3% reduction from projected 1992-93 expenditures of $41.1
billion), in order to keep a balanced budget within the available
revenues. The Budget also included Special Fund expenditures of $12.1
billion, a 4.2% increase.
The 1993-94 Budget Act contained no General Fund tax/revenue
increases other than a two year suspension of the renters' tax credit.
The 1994-95 Governor's Budget released January 7, 1994 indicated that
the continued sluggish performance of the State's economy will have an
adverse effect on results for the 1993-94 fiscal year. Revenues were
projected to be $39.7 billion, about $900 million less than the 1993-94
Budget Act, even though revenues in the first half of the fiscal year were
very close to original projections.
In March 1994, expenditures for the 1993-94 fiscal year were
projected in the 1994-95 Governor's Budget to be $39.3 billion, about $800
million above the original 1993-94 Budget Act. The main reasons for this
change are increased health welfare caseloads, lower local property taxes
(which require State support for K-14 education to make up the shortfall),
and lower than expected Federal government payments for immigration-
related costs. The 1994-95 Governor's Budget does not reflect possible
additional General Fund costs in the 1993-94 fiscal year for earthquake
relief.
The Department of Finance's April Bulletin reported that revenues in
March were $294 million above forecast, bringing the year to date total to
$57 million above forecast. Sales and use tax receipts in March were
slightly above forecast, but stay very close to projections. Personal
income tax receipts were far above projections; refunds were lower than
anticipated. Withholding remained at or above forecast. Corporate taxes
were $68 million below forecast, indicating that corporate profits in 1993
were lower than expected. Weakness also was shown in insurance tax
receipts.
The 1994-95 fiscal year will represent the fourth consecutive year
the Governor and Legislature will be faced with a very difficult budget
environment to produce a balanced budget. Many program cost and budgetary
adjustments have already been made in the last three years. The
Governor's Budget once again does not calculate a "gap" which must be
"closed"; rather, it sets forth revenue and expenditure forecasts and
revenue and expenditure proposals which result in a balanced budget,
including elimination of the accumulated 1992-93 budget deficit of $2.8
billion.
The Governor's Budget projects General Fund revenues and transfers in
1994-95 of $41.3 billion, about $1.4 billion above 1993-94. Included in
these projections are receipt of $2.0 billion in new Federal aid to
reimburse the State for the cost of educating and incarcerating
undocumented foreign immigrants, the transfer of 0.5% of the State sales
tax to counties, and tax relief of about $95 million proposed by the
Governor for low and moderate income taxpayers.
The Governor's Budget projects Special Fund revenues of $13.7
billion, and increase of 9.6% over 1993-94 (in part reflecting the tax
shift to counties).
The Governor's Budget projects General Fund expenditures of $38.8
billion (a 1.3% reduction from projected 1993-94 expenditures of $39.3
billion), in order to keep a balanced budget which pays off the
accumulated deficit, within the available revenues. The Governor's Budget
also proposes Special Fund expenditures of $13.7 billion, a 5.4% increase.
The Governor's Budget proposes no tax/revenue increases. Therefore,
if the health and welfare proposals are not adopted or if the Federal aid
will not be forthcoming as proposed, additional program cuts or budget
adjustments will have to be made in the 1994-95 fiscal year to keep the
budget in balance. The Governor's Budget projects the June 30, 1995
ending balance of the budget reserve, the SFEU to be about $260 million,
or less than 0.5% of General Fund revenues.
The Governor's Budget assumes the State's regular cash flow borrowing
program in 1994-95, and assumes the budget will be adopted on time. Cash
resources at the start of the 1994-95 fiscal year are projected to be
insufficient to meet all obligations without external borrowing, such as
revenue anticipation notes, reimbursement or refunding warrants or
registered warrant as occurred in 1992.
Recent Economic Trends. California is experiencing its deepest
recession since the 1930s. The State's tax revenue experience clearly
reflects sharp declines in employment, income and retail sales on a scale
not seen in over 50 years. However, economic signals remain mixed, and
recovery is still an expectation rather than a reality.
The State's tax revenue experience clearly reflects sharp declines in
employment, income and retail sales on a scale not seen in over 50 years.
The 1994-95 Governor's Budget, released January 7, 1994, assumes the State
will remain in recessionary conditions through 1994, with a modest upturn
beginning late in 1994 or in 1995, a year later than predicted in the May
1993 Department of Finance economic projection. Pre-recession job levels
are not expected to be reached until 1998.
California has yet to share in the national economic upturn.
Throughout 1993, nonagricultural wage and salary employment--the broadest,
most currently available measure of regional economic activity--continued
to decline. Since reaching a peak in the Spring of 1990, California has
lost over 850,000 payroll jobs, making this by far the longest and deepest
downturn of the post-World War II era. By contrast, in both the 1969-70
and 1981-82 recessions, the State had recovered its job losses by two
years after the start of the recession.
Major cuts in federal defense spending are now recognized as the main
source of the recession and the largest obstacle to recovery. This year
and for the next several years to come, the principal question in the
California outlook is when and whether other elements in the State's
economy can muster sufficient strength to overcome the continuing drag to
defense cuts.
This forecast does not contemplate a significant recovery in 1994,
but anticipates stabilization of the economy and a modest recovery in
1995. This pattern produces an annual average decline in non farm
employment of 0.6%, an improvement from last year's 1.4% drop and the
similar 1.5% decline in 1992. Next year, employment is forecast to
increase a modest 0.7%.
Personal income growth in 1993 was held below 1% due to tax-driven
bonus activity which artificially boosted income in 1992. Following
President Clinton's election, bonus and stock option payments added $5 to
$6 billion to fourth quarter 1992 personal income, as individuals shifted
income to avoid promised Federal tax increase. With income having fallen
sharply in the first quarter, it is clear that this surge was "borrowed"
from 1993.
Personal income is expected to increase 4% this year and 5% in 1995,
reflecting a more normal relationship between employment and income.
California--along with other areas of the nation--continues to
experience the effects of corporate downsizing. By 1995, it is expected
that a substantial portion of this restructuring will have run its course.
A more stable situation in finance, the utilities and air transportation,
for example, should allow modest gains in total employment by next year.
The rate of decline in defense-related aerospace is forecast to
moderate slowly over the next several years, from a 17% plunge last year,
to 14% in 1994 and 11% in 1995.
Finally, the Department of Finance noted that California would be hit
hard by the latest round of Federal military base closings and force
realignments, which will be implemented over the remaining years of the
decade. California was estimated to have 22% of the nation's defense
spending, but might suffer 25-30% of the defense spending cuts over the
next five years. The Department also estimates that the recent Federal
Budget Reconciliation Act will have a disproportionate and negative impact
on California. California would suffer 19.5% of the outlay reductions,
which rely heavily on defense budget cuts, and the State, with many high
income taxpayers, will pay nearly 14.5% of the tax increases, compared to
12% for the nation's population.
Connecticut Series
Connecticut's economy is diverse, with manufacturing, services
and trade accounting for approximately 70% of total non-agricultural
employment. The State's manufacturing industry is diversified, but from
1970 to 1992 manufacturing employment declined 30.8%, while service-
related employment increased 60.8%, particularly in the service, trade and
finance categories, resulting in an increase of 30% in total growth in
non-agricultural sectors. Defense-related business plays an important
role in the Connecticut economy, and economic activity has been affected
by the volume of defense contracts awarded to Connecticut firms. From
1983 to 1992, Connecticut ranked from sixth to eleventh among all states
in total defense contract awards, receiving 2.8% of all such contracts in
1992. In recent years the Federal government has reduced the amount of
defense-related spending and the largest defense-related employers in the
State have announced substantial labor force reductions. The future
effect of such reductions on the Connecticut economy cannot be predicted
at this time.
Connecticut has a high level of personal income. According to
Bureau of Economic Analysis figures, personal income of State residents
for calendar year 1992 was $89.4 billion, a 4.6% increase over the
previous year. On a per capita basis, personal income in the State
increased 28.7% from 1987 to 1992 and 11.6% from 1989 to 1992, compared
with national increases of 27.8% and 12.9%, respectively. As of July
1993, the estimated rate of unemployment (on a seasonably adjusted basis)
in the State was 7.1%.
While the State's General Fund ended fiscal 1984-85, 1985-86 and
1986-87 with operating surpluses of approximately $365.5 million, $250.1
million and $365.2 million, respectively, the State recorded operating
deficits of $115.6 million, $28 million, $259.5 million and $818.5 million
for fiscal 1987-88, 1988-89, 1989-90 and 1990-91, respectively. Together
with the deficit carried forward from fiscal 1989-90, the total deficit
for fiscal 1990-91 was $965.7 million. The deficit was a result of
revenue collections which were below original estimates and expenditures
which were above original appropriations. The total deficit amount was
funded by the issuance of General Obligation Economic Recovery Notes in
late 1991. As of April 1, 1994, only $630,610,000 of such Economic
Recovery Notes remained outstanding. The Comptroller's annual report for
the fiscal year ended June 30, 1992 reflected a General Fund operating
surplus of $110.2 million., which surplus was used to retire $110.1
million of the State's Economic Recovery Notes. The Comptroller's annual
report for the fiscal year ended June 30, 1993 reflected a General Fund
operating surplus of $113.5 million. The unappropriated surplus in the
General Fund is deemed to be appropriated for debt service for the fiscal
year ending June 30, 1994.
Since 1988, the Comptroller's annual report has reported results
on the basis of both the modified cash basis required by State law and the
modified accrual basis used for GAAP financial reporting. The
Comptroller's monthly report for the period ended February 28, 1994
estimated that on a GAAP basis the cumulative deficit was $458.7 million
for fiscal 1993-94. The modified cash basis of accounting used for
statutory financial reporting and the modified accrual basis used for GAAP
financial reporting are different and, as a result, often produce varying
financial results, primarily because of differences in the recognition of
revenues and expenditures.
The budget adopted by the General Assembly for fiscal 1992-93
projected General Fund expenditures of $7.318 billion and estimated
General Fund revenues of $7.321 billion. The proposed expenditures and
estimated revenues would have resulted in a surplus of $3.7 million. The
Comptroller's annual report for fiscal 1992-1993 reflected a General Fund
operating surplus of $113.5 million, however.
The budget adopted in 1993 for fiscal 1993-1994 was prepared in
compliance with Public Act 91-3 of the June 1991 Special Session, which
required a biennial budget beginning in fiscal 1993-1994. The biennial
budget is a separate budget for each of the two fiscal years. The budget
originally adopted by the General Assembly for fiscal 1993-1994
anticipated General Fund expenditures of $7,690.1 million and General Fund
revenues of $7,695.3 million. For fiscal 1994-1995, the originally
adopted budget anticipated General Fund expenditures of $8,115.6 million
and General Fund revenues of $8,117.3 million. Amendments to these
budgets, adopted June 9, 1994, increase the budgeted General Fund revenues
for fiscal 1993-1994 to $7,909 million. They also increase budgeted
General Fund expenditures and revenues for fiscal 1994-1995 to $8,567.2
million and $8,575.3 million, respectively.
On November 3, 1992, Connecticut voters approved a
constitutional amendment which requires a balanced budget for each year
and imposes a cap on the growth of expenditures. The General Assembly is
required by the constitutional amendment to adopt by three-fifths vote
certain spending cap definitions, which has not yet occurred.
Accordingly, the adopted budgets comply with the current statutory
spending cap definitions enacted in 1991. The statutory spending cap
limits the growth of expenditures to either (1) the average of the annual
increase in personal income in the State for each of the preceding five
years, or (2) the increase in the consumer price index for urban consumers
during the preceding twelve-month period, whichever is greater.
Expenditures for the payment of bonds, notes and other evidences of
indebtedness are excluded from the constitutional and statutory
definitions of general budget expenditures. To preclude shifting
expenditures out of the General Fund to other funds, the spending cap
applies to all appropriated funds combined. For fiscal 1993-94 and for
fiscal 1994-95, permitted growth in capped expenditures is 5.82% and
4.49%, respectively. The General Fund budgets originally adopted for
fiscal years 1993-1994 and 1994-1995 were approximately $58 million and
$24 million, respectively, below the cap for such years.
