PREMIER INSURED MUNICIPAL BOND FUND
PROSPECTUS DECEMBER 1, 1995
[Lion logo]
Premier Insured Municipal Bond Fund (the "Fund") is an open-end,
management investment company, known as a mutual fund.
The Fund's investment objective 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, each Series is offering three Classes of shares
- -- Class A, Class B and Class C -- which are described herein. See
"Alternative Purchase Methods."
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
TELETRANSFER 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.
The Statement of Additional Information, dated December 1, 1995,
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 144.
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.
Page 1
TABLE OF CONTENTS
Fee Table.................................. 3
Condensed Financial Information............ 6
Alternative Purchase Methods............... 9
Description of the Fund.................... 10
Management of the Fund..................... 18
How to Buy Fund Shares..................... 19
Shareholder Services....................... 23
How to Redeem Fund Shares.................. 26
Distribution Plan and Shareholder Services Plan 31
Dividends, Distributions and Taxes......... 31
Performance Information.................... 35
General Information........................ 36
Appendix................................... 38
Page 2
<TABLE>
<CAPTION>
FEE TABLE
NATIONAL CONNECTICUT
SERIES SERIES
---------------------------------- --------------------------------
Class A Class B Class C Class A Class B Class C
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50% None None 4.50% None None
Maximum Deferred Sales Charge
Imposed on Redemption
(as a percentage of the
amount subject to charge) None* 3.00% 1.00% None* 3.00% 1.00%
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
Management Fees .55% .55% .55% .55% .55% .55%
12b-1 Fees None .50% .75% None .50% .75%
Other Expenses .78% .81% .78% .62% .62% .62%
Total Series Operating Expenses 1.33% 1.86% 2.08% 1.17% 1.67% 1.92%
</TABLE>
<TABLE>
<CAPTION>
Example
You 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 C Class A Class B Class C
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 Year................. $58 $49/$19** $31/$21** $56 $47/$17** $29/$19**
3 Years................ $85 $78/$58** $65 $80 $73/$53** $60
5 YEARS................ $115 $111/$101** $112 $106 $101/$91** $104
10 YEARS............... $198 $187*** $241 $181 $172*** $224
</TABLE>
* A contingent deferred sales charge of 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial sales
charge as part of an investment of $1 million or more.
** Assuming no redemption of shares.
*** Ten-year figure assumes conversion of Class B shares to Class A
shares at the end of the sixth year following the date of purchase.
Page 3
<TABLE>
<CAPTION>
FLORIDA CALIFORNIA
SERIES SERIES
---------------------------------- --------------------------------
Class A Class B Class C Class A Class B Class C
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50% None None 4.50% None None
Maximum Deferred Sales Charge
Imposed on Redemption
(as a percentage of the
amount subject to charge) None* 3.00% 1.00% None* 3.00% 1.00%
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
Management Fees .55% .55% .55% .55% .55% .55%
12b-1 Fees None .50% .75% None .50% .75%
Other Expenses .56% .54% .56% 1.02% 1.07% 1.02%
Total Series Operating Expenses 1.11% 1.59% 1.86% 1.57% 2.12% 2.32%
</TABLE>
<TABLE>
<CAPTION>
Example
You 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 C Class A Class B Class C
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 Year $56 $46/$16** $29/$19** $60 $52/$22** $34/$24**
3 Years $79 $70/$50** $58 $92 $86/$66** $72
5 YEARS $103 $97/$87** $101 $127 $124/$114** $124
10 YEARS $174 $164*** $218 $223 $218*** $266
</TABLE>
* A contingent deferred sales charge of 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial sales
charge as part of an investment of $1 million or more.
** Assuming no redemption of shares.
*** Ten-year figure assumes conversion of Class B shares to Class A
shares at the end of the sixth year following the date of purchase.
Page 4
<TABLE>
<CAPTION>
NEW JERSEY NEW YORK
SERIES SERIES
---------------------------------- --------------------------------
Class A Class B Class C Class A Class B Class C
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50% None None 4.50% None None
Maximum Deferred Sales Charge
Imposed on Redemption
(as a percentage of the
amount subject to charge) None* 3.00% 1.00% None* 3.00% 1.00%
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
Management Fees .55% .55% .55% .55% .55% .55%
12b-1 Fees None .50% .75% None .50% .75%
Other Expenses .90% .85% .90% .99% .94% .99%
Total Series Operating Expenses 1.45% 1.90% 2.20% 1.54% 1.99% 2.29%
</TABLE>
<TABLE>
<CAPTION>
Example
You 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 C Class A Class B Class C
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 Year $59 $49/$19** $32/$22** $60 $50/$20** $33/$23**
3 Years $89 $80/$60** $69 $91 $82/$62** $72
5 YEARS $121 $113/$103** $118 $125 $117/$107** $123
10 YEARS $211 $195*** $253 $220 $210*** $263
</TABLE>
* A contingent deferred sales charge of 1.00% may be assessed on
certain redemptions of Class A shares purchased without an initial sales
charge as part of an investment of $1 million or more.
** Assuming no redemption of shares.
*** Ten-year figure assumes conversion of Class B shares to Class A
shares at the end of the sixth year following the date of purchase.
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES
A 5% ANNUAL RETURN, EACH SERIES' ACTUAL PERFORMANCE WILL VARY AND MAY
RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%.
The purpose of the foregoing table is to assist you in
understanding the costs and expenses borne by the Fund and investors, the
payment of which will reduce investors' annual return. Other Expenses for
Class C are based on amounts for Class A for the Fund's last fiscal year.
Long-term investors in Class B or Class C 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 Fund 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."
Page 5
CONDENSED FINANCIAL INFORMATION
The information in the following tables has been audited by
Ernst & Young LLP, the Fund's independent auditors, whose report thereon
appears in the Statement of Additional Information. Further financial
data and related notes for Class A and Class B are included in the
Statement of Additional Information, available upon request. No financial
information is available for Class C shares, which had not been offered
as of the date of this Prospectus.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a
Class A and Class B 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 the Series' financial statements.
<TABLE>
<CAPTION>
CALIFORNIA SERIES
------------------------------------------------------
CLASS A SHARES CLASS B SHARES
----------------------- -----------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
----------------------- -----------------------
PER SHARE DATA: 1994(1) 1995 1994(1) 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $12.50 $11.56 $12.50 $11.57
-------- -------- -------- --------
INVESTMENT OPERATIONS:
Investment income-net............. .62 .64 .56 .58
Net realized and unrealized (loss) on investments (.94) -- (.93) --
-------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS... (.32) .64 (.37) .58
-------- -------- -------- --------
DISTRIBUTIONS:
Dividends from investment income--net (.62) (.64) (.56) (.58)
-------- -------- -------- --------
Net asset value, end of year...... $11.56 $11.56 $11.57 $11.57
======== ======== ======== ========
TOTAL INVESTMENT RETURN (2)........... (2.79%)(3) 5.80% (3.20%)(3) 5.27%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets -- .08% .50%(3) .57%
Ratio of net investment income to average net assets 5.30%(3) 5.56% 4.78%(3) 5.10%
Decrease reflected in above ratios due to undertakings
by The Dreyfus Corporation (limited to the expense
limitation provision of the Management Agreement) 2.50%(3) 1.49% 2.50%(3) 1.55%
Portfolio Turnover Rate........... -- 3.86% -- 3.86%
Net Assets, end of year (000's omitted) $1,473 $3,525 $2,658 $3,793
(1) From August 19, 1993 (commencement of operations) to July
31, 1994.
(2) Exclusive of sales load.
(3) Annualized.