The State finances its operations primarily through the General
Fund. All tax and most non-tax revenues of the State, except for motor
fuels taxes and other transportation-related taxes, fees and revenues, are
paid into, and substantially all expenditures pursuant to legislative
appropriations are made out of, the General Fund. The State derives
approximately 70% of its revenues from taxes. Miscellaneous fees,
receipts, transfers and Federal grants account for most of the other State
revenue. The sales and use taxes, the corporation business tax and the
recently enacted broad based personal income tax are the major revenue-
raising taxes.
The State has no constitutional or other organic limit on its
power to issue obligations or incur indebtedness other than that it may
only borrow for public purposes. There are no reported court decisions
relating to State bonded indebtedness other than two cases validating the
legislative determination of the public purpose for improving employment
opportunities and related activities. The State Constitution has never
contained provisions requiring submission of the questions of incurring
indebtedness to a public referendum. Therefore, the authorization and
issuance of State debt, including the purpose, amount and nature thereof,
the method and manner of the incurrence of such debt, the maturity and
terms of repayment thereof, and other related matters are statutory.
The General Assembly has empowered, pursuant to bond acts in
effect, the State Bond Commission to authorize general obligation bonds in
the amount of $402,775,363. As of April 1, 1994, the State Bond
Commission has authorized $663,766,136 in such bonds and the balance of
$739,009,227 was available for authorization. From such total
authorizations of $663,766,136 bonds in the aggregate amount of
$778,086,771 have been issued and the balance of $885,679,364.55 remained
authorized but unissued as of April 1, 1994.
The State has established a program of temporary note issuances
to cover periodic cash flow requirements. The maximum volume of cash flow
borrowing is determined based upon the State's actual cash needs on a
daily basis. As of April 1993, the maximum amount borrowed under the
program at any point in time was $569 million, but no temporary notes
under the program were outstanding as of such date.
General obligation bonds issued by Connecticut municipalities
are payable primarily from ad valorem taxes on property subject to
taxation by the municipality. Certain Connecticut municipalities have
experienced severe fiscal difficulties and have reported operating and
accumulated deficits in recent years. The most notable of these is the
City of Bridgeport.
S&P, Moody's and Fitch rate Connecticut's municipal bonds AA-,
Aa and AA+, respectively.
Florida Series
General. The Florida Constitution and Statutes mandate that the
State budget as a whole, and each separate fund within the State budget,
be kept in balance from currently available revenues each fiscal year.
Florida's Constitution permits issuance of Florida Municipal Obligations
pledging the full faith and credit of the State, with a vote of the
electors, to finance or refinance fixed capital outlay projects authorized
by the Legislature provided that the outstanding principal does not exceed
50% of the total tax revenues of the State for the two preceding years.
Florida's Constitution also provides that the Legislature shall
appropriate monies sufficient to pay debt service on State bonds pledging
the full faith and credit of the State as the same becomes due.
Revenues and Expenditures. Financial operations of the State of
Florida covering all receipts and expenditures are maintained through the
use of three funds - General Revenue Fund, Trust Funds and Working Capital
Fund. The General Revenue Fund receives the majority of State tax
revenues. The Trust Funds consist of monies received by the State which
under law or trust agreement are segregated for a purpose authorized by
law. Revenues in the General Revenue Fund which are in excess of the
amount needed to meet appropriations may be transferred to the Working
Capital Fund. Beginning in 1993-94, the Florida Constitution requires that
the State establish a Budget Stabilization Fund. This fund is to contain a
balance of at least 1% of the previous year's net General Revenue
collections in 1994-95, 2% in 1995-96, 3% in 1996-97, 4% in 1997-98 and 5%
in 1998-99 and thereafter. These moneys can be only spent for the purpose
of covering revenues shortfalls and for emergency purposes as defined by
general law. Implementing legislation establishing this fund has not yet
been enacted.
The Florida Constitution and Statutes mandate that the State
budget as a whole, and each separate fund within the State budget, be kept
in balance from currently available revenues each State fiscal year.
Florida ended fiscal years 1991-92 AND 1992-93 with General
Revenue plus Working Capital Funds unencumbered reserves of approximately
$184.6 million and $543.5 million, respectively. Estimated fiscal year
1993-94 General Revenue plus Working Capital Funds available total $13.583
billion. Total effective appropriations for the 1992-93 fiscal year are
estimated at $13.280 billion, resulting in estimated unencumbered reserves
of $302.8 million at the end of the fiscal year. Estimated fiscal year
1994-95 General Revenue plus Working Capital Funds available total $14.453
billion, a 6.4% increase over 1993-94. The massive effort to rebuild and
replace destroyed or damage property in the wake of Hurricane Andrew is
responsible for the substantial positive revenue growth shown. Most of
the impact is in the sales tax.
In fiscal year 1992-93, the State derived approximately 65% of
its total direct revenues to the General Revenue Fund, Trust Funds and
Working Capital Fund from State taxes. Federal grants and other special
revenues accounted for the remaining revenues. Major sources of tax
revenues to the General Revenue Fund are the sales and use tax, corporate
income tax, and beverage tax, which amounted to 70%, 1% and 4%,
respectively, of total General Revenue Fund receipts.
State expenditures are categorized for budget and appropriation
purposes by type of fund and spending unit, which are further subdivided
by line item. In fiscal year 1992-93, expenditures from the General
Revenue Fund for education, health and welfare and public safety amounted
to approximately 51%, 32% and 12%, respectively, of total General
Revenues.
Sales and Use Tax. The greatest single source of tax receipts
in Florida is the sales and use tax. The sales tax is 6% of the sales
price of tangible personal property sold at retail in the State. The use
tax is 6% of the cost price of tangible personal property when the same is
not sold but is used, or stored for use, in the State. The use tax also
applies to the use in the State of tangible personal property purchased
outside Florida which would have been subject to the sales tax if
purchased from a Florida dealer. Less than 10% of the sales tax is
designated for local governments and is distributed to the respective
counties in which collected for use by such counties and municipalities
therein. In addition to this distribution, local governments may (by
referendum) assess a .5% or 1% discretionary sales surtax within their
county. Proceeds from this local option sales tax are earmarked for
funding local infrastructure programs and acquiring land for public
recreation or conservation or protection of natural resources. In
addition, non-consolidated counties with populations in excess of 800,000
may levy a local option sales tax to fund indigent health care. This tax
rate may not exceed .5% and the combined levy of the indigent health care
surtax and the infrastructure surtax described above may not exceed 1%.
Furthermore, charter counties which adopted a charter prior to June 1,
1976, and each county with a consolidated county/municipal government, may
(by referendum) assess up to a 1% discretionary sales surtax within their
county. Proceeds from this tax are earmarked for the development,
construction, maintenance and operation of a fixed guideway rapid transit
system or may be remitted to an expressway or transportation authority for
use on county roads and bridges, for a bus system, or to service bonds
financing roads and bridges. The two taxes, sales and use, stand as
complements to each other, and taken together provide a uniform tax upon
either the sale at retail or the use of all tangible personal property
irrespective of where it may have been purchased. This tax also includes
a levy on the following: (i) rentals of tangible personal property,
transient lodging and non-residential real property; (ii) admissions to
places of amusements, most sports and recreation events; (iii) utilities,
except those used in homes; and (iv) restaurant meals. Exemptions
include: groceries; medicines; hospital rooms and meals; fuels used to
produce electricity; purchases by religious, charitable and educational
nonprofit institutions; most professional, insurance and personal service
transactions; apartments used as permanent dwellings; the trade-in value
of motor vehicles; and residential utilities.
All receipts of the sales and use tax, with the exception of the
tax on gasoline and special fuels, are credited to either the General
Revenue Fund, the Solid Waste Management Trust Fund, or counties and
cities. For the State fiscal year which ended June 30, 1993, receipts
from this source were $9.426 billion, an increase of 2.5% from fiscal year
1991-92.
Motor Fuel Tax. The second largest source of State tax receipts
is the tax on motor fuels. Preliminary data show collections from this
source in the State fiscal year ended June 30, 1993, were $1.207 billion.
However, these revenues are almost entirely dedicated trust funds for
specific purposes and are not included in the State General Revenue Fund.
State and local taxes on motor fuels (gasoline and special fuel)
include several distinct fuel taxes: (i) the State sales tax on motor
fuels, levied at 6% of the average retail price per gallon of fuel, not to
fall below 6.9 cents per gallon; (ii) the State excise tax of four cents
per gallon of motor fuel, proceeds distributed to local governments; (iii)
the State Comprehensive Enhanced Transportation System (SCETS) tax, which
is levied at a rate in each county equal to two-thirds of the sum of the
county's local option motor fuel taxes; and (iv) local option motor fuel
taxes, which may range between one cent to seven cents per gallon.
Alcoholic Beverage Tax. Florida's alcoholic beverage tax is an
excise tax on beer, wine, and liquor. This tax is one of the State's
major tax sources, with revenues totaling $442.2 million in State fiscal
year ended June 30, 1993. Alcoholic beverage receipts declined from the
previous year's total. The revenues collected from this tax are
deposited into the State's General Revenue Fund.
The 1990 Legislature established a surcharge on alcoholic
beverages. This charge is levied on alcoholic beverages sold for
consumption on premises. The surcharge is at ten cents per ounce of
liquor, ten cents per four ounces of wine, four cents per twelve ounces of
beer. Most of these proceeds are deposited into the General Revenue Fund.
In fiscal 1992-93, a total of $97 million was collected.
Corporate Income Tax. Pursuant to an amendment to the State
Constitution, the State Legislature adopted, effective January 1, 1972,
the "Florida Income Tax Code" imposing a tax upon the net income of
corporations, organizations, associations and other artificial entities
for the privilege of conducting business, deriving income or existing
within the State. This tax does not apply to natural persons who engage
in a trade or business or profession under their own or any fictitious
name, whether individually as proprietorships or in partnerships with
others, estates of decedents or incompetents, or testamentary trusts.
The tax is imposed in an amount equal to 5.5% of the taxpayer's
net corporate income for the taxable year, less a $5,000 exemption, as
defined in such Code. Net income is defined by the Code as that share of
a taxpayer's adjusted Federal income for such year which is apportioned to
the State of Florida. Apportionment is by weighted factors of sales
(50%), property (25%) and payroll (25%). All business income is
apportioned and non-business income is allocated to a single jurisdiction,
usually the state of commercial domicile.
All receipts of the corporate income tax are credited to the
General Revenue Fund. For the fiscal year ended June 30, 1993, receipts
from this source were $846.6 million, an increase of 5.7% from fiscal year
1991-92.
Documentary Stamp Tax. Deeds and other documents relating to
realty are taxed at 70 cents per $100 of consideration, while corporate
shares, bonds, certificates of indebtedness, promissory notes, wage
assignments and retail charge accounts are taxed at 35 cents per $100 of
consideration. Documentary stamp tax collections totalled $639 million
during fiscal year 1992-93, posting a 27% increase from the previous
fiscal year. The General Revenue Fund receives approximately 62% of
documentary stamp tax collections.
Gross Receipts Tax. Effective July 1, 1992, the tax rate was
increased from 2.25% to 2.5% of the gross receipts of electric, natural
gas and telecommunications services. All gross receipts utilities
collections are credited to the Public Education Capital Outlay and Debt
Service Trust Fund. In fiscal year 1992-93, gross receipts utilities tax
collections totalled $447.9 million, an increase of 14.3% over the
previous fiscal year.
Intangible Personal Property Tax. This tax is levied on two
distinct bases: i) stocks, bonds, including bonds secured by Florida
realty, notes, government leaseholds, interests in limited partnerships
registered with the SEC, and other miscellaneous intangible personal
property not secured by liens on Florida realty are taxed annually at a
rate of 2 mills, ii) mortgages and other obligations secured by liens on
Florida realty, taxed with a non-recurring 2 mill tax.
Of the tax proceeds, 33.5% is distributed to the Municipal
Revenue Sharing Trust Fund. The remainder is distributed to the General
Revenue Fund.
Fiscal year 1992-93 total intangible personal property tax
collections were $783.4 million, a 34% increase over the prior year.
Severance Taxes. The severance tax includes the taxation of
oil, gas and sulfur production and a tax on the severance of primarily
phosphate rock and other solid minerals. Total collections from severance
taxes totalled $64.5 million during fiscal year 1992-93, down 4.0% from
the previous fiscal year.
Lottery. The 1987 Legislature created the Department of the
Lottery to operate the State Lottery and setting forth the allocation of
the revenues. Of the revenues generated by the Lottery, 50% is to be
returned to the public as prices; at least 38% is to be deposited in the
Educational Enhancement Trust Fund (for public education); and no more
than 12% can be spent on the administrative cost of operating the lottery.
Fiscal year 1992-93 produced ticket sales of $2.13 billion of
which education received approximately $850.1 million.
New Jersey Series
New Jersey's economic base is diversified, consisting of a
variety of manufacturing, construction and service industries,
supplemented by rural areas with selective commercial agriculture. New
Jersey's principal manufacturing industries produce chemicals, pharmaceu-
ticals, electrical equipment and instruments, machinery, services,
wholesale and retail trade, food products, and printing. Other economic
activities include services, wholesale and retail trade, insurance,
tourism, petroleum refining and truck farming.
While New Jersey's economy continued to expand during the late
1980s, the level of growth slowed considerably after 1987. Initially,
this slowdown was an expected response to the State's tight labor market
and the decrease in the number of persons entering the labor force. Late
in the decade, a decline in construction demand and in the rate of growth
in consumer spending as well as continued softness in the State's
manufacturing sector set the stage for the current recession in New
Jersey. The State's average annual unemployment rate was below the
national average from 1981 through 1990. In 1988, unemployment dropped to
its lowest level since 1969, averaging 3.8% for the year. Unemployment,
however, began to rise during 1989 and 1990, averaging 5.0% of the labor
force in New Jersey and 5.5% nationally in 1990. By August 1992, the
State unemployment rate moved above the national average for the first
time in a decade, registering 9.4%. In April 1993, the State unemployment
rate was 9.1%. As a result of the State's fiscal weakness, S&P, in July
1991, lowered its rating of the State's general obligation debt from AAA
to AA+.
The fiscal 1992 estimated budget gap of $1.5 billion was closed
through a combination of one-time and recurring actions. The State's
General Fund ended fiscal 1992 with an undesignated fund balance of $836
million.
The fiscal year 1993 Appropriations Act forecasted Sales and Use
Tax collections of $3.647 billion, a decrease from receipts of $4.038
billion for fiscal year 1992, Gross Income Tax collections of $4.35
billion, an increase from receipts of $4.102 billion for fiscal year 1992,
and Corporation Business Tax collections of $1.06 million, an increase
from receipts of $910.7 million for fiscal year 1992.
The State appropriated approximately $12.639 billion and $14.960
billion for fiscal 1991 and 1992, respectively. Estimated 1993 and 1994
State appropriations total $14.770 billion and $15.650 billion,
respectively. Of the $14.770 billion appropriated in fiscal year 1993
from the General Fund, the Property Tax Relief Fund, the Casino Control
Fund and the Casino Revenue Fund, $6.290 billion (42.6%) was appropriated
for State aid to local governments, $3.390 billion (22.9%) was
appropriated for grants-in-aid (payments to individuals or public or
private agencies for benefits to which a recipient is entitled by law or
for the provision of service on behalf of the State), $4.478 billion
(30.4%) for direct State services, $444.3 million (3.0%) for debt service
on State general obligation bonds and $167.5 million (1.1%) for capital
construction.
As of June 30, 1993, the outstanding general obligation bonded
indebtedness of the State was approximately $3.6 billion. In fiscal year
1992, the State initiated a program under which it issued tax and revenue
anticipation notes to aid in providing effective cash flow management to
fund imbalances which occur in the collection and disbursement of the
General Fund and Property Tax Relief Fund revenues. On October 1, 1992,
the State issued $1.6 billion of tax and revenue anticipation notes.
Such tax and revenue anticipation notes do not constitute a
general obligation of the State or a debt or liability within the meaning
of the State Constitution. Such notes constitute special obligations of
the State payable solely from moneys on deposit in the General Fund and
Property Tax Relief Fund which are attributable to the State's fiscal year
1993 and legally available for such payment.
New York Series
The financial condition of New York State (the "State") and
certain of its public bodies (the "Agencies") and municipalities,
particularly New York City (the "City"), could affect the market values
and marketability of New York Municipal Obligations which may be held by
the New York Series.
A national recession commenced in mid-1990. The downturn
continued through the remainder of the 1990-91 fiscal year, and was
followed by a period of weak economic growth during the remainder of the
1991 calendar year. For the calendar year 1992, the national economy
continued to recover, although at a rate below all post-war recoveries.
The recession was more severe in the State than in other parts of the
nation, owing to a significant retrenchment in the financial services
industry, cutbacks in defense spending, and an overbuilt real estate
market. The State economy remained in recession until 1993, when
employment growth resumed since early 1993, the State has sained
approximately 100,000 jobs.
The State's budget for the 1994-95 fiscal year was enacted by
the Legislature on June 7, 1994, more than two months after the start of
the fiscal year. Prior to adoption of the budget, the Legislation enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for
debt service. The State Financial Plan for 1994-95 fiscal year was
formulated on June 16, 1994 and is based on the State's budget as enacted
by the Legislature and signed into law by the Governor.
The State Financial Plan is based upon forecasts of national and
State economic Activity. Economic forecasts have frequently failed to
predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the
national and State economies, including consumer attitudes toward
spending, Federal financial and monetary policies, the availability of
credit and the condition of the world economy, which could have an adverse
effect on the State. There can be no assurance that the State economy
will not experience worse-than-predicted results in the 1994-95 fiscal
year, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
The State Financial Plan for the 1994-95 fiscal year projects
that the General Fund is balanced on a cash basis with total projected
receipts of $34,321 billion, an increase of $2,092 billion over total
receipts in the 1994-95 fiscal year are projected to be $34.248 billion,
an increase of $2.351 billion over the total amount disbursed and
transferred in the prior fiscal year.
There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting from a
significant disparity between tax revenues projected from a lower
recurring receipts base and the spending required to maintain State
programs at current levels. To address any potential budgetary imbalance,
the State may need to take significant actions to align recurring receipts
and disbursements in future fiscal years.
On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from A1 to A. On March 26, 1990 and
January 13, 1992, S&P changed its ratings on all of the State's
outstanding general obligation bonds from AA- to A and from A to A-,
respectively. Ratings reflect only the respective views of such
organizations, and their concerns about the financial condition of New
York State and City, the debt load of the State and City and any economic
uncertainties about the region. There is no assurance that a particular
rating will continue for any given period of time or that any such rating
will not be revised downward or withdrawn entirely if, in the judgment of
the agency originally establishing the rating, circumstances so warrant.
(1) The State, Agencies and Other Municipalities. During the
mid-1970s, some of the Agencies and municipalities (in particular, the
City) faced extraordinary financial difficulties, which affected the
State's own financial condition. These events, including a default on
short-term notes issued by the New York State Urban Development
Corporation ("UDC") in February 1975, which default was cured shortly
thereafter, and a continuation of the financial difficulties of the City,
created substantial investor resistance to securities issued by the State
and by some of its municipalities and Agencies. For a time, in late 1975
and early 1976, these difficulties resulted in a virtual closing of public
credit markets for State and many State related securities.
In response to the financial problems confronting it, the State
developed and implemented programs for its 1977 fiscal year that included
the adoption of a balanced budget on a cash basis (a deficit of $92
million that actually resulted was financed by issuing notes that were
paid during the first quarter of the State's 1978 fiscal year). In
addition, legislation was enacted limiting the occurrence of additional
so-called "moral obligation" and certain other Agency debt, which
legislation does not, however, apply to MAC debt.
State Financial Results. During the fiscal years ended March
31, 1987, 1988, 1989 and 1990, the State experienced significant
unanticipated variations in the result of the State Financial Plan,
particularly with respect to revenue projections, which it believes
resulted principally from changes in taxpayer behavior caused by the
Federal Tax Reform Act of 1986 (the "Tax Reform Act"). The Tax Reform Act
substantially altered definitions of income and deductions in the
computation of taxable income and substantially lowered tax rates used in
the computation of Federal taxes. In 1987, the State enacted legislation
that conformed State law to most of those definitional changes and also
lowered tax rates. Those changes "broadened" the income tax base through
such devices as full inclusion of capital gains, restrictions on certain
losses and adjustments to income. Those changes in the Federal tax law
are expected to continue to influence taxpayer behavior during the next
several years. For State personal income taxes, the net effect of those
changes is to make estimates and forecasts of adjusted gross income less
reliable than they had been in the past and to add substantial uncertainty
to estimates of State tax liability based on such estimates and forecasts.
In large part because of these uncertainties, the State's Financial Plan
overestimated General Fund tax receipts in the 1988-89, 1989-90 and 1990-
91 fiscal years by $1.9 billion, $1.6 billion and $1.72 billion,
respectively.
During its 1989-90, 1990-91 and 1991-92 fiscal years, the State
incurred cash-basis operating deficits in the General Fund of $775
million, $1.081 billion and $575 million, respectively, prior to the
issuance of short-term tax and revenue anticipation notes ("TRANs"), owing
to lower-than-projected receipts.
For its 1992-93 fiscal year the State had a balanced budget on a
cash basis with a positive margin of $671 million in the General Fund that
was deposited in the refund reserve account.
After reflecting a 1992-93 year-end deposit to the refund
reserve account of $671 million, reported 1992-93 General Fund receipts
were $45 million higher than originally projected in April 1992. If not
for that year-end transaction, which had the effect of reducing 1992-93
receipts by $671 million and making those receipts available in 1993-94,
General Fund receipts would have been $716 million higher than originally
projected.
The favorable performance was primarily attributable to personal
income tax collections that were more than $700 million higher than
originally projected (before reflecting the refund reserve transaction).
The withholding and estimated payment components of the personal income
tax exceeded original estimates by more than $800 million combined,
reflecting both stronger economic activity, particularly at year's end,
and the tax-induced one-time acceleration of income into 1992. Modest
shortfalls were experienced in other components of the income tax.
There were large, but largely offsetting, variances in other
categories. Significantly higher-than-projected business tax collections
and the receipt of unbudgeted payments from the Medical Malpractice
Insurance Association and the New York Racing Association approximately
offset the loss of an anticipated $200 million Federal reimbursement, the
loss of certain budgeted hospital differential revenue as a result of
unfavorable court decisions, and shortfalls in certain miscellaneous
revenue sources.
Disbursements and transfers to other funds totaled $30.829
billion, an increase of $45 million above projections in April 1992.
After adjusting for the impact of a $150 million payment from the Medical
Malpractice Insurance Association to health insurers made pursuant to
legislation passed in January 1993, actual disbursements were $105 million
lower than projected. This reduction primarily reflected higher-than-
anticipated costs for educational programs, as offset by lower costs in
virtually all other categories of spending, including Medicaid, local
health programs, agency operations, fringe benefits, capital projects and
debt service.
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in its contingency
fund and $134 million in its tax stabilization reserve fund. These fund
balances were primarily the result of an improving national economy, State
employment growth, tax collections that exceeded earlier projections and
disbursements that were below expectations. Deposits to the personal
income tax refund reserve have the effect of reducing reported personal
income tax receipts in the fiscal year when made and withdrawals from such
reserve increase receipts in the fiscal year when made. The balance in
the tax reserve account will be used to pay taxpayer refunds, rather than
drawing from 1994-95 receipts.
Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-
95 fiscal year. The remaining $114 million will be redeposited in the tax
refund reserve account at the end of the State's 1994-95 fiscal year to
continue the process of restructuring the State's cash flow as part of the
New York Local Government Assistance Corporation ("LGAC") program. The
balance in the contingency reserve fund will be used to meet the cost of
litigation facing the State. The tax stabilization reserve fund may be
used only in the event of an unanticipated General Fund cash-basis deficit
during the 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve
account, General Fund receipts in 1993-94 exceeded those originally
projected when the State Financial Plan for the year was formulated on
April 16, 1993 by $1.002 billion. Greater-than-expected receipts in the
personal income tax, the bank tax, the corporation franchise tax and the
estate tax accounted for most of this variance, and more than offset
weaker-than-projected collections from the sales and use tax and
miscellaneous receipts. Collections from individual taxes were affected
by various factors including changes in Federal business laws, sustained
profitability of banks, strong performance of securities firms, and
higher-than-expected consumption of tobacco products following price cuts.
The higher receipts resulted, in part, because the New York economy
performed better than forecasted. Employment growth started in the first
quarter of the State's 1993-94 year, and although this lagged the national
economic recovery, the growth in New York began earlier than forecasted.
The New York economy exhibited signs of strength in the service sector, in
construction, and in trade. Long Island, and the Mid-Hudson Valley
continued to lag the rest of the State in economic growth. Approximately
100,000 jobs are believed to have been added during the 1993-94 fiscal
year.
Disbursements and transfer from the General Fund were $303 million
below the level projected in April 1993, an amount that would have been
$423 million had the State not accelerated the payment of Medicaid
billings, which in the April 1993 State Financial Plan were planned to be
deferred into the 1994-95 fiscal year. Compared to the estimates included
in the State Financial Plan formulated in April 1993, disbursements were
lower for Medicaid, capital projects, and debt service (due to
refundings). In addition, $114 million of school and payments were funded
from the proceeds of LGAC bonds. Disbursements were higher-than-expected
for general support for public schools. The State also made the first of
six required payments to the State of Delaware related to the settlement
of Delaware's litigation against the State regarding the disposition of
abandoned property receipts.
During the 1993-94 fiscal year, the State also established and funded
a Contingency Reserve Fund ("CRF") as a way to assist the State in
financing the cost of litigation affecting the State. The CRF was
initially funded with a transfer of $100 million attributable to the
positive margin recorded in the 1992-93 fiscal year. In addition, the
State augmented this initial deposit with $132 million on debt service
savings attributable to the refinancing of State and public authority
bonds during 1993-94. A year-end transfer of $36 million was also made to
the CRF, which, after a disbursement for authorized fund purposes, brought
the CRF balance at the end of 1993-94 to $265 million. This amount was
$165 million higher than the amount originally targeted for this reserve
fund.
The principal operating fund of the State is the General Fund. It
receives all State income that is not required by law to be deposited in
another fund. General Fund receipts, including transfers from other
funds, totalled $32.229 billion in the State's 1993-94 fiscal year.
General Fund receipts in the State's 1994-95 fiscal year are estimated in
the State Financial Plan at $34.321 billion. Including transfers to other
funds, total General Fund disbursements in the 1993-94 fiscal year were
$31.897 billion, and are estimated to total $34.248 billion in the State's
1993-94 fiscal year.
The Special Revenue Funds account for State receipts from specific
sources that are legally restricted in use to specified purposes and
include all moneys received from the Federal government. Total receipts
in Special Revenue Funds are projected at $24.598 billion in the State's
1994-95 fiscal year. Federal grants are projected to account for 75% of
the total projected receipts in Special Revenue Funds in the State's 1994-
95 fiscal year.
Disbursements from Special Revenue Funds are projected to be $24.982
billion for the State's 1994-95 fiscal year. Grants to local governments
disbursed from this fund type are projected to account for 75% of
disbursements from this fund for the 1994-95 fiscal year.
The Capital Projects Funds are used to finance the acquisition and
construction of major capital facilities and to aid local government units
and Agencies in financing capital constructions. Federal grants for
capital projects, largely highway-related, are projected to account for
33% of the $3.233 billion in total projected receipts in Capital Projects
Funds in the State's 1994-95 fiscal year. Total disbursements for capital
projects are projected to be $3.730 billion during the State's 1994-95
fiscal year. Of total disbursements from Capital Projects Funds,
approximately 54% is for various transportation purposes, including
highways and mass transportation facilities; 4% is for programs of the
Department of Correctional Services and other public protection
activities; 16% is for health and mental hygiene facilities; 13% is for
environmental and recreational programs; 5% is for educational programs;
and 5% is for housing and economic development programs. The balance is
for the maintenance of State office facilities and various other capital
programs.
The Debt Service Funds serve to fulfill State debt service on
long-term general obligation State debt and other State lease/purchase and
contractual obligation financing commitments. Total receipts in Debt
Service Funds are projected to reach $2.318 billion in the State's 1994-95
fiscal year. Total disbursements from Debt Service Funds for debt
service, lease/purchase and contractual obligation financing commitments
are projected to be $2.246 billion for the 1994-95 fiscal year.
The State's financial position on a GAAP-basis as shown in its
Combined Balance Sheet as of March 31, 1993 included an accumulated
deficit in its combined governmental funds of $681 million represented by
liabilities of $12.864 billion and assets of $12.183 billion available to
liquidate such liabilities. The accumulated governmental fund type
deficit, as of March 31, 1993, included a $2.551 billion accumulated
General Fund deficit, consisting of a $4.616 billion accumulated deficit
at April 1, 1992, offset by the $2.065 billion operating surplus in the
General Fund for the 1992-93 fiscal year and a net accumulated surplus of
$1.870 billion for all other governmental funds. The State's financial
position as shown in its Combined Balance Sheet as of March 21, 1992
included an accumulated deficit in its combined governmental funds of
$3.315 billion represented by liabilities of $14.166 billion and assets of
$10.851 billion available to liquidate such liabilities.
The State issued $850 million in TRANs on May 4, 1993 to fund
its day-to-day operations and certain local assistance payments to its
municipalities and school districts. All of these TRANs matured on
December 31, 1993.
The State anticipates that its 1994-95 borrowings for capital
purposes will consist of approximately $770 million in general obligation
bonds (including, $140 million for the purpose of redeming outstanding
bond anticipation notes) and $140 million in new commercial paper
issuances. The Legislature has authorized the issuance of up to $69
million in certificates of participation for real property and equipment
acquisitions during the State's 1994-95 fiscal year. The projections of
the State regarding its borrowings for the 1994-95 fiscal year may change
if actual receipts fall short of State projections or if other
circumstances require.
In addition, the LGAC is authorized to provide net proceeds of
$315 million during the 1994-95 fiscal year to make payments to local
governmental units, otherwise made by the state, reduces the State's
future liabilities.
State Agencies. The fiscal stability of the State is related,
at least in part, to the fiscal stability of its localities and various of
its Agencies. Various Agencies have issued bonds secured, in part, by
non-binding statutory provisions for State appropriations to maintain
various debt service reserve funds established for such bonds (commonly
referred to as "moral obligation" provisions).
At September 30, 1993, there were 18 Agencies that had
outstanding debt of $100 million or more. The aggregate outstanding debt,
including refunding bonds, of these 18 Agencies, was $63.5 billion as of
September 30, 1993. As of March 31, 1994, aggregate Agency debt
outstanding as State-supported debt was $21.1 billion and as State-related
was $29.4 billion. Debt service on the outstanding Agency obligations
normally is paid out of revenues generated by the Agencies' projects or
programs, but in recent years the State has provided special financial
assistance, in some cases on a recurring basis, to certain Agencies for
operating and other expenses and for debt service pursuant to moral
obligation indebtedness provisions or otherwise. Additional assistance is
expected to continue to be required in future years.
Several Agencies have experienced financial difficulties in the
past. Certain Agencies continue to experience financial difficulties
requiring financial assistance from the State. Failure of the State to
appropriate necessary amounts or to take other action to permit certain
Agencies to meet their obligations could result in a default by one or
more of such Agencies. If a default were to occur, it would likely have a
significant effect on the marketability of obligations of the State and
the Agencies. These Agencies are discussed below.
The New York State Housing Finance Agency ("HFA") provides
financing for multifamily housing, State University construction, hospital
and nursing home development and other programs. In general, HFA depends
upon mortgagors in the housing programs it finances to generate sufficient
funds from rental income, subsidies and other payments to meet their
respective mortgage repayment obligations to HFA, which provide the
principal source of funds for the payment of debt service on HFA bonds, as
well as to meet operating and maintenance costs of the projects financed.
From January 1, 1976 through March 31, 1987, the State was called upon to
appropriate a total of $162.8 million to make up deficiencies in the debt
service reserve funds of HFA pursuant to moral obligation provisions. The
State has not been called upon to make such payments since the 1986-87
fiscal year and no payments are anticipated during the 1993-94 fiscal
year.
UDC has experienced, and expects to continue to experience,
financial difficulties with the housing programs it had undertaken prior
to 1975, because a substantial number of these housing program mortgagors
are unable to make full payments on their mortgage loans. Through a
subsidiary, UDC is currently attempting to increase its rate of collection
by accelerating its program of foreclosures and by entering into
settlement agreements. UDC has been, and will remain, dependent upon the
State for appropriations to meet its operating expenses. The State also
has appropriated money to assist in the curing of a default by UDC on
notes which did not contain the State's moral obligation provision.
The Metropolitan Transportation Authority (the "MTA") oversees
New York City's subway and bus lines by its affiliates, the New York City
Transit Authority and the Manhattan and Bronx Surface Transit Operating
Authority (collectively, the "TA"). Through MTA's subsidiaries, the Long
Island Rail Road Company, the Metro-North Commuter Railroad Company and
the Metropolitan Suburban Bus Authority, the MTA operates certain commuter
rail and bus lines in the New York metropolitan area. In addition, the
Staten Island Rapid Transit Authority, an MTA subsidiary, operates a rapid
transit line on Staten Island. Through its affiliated agency, the
Triborough Bridge and Tunnel Authority (the "TBTA"), the MTA operates
certain toll bridges and tunnels. Because fare revenues are not
sufficient to finance the mass transit portion of these operations, the
MTA has depended and will continue to depend for operating support upon a
system of State, local government and TBTA support and, to the extent
available, Federal operating assistance, including loans, grants and
operating subsidies.
The TA and the commuter railroads, which are on a calendar
fiscal year, ended 1993 with their budgets balanced on a cash basis. The
TA had a closing cash balance of approximately $39 million.
Over the past several years the State has enacted several
taxes--including a surcharge on the profits of banks, insurance
corporations and general business corporations doing business in the
12-county region (the "Metropolitan Transportation Region") served by the
MTA and a special .25% regional sales and use tax--that provide additional
revenues for mass transit purposes, including assistance to the MTA. The
surcharge, which expires in November 1995, yielded $533 million in
calendar year 1993, of which the MTA was entitled to receive approximately
90%, or approximately $480 million.
For 1994, the TA projects that it will end the year with a $77.6
million cash surplus. For the 1994-95 State fiscal year, total State
assistance to the MTA is estimated at $1.3 billion.
A subway fire on December 28, 1990 and a subway derailment on
August 28, 1991, each of which caused fatalities and many injuries, have
given rise to substantial claims for damages against both the TA and the
City.
In 1981, the State Legislature authorized procedures for the
adoption, approval and amendment of a five-year plan for the capital
program designed to upgrade the performance of the MTA's transportation
systems and to supplement, replace and rehabilitate facilities and
equipment, and also granted certain additional bonding authorization
therefor.
On April 5, 1993, the Legislature approved, and the Governor
subsequently signed into law, legislation authorizing a five-year $9.56
billion capital plan for the MTA for 1992-1996. The MTA has submitted a
1992-1996 Capital Program based on this legislation for the approval of
the MTA Capital Program Review Board (the "CPRB"), as State law requires.
On July 1, 1993, the CPRB indicated that it was withholding approval
pending the resolution of certain related issues. If approved, the 1992-
1996 Capital Program would succeed two previous five-year capital programs
of the periods covering 1982-1986 and 1987-1991. The 1987-1991 Capital
Program totalled approximately $8.0 billion, including $6.2 billion for TA
capital projects.
The 1992-1996 Capital Program would supersede a one-year program
adopted in 1992. State budget legislation for the 1992-93 fiscal year had
required the MTA to submit a one-year capital program for 1992 instead of
a five-year program. The one-year program, which contained $1.635 billion
of projects for transit and commuter facilities combined, was approved by
the CPRB in May 1992, but the five-year program for 1992-1996, required to
be submitted subsequently by the MTA as an amendment to the one-year plan,
was disapproved without prejudice by the CPRB in December 1992.