Page 6
CONNECTICUT SERIES
------------------------------------------------------
CLASS A SHARES CLASS B SHARES
----------------------- -----------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
----------------------- -----------------------
PER SHARE DATA: 1994(1) 1995 1994(1) 1995
-------- -------- -------- --------
Net asset value, beginning of year... $12.50 $12.76 $12.50 $12.76
-------- -------- -------- --------
INVESTMENT OPERATIONS:
Investment income--net........... .19 .72 .17 .65
Net realized and unrealized gain on investments .26 .19 .26 .20
-------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS .45 .91 .43 .85
-------- -------- -------- --------
DISTRIBUTIONS:
Dividends from investment income-net. (.19) (.72) (.17) (.65)
-------- -------- -------- --------
Net asset value, end of year......... $12.76 $12.95 $12.76 $12.96
======== ======== ======== ========
TOTAL INVESTMENT RETURN(2)............... 3.61%(3) 7.43% 3.49%(3) 6.95%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets -- .07% .50%(4) .58%
Ratio of net investment income to average net assets 5.17%(4) 5.66% 4.77%(4) 5.11%
Decrease reflected in above ratios due to undertakings by
The Dreyfus Corporation (limited to the expense limitation
provision of the Management Agreement) 2.50%(4) 1.10% 2.50%(4) 1.09%
Portfolio Turnover Rate -- 5.33% -- 5.33%
Net Assets, end of year (000's omitted) $8,438 $12,451 $6,916 $16,612
(1) From May 5, 1994 (commencement of operations) to July 31, 1994.
(2) Exclusive of sales load.
(3) Not annualized.
(4) Annualized.
FLORIDA SERIES
------------------------------------------------------
CLASS A SHARES CLASS B SHARES
----------------------- -----------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
----------------------- -----------------------
PER SHARE DATA: 1994(1) 1995 1994(1) 1995
-------- -------- -------- --------
Net asset value, beginning of year... $12.50 $12.79 $12.50 $12.78
-------- -------- -------- --------
INVESTMENT OPERATIONS:
Investment income-net................ .19 .73 .17 .67
Net realized and unrealized gain on investments.. .29 .28 .28 .30
-------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS .48 1.01 .45 .97
-------- -------- -------- --------
DISTRIBUTIONS:
Dividends from investment income--net (.19) (.73) (.17) (.67)
-------- -------- -------- --------
Net asset value, end of year......... $12.79 $13.07 $12.78 $13.08
======== ======== ======== ========
TOTAL INVESTMENT RETURN(2)............... 3.83%(3) 8.24% 3.62%(3) 7.86%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets -- .09% .50%(4) .59%
Ratio of net investment income to average net assets 5.11%(4) 5.72% 4.62%(4) 5.20%
Decrease reflected in above ratios due to undertakings by
The Dreyfus Corporation 2.06%(4) 1.02% 2.02%(4) 1.00%
Portfolio Turnover Rate.............. -- .78% -- .78%
Net Assets, end of year (000's omitted)... $10,405 $19,541 $12,320 $21,275
(1) From May 4, 1994 (commencement of operations) to July 31, 1994.
(2) Exclusive of sales load.
(3) Not annualized.
(4) Annualized.
Page 7
NATIONAL SERIES
------------------------------------------------------
CLASS A SHARES CLASS B SHARES
----------------------- -----------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
----------------------- -----------------------
PER SHARE DATA: 1994(1) 1995 1994(1) 1995
-------- -------- -------- --------
Net asset value, beginning of year... $12.50 $12.94 $12.50 $12.95
-------- -------- -------- --------
INVESTMENT OPERATIONS:
Investment income-net................ .18 .77 .16 .71
Net realized and unrealized gain on investments .44 .07 .45 .06
-------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS .62 .84 .61 .77
-------- -------- -------- --------
DISTRIBUTIONS:
Dividends from investment income--net (.18) (.77) (.16) (.71)
-------- -------- -------- --------
Net asset value, end of year......... $12.94 $13.01 $12.95 $13.01
======== ======== ======== ========
TOTAL INVESTMENT RETURN(2)............... 4.99%(3) 6.86% 4.94%(3) 6.24%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets -- .08% .50%(4) .59%
Ratio of net investment income to average net assets 5.44%(4) 6.02% 4.90%(4) 5.51%
Decrease reflected in above ratios due to undertakings by
The Dreyfus Corporation (limited to the expense limitation
provision of the Management Agreement) 2.50%(4) 1.25% 2.50%(4) 1.27%
Portfolio Turnover Rate.............. -- 9.17% -- 9.17%
Net Assets, end of year (000's omitted) $2,525 $8,272 $3,343 $9,739
(1) From May 4, 1994 (commencement of operations) to July 31, 1994.
(2) Exclusive of sales load.
(3) Not annualized.
(4) Annualized.
NEW JERSEY SERIES
------------------------------------------------------
CLASS A SHARES CLASS B SHARES
----------------------- -----------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
----------------------- -----------------------
PER SHARE DATA: 1994(1) 1995 1994(1) 1995
-------- -------- -------- --------
Net asset value, beginning of year... $12.50 $12.58 $12.50 $12.58
-------- -------- -------- --------
INVESTMENT OPERATIONS:
Investment income-net................ .18 .71 .16 .65
Net realized and unrealized gain on investments .08 .13 .08 .13
-------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS .26 .84 .24 .78
-------- -------- -------- --------
DISTRIBUTIONS:
Dividends from investment income--net (.18) (.71) (.16) (.65)
-------- -------- -------- --------
Net asset value, end of year......... $12.58 $12.71 $12.58 $12.71
======== ======== ======== ========
TOTAL INVESTMENT RETURN(2)............... 2.07%(3) 7.01% 1.94%(3) 6.48%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets -- .10% .50%(4) .61%
Ratio of net investment income to average net assets 5.25%(4) 5.60% 4.69%(4) 5.00%
Decrease reflected in above ratios due to undertakings by
The Dreyfus Corporation (limited to the expense limitation
provision of the Management Agreement) 2.50%(4) 1.35% 2.50%(4) 1.29%
Portfolio Turnover Rate.............. -- 43.48% -- 43.48%
Net Assets, end of year (000's omitted) $2,318 $4,981 $2,373 $6,852
(1) From May 4, 1994 (commencement of operations) to July 31, 1994.
(2) Exclusive of sales load.
(3) Not annualized.
(4) Annualized.
(3) Annualized.
Page 8
NEW YORK SERIES
------------------------------------------------------
CLASS A SHARES CLASS B SHARES
----------------------- -----------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
----------------------- -----------------------
PER SHARE DATA: 1994(1) 1995 1994(1) 1995
-------- -------- -------- --------
Net asset value, beginning of year... $12.50 $12.79 $12.50 $12.80
-------- -------- -------- --------
INVESTMENT OPERATIONS:
Investment income-net................ .18 .71 .16 .64
Net realized and unrealized gain (loss) on investments .29 (.04) .30 (.03)
-------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS .47 .67 .46 .61
-------- -------- -------- --------
DISTRIBUTIONS:
Dividends from investment income--net (.18) (.71) (.16) (.64)
-------- -------- -------- --------
Net asset value, end of year......... $12.79 $12.75 $12.80 $12.77
======== ======== ======== ========
TOTAL INVESTMENT RETURN(2)............... 3.76%(3) 5.53% 3.72%(3) 5.08%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets -- .09% .50%(4) .60%
Ratio of net investment income to average net assets 5.28%(4) 5.64% 4.87%(4) 5.02%
Decrease reflected in above ratios due to undertakings by
The Dreyfus Corporation (limited to the expense limitation
provision of the Management Agreement) 2.50%(4) 1.45% 2.50%(4) 1.39%
Portfolio Turnover Rate.............. -- 2.76% -- 2.76%
Net Assets, end of year (000's omitted) $2,054 $4,791 $2,199 $6,611
(1) From May 6, 1994 (commencement of operations) to July 31, 1994.
(2) Exclusive of sales load.
(3) Not annualized.
(4) Annualized.
</TABLE>
Further information about each Series' performance is
contained in its annual report 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 three 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 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
page 9
shares of a Series automatically will convert to Class A
shares of such Series, based on the relative net asset values for shares
of each such Class, 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.
As to each Series, Class C 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 C shares are subject to a 1% CDSC, which is assessed only if you
redeem Class C shares within one year of purchase. See "How to Buy Fund
Shares -- Class C Shares" and "How to Redeem Fund Shares -- Contingent
Deferred Sales Charge -- Class C Shares." These shares also are subject
to an annual service fee at the rate of .25 of 1%, and an annual
distribution fee at the rate of .75 of 1%, of the value of the average
daily net assets of Class C. See "Distribution Plan and Shareholder
Services Plan." The distribution fee paid by Class C will cause such
Class to have a higher expense ratio and to pay lower dividends than
Class A.
The decision as to which Class of shares is more beneficial
to you depends on the amount and intended length of time of your
investment. You should consider whether, during the anticipated life of
your investment in the Fund, the accumulated distribution fee and CDSC on
Class B or Class C shares 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. 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 or Class C shares may exceed the initial sales charge on
Class A shares during the life of the investment. Finally, you should
consider the effect of the CDSC period and any conversion rights of the
Classes in the context of your own investment time frame. For example,
while Class C shares have a shorter CDSC period than Class B shares,
Class C shares do not have a conversion feature and, therefore, are
subject to an ongoing distribution fee. Thus, Class B shares may be more
attractive than Class C shares to investors with long term investment
outlooks. Generally, Class A shares may be more appropriate for investors
who invest $1,000,000 or more in Fund shares, and for investors who invest
between $250,000 and $999,999 in Fund shares with long term investment
outlooks. Class A shares will not be appropriate for investors who invest
less than $50,000 in Fund shares.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's investment objective 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 its investment objective, 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") invest 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
Page 10
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. When used herein, the term "State" refers
to the State, if applicable, after which a Series is named. Each Series'
investment objective cannot be changed without approval by the holders of
a majority (as defined in the Investment Company Act of 1940, as amended
(the "1940 Act")) 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 or an index, or multiples
thereof, in many cases subject to a maximum and minimum. Certain
Municipal Obligations are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated
from the related Municipal Obligation and purchased and sold separately.
MANAGEMENT POLICIES
It is a fundamental policy of the Fund that 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, debentures and other debt instruments 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 "Investment Considerations and Risks_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 Ratings Group, a division of The McGraw Hill
Companies, Inc. ("S&P") or Fitch Investors Service, L.P. ("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
page 11
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
under "Appendix -- Certain Portfolio Securities -- Taxable Investments."
Under normal market conditions, the weighted average maturity of each
Series' portfolio is expected to exceed ten years.
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 "Investment Considerations and Risks" below.
The annual portfolio turnover rate for a Series is not
expected to exceed 100%. The Fund, on behalf of a Series, may engage in,
as permitted by applicable law, various investment techniques, such as
options and futures transactions, lending portfolio securities and
short-selling. Use of certain of these techniques may give rise to
taxable income. See also "Investment Considerations and Risks," "Appendix
-- Investment Techniques" and "Dividends, Distributions and Taxes" below
and "Investment Objective and Management Policies -- Management Policies"
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 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 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
page 12
its portfolio insured are not justified by the expense
involved. See "Investment Considerations and Risks -- Investing in
Insured Municipal Obligations" below.
Mutual Fund Insurance and New Issue Insurance may be obtained
from Financial Guaranty Insurance Company ("Financial Guaranty"),MBIA
Insurance 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 subsidiary of FGIC Corporation, a Delaware holding company,
which is a 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 June 30,
1995, Financial Guaranty reported total capital and surplus of
approximately $978.5 million (unaudited)and admitted assets of
approximately $2.2 billion (unaudited). The claims-paying ability of
Financial Guaranty is rated "AAA" by S&P and Fitch and "Aaa" by Moody's.
MBIA, formerly known as Municipal Bond Investors Assurance
Corporation, is the principal operating subsidiary of MBIA Inc., a New
York Stock Exchange listed company.MBIA Inc. is not obligated to pay the
debts of or claims against MBIA. MBIA is domiciled in the State of New
York and licensed to do business in all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. As of June 30, 1995, MBIA had admitted assets of $3.6
billion (unaudited), total liabilities of $2.4 billion (unaudited), and
total capital and surplus of $1.2 billion (unaudited), determined in
accordance with statutory accounting practices prescribed or permitted by
insurance regulatory authorities. The claims-paying ability of MBIA is
rated "AAA" by S&P and Fitch 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 publicly held company. AMBAC
Indemnity had admitted assets of approximately $2.3 billion (unaudited)
and statutory capital of approximately $1.26 billion (unaudited) as of
June 30, 1995. 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 Corporation, a publicly owned
Maryland insurance holding company the shares of which are traded on the
New York Stock Exchange. Capital Guaranty is authorized to provide
insurance in 50 states, the District of Columbia and three U.S.
territories. As of September 30, 1995, the total statutory policyholders'
surplus and contingency reserve of Capital Guaranty was approximately
$205 million (unaudited) and the total admitted assets were approximately
$327 million (unaudited).
Additional information concerning the insurance feature
appears in the Statement of Additional Information to which your
attention is directed.
Page 13
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- 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 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.
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 declines 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.
From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. As a result, the
State experienced recurring budget deficits for four of its five fiscal
years ended June 30, 1992. The State had operating surpluses of
approximately $109 million in 1992-93 and $917 million in 1993-94.
However, at June 30, 1994, according to California's Department of
Finance, the State's Special Fund for Economic Uncertainties had an
accumulated deficit, on a budget basis, of approximately $1.8 billion. A
further consequence of the large budget imbalances 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. To meet its cash flow
needs in the 1994-95 fiscal year, the State issued, in July and August
1994, $4.0 billion in revenue anticipation warrants and $3.0 billion of
revenue anticipation notes. The 1994-95 Budget Act contains a plan to
retire a projected $1.025 billion deficit in the 1995-96 fiscal year. The
Department of Finance projects that, after repaying the last of the
carryover budget deficit, there will be a positive balance of $28 million
in the Special Fund for Economic Uncertainties at June 30, 1996. As a
result of the deterioration in the State's budget and cash situa
Page 14
tion, between October 1991 and July 1994, the rating on the
State's general obligation bonds was reduced by S&P from AAA to A, by
Moody's from Aaa to A1 and by Fitch from AAA to A. 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 the fiscal years 1985 through 1987, and 1992 through 1994, 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
reported that the State ended the 1994 fiscal year with a General Fund
operating surplus of $19.7 million. The Comptroller, however, estimated
the cumulative projected deficit under GAAP for the fiscal year ended
June 30, 1994 to have been approximately $465.8 million. As a result of
recurring budgetary problems, S&P downgraded the State's general
obligation bonds from AA+ to AA in April 1990 and to AA- in September
1991. Fitch downgraded the State's general obligation bonds from AA+ to
AA in March 1995. Moody's currently rates Connecticut's bonds Aa.
FLORIDA SERIES. The Florida Constitution and Statutes mandate
that the State budget as a whole, and each separate fund within the State
budget, be kept in balance from currently available revenues each fiscal
year. Florida's Constitution permits issuance of Florida Municipal
Obligations pledging the full faith and credit of the State, with a vote
of the electors, to finance or refinance fixed capital outlay projects
authorized by the Legislature, provided that the outstanding principal
does not exceed 50% of the total tax revenues of the State for the two
preceding years. Florida's Constitution also provides that the
Legislature shall appropriate monies sufficient to pay debt service on
State bonds pledging the full faith and credit of the State as the same
becomes due. All State tax revenues, other than trust funds dedicated by
Florida's Constitution for other purposes, would be available for such an
appropriation, if required. Revenue bonds may be issued by the State or
its agencies without a vote of Florida's electors only to finance or
refinance the cost of State fixed capital outlay projects which may be
payable solely from funds derived directly from sources other than State
tax revenues. Fiscal year 1995-96 total General Revenue, Working Capital
and Budget Stabilization funds available are estimated to be $15.149
billion, which would result in unencumbered reserves of approximately
$325.1 million at the end of fiscal 1995-96. The General Revenue, Working
Capital and Budget Stabilization funds ended the 1994-95 fiscal year with
unencumbered reserves of $290.3 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 a low of 3.6% in the first
quarter of 1989 to a recessionary peak of 9.3% during 1992. Since then,
New Jersey's unemployment rate fell to 6.7% during the fourth quarter of
1993 and averaged 7.1% during the first nine months of 1994. 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
page 15
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 national recession
and 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 incur cash-basis
operating deficits in the General Fund and issue deficit notes during the
fiscal periods 1989 through 1992. The State's financial operations have
improved, however, during recent fiscal years. During the fiscal periods
1992 through 1995, New York recorded balanced budgets on a cash-basis. On
a GAAP-basis, the State reported a General Fund operating deficit of
$1.426 billion for the 1994-95 fiscal year, as compared to an operating
surplus of $914 million in the prior fiscal year. The 1994-95 fiscal year
deficit was caused by several factors, including the use of $1.026
billion of the prior year's cash-based surplus to fund fiscal 1995
operating expenses and the adoption of changes in accounting
methodologies by the State Comptroller. 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 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 and
in July 1995, S&P lowered its ratings on such bonds from A- to BBB+. 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.