There can be no assurance that such governmental actions will be
taken, that sources currently identified will not be decreased or
eliminated, or that the 1992-1996 Capital Program will not be delayed or
reduced. If the MTA capital program is delayed or reduced because of
funding shortfalls or other factors, ridership and fare revenues may
decline, which could, among other things, impair the MTA's ability to meet
its operating expenses without additional State assistance.
The cities, towns, villages and school districts of the State
are political subdivisions of the State with the powers granted by the
State Constitution and statutes. As the sovereign, the State retains
broad powers and responsibilities with respect to the government, finances
and welfare of these political subdivisions, especially in education and
social services. In recent years the State has been called upon to
provide added financial assistance to certain localities.
Other Localities. Certain localities in addition to the City
could have financial problems leading to requests for additional State
assistance during the State's 1994-95 fiscal year and thereafter. The
potential impact on the State of such actions by localities is not
included in the projections of the State receipts and disbursements in the
State's 1994-95 fiscal year.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1992, the total indebtedness of
all localities in the State, other than the CIty, was approximately $15.7
billion. A small portion (approximately $39.0 million) of this
indebtedness represented borrowing to finance budgetary deficits and was
issued pursuant to enabling State legislation. State law requires the
Comptroller to review and make recommendations concerning the budgets of
those local government units other than the City authorized by State law
to issue debt to finance deficits during the period that such deficit
financing is outstanding. Seventeen localities had outstanding
indebtedness for deficit financing at the close of their fiscal year
ending in 1992.
In 1992, an unusually large number of local government units
requested authorization for deficit financing. According to the
Comptroller, ten local government units were authorized to issue deficit
financing in the aggregate amount of $131.1 million, including Nassau
County for $65 million in six-year deficit bonds and Suffolk County for
$36 million in six-year deficit bonds. Although the Comptroller has
indicated that the level of deficit financing requests is unprecedented,
such developments are not expected to have a material adverse effect on
the financial condition of the State.
Certain proposed Federal expenditure reductions would reduce, or
in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities to increase local revenues to sustain those
expenditures. If the State, the City or any of the Agencies were to
suffer serious financial difficulties jeopardizing their respective access
to the public credit markets, the marketability of notes and bonds issued
by localities within the State could be adversely affected. Localities
also face anticipated and potential problems resulting from certain
pending litigation, judicial decisions and long-range economic trends.
The longer-range, potential problems of declining city population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing State assistance in the future.
Because of significant fiscal difficulties experienced from time
to time by the City of Yonkers, a Financial Control Board was created by
the State in 1984 to oversee Yonkers' fiscal affairs. Future actions
taken by the Governor or the State Legislature to assist Yonkers in this
crisis could result in the allocation of State resources in amounts that
cannot yet be determined.
Certain litigation pending against the State or its officers or
employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these litigations are those that
involve: (i) the validity and fairness of agreements and treaties by which
various Indian tribes transferred title to the State of approximately six
million acres of land in central New York; (ii) certain aspects of the
State's Medicaid rates and regulations, including reimbursements to
providers of mandatory and optional Medicaid services; (iii) contamination
in the Love Canal area of Niagara Falls; (iv) a challenge to the State's
practice of reimbursing certain Office of Mental Health patient-care
expenses with clients' Social Security benefits; (v) a challenge to the
methods by which the State reimburses localities for the administrative
costs of food stamp programs; (vi) a challenge to the State's possession
of certain funds taken pursuant to the State's Abandoned Property law;
(vii) alleged responsibility of State officials to assist in remedying
racial segregation in the City of Yonkers; (viii) an action, in which the
State is a third party defendant, for injunctive or other appropriate
relief, concerning liability for the maintenance of stone groins
constructed along certain areas of Long Island's shoreline; (ix) actions
challenging the constitutionality of legislation enacted during the 1990
legislative session which changed the actuarial funding methods for
determining contributions to State employee retirement systems; (x) an
action against State and City officials alleging that the present level of
shelter allowance for public assistance recipients is inadequate under
statutory standards to maintain proper housing; (xi) an action challenging
legislation enacted in 1990 which had the effect of deferring certain
employer contributions to the State Teachers' Retirement System and
reducing State aid to school districts by a like amount; (xii) a challenge
to the constitutionality of financing programs of the Thruway Authority
authorized by Chapters 166 and 410 of the Laws of 1991 (described below in
this Part); (xiii) a challenge to the constitutionality of financing
programs of the Metropolitan Transportation Authority and the Thruway
Authority authorized by Chapter 56 of the Laws of 1993 (described below in
this Part); (xiv) challenges to the delay by the State Department of
Social Services in making two one-week Medicaid payments to the service
providers; (xv) challenges by commercial insurers, employee welfare
benefit plans, and health maintenance organizations to provisions of
Section 2807-c of the Public Health Law which impose 13%, 11%, 9%
surcharges on inpatient hospital bills and a bad debt and charity care
allowance on all hospital bills paid by such entities; (xvi) challenges to
the promulgation of the State's proposed procedure to determine the
eligibility for and nature of home care services for Medicaid recipients;
(xvii) a challenge to State implementation of a program which reduces
Medicaid benefits to certain home-relief recipients; and (xviii)
challenges to the rationality and retroactive application of State
regulations recalibrating nursing home Medicaid rates.
Adverse developments or decisions in such cases could affect the
ability of the State to maintain a balanced 1994-95 State Financial Plan.
(2) New York City. In the mid-1970s, the City had large
accumulated past deficits and until recently was not able to generate
sufficient tax and other ongoing revenues to cover expenses in each fiscal
year. However, the City's operating results for the fiscal year ending
June 30, 1993 were balanced in accordance with GAAP, the eleventh
consecutive year in which the City achieved balanced operating results in
accordance with GAAP. The City's ability to maintain balanced operating
results in future years is subject to numerous contingencies and future
developments.
The City's economy, whose rate of growth slowed substantially
over the past three years, is currently in recession. During the 1990 and
1991 fiscal years, as a result of the slowing economy, the City has
experienced significant shortfalls in almost all of its major tax sources
and increases in social services costs, and has been required to take
actions to close substantial budget gaps in order to maintain balanced
budgets in accordance with the Financial Plan.
In 1975, the City became unable to market its securities and
entered a period of extraordinary financial difficulties. In response to
this crisis, the State created MAC to provide financing assistance to the
City and also enacted the New York State Financial Emergency Act for the
City of New York (the "Emergency Act") which, among other things, created
the Financial Control Board (the "Control Board") to oversee the City's
financial affairs and facilitate its return to the public credit markets.
The State also established the Office of the State Deputy Comptroller
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the Control Board's powers of
approval over the City Financial Plan were suspended pursuant to the
Emergency Act. However, the Control Board, MAC and OSDC continue to
exercise various monitoring functions relating to the City's financial
condition. The City prepares and operates under a four-year financial
plan which is submitted annually to the Control Board for review and which
the City periodically updates.
The City's independently audited operating results for each of
its fiscal years from 1981 through 1993 show a General Fund surplus
reported in accordance with GAAP. The City has eliminated the cumulative
deficit in its net General Fund position. In addition, the City's
financial statements for the 1993 fiscal year received an unqualified
opinion from the City's independent auditors, the tenth consecutive year
the City has received such an opinion.
In August 1993, the City adopted and submitted to the Control Board
for its review a four-year Financial Plan covering fiscal years 1994
through 1997 (the "Financial Plan"). The Financial Plan was based on the
City's fiscal year 1994 expense budget adopted June 14, 1993 as well as
certain changes incorporated subsequent to the budget adoption process.
On November 23, 1993, the City adopted and submitted to the Control Board
for its review a first quarter modification to the Financial Plan (the
"November Modification") incorporating various re-estimates of revenues
and expenditures. For fiscal year 1994, the November Modification
includes additional resources stemming primarily from the City
Comptroller's fiscal year 1993 annual audit, savings from a reduction in
prior years' accrued expenditures, and higher State and Federal aid
resulting from claims by the City for reimbursement of various social
services costs. These resources were used to fund new needs in the
November Modification including higher costs in the uniformed agencies, at
the Board of Education (the "BoE") and for certain social services, the
unlikelihood of the sale of the Off-Track Betting Corporation (the "OTB"),
and lower estimates of miscellaneous and other revenues. After taking
these adjustments into account, the November Modification projects a
balanced budget for fiscal year 1994, based upon revenues of $31,585
billion. For fiscal years 1995, 1996 and 1997, the November Modification
projects budget gaps of $1.730 billion, $2.513 billion and $2.699 billion,
respectively. These gaps are higher by about $450 million in fiscal year
1995 and by about $700 million in each of fiscal years 1996 and 1997 than
in the Financial Plan, primarily on account of the nonrecurring value of
the fiscal year 1994 revenue adjustments, the loss of certain one-time
resources funding BoE fiscal year 1994 spending needs, and the
reclassification of anticipated State aid from the baseline revenue
estimates to the gap-closing program. To offset these larger gaps, the
November Modification relies on additional City, State and other actions.
On December 1, 1993, a three-member panel appointed by the Mayor to
address City structural budget imbalance released a report setting forth
its findings and recommendations. In its report, the panel noted that
budget imbalance is likely to be greater than the City now projects by
$255 million in fiscal year 1995, rising to nearly $1.5 billion in fiscal
year 1997. The report provided a number of options that the City should
consider in addressing the structural balance issue such as severe cuts in
City-funded personnel levels, increases in residential property taxes and
the sales tax, and the imposition of bridge tolls and solid waste
collection fees. The report also noted that additional State actions will
be required in many instances to allow the City to cut its budget without
grave damage to basic services.
On December 21, 1993, OSDC issued a report reviewing the November
Modification. The report noted that while the outlook for fiscal year
1994 has improved since August, it will be necessary for the City to
manage its budget aggressively in order to stay on course for budget
balance this year. For fiscal years 1995 through 1997, the report
expressed concern that the gaps identified by the City in the November
Modification are the largest as a percentage of City-fund revenues that
the City has faced at this point in the fiscal year since budget balance
in accordance with GAAP was first achieved in fiscal year 1981.
On December 21, 1993, the staff of the Control Board issued its
report on the November Modification. The report states that the plan is
now more realistic in terms of the gaps it portrays and the solutions it
offers. However, the solutions are mostly limited to fiscal year 1994
while the gap for fiscal year 1995 has been increased by $450 million.
Beginning in fiscal year 1995, budget gaps average over $1 billion
annually. Therefore, the staff recommends that prompt action to replace
many current-year one-shots with recurring savings is critical.
On February 2, 1994, the Mayor presented to the City Council and the
Control Board a mid-year modification to the Financial Plan (the "February
Modification"). The February Modification projects a balanced budget for
fiscal year 1994, based upon revenues of $31.735 billion, including a
general reserve of $81 million. For fiscal years 1995, 1996 and 1997, the
February Modification projects gaps of $2.261 billion, $3.167 billion and
$3.253 billion, respectively, and assumes no wage and salary increases
beyond the expiration of current labor agreements which expire in fiscal
years 1995 and 1996. These gaps have grown since November by about $530
million in fiscal year 1995, and $650 million and $550 million in fiscal
years 1996 and 1997, respectively, owing in large part to lower estimates
of real property tax revenues. To close the budget gap projected for
fiscal year 1995, the February Modification includes a gap-closing program
that consists of the following major elements: (i) an agency program of
$1.048 billion; (ii) fringe benefit and pension savings of $400 million;
(iii) an intergovernmental aid package of $400 million; (iv) a workforce
reduction program of $144 million; and (v) the assumption of a $234
million surplus roll from fiscal year 1994. Implementation of many of the
gap-closing initiatives requires the cooperation of the municipal labor
unions, the City Council and the State and Federal governments. The
February Modification also includes a tax reduction program, with most of
the financial impact affecting the later years of the Plan period.
(3) State Economic Trends. The City accounts for approximately
41% of the State's population and personal income, and the City's
financial health affects the State in numerous ways. The State has long
been one of the wealthiest states in the nation. For decades, however,
the State economy has grown more slowly than that of the nation as a
whole, resulting in the gradual erosion of 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. In recent years, the State's economic position has
improved in a manner consistent with that of the Northeast as a whole.
Part of the reason for the long-term relative decline in the
State's economy has been attributed to the combined State and local tax
burden, which is among the highest in the United States. The burdens of
State and local taxation, in combination with many other causes of
regional economic dislocation, may have contributed to the decision of
businesses and individuals to relocate outside, or not locate within, the
State. In 1987, the State enacted a major personal income tax reduction
and reform program and also reduced the tax rate on corporation income.
In addition, the State has provided various tax incentives to encourage
business relocation and expansion. The State, however, in its 1989-90,
1990-91 and 1991-92 fiscal years substantially increased taxes and fees to
help close projected budget gaps in those years, and in 1990-91, 1991-92
and 1992-93 delayed and restructured the remainder of the personal income
tax reduction program originally enacted in 1987. Under legislation
proposed with the 1993-94 budget, the rules for calculating tax liability
for the 1993 tax year will be the same as those for the 1992 tax year
(deferring for a fourth year a previously scheduled tax reduction), and
the tax reduction program will be frozen at current rates. Also, in July
1991 State legislation was enacted to phase out the benefit of graduated
income tax tables for taxpayers with adjusted gross income above $100,000.
APPENDIX B
Description of S&P, Moody's and Fitch ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the
issuer or obtained by S&P from other sources it considers reliable, and
will include: (1) likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature and provisions of
the obligation; and (3) protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in a small
degree.
A
Principal and interest payments on bonds in this category are
regarded as safe. This rating describes the third strongest capacity for
payment of debt service. It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the
issuer to meet debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could show some variations
because of increased competition or economic influences on revenues.
Basic security provisions, while satisfactory, are less stringent.
Management performance appears adequate.
BBB
Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions,
several of the above factors could contribute to a lesser capacity for
payment of debt service. The difference between "A" and "BBB" rating is
that the latter shows more than one fundamental weakness, or one very
substantial fundamental weakness, whereas the former shows only one
deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the
pledged revenues could show substantial variations, with the revenue flow
possibly being subject to erosion over time. Basic security provisions
are no more than adequate. Management performance could be stronger.
Plus (+) or minus (-): The ratings from AA to BBB may be
modified by the addition of a plus or minus designation to show relative
standing within the major ratings categories.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus sign (+)
designation.
SP-2
The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no
more than 365 days. Issues assigned an A rating are regarded as having
the greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
A-1
This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with
a plus sign (+) designation.
A-2
Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's
Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa
Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 to show
relative standing within the major rating categories, except in the Aaa
category. The modifier 1 indicates a ranking for the security in the
higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a
rating category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade (MIG). Such
ratings recognize the differences between short-term credit risk and
long-term risk. Factors affecting the liquidity of the borrower and
short-term cyclical elements are critical in short-term ratings, while
other factors of major importance in bond risk, long-term secular trends
for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a
demand feature. Such ratings will be designated as VMIG or, if the demand
feature is not rated, as NR.
Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may be limited to
the external liquidity with no or limited legal recourse to the issuer in
the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment
Grade as MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies,
when Moody's assigns a MIG or VMIG rating, all categories define an
investment grade situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins
in earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets
and assured sources of alternate liquidity.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability
to meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to
indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the AAA category covering
12-36 months.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of up to three years,
including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations
in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for timely
payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payments, but the margin of
safety is not as great as the F-1+ and F-1 categories.
PREMIER INSURED MUNICIPAL BOND FUND
PART C. OTHER INFORMATION
_________________________
Item 24. Financial Statements and Exhibits. - List
_______ _________________________________________
(a) Financial Statements:
Included in Part A of the Registration Statement
Condensed Financial Information for the California Series for
the period from August 19, 1993 (commencement of operations)
to ___________________. Condensed Financial Information for
the Connecticut Series for the period from May 5, 1994
(Commencement of Operations) to ________________. Condensed
Financial Information for each of the Florida, National and
New Jersey Series for the period from May 4, 1994
(commencement of operations of each of the Florida, National
and New Jersey Series) to ______________________. Condensed
Financial Information for the New York Series for the period
from May 6, 1994 (commencement of operations of the New York
Series) to _________________________.
Included in Part B of the Registration Statement:
Statement of Investments-- ________________
Statement of Assets and Liabilities-- ________________
Statement of Operations--year ended _________________
Statement of Changes in Net Assets--__________________
Notes to Financial Statements.
Report of Ernst & Young, Independent Auditors, dated
__________________
Schedules No. I through VII and other financial statement information, for
which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission, are either omitted because they are not
required under the related instructions, they are inapplicable, or the
required information is presented in the financial statements or notes
thereto which are included in Part B of the Registration Statement.
Item 24. Financial Statements and Exhibits. - List (continued)
_______ _____________________________________________________
(b) Exhibits:
(1)(a) Amended and Restated Agreement and Declaration of Trust is
incorporated by reference to Exhibit (1)(a) of Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A, filed
on February 10, 1994.
(1)(b) Articles of Amendment to Amended and Restated Agreement and
Declaration of Trust. is incorporated by reference to Exhibit
(1)(b) of Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A, filed on February 10, 1994.
(2) By-Laws are incorporated by reference to Exhibit (2) of Post-
Effective Amendment No. 2 to the Registration Statement on Form
N-1A, filed on February 10, 1994.
(5) Management Agreement is incorporated by reference to Exhibit (5)
of Post-Effective Amendment No. 2 to the Registration Statement on
Form N-1A, filed on February 10, 1994.
(6)(a) Distribution Agreement is incorporated by reference to Exhibit
(6)(a) of Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A, filed on February 10, 1994.
(6)(b) Distribution Plan Agreement is incorporated by reference to
Exhibit 6(b) of Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A, filed on February 10, 1994.
(6)(c) Shareholder Services Plan Agreement is incorporated by reference
to Exhibit 6(c) of Pre-Effective Amendment No. 1 to the
Registration Statement on From N-1A, filed on July 16, 1993.
(8)(a) Custody Agreement is incorporated by reference to Exhibit 8(a) of
Post-Effective Amendment No. 2 to the Registration Statement on
Form N-1A, filed on February 10, 1994.
(8)(b) Sub-Custodian Agreements are incorporated by reference to Exhibit
8(b) of Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A, filed on February 10, 1994.
(9) Shareholder Services Plan is incorporated by reference to Exhibit
(9) of Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A, filed on February 10, 1994.
(15) Distribution Plan is incorporated by reference to Exhibit (15) of
Post-Effective Amendment No. 2 to the Registration Statement on
Form N-1A, filed on February 10, 1994.
(16) Schedules of Computation of Performance Data are incorporated by
reference to Exhibit (16) of Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A, filed on February 10, 1994.
Item 24. Financial Statements and Exhibits. - List (continued)
_______ _____________________________________________________
Other Exhibits
______________
(a) Powers of Attorney of the Trustees and officers.
(b) Certificate of Secretary.
Item 25. Persons Controlled by or under Common Control with Registrant.
_______ ______________________________________________________________
Not Applicable
Item 26. Number of Holders of Securities.
_______ ________________________________
(1) (2)
Number of Record
Title of Class Holders as of September 29, 1994
______________ ________________________________
Shares of beneficial
interest, $.001 per share Class A Class B
_______ _______
National Series 82 126
California Series 55 96
Connecticut Series 225 281
Florida Series 502 372
New Jersey Series 103 64
New York Series 60 67
Item 27. Indemnification
_______ _______________
The Statement as to the general effect of any contract,
arrangements or statute under which a director, officer,
underwriter or affiliated person of the Registrant is insured or
indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any
director, officer, affiliated person or underwriter for their own
protection, is incorporated by reference to Item 4 of Part II of
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A, filed on July 16, 1993.
Reference is also made to the Distribution Agreement attached as
Exhibit (6)(a) of Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A, filed on February 10, 1994.
Item 28. Business and Other Connections of Investment Adviser.
_______ ____________________________________________________
The Dreyfus Corporation ("Dreyfus") and subsidiary companies
comprise a financial service organization whose business
consists primarily of providing investment management services
as the investment adviser, manager and distributor for sponsored
investment companies registered under the Investment Company Act
of 1940 and as an investment adviser to institutional and
individual accounts. Dreyfus also serves as sub-investment
adviser to and/or administrator of other investment companies.
Premier Mutual Fund Services, Inc. serves primarily as
distributor of shares of investment companies sponsored by
Dreyfus and of other investment companies for which Dreyfus acts
as investment adviser, sub-investment adviser or administrator.
Dreyfus Management, Inc., another holly-owned subsidiary,
provides investment management services to various pension
plans, institutions and individuals.
Item 28. Business and Other Connections of Investment Adviser (continued)
________ ________________________________________________________________
Officers and Directors of Investment Adviser
____________________________________________
Name and Position
with Dreyfus Other Businesses
_________________ ________________
MANDELL L. BERMAN Real estate consultant and private investor
Director 29100 Northwestern Highway, Suite 370
Southfield, Michigan 48034;
Past Chairman of the Board of Trustees of
Skillman Foundation.
Member of The Board of Vintners Intl.
FRANK CAHOUET Chairman of the Board, President and
Director Chief Executive Officer:
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258;
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Director:
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103;
Saint-Gobain Corporation
750 East Swedesford Road
Valley Forge, Pennsylvania 19482;
Teledyne, Inc.
1901 Avenue of the Stars
Los Angeles, California 90067
ALVIN E. FRIEDMAN Senior Adviser to Dillon, Read & Co. Inc.
Director 535 Madison Avenue
New York, New York 10022;
Director and member of the Executive
Committee of Avnet, Inc.**
ABIGAIL Q. McCARTHY Author, lecturer, columnist and educational
Director consultant
2126 Connecticut Avenue
Washington, D.C. 20008
DAVID B. TRUMAN Educational consultant;
Director Past President of the Russell Sage Foundation
230 Park Avenue
New York, New York 10017;
Past President of Mount Holyoke College
South Hadley, Massachusetts 01075;
Former Director:
Student Loan Marketing Association
1055 Thomas Jefferson Street, N.W.
Washington, D.C. 20006;
DAVID B. TRUMAN Former Trustee:
(cont'd) College Retirement Equities Fund
730 Third Avenue
New York, New York 10017
HOWARD STEIN Chairman of the Board:
Chairman of the Board and Dreyfus Acquisition Corporation*;
Chief Executive Officer The Dreyfus Consumer Credit
Corporation*;
Dreyfus Land Development Corporation*;
Dreyfus Management, Inc.*;
Dreyfus Service Corporation*;
Chairman of the Board and Chief Executive
Officer:
Major Trading Corporation*;
Director:
Avnet, Inc.**;
Dreyfus America Fund++++
The Dreyfus Fund International
Limited+++++
World Balanced Fund+++
Dreyfus Partnership Management,
Inc.*;
Dreyfus Personal Management, Inc.*;
Dreyfus Precious Metals, Inc.*;
Dreyfus Realty Advisors, Inc.+++;
Dreyfus Service Organization, Inc.*;
The Dreyfus Trust Company++;
Seven Six Seven Agency, Inc.*;
Trustee:
Corporate Property Investors
New York, New York;
JULIAN M. SMERLING Director and Executive Vice President:
Vice Chairman of the Dreyfus Service Corporation*;
Board of Directors Director and Vice President:
Dreyfus Service Organization, Inc.*;
Vice Chairman and Director:
The Dreyfus Trust Company++;
The Dreyfus Trust Company (N.J.)++;
Director:
The Dreyfus Consumer Credit
Corporation*;
Dreyfus Partnership Management, Inc.*;
Seven Six Seven Agency, Inc.*
JOSEPH S. DiMARTINO Director and Chairman of the Board:
President, and The Dreyfus Trust Company++;
Director Director and President:
Dreyfus Acquisition Corporation*;
The Dreyfus Consumer Credit
Corporation*;
Dreyfus Partnership Management, Inc.*;
The Dreyfus Trust Company (N.J.)++;
Director and Executive Vice President:
Dreyfus Service Corporation*;
Director and Vice President:
Dreyfus Service Organization, Inc.*;
JOSEPH S. DiMARTINO Director:
(cont'd) Dreyfus Management, Inc.*;
Dreyfus Personal Management, Inc.*;
Noel Group, Inc.