INVESTING IN INSURED MUNICIPAL OBLIGATIONS -- 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
Page 16
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.
INVESTING IN MUNICIPAL OBLIGATIONS -- Each Series may invest more
than 25% of the value of its total assets in Municipal Obligations which
are related in such a way that an economic, business or political
development or change affecting one such security also would affect the
other securities; for example, securities the interest upon which is paid
from revenues of similar types of projects 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.
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.
ZERO COUPON 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.
USE OF DERIVATIVES -- Each Series may invest, to a limited extent, in
derivatives ("Derivatives"). These are financial instruments which derive
their performance, at least in part, from the performance of an
underlying asset, index or interest rate. The Derivatives the Series may
use include options and futures. While Derivatives can be used
effectively in furtherance of the Series' investment objective, under
certain market conditions, they can increase the volatility of the
Series' net asset value, can decrease the liquidity of the Series'
Page 17
investments and make more difficult the accurate pricing of the
Series' portfolio. See "Appendix-- Investment Techniques -- Use of
Derivatives"below, and "Investment Objective and Management Policies --
Management Policies -- Derivatives" in the Statement of Additional
Information.
NON-DIVERSIFIED STATUS -- 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 1940 Act. A "diversified" investment company is
required by the 1940 Act 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. 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 sensitive to changes in the
market value of a single issuer. However, to meet Federal tax
requirements, at the close of each quarter no Series may have more than
25% of its total assets invested in any one issuer and, with respect to
50% of its total assets, more than 5% of its total assets invested in any
one issuer. These limitations do not apply to U.S. Government securities.
SIMULTANEOUS INVESTMENTS -- 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
INVESTMENT ADVISER -- 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 September 30, 1995, The Dreyfus
Corporation managed or administered approximately $78 billion in assets
for approximately 1.8 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 in accordance
with Massachusetts law. The primary portfolio manager for the California
Series is Stephen C. Kris. He has held that position since inception of
the Series and 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. He has held that position since
inception of the relevant Series and has been an employee of The Dreyfus
Corporation since 1985. The Fund's other portfolio managers are
identified in the 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 securities analysts.
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,
including The Dreyfus Corporation, Mellon managed more than $209 billion
in assets as of September 30, 1995, including approximately $80 billion
in proprietary mutual fund assets. As of
Page 18
September 30, 1995, Mellon, through various subsidiaries,
provided non-investment services, such as custodial or administration
services, for more than $717 billion in assets including $55 billion in
mutual fund assets.
Under the terms of the Management Agreement, the Fund has
agreed to pay The Dreyfus Corporation a monthly fee at the annual rate of
.55 of 1% of the value of each Series' average daily net assets. From
time to time, The Dreyfus Corporation may waive receipt of its fees
and/or voluntarily assume certain expenses of a Series, which would have
the effect of lowering the overall expense ratio of that Series and
increasing yield to investors at the time such amounts are waived or
assumed, as the case may be. The Fund will not pay The Dreyfus
Corporation at a later time for any amounts it may waive, nor will the
Fund reimburse The Dreyfus Corporation for any amounts it may assume. For
the fiscal year ended July 31, 1995, no management fee was paid by the
Fund with respect to any Series pursuant to undertakings in effect.
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.
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund
Services, Inc. (the "Distributor"), located at One Exchange Place,
Boston, Massachusetts 02109. The Distributor's ultimate parent company is
Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus
Transfer, Inc., a wholly-owned subsidiary of TheDreyfus Corporation, is
located at One American Express Plaza, Providence, Rhode Island 02903,
and serves as the Fund's Transfer and Dividend Disbursing Agent (the
"Transfer Agent"). The Bank of New York, 90 Washington Street, New York,
New York 10286, is the Fund's Custodian.
HOW TO BUY FUND SHARES
GENERAL -- Fund shares may be purchased only by clients of certain
financial institutions (which may include banks), securities dealers
("Selected Dealers") and other industry professionals, such as investment
advisers, accountants and estate planning firms (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.
When purchasing Series' shares, you must specify which Class
is being purchased. Share certificates are issued only upon your written
request. No certificates are issued for fractional shares. It is not
recommended that the Fund be used as a vehicle for Keogh, IRA or other
qualified retirement plans. The Fund reserves the right to reject any
purchase order.
Service Agents may receive different levels of compensation
for selling different Classes of shares. Management understands that some
Service Agents may impose certain conditions on their clients which are
different from those described in 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. You should consult your
Service Agent in this regard.
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
Page 19
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
FOR CLASS C SHARES
DDA#8900276185/Premier Insured Municipal Bond Fund/National
Series--Class C shares
DDA#8900276193/Premier Insured Municipal Bond Fund/California
Series--Class C shares
DDA#8900276207/Premier Insured Municipal Bond
Fund/Connecticut Series--Class C shares
DDA#8099276215/Premier Insured Municipal Bond Fund/Florida
Series--Class C shares
DDA#8900276223/Premier Insured Municipal Bond Fund/New Jersey
Series--Class C shares
DDA#8900276231/Premier Insured Municipal Bond Fund/New York
Series--Class C 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.
Fund shares also may be purchased through AUTOMATIC Asset
BuilderRegistration Mark and the Government Direct Deposit Privilege
described under "Shareholder Services." These services enable you to make
regularly scheduled investments and may provide you with a convenient way
to invest for long-term financial goals. You should be aware, however,
that periodic investment plans do not guarantee a profit and will not
protect an investor against loss in a declining market.
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
Page 20
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 Fund's Board and are
valued at fair value as determined by the pricing service. The pricing
service's procedures are reviewed under the general supervision of the
Fund's Board. For further information regarding the methods employed in
valuing the Series' investments, see "Determination of Net Asset Value"
in the Statement of Additional Information.
If an order is received in proper form by the Transfer Agent
or other 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 or its designee by the
close of its business day (normally 5:15 p.m., New York time) will be
based on the public offering price per share determined as of the close
of trading on the floor of the New York Stock Exchange on that day.
Otherwise, the orders will be based on the next determined public
offering price. It is the dealer's responsibility to transmit orders so
that they will be received by the Distributor or its designee before the
close of its business day.
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").
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> <C> <C> <C>
Less than $50,000... 4.50 4.70 4.25
$50,000 to less than $100,000 4.00 4.20 3.75
$100,000 to less than $250,000 3.00 3.10 2.75
$250,000 to less than $500,000 2.50 2.60 2.25
$500,000 to less than $1,000,000 2.00 2.00 1.75
$1,000,000 or more.. -0- -0- -0-
</TABLE>
A CDSC of 1% will be assessed at the time of redemption of
Class A shares purchased without an initial sales
charge as part of an investment of a least $1,000,000 and redeemed within
two years of purchase. The terms contained in the section of the Prospectus
entitled "How to Redeem Fund Shares -- Contingent Deferred Sales Charge"
(other than the amount
Page 21
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 the Distributor pertaining to the sale of Fund shares (or
which otherwise have a brokerage related or clearing arrangement with an
NASD member firm or financial institution with respect to the sale of
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 the Distributor with such information as it may request from
time to time in order to verify eligibility for this privilege. This
privilege also applies to full-time employees of financial institutions
affiliated with NASD member firms whose full-time employees are eligible
to purchase Class A shares at net asset value. In addition, Class A
shares are offered at net asset value to full-time or part-time employees
of The 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.
Class A shares also may be purchased at net asset value
through certain broker-dealers and other financial institutions which
have entered into an agreement with the Distributor, which includes a
requirement that such shares be sold for the benefit of clients
participating in a "wrap account" or a similar program under which such
clients pay a fee to such broker-dealer or other financial institution.