667 Madison Avenue
New York, New York 10021;
Trustee:
Bucknell University
Lewisburg, Pennsylvania 17837;
Vice President and former Treasurer and
Director:
National Muscular Dystrophy Association
810 Seventh Avenue
New York, New York 10019;
President, Chief Operating Officer and
Director:
Major Trading Corporation*
W. KEITH SMITH Chairman and Chief Executive Officer:
Chief Operating Officer The Boston Company
One Boston Place
Boston, Massachusetts 02108
Vice Chairman of the Board:
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258;
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Director:
Dentsply International, Inc.
570 West College Avenue
York, Pennsylvania 17405
PAUL H. SNYDER Director:
Vice President and Chief Pennsylvania Economy League
Financial Officer Philadelphia, Pennsylvania;
Children's Crisis Treatment Center
Philadelphia, Pennsylvania;
Director and Vice President:
Financial Executives Institute,
Philadelphia Chapter
Philadelphia, Pennsylvania;
LAWRENCE S. KASH Chairman, President and Chief
Vice Chairman, Distribution Executive Officer:
The Boston Company Advisors, Inc.
53 State Street
Exchange Place
Boston, Massachusetts 02109
President:
The Boston Company
One Boston Place
Boston, Massachusetts 02108;
Laurel Capital Advisors
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258;
Boston Group Holdings, Inc.
LAWRENCE S. KASH Executive Vice President
(cont'd) Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258;
Boston Safe Deposit & Trust
One Boston Place
Boston, Massachusetts 02108
JAY R. DIMARTINE Chairman of the Board and President:
Vice President, Marketing The Woodbury Society
16 Woodbury Lane
Ogunquit, ME 03907;
Former Managing Director:
Bankers Trust Company
280 Park Avenue
New York, NY 10017;
BARBARA E. CASEY President:
Vice President, Dreyfus Retirement Services;
Retirement Services Executive Vice President:
Boston Safe Deposit & Trust Co.
One Boston Place
Boston, Massachusetts 02108;
DIANE M. COFFEY None
Vice President,
Corporate Communications
LAWRENCE M. GREENE Chairman of the Board:
Legal Consultant and The Dreyfus Security Savings
Director Bank, F.S.B.+;
Director and Executive Vice President:
Dreyfus Service Corporation*;
Director and Vice President:
Dreyfus Acquisition Corporation*;
Dreyfus Service Organization, Inc.*;
Director:
Dreyfus-Lincoln, Inc.*;
Dreyfus Management, Inc.*;
Dreyfus Precious Metals, Inc.*;
Dreyfus Thrift & Commerce+++;
The Dreyfus Trust Company (N.J.)++;
Seven Six Seven Agency, Inc.*;
ROBERT F. DUBUSS Director and Treasurer:
Vice President Major Trading Corporation*;
Director and Vice President:
The Dreyfus Consumer Credit
Corporation*;
The Truepenny Corporation*;
Treasurer:
Dreyfus Management, Inc.*;
Dreyfus Precious Metals, Inc.*;
Dreyfus Service Corporation*;
Director:
The Dreyfus Trust Company++;
The Dreyfus Trust Company (N.J.)++;
Dreyfus Thrift & Commerce****
ELIE M. GENADRY President:
Vice President, Institutional Services Division of
Dreyfus
Wholesale Service Corporation*;
Broker-Dealer Division of Dreyfus
Service
Corporation*;
Group Retirement Plans Division of
Dreyfus
Service Corporation;
Executive Vice President:
Dreyfus Service Corporation*;
Dreyfus Service Organization, Inc.*;
Vice President:
The Dreyfus Trust Company++;
Vice President-Sales:
The Dreyfus Trust Company (N.J.)++;
DANIEL C. MACLEAN Director, Vice President and Secretary:
Vice President and General Dreyfus Precious Metals, Inc.*;
Counsel Director and Vice President:
The Dreyfus Consumer Credit
Corporation*;
The Dreyfus Trust Company (N.J.)++;
Director and Secretary:
Dreyfus Partnership Management, Inc.*;
Major Trading Corporation*;
The Truepenny Corporation+;
Director:
The Dreyfus Trust Company++;
Secretary:
Seven Six Seven Agency, Inc.*;
JEFFREY N. NACHMAN None
Vice President, Fund
Administration
PETER A. SANTORIELLO Director and President
Vice President Dreyfus Management, Inc.*;
Vice President:
Dreyfus Personal Management, Inc.*
KIRK V. STUMPP Senior Vice President and
Vice President - Director of Marketing:
New Product Development Dreyfus Service Corporation*
PHILIP L. TOIA Chairman of the Board and Vice President:
Vice Chairman, Operations Dreyfus Thrift & Commerce****;
and Administration Director:
The Dreyfus Security Savings Bank
F.S.B.+;
Senior Loan Officer and Director:
The Dreyfus Trust Company++;
Vice President:
The Dreyfus Consumer Credit
Corporation*;
President and Director:
Dreyfus Personal Management, Inc.*;
Director:
Dreyfus Realty Advisors, Inc.+++;
Formerly, Senior Vice President:
The Chase Manhattan Bank, N.A. and
The Chase Manhattan Capital Markets
Corporation
PHILIP L. TOIA One Chase Manhattan Plaza
(Cont'd) New York, New York 10081
KATHERINE C. WICKHAM Formerly, Assistant Commissioner:
Vice President, Department of Parks and Recreation of the
Human Resources City of New York
830 Fifth Avenue
New York, New York 10022
MAURICE BENDRIHEM Treasurer:
Controller Dreyfus Partnership Management, Inc.*;
Dreyfus Service Organization, Inc.*;
Seven Six Seven Agency, Inc.*;
The Truepenny Corporation*;
Controller:
Dreyfus Acquisition Corporation*;
The Dreyfus Trust Company++;
The Dreyfus Trust Company (N.J.)++;
The Dreyfus Consumer Credit
Corporation*;
Assistant Treasurer:
Dreyfus Precious Metals*
Formerly, Vice President-Financial Planning,
Administration and Tax:
Showtime/The Movie Channel, Inc.
1633 Broadway
New York, New York 10019
MARK N. JACOBS Secretary:
Vice President, Fund The Dreyfus Consumer Credit
Legal and Compliance Corporation*; Dreyfus Management,
Inc.*;
Assistant Secretary:
Dreyfus Service Organization, Inc.*;
Major Trading Corporation*;
The Truepenny Corporation*
CHRISTINE PAVALOS Assistant Secretary:
Assistant Secretary Dreyfus Management, Inc.*;
Dreyfus Service Corporation*;
The Truepenny Corporation*
______________________________________
* The address of the business so indicated is 200 Park Avenue, New
York, New York 10166.
** The address of the business so indicated is 80 Cutter Mill Road,
Great Neck, New York 11021.
*** The address of the business so indicated is 45 Broadway, New York,
New York 10006.
**** The address of the business so indicated is Five Triad Center, Salt
Lake City, Utah 84180.
+ The address of the business so indicated is Atrium Building, 80
Route 4 East, Paramus, New Jersey 07652.
++ The address of the business so indicated is 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144.
+++ The address of the business so indicated is One Rockefeller Plaza,
New York, New York 10020.
++++ The address of the business so indicated is 2 Boulevard Royal,
Luxembourg.
+++++ The address of the business so indicated is Nassau, Bahama Islands.
Item 29. Principal Underwriters
________ ______________________
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or
exclusive distributor:
1) Comstock Partners Strategy Fund, Inc.
2) Dreyfus A Bonds Plus, Inc.
3) Dreyfus Appreciation Fund, Inc.
4) Dreyfus Asset Allocation Fund, Inc.
5) Dreyfus Balanced Fund, Inc.
6) Dreyfus BASIC Money Market Fund, Inc.
7) Dreyfus BASIC Municipal Fund
8) Dreyfus BASIC U.S. Government Money Market Fund
9) Dreyfus California Intermediate Municipal Bond Fund
10) Dreyfus California Tax Exempt Bond Fund, Inc.
11) Dreyfus California Tax Exempt Money Market Fund
12) Dreyfus Capital Value Fund, Inc.
13) Dreyfus Cash Management
14) Dreyfus Cash Management Plus, Inc.
15) Dreyfus Connecticut Intermediate Municipal Bond Fund
16) Dreyfus Connecticut Municipal Money Market Fund, Inc.
17) The Dreyfus Convertible Securities Fund, Inc.
18) Dreyfus Edison Electric Index Fund, Inc.
19) Dreyfus Florida Intermediate Municipal Bond Fund
20) Dreyfus Florida Municipal Money Market Fund
21) Dreyfus Focus Funds, Inc.
22) The Dreyfus Fund Incorporated
23) Dreyfus Global Bond Fund, Inc.
24) Dreyfus Global Growth, L.P. (A Strategic Fund)
25) Dreyfus Global Investing, Inc.
26) Dreyfus GNMA Fund, Inc.
27) Dreyfus Government Cash Management
28) Dreyfus Growth and Income Fund, Inc.
29) Dreyfus Growth Opportunity Fund, Inc.
30) Dreyfus Institutional Money Market Fund
31) Dreyfus Institutional Short Term Treasury Fund
32) Dreyfus Insured Municipal Bond Fund, Inc.
33) Dreyfus Intermediate Municipal Bond Fund, Inc.
34) Dreyfus International Equity Fund, Inc.
35) Dreyfus Investors GNMA Fund
36) The Dreyfus Leverage Fund, Inc.
37) Dreyfus Life and Annuity Index Fund, Inc.
38) Dreyfus Liquid Assets, Inc.
39) Dreyfus Massachusetts Intermediate Municipal Bond Fund
40) Dreyfus Massachusetts Municipal Money Market Fund
41) Dreyfus Massachusetts Tax Exempt Bond Fund
42) Dreyfus Michigan Municipal Money Market Fund, Inc.
43) Dreyfus Money Market Instruments, Inc.
44) Dreyfus Municipal Bond Fund, Inc.
45) Dreyfus Municipal Cash Management Plus
46) Dreyfus Municipal Money Market Fund, Inc.
47) Dreyfus New Jersey Intermediate Municipal Bond Fund
48) Dreyfus New Jersey Municipal Bond Fund, Inc.
49) Dreyfus New Jersey Municipal Money Market Fund, Inc.
50) Dreyfus New Leaders Fund, Inc.
51) Dreyfus New York Insured Tax Exempt Bond Fund
52) Dreyfus New York Municipal Cash Management
53) Dreyfus New York Tax Exempt Bond Fund, Inc.
54) Dreyfus New York Tax Exempt Intermediate Bond Fund
55) Dreyfus New York Tax Exempt Money Market Fund
56) Dreyfus Ohio Municipal Money Market Fund, Inc.
57) Dreyfus 100% U.S. Treasury Intermediate Term Fund
58) Dreyfus 100% U.S. Treasury Long Term Fund
59) Dreyfus 100% U.S. Treasury Money Market Fund
60) Dreyfus 100% U.S. Treasury Short Term Fund
61) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
62) Dreyfus Pennsylvania Municipal Money Market Fund
63) Dreyfus Short-Intermediate Government Fund
64) Dreyfus Short-Intermediate Municipal Bond Fund
65) Dreyfus Short-Term Income Fund, Inc.
66) The Dreyfus Socially Responsible Growth Fund, Inc.
67) Dreyfus Strategic Growth, L.P.
68) Dreyfus Strategic Income
69) Dreyfus Strategic Investing
70) Dreyfus Tax Exempt Cash Management
71) Dreyfus Treasury Cash Management
72) Dreyfus Treasury Prime Cash Management
73) Dreyfus Variable Investment Fund
74) Dreyfus-Wilshire Target Funds, Inc.