Class A shares also may be purchased at net asset value,
subject to appropriate documentation, through a broker-dealer or other
financial institution with the proceeds from the redemption of shares of
a registered open-end management investment company not managed by
TheDreyfus Corporation or its affiliates. The purchase of Class A shares
of the Fund must be made within 60 days of such redemption and the
shareholder must have either (i) paid an initial sales charge or a
contingent deferred sales charge or (ii)been obligated to pay at any time
during the holding period, but did not actually pay on redemption, a
deferred sales charge with respect to such redeemed shares.
Class A shares also may be purchased at net asset value,
subject to appropriate documentation, by (i) qualified separate accounts
maintained by an insurance company pursuant to the laws of any State or
territory of the United States, (ii) a State, county or city or
instrumentality thereof, (iii) a charitable organization (as defined in
Section 501(c)(3) of the Code investing $50,000 or more in Fund shares,
and (iv) a charitable remainder trust (as defined in Section 501(c)(3) of
the Code).
The dealer reallowance may be changed from time to time but
will remain the same for all dealers. The Distributor, at its own
expense, may provide additional promotional incentives to dealers that
sell shares of funds advised by The Dreyfus Corporation which are sold
with a sales load, such as the Fund. In some instances, 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." The Distributor compensates certain
Service Agents for selling Class B shares at the time of purchase from
the Distributor's own assets. The proceeds of the CDSC and the
distribution fee, in part, are used to defray these expenses.
CLASS C SHARES -- The public offering price for Class C
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 redemptions of Class C shares made within the first
year of purchase. See "Class B Shares" above and "How to Redeem Fund
Shares."
Page 22
RIGHT OF ACCUMULATION--CLASS A SHARES -- Reduced sales loads apply to
any purchase of Class A shares, shares of other funds in the Premier
Family of Funds, 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 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 of shares by telephoning 1-800-221-4060
or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may
not be available to clients of certain Service Agents and some Service
Agents may impose certain conditions on their clients which are different
from those in this Prospectus. You should consult your Service Agent in
this regard.
FUND EXCHANGES
Clients of certain Service Agents may purchase, in exchange
for Class A, Class B or Class C 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 ("Exchange Account"). Exchanges of shares from an Exchange
Account only can be made into certain other funds managed or administered
by The Dreyfus Corporation. No CDSC is charged when an investor exchanges
into an Exchange Account; however, the applicable CDSC will be imposed
when shares are redeemed from an Exchange Account or other applicable
Fund account. Upon redemption, the applicable CDSC will be calculated
without regard to the time such shares were held in an Exchange Account.
See "How to Redeem Fund Shares." Redemption proceeds for Exchange Account
shares are paid by Federal wire or check only. Exchange Account shares
also are eligible for Dividend Sweep and the Automatic Withdrawal Plan.
To use this service, you should consult your Service Agent or call
1-800-645-6561 to determine if it is available and whether any
conditions are imposed on its use.
To request an exchange, your Service Agent acting on your
behalf must give exchange instructions to the Transfer Agent in writing
or by telephone. Before any exchange, you must
Page 23
obtain and should review a copy of the current prospectus of
the fund into which the exchange is being made. Prospectuses may be
obtained by calling 1-800-645-6561. Except in the case of personal
retirement plans, the shares being exchanged must have a current value of
at least $500; furthermore, when establishing a new account by exchange,
the shares being exchanged must have a value of at least the minimum
initial investment required for the fund into which the exchange is being
made. The ability to issue exchange instructions by telephone is given to
all Fund shareholders automatically, unless you check the applicable "No"
box on the Account Application, indicating that you specifically refuse
this Privilege. The Telephone Exchange Privilege may be established for
an existing account by written request, signed by all shareholders on the
account, or by a separate signed Shareholder Services Form, also
available by calling 1-800-645-6561. If you have established the
Telephone Exchange Privilege, you may telephone exchange instructions by
calling 1-800-221-4060 or, if you are calling from overseas, call
1-401-455-3306. See "How to Redeem Fund Shares_Procedures." Upon an
exchange into a new account, the following shareholder services and
privileges, as applicable and where available, will be automatically
carried over to the fund into which the exchange is made; Telephone
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 or Class C shares at the time of an exchange; however, Class B
or Class C 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 or
Class C shares will be calculated from the date of the initial purchase
of the Class B or Class C shares exchanged. If you are exchanging Class A
shares into a fund that charges a sales load, you may qualify for share
prices which do not include the sales load or which reflect a reduced
sales load, if the shares of the Fund from which you are exchanging were:
(a) purchased with a sales load, (b) acquired by a previous exchange from
shares purchased with a sales load, or (c) acquired through reinvestment
of dividends or distributions paid with respect to the foregoing
categories of shares. To qualify, at the time of your exchange your
Service Agent must call 1-800-645-6561. Any such qualification is subject
to confirmation of your holdings through a check of appropriate records.
See "Shareholder Services" in the Statement of Additional Information. No
fees currently are charged shareholders directly in connection with
exchanges, although the Fund reserves the right, upon not less than 60
days' written notice, to charge shareholders a nominal fee in accordance
with rules promulgated by the Securities and Exchange Commission. The
Fund reserves the right to reject any exchange request in whole or in
part. The availability of Fund Exchanges may be modified or terminated at
any time upon notice to shareholders. See "Dividends, Distributions and
Taxes."
AUTO-EXCHANGE PRIVILEGE
Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for 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 or Class C shares at the time of an
exchange; however, Class B or Class C 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 or ClassC shares will be calculated from the date of the
initial purchase of the Class B or Class C shares exchanged. See
Page 24
"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. See "Dividends,
Distributions and Taxes." 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 BUILDERRegistration Mark
AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring
funds from the bank account designated by you. At your option, the bank
account designated by you will be debited in the specified amount, and
Fund shares will be purchased, once a month, on either the first or
fifteenth day, or twice a month, on both days. Only an account maintained
at a domestic financial institution which is an Automated Clearing House
member may be so designated. To establish an AUTOMATIC Asset Builder
account, you must file an authorization form with the Transfer Agent. You
may obtain the necessary authorization form by calling 1-800-645-6561.
You may cancel your participation in this Privilege or change the amount
of purchase at any time by mailing written notification to Premier
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 your Service Agent or by calling 1-800-645-6561. Death or
legal incapacity will terminate your participation in this Privilege. You
may elect at any time to terminate your participation by notifying in
writing the appropriate Federal agency. Further, the Fund may terminate
your participation upon 30 days' notice to you.
DIVIDEND OPTIONS
Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by the Fund in
shares of the same Class of another fund in the Premier Family of Funds
or the Dreyfus Family of Funds of which you are a shareholder. Shares of
the other fund will be purchased at the then-current net asset value;
however, a sales load may be charged with respect to investments in
shares of a fund sold with a sales load. If you are investing in a fund
that charges a sales load, you may qualify for share prices which do not
include the sales load or which reflect a reduced sales load. If you are
investing in a fund that charges a CDSC, the shares purchased will be
subject on redemption to the CDSC, if any, applicable to the purchased
shares. See "Shareholder Services" in the Statement of Additional
Information. Dividend ACH permits you to transfer electronically
dividends or dividends and capital gain distributions, if any, from the
Fund to a designated bank account. Only an account maintained at a
domestic financial institution which is an Automated Clearing House
member may be so designated. Banks may charge a fee for this service.
For more information concerning these privileges or to
request a Dividend Options Form, please call toll free 1-800-645-6561.
You may cancel these privileges by mailing written
Page 25
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 by calling
1-800-645-6561. There is a service charge of 50cents for each withdrawal
check. The Automatic Withdrawal Plan may be ended at any time by you, the
Fund or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
Class B or Class C 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 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.
Page 26
The Fund imposes no charges (other than any applicable CDSC)
when shares are redeemed. Service Agents may charge their clients 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>
<S> <C>
YEAR SINCE CDSC AS A % OF AMOUNT
PURCHASE PAYMENT INVESTED OR REDEMPTION
WAS MADE PROCEEDS
------------------- ------------------------
First............................................. 3.00
Second............................................ 3.00
Third............................................. 2.00
Fourth............................................ 2.00
Fifth............................................. 1.00
Sixth............................................. 0.00
</TABLE>
Page 27
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 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.
CLASS C SHARES -- A CDSC of 1% payable to the Distributor is imposed
on any redemption of Class C shares within one year of the date of
purchase. The basis for calculating the payment of any such CDSC will be
the method used in calculating the CDSC for Class B shares. See
"Contingent Deferred Sales Charge -- Class B Shares" above.
WAIVER OF CDSC
The CDSC will be waived in connection with (a) redemptions
made within one year after the death or disability, as defined in Section
72(m)(7) of the Code, of the shareholder, (b) redemptions by employees
participating in qualified or non-qualified employee benefit plans or
other programs where (i) the employers or affiliated employers
maintaining such plans or programs have a minimum of 250 employees
eligible for participation in such plans or programs, or (ii) such plan's
or program's aggregate investment in the Dreyfus Family of Funds or 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, and
(d) a distribution following retirement under a tax-deferred retirement
plan or upon attaining age 701\2 in the case of an IRA or Keogh plan or
custodial account pursuant to Section 403(b) of the Code. If the Fund's
Board determines 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
Page 28
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 or Class C 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 by calling 1-800-645-6561. The prospectus will contain
information concerning minimum investment requirements and other
conditions that may apply to your purchase.
You may redeem Fund shares by telephone if you have checked
the appropriate box on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. If you select the
TELETRANSFER redemption privilege or telephone exchange privilege (which is
granted automatically unless you refuse it), you authorize the Transfer
Agent to act on telephone instructions from any person representing
himself or herself to be you, or a representative of your Service Agent,
and reasonably believed by the Transfer Agent to be genuine. The Fund
will require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions
are genuine and, if it does not follow such procedures, the Fund or the
Transfer Agent may be liable for any losses due to unauthorized or
fraudulent instructions. Neither the Fund nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be
genuine.
During times of drastic economic or market conditions, you
may experience difficulty in contacting the Transfer Agent by telephone
to request a TELETRANSFER redemption or an exchange of 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
Page 29
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. In addition, this
Privilege will be terminated immediately, without notice, with respect to
any account which is, or becomes, subject to backup withholding on
redemptions (see "Dividends, Distributions and Taxes"). Any Redemption
Check written on an account which has become subject to backup
withholding on redemptions will not be honored by the Transfer Agent.
TELETRANSFER PRIVILEGE
You may redeem shares (minimum $500 per day) by telephone if
you have checked the appropriate box and supplied the necessary
information on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. The proceeds will be 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 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 or its designee prior to the close
of its business day (normally 5:15 p.m. New York time) are effected at
the price determined as of the close of trading on the floor of the New
York Stock Exchange on that day. Otherwise, the shares will be redeemed
at the next determined net asset value. It is the responsibility of the
Selected Dealer to transmit orders on a timely basis. The Selected Dealer
may charge the shareholder a fee for executing the order. This repurchase
arrangement is discretionary and may be withdrawn at any time.
Page 30
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 B and Class C shares are subject to a Distribution Plan
and Class A, Class B and Class C shares are subject to a Shareholder
Services Plan.
DISTRIBUTION PLAN
Under the Distribution Plan, adopted pursuant to Rule 12b-1
under the 1940 Act, the Fund pays the Distributor for distributing the
Fund's Class B and Class C shares at an annual rate of .50 of 1% of the
value of the average daily net assets of Class B and .75 of 1% of the
value of the average daily net assets of Class C.
SHAREHOLDER SERVICES PLAN
Under the Shareholder Services Plan, the Fund pays the
Distributor for the provision of certain services to the holders of Class
A, Class B and Class C shares a fee at the annual rate of .25 of 1% of
the value of the average daily net assets of each such Class. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Fund and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines
the amounts to be paid to Service Agents.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Each Series 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. If you are an
omnibus account-holder and indicate in a partial redemption request that
a portion of any accrued dividends to which such account is entitled
belongs to an underlying accountholder who has redeemed all shares in his
or her account, such portion of the accrued dividends will be paid to you
along with the proceeds of the redemption. Distributions by each Series
from 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 1940 Act. The
Fund will not make distributions from net realized securities gains
unless capital loss carryovers, if any, have been utilized
Page 31
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 a particular
Class will be borne exclusively by such Class. Class B and Class C shares
will receive lower per share dividends than Class A shares because of the
higher expenses borne by the relevant Class. See "Fee Table."
FEDERAL TAX TREATMENT
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 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 all or a
portion of any gains realized 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 sub
Page 32
ject to backup withholding, as described below, unless the
foreign investor certifies his non-U.S. residency status.
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.
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 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, 1995 as a "regulated
investment company" under the Code. Each Series 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. 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.
Page 33
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.
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, and sends written notice to its shareholders not later
than 60 days following the end of its taxable year designating the
dividend as exempt from California personal income tax, 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 are not 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
included in gross income for purposes of 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
Page 34
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 State of Florida, Department of Revenue has issued a
Technical Assistance Advisement which provides 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.
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 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 certain other specified
securities, 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 and Class C 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 and Class C
Page 35
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 net asset value (or maximum offering price in the case
of Class A) per share at the end of the period. For purposes of
calculating current yield, the amount of net investment income per share
during that 30-day period, computed in accordance with regulatory
requirements, is compounded by assuming that it is reinvested at a constant
rate over a six-month period. An identical result is then assumed to have
occurred during a second six-month period which, when added to the result
for the first six months, provides an "annualized" yield for an entire
one-year period. Calculations of each Series' current yield may reflect
absorbed expenses pursuant to any undertaking that may be in effect. See
"Management of the Fund."
Tax equivalent yield is calculated by determining the pre-tax
yield which, after being taxed at a stated rate, would be equivalent to a
stated current yield calculated as described above.
Average annual total return is calculated pursuant to a
standardized formula which assumes that an investment in a Series 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 for
one, five and ten year periods, or for shorter periods depending upon the
length of time during which each Series has operated.
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
net asset value (or maximum offering price in the case of Class A) per
share 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 or Class C shares. Calculations
based on the net asset value per share do not reflect the deduction of
the applicable sales charge on Class A shares 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
Page 36
issue an unlimited number of shares of beneficial interest,
par value $.001 per share. Each Series' shares are classified into three
classes-Class A, Class B and Class C. Each share has one vote and
shareholders will vote in the aggregate and not by class except as
otherwise required by law. Only holders of Class B or Class C shares, as
the case may be, will be entitled to vote on matters submitted to
shareholders pertaining to the Distribution Plan.
The Fund is a "series fund," which is a mutual fund divided
into separate portfolios, each is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder
of one Series is not deemed to be a shareholder of any other Series. For
certain matters Fund shareholders vote together as a group; as to others
they vote separately by Series.
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.
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 Fund intends to
conduct its operations in such a way so as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the Fund. As
discussed under "Management of the Fund" in the Statement of Additional
Information, the Fund ordinarily will not hold shareholder meetings;
however, shareholders under certain circumstances may have the right to
call a meeting of shareholders for the purpose of voting to remove
Trustees.
The Transfer Agent maintains a record of your ownership and
sends you confirmations and statements of account.
Shareholder inquiries may be made to your Service Agent or by
writing to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York
11556-0144.
Page 37
APPENDIX
INVESTMENT TECHNIQUES
BORROWING MONEY -- Each Series is permitted to borrow to the extent
permitted under the 1940 Act, which permits an investment company to
borrow in an amount up to 331/3% of the value of such company's total
assets. Each Series currently intends to borrow money only for temporary
or emergency (not leveraging) purposes, in an amount up to 15% of the
value of its total assets (including the amount borrowed) valued at the
lesser of cost or market, less liabilities (not including the amount
borrowed) at the time the borrowing is made. While borrowings exceed 5%
of a Series' total assets, the Series will not make any additional
investments.
SHORT-SELLING -- In these transactions, the Series sells a security
it does not own in anticipation of a decline in the market value of the
security. To complete the transaction, the Series must borrow the
security to make delivery to the buyer. The Series is obligated to
replace the security borrowed by purchasing it subsequently at the market
price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Series. The
Series will incur a loss 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; it will realize a gain if the security declines in
price between those dates.
Securities will not be sold short if, after effect is given
to any such short sale, the total market value of all securities sold
short would exceed 25% of the value of the 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 the
Series' net assets. No Series may sell short the securities of any class
of an issuer if, as a result of such sale, the Series would have sold
short in the aggregate more than 5% of the outstanding securities of that
class.