75) Dreyfus Worldwide Dollar Money Market Fund, Inc.
76) First Prairie Cash Management
77) First Prairie Diversified Asset Fund
78) First Prairie Money Market Fund
79) First Prairie Municipal Money Market Fund
80) First Prairie Tax Exempt Bond Fund, Inc.
81) First Prairie U.S. Government Income Fund
82) First Prairie U.S. Treasury Securities Cash Management
83) General California Municipal Bond Fund, Inc.
84) General California Municipal Money Market Fund
85) General Government Securities Money Market Fund, Inc.
86) General Money Market Fund, Inc.
87) General Municipal Bond Fund, Inc.
88) General Municipal Money Market Fund, Inc.
89) General New York Municipal Bond Fund, Inc.
90) General New York Municipal Money Market Fund
91) Pacific American Fund
92) Peoples Index Fund, Inc.
93) Peoples S&P MidCap Index Fund, Inc.
94) Premier Insured Municipal Bond Fund
95) Premier California Municipal Bond Fund
96) Premier GNMA Fund
97) Premier Growth Fund, Inc.
98) Premier Municipal Bond Fund
99) Premier New York Municipal Bond Fund
100) Premier State Municipal Bond Fund
(b)
Positions and
Name and principal Positions and offices with offices with
business address the Distributor Registrant
__________________ ___________________________ _____________
Marie E. Connolly Director, President and Chief President and
Operating Officer Treasurer
Joseph F. Tower, III Senior Vice President and Chief Assistant
Financial Officer Treasurer
John E. Pelletier Senior Vice President and General Secretary
Counsel
Frederick C. Dey Senior Vice President Assistant
Treasurer
Eric B. Fischman Vice President and Associate Assistant
General Counsel Secretary
Jean M. O'Leary Assistant Secretary None
Ruth D. Leibert Assistant Vice President Assistant
Secretary
Paul D. Furcinito Assistant Vice President None
John W. Gomez Director None
William J. Nutt Director None
Item 30. Location of Accounts and Records
________________________________
1. The Shareholder Services Group, Inc.,
a subsidiary of First Data Corporation
P.O. Box 9671
Providence, Rhode Island 02940-9671
2. The Bank of New York
110 Washington Street
New York, New York 10286
3. The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Item 31. Management Services
_______ ___________________
Not Applicable
Item 32. Undertakings
________ ____________
(1) To call a meeting of shareholders for the purpose of voting upon
the question of removal of a trustee(s) when requested in writing
to do so by the holders of at least 10% of the Registrant's
outstanding shares of beneficial interest and in connection with
such meeting to comply with the provisions of Section 16(c) of
the Investment Company Act of 1940 relating to shareholder
communications.
(2) To furnish each person to whom a prospectus is delivered with a
copy of the Fund's latest Annual Report to Shareholders, upon
request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(a) under the Securities Act of 1933 and has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
York, and State of New York on the 30th day of September, 1994.
PREMIER INSURED MUNICIPAL BOND FUND
BY: /s/Marie E. Connolly*
Marie E. Connolly, President
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to the Registration Statement
has been signed below by the following persons in the capacities and on the
date indicated.
Signatures Title Date
/s/Marie E. Connolly* President (Principal Executive 9/30/94
Marie E. Connolly Officer, Financial and Accounting
Officer) and Treasurer
/s/Clifford L. Alexander, Jr.* Trustee 9/30/94
Clifford L. Alexander, Jr.
/s/Peggy C. Davis* Trustee 9/30/94
Peggy C. Davis
/s/Ernest Kafka* Trustee 9/30/94
Ernest Kafka
/s/Saul B. Klaman* Trustee 9/30/94
Saul B. Klaman
/s/Nathan Leventhal* Trustee 9/30/94
Nathan Leventhal
BY: __________________________*
Eric B. Fischman,
Attorney-in-Fact
INDEX OF EXHIBITS
_________________
ITEM Page
____ ____
Other Exhibits:
(a) Powers of Attorney of the Trustees and Officers
(b) Certificate of Assistant Secretary
OTHER EXHIBITS(b)
PREMIER INSURED MUNICIPAL BOND FUND
Certificate of Secretary
The undersigned, Eric B.Fischman, Assistant Secretary of Premier
Insured Municipal Bond Fund (the "Fund"), hereby certifies that set forth
below is a true and correct copy of the resolution adopted by the Fund's
Board of Trustees pursuant to written consent dated August 30, 1994.
RESOLVED, that the Registration Statement and any and
all amendments and supplements thereto, may be signed by any one of
Frederick C. Dey, Eric B. Fischman, Ruth
D. Leibert and John Pelletier as the attorney-in-fact for the proper
officers of the Fund, with full power of substitution and resubstitution;
and that the appointment of each of such persons as such attorney-in-fact
hereby is authorized and approved; and that such attorneys-in-fact, and
each of them, shall have full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
with such Registration Statement and any and all amendments and
supplements thereto, as fully to all intents and purposes as the officer,
for whom he is acting as attorney-in-fact, might or could do in person.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the
seal of the Fund on September 29, 1994
______________________
Eric B. Fischman
Assistant Secretary
(SEAL)
POWER OF ATTORNEY
The undersigned hereby constitute and appoint Frederick C.
Dey, Eric B. Fischman, Ruth D. Leibert and John E. Pelletier and
each of them, with full power to act without the other, his or
her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities (until
revoked in writing) to sign any and all amendments to the
Registration Statement for each Fund listed on Schedule A
attached hereto (including post-effective amendments and
amendments thereto), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to
do and perform each and every act and thing ratifying and
confirming all that said attorneys-in-fact and agents or any of
them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
____________________________________
Clifford L. Alexander, Jr., Board Member
____________________________________
Peggy C. Davis, Board Member
____________________________________
Ernest Kafka, Board Member
____________________________________
Saul B. Klaman, Board Member
____________________________________
Nathan Leventhal, Board Member
Dated August 30, 1994.
POWER OF ATTORNEY
The undersigned hereby constitute and appoint Frederick C. Dey, Eric
B. Fischman, Ruth D. Leibert and John E. Pelletier and each of them, with
full power to act without the other, his or her true and lawful attorney-
in-fact and agent, with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and all
capacities (until revoked in writing) to sign any and all amendments to
the Registration Statement for each Fund listed on Schedule A attached
hereto (including post-effective amendments and amendments thereto), and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing
ratifying and confirming all that said attorneys-in-fact and agents or any
of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
__________________________________________
Marie E. Connolly, President and Treasurer
Dated August 30, 1994.
SCHEDULE A
GROUP IV & V
Dreyfus Appreciation Fund, Inc.
General California Municipal Bond Fund, Inc.
General California Municipal Money Market Fund
General Government Securities Money Market Fund, Inc.
General Money Market Fund, Inc.
General Municipal Bond Fund, Inc.
General Municipal Money Market Fund, Inc.
General New York Municipal Bond Fund, Inc.
General New York Municipal Money Market Fund
Premier California Municipal Bond Fund
Premier GNMA Fund, Inc.
Premier Insured Municipal Bond Fund
Premier Limited Term Municipal Bond Fund
Premier Municipal Bond Fund
Premier New York Municipal Bond Fund
Premier State Municipal Bond Fund
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> 4853
<INVESTMENTS-AT-VALUE> 4940
<RECEIVABLES> 498
<ASSETS-OTHER> 678
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6116
<PAYABLE-FOR-SECURITIES> 199
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49
<TOTAL-LIABILITIES> 248
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5782
<SHARES-COMMON-STOCK> 195
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<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 33
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 86
<NET-CHANGE-FROM-OPS> 119
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 202
<NUMBER-OF-SHARES-REDEEMED> 8
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 5868
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<PER-SHARE-GAIN-APPREC> .44
<PER-SHARE-DIVIDEND> .18
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.94
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<PERIOD-END> JUL-31-1994
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<INVESTMENTS-AT-VALUE> 4636
<RECEIVABLES> 73
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4954
<PAYABLE-FOR-SECURITIES> 697
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 824
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4414
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (284)
<NET-ASSETS> 1473
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 134
<OTHER-INCOME> 0
<EXPENSES-NET> 8
<NET-INVESTMENT-INCOME> 127
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (285)
<NET-CHANGE-FROM-OPS> (158)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 55
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 220
<NUMBER-OF-SHARES-REDEEMED> 100
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 4030
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<GROSS-EXPENSE> 112
<AVERAGE-NET-ASSETS> 1084
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> .62
<PER-SHARE-GAIN-APPREC> (.94)
<PER-SHARE-DIVIDEND> .62
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.56
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<SERIES>
<NUMBER> 3
<NAME> CONNECTICUT SERIES - CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> 14441
<INVESTMENTS-AT-VALUE> 14579
<RECEIVABLES> 926
<ASSETS-OTHER> 1565
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17070
<PAYABLE-FOR-SECURITIES> 1693
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23
<TOTAL-LIABILITIES> 1716
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15215
<SHARES-COMMON-STOCK> 661
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 139
<NET-ASSETS> 8438
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 71
<OTHER-INCOME> 0
<EXPENSES-NET> 3
<NET-INVESTMENT-INCOME> 68
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 139
<NET-CHANGE-FROM-OPS> 207
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 39
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 690
<NUMBER-OF-SHARES-REDEEMED> 31
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 15354
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38
<AVERAGE-NET-ASSETS> 3113
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> .19
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.76
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000902976
<NAME> PREMIER INSURED MUNICIPAL BOND FUND
<SERIES>
<NUMBER> 4
<NAME> FLORIDA SERIES - CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> 22801
<INVESTMENTS-AT-VALUE> 22905
<RECEIVABLES> 1885
<ASSETS-OTHER> 853
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25643
<PAYABLE-FOR-SECURITIES> 2913
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 2918
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22621
<SHARES-COMMON-STOCK> 814
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 104
<NET-ASSETS> 10405
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 113
<OTHER-INCOME> 0
<EXPENSES-NET> 6
<NET-INVESTMENT-INCOME> 107
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 105
<NET-CHANGE-FROM-OPS> 212
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 55
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10720
<NUMBER-OF-SHARES-REDEEMED> (371)
<SHARES-REINVESTED> 16
<NET-CHANGE-IN-ASSETS> 22725
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 51
<AVERAGE-NET-ASSETS> 4401
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> .19
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<PER-SHARE-DIVIDEND> (.19)
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.79
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<SERIES>
<NUMBER> 5
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> 3926
<INVESTMENTS-AT-VALUE> 3944
<RECEIVABLES> 282
<ASSETS-OTHER> 933
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5159
<PAYABLE-FOR-SECURITIES> 438
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4672
<SHARES-COMMON-STOCK> 184
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 28
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<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 27
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 19
<NET-CHANGE-FROM-OPS> 46
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14
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<NUMBER-OF-SHARES-SOLD> 195
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<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 4691
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 21
<AVERAGE-NET-ASSETS> 1053
<PER-SHARE-NAV-BEGIN> 12.50
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<PER-SHARE-GAIN-APPREC> .08
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<PER-SHARE-NAV-END> 12.58
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<S> <C>
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<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> 3840
<INVESTMENTS-AT-VALUE> 3862
<RECEIVABLES> 253
<ASSETS-OTHER> 169
<OTHER-ITEMS-ASSETS> 0
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<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 27
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<APPREC-INCREASE-CURRENT> 22
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 165
<NUMBER-OF-SHARES-REDEEMED> 5
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 4253
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 22
<AVERAGE-NET-ASSETS> 1107
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> .29
<PER-SHARE-DIVIDEND> (.18)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.79
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 7
<NAME> NATIONAL SERIES - CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> 4853
<INVESTMENTS-AT-VALUE> 4940
<RECEIVABLES> 498
<ASSETS-OTHER> 678
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6116
<PAYABLE-FOR-SECURITIES> 199
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49
<TOTAL-LIABILITIES> 248
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5782
<SHARES-COMMON-STOCK> 258
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86
<NET-ASSETS> 3343
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 34
<OTHER-INCOME> 0
<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 33
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 86
<NET-CHANGE-FROM-OPS> 119
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17
<DISTRIBUTIONS-OF-GAINS> 0
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