Each Series also may make short sales "against the box," a
transaction in which the Series enters into a short sale of a security it
owns. At no time will more than 15% of the value of the Series' net
assets be in deposits on short sales against the box.
USE OF DERIVATIVES -- Although neither the Fund nor any Series will
be a commodity pool, Derivatives subject the Series to the rules of the
Commodity Futures Trading Commission which limit the extent to which the
Series can invest in certain Derivatives. Each Series may invest in
futures contracts and options with respect thereto for hedging purposes
without limit. However, none of the Series may invest in such contracts
and options for other purposes if the sum of the amount of initial margin
deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceed 5% of the
liquidation value of the Series' assets, after taking into account
unrealized profits and unrealized losses on such contracts and options;
provided, however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.
Each Series may invest up to 5% of its assets, represented by
the premium paid, in the purchase of call and put options. Each Series
may write (i.e., sell) covered call and put option contracts to the
extent of 20% of the value of its net assets at the time such option
contracts are written. When required by the Securities and Exchange
Commission, the Series will set aside permissible liquid assets in a
segregated account to cover its obligations relating to its purchase of
Derivatives. To maintain this required cover, the Series may have to sell
portfolio securities at disadvantageous prices or times since it may not
be possible to liquidate a Derivative position at a reasonable price.
Derivatives may entail investment exposures that are greater
than their cost would suggest, meaning that a small investment in
Derivatives could have a large potential impact on the Series'
performance.
If a Series invests in Derivatives at inappropriate times or
judges market conditions incorrectly, such investments may lower the
Series' return or result in a loss. The Series also could
Page 38
experience losses if its Derivatives were poorly correlated
with its other investments, or if the Series were unable to liquidate its
position because of an illiquid secondary market. The market for many
Derivatives is, or suddenly can become, illiquid. Changes in liquidity
may result in significant, rapid and unpredictable changes in the prices
for Derivatives.
LENDING PORTFOLIO SECURITIES -- Each Series may lend securities from
its portfolio to brokers, dealers and other financial institutions
needing to borrow securities to complete certain transactions. In
connection with such loans, the Series continues to be entitled to
payments in amounts equal to the interest or other distributions payable
on the loaned securities. Loans of portfolio securities afford the Series
an opportunity to earn interest on the amount of the loan and at the same
time to earn income on the loaned securities' collateral. Loans of
portfolio securities may not exceed 331/3% of the value of the Series'
total assets. In connection with such loans, the Series will receive
collateral consisting of cash, U.S. Government securities or irrevocable
letters of credit which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned
securities. Such loans are terminable by the Series at any time upon
specified notice. TheSeries might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Series.
FORWARD COMMITMENTS -- Each Series may purchase Municipal Obligations
and other securities on a forward commitment or when-issued basis, which
means that delivery and payment take place a number of days after the
date of the commitment to purchase. The payment obligation and the
interest rate that will be received on a forward commitment or
when-issued security are fixed at the time the Series enters into the
commitment. However, the Series does not make a payment until it receives
delivery from the other party to the transaction. The Series will make
commitments to purchase such securities only with the intention of
actually acquiring the securities, but a Series may sell these securities
before the settlement date if it is deemed advisable. A segregated
account of the Series 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 commitments will be
established and maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
CERTAIN TAX EXEMPT OBLIGATIONS -- 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, at varying rates of interest, pursuant to direct
arrangements between the Series, as lender, and the borrower. These
obligations permit daily changes in the amount borrowed. Because these
obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be
traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. 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.
TAX EXEMPT PARTICIPATION INTERESTS --Each Series may purchase from
financial institutions participation interests in Municipal Obligations
(such as industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Series an undivided
interest in the Municipal Obligation in the proportion that the Series'
participation interest bears to the total principal amount of the
Municipal Obligation. These instruments may have fixed, floating or
variable rates of interest. If the participation interest is unrated, the
participation interest will be backed by an irrevocable letter of credit
or guarantee of a bank that
Page 39
the Fund's Board 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.
TENDER OPTIONS BONDS -- Each Series may purchase tender option bonds.
A tender option bond is a Municipal Obligation (generally held pursuant
to a custodial arrangement) having a relatively long maturity and bearing
interest at a fixed rate substantially higher than prevailing short-term
tax exempt rates, that has been coupled with the agreement of a third
party, such as a bank, broker-dealer or other financial institution,
pursuant to which such institution grants the security holders the
option, at periodic intervals, to tender their securities to the
institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees
equal to the difference between the Municipal Obligation's fixed coupon
rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities,
coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder
effectively holds a demand obligation that bears interest at the
prevailing short-term tax exempt rate. The 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.
CUSTODIAL RECEIPTS -- Each Series may purchase custodial receipts
representing the right to receive certain future principal and interest
payments on Municipal Obligations which underlie the custodial receipts.
A number of different arrangements are possible. In a typical custodial
receipt arrangement, an issuer or a third party owner of Municipal
Obligations deposits such obligations with a custodian in exchange for
two classes of custodial receipts. The two classes have different
characteristics, but, in each case, payments on the two classes are based
on payments received on the underlying Municipal Obligations. One class
has the characteristics of a typical auction rate security, where at
specified intervals its interest rate is adjusted, and ownership changes,
based on an auction mechanism. This class's interest rate generally is
expected to be below the coupon rate of the underlying Municipal
Obligations and generally is at a level comparable to that of a Municipal
Obligation of similar quality and having a maturity equal to the period
between interest rate adjustments. The second class bears interest at a
rate that exceeds the interest rate typically borne by a security of
comparable quality and maturity; this rate also is adjusted, but in this
case inversely to changes in the rate of interest of the first class. 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 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.
Page 40
STAND-BY COMMITMENTS -- Each Series may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio.
Under a stand-by commitment, the 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. Gains realized in connection with stand-by commitments will be
taxable. Each Series also may acquire call options on specific Municipal
Obligations. A Series generally would purchase these call options to
protect the Series from the issuer of the related Municipal Obligation
redeeming, or other holder of the call option from calling away, the
Municipal Obligation before maturity. The sale by 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.
ZERO COUPON SECURITIES -- Each Series may invest in zero coupon
securities which are debt securities issued or sold at a discount from
their face value which do not entitle the holder to any periodic payment
of interest prior to maturity or a specified redemption date (or cash
payment date). The amount of the discount varies depending on the time
remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and perceived credit quality of the issuer.
Zero coupon securities also may take the form of debt securities that
have been stripped of their unmatured interest coupons, the coupons
themselves and receipts or certificates representing 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.
ILLIQUID SECURITIES -- Each Series may invest up to 15% of the value
of its net assets in securities as to which a liquid trading market does
not exist, provided such investments are consistent with the 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 the Series' net assets could be adversely affected.
TAXABLE INVESTMENTS -- From time to time, on a temporary basis other
than for temporary defensive purposes (but not to exceed 20% of the value
of 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
Page 41
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 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.
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.
PIMBFP3120195
Page 42
PREMIER INSURED MUNICIPAL BOND FUND
CLASS A, CLASS B AND CLASS C SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
DECEMBER 1, 1995
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 December 1,
1995, 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-11
Management Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . B-15
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . B-18
Distribution Plan and Shareholder Services PlanB-20
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . B-22
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . . . . . B-24
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . B-26
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . . . B-27
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . B-29
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . B-29
Information About the Fund. . . . . . . . . . . . . . . . . . . . . . . B-34
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . . . . . . . . . B-35
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-36
Appendix B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-69
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . B-75
Report of Independent Auditors
California Series. . . . . . . . . . . . . . . . . . . . . . . . . B-85
Connecticut Series . . . . . . . . . . . . . . . . . . . . . . . . B-96
Florida Series . . . . . . . . . . . . . . . . . . . . . . . . . . B-107
National Series. . . . . . . . . . . . . . . . . . . . . . . . . . B-118
New Jersey Series. . . . . . . . . . . . . . . . . . . . . . . . . B-128
New York Series. . . . . . . . . . . . . . . . . . . . . . . . . . B-138
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the sections in the Fund's Prospectus entitled
"Description of the Fund and "Appendix."
Portfolio Securities
The average distribution of investments (at value) in Municipal
Obligations by ratings for each Series for the fiscal year ended July 31,
1995, computed on a monthly basis, was as follows:
<TABLE>
<CAPTION>
Fitch Investors Moody's Investors Standard & Poor's
Service, L.P. Service, Inc. Ratings Group California Connecticut Florida
("Fitch") or ("Moody's") or ("S&P") Series Series Series
<S> <C> <C> <C> <C> <C>
AAA Aaa AAA 98.4% 99.3% 96.9%
F-1/F-1+ VMIG1/MIG1, P-1 SP-1+/SP-1, A-1 1.6% .7% 3.1%
National New Jersey New York
Fitch or Moody's or S&P Series Series Series
AAA Aaa AAA 96.4% 93.6% 100.0%
F-1/F-1+ VMIG1/MIG1, P-1 SP-1+/SP-1, A-1 3.6% 6.4% -
_______________
</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 obligations 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.
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
and, with respect to Class B and Class C shares, the Distribution Plan,
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.
Illiquid Securities. If a substantial market of qualified
institutional buyers develops pursuant to Rule 144A under the Securities
Act of 1933, as amended, for certain restricted securities held by a
Series, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Fund's Board. 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 has directed the
Manager 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 the Series'
investments during such period.
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. 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. 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.
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.
In a repurchase agreement, the Series buys, and the seller agrees to
repurchase, a security at a mutually agreed upon time and price (usually
within seven days). The repurchase agreement thereby determines the yield
during the purchaser's holding period, while the seller's obligation to
repurchase is secured by the value of the underlying security. 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.
Repurchase agreements could involve risks in the event of a default or
insolvency of the other party to the agreement, including possible delays
or restrictions upon the Series' ability to dispose of the underlying
securities. The Series may enter into repurchase agreements with certain
banks or non-bank dealers.
Management Policies
Derivatives. Each Series may invest in Derivatives (as defined in the
Fund's Prospectus) for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Series to invest
than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and
the portfolio as a whole. Derivatives permit a Series to increase,
decrease or change the level of risk to which its portfolio is exposed in
much the same way as the Series can increase, decrease or change the risk
of its portfolio by making investments in specific securities.
When required by the Securities and Exchange Commission, the Series
will set aside permissible liquid assets in a segregated account to cover
its obligations relating to its purchase of Derivatives. To maintain this
required cover, a Series may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
Derivative position at a reasonable price. Derivatives may be purchased on
established exchanges or through privately negotiated transactions referred
to as over-the-counter Derivatives. Exchange-traded Derivatives generally
are guaranteed by the clearing agency which is the issuer or counterparty
to such Derivatives. This guarantee usually is supported by a daily
payment system (i.e., margin requirements) operated by the clearing agency
in order to reduce overall credit risk. As a result, unless the clearing
agency defaults, there is relatively little counterparty credit risk
associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each
party to an over-the-counter Derivative bears the risk that the
counterparty will default. Accordingly, the Manager will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the
same manner as it would review the credit quality of a security to be
purchased by a Series. Over-the-counter Derivatives are less liquid than
exchange-traded Derivatives since the other party to the transaction may be
the only investor with sufficient understanding of the Derivative to be
interested in bidding for it.
Futures Transactions--In General. Each Series may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade.
Engaging in these transactions involves risk of loss to a Series which
could adversely affect the value of the Series' net assets. Although each
Series intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could
move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Series to substantial losses.
Successful use of futures by a Series also is subject to the ability
of the Manager to predict correctly movements in the direction of the
relevant market and, to the extent the transaction is entered into for
hedging purposes, to ascertain the appropriate correlation between the
transaction being hedged and the price movements of the futures contract.
For example, if a Series uses futures to hedge against the possibility of a
decline in the market value of securities held in its portfolio and the
prices of such securities instead increase, the Series will lose part or
all of the benefit of the increased value of securities which it has hedged
because it will have offsetting losses in its futures positions.
Furthermore, if in such circumstances the Series has insufficient cash, it
may have to sell securities to meet daily variation margin requirements. A
Series may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, a Series may be required to segregate 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. The segregation of such assets will have the effect of limiting
a Series' ability otherwise to invest those assets.
Specific Futures Transactions. Each Series may purchase and sell
interest rate futures contracts. An interest rate future obligates the
Series to purchase or sell an amount of a specific debt security at a
future date at a specific price.
Options--In General. Each Series may purchase and write (i.e., sell)
call or put options with respect to specific securities. A call option
gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security or securities at the exercise price
at any time during the option period, or at a specific date. Conversely, a
put option gives the purchaser of the option the right to sell, and
obligates the writer to buy, the underlying security or securities at the
exercise price at any time during the option period.
A covered call option written by a Series is a call option with
respect to which the Series owns the underlying security or otherwise
covers the transaction by segregating cash or other securities. A put
option written by a Series is covered when, among other things, cash or
liquid securities having a value equal to or greater than the exercise
price of the option are placed in a segregated account with the Fund's
custodian to fulfill the obligation undertaken. The principal reason for
writing covered call and put options is to realize, through the receipt of
premiums, a greater return than would be realized on the underlying
securities alone. A Series receives a premium from writing covered call or
put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen
events, at times have rendered certain of the clearing facilities
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts
or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If,
as a covered call option writer, the Series is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or it otherwise covers its position.
Future Developments. Each Series may take advantage of opportunities
in the area of options and futures contracts and options on futures
contracts and any other Derivatives which are not presently contemplated
for use by the Series or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with the
Series' investment objective and legally permissible for the Series.
Before entering into such transactions or making any such investment, the
Fund will provide appropriate disclosure in its Prospectus or Statement of
Additional Information.
Forward Commitments. Municipal Obligations and other securities
purchased on a forward commitment or when-issued basis are subject to
changes in value (generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise)
based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates.
Securities purchased on a forward commitment or when-issued basis may
expose a Series to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities 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. Purchasing securities on a forward
commitment or when-issued basis when a Series is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Series' net assets and its net asset value per share.
Short Selling. Until a Series closes its short position or replaces
the borrowed security, it will: (a) maintain a segregated account,
containing cash or U.S. Government securities, at such a level that 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; or
(b) otherwise cover its short position.
Lending Portfolio Securities. In connection with its securities
lending transactions, a 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 from 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.
Investment Considerations and Risks
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 ma-
jority (as defined in the Investment Company Act of 1940, as amended (the
"1940 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 Fund's 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 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of
the Series' total assets). For purposes of this Investment Restriction,
the entry into options, forward contracts, futures contracts, including
those relating to indices, and options on futures contracts or indices
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 indices, and
options on futures contracts or indices.
4. Underwrite the securities of other issuers, except that the
Series may bid separately or as part of a group for the purchase of
Municipal Obligations directly from an issuer for its own portfolio to take
advantage of the lower purchase price available, and except to the extent
the Series may be deemed an underwriter under the Securities Act of 1933,
as amended, by virtue of disposing of portfolio securities.
5. 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 1940 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 indices, and options on
futures contracts or indices.
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 1940 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
indices, and options on futures contracts or indices.
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. Each Trustee who is deemed to be an "interested person"
of the Fund, as defined in the 1940 Act, is indicated by an asterisk.
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.
He is 62 years old and his address is 400 C Street, N.E., Washington,
D.C. 20002.
PEGGY C. DAVIS, Trustee. Shad Professor of Law, New York University School
of Law. Professor Davis has been a member of the New York University
law faculty since 1983. Prior to that time, she served for three
years as a judge in the courts of New York State; was engaged for
eight years in the practice of law, working in both corporate and
non-profit sectors; and served for two years as a criminal justice
administrator in the government of the City of New York. She writes
and teaches in the fields of evidence, constitutional theory, family
law, social sciences and the law, legal process and professional
methodology and training. She is 52 years old and her address is c/o
New York University School of Law, 249 Sullivan Street, New York, New
York 10012.
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman
of the Board of various funds in the Dreyfus Family of Funds. For
more than five years prior thereto, he was President, a director and,
until August 1994, Chief Operating Officer of the Manager and
Executive Vice President and a director of Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager and, until
August 24, 1994, the Fund's distributor. From August 1994 to
December 31, 1994, he was a director of Mellon Bank Corporation. He
is Chairman of the Board of Directors of Noel Group, Inc, a venture
capital company; a trustee of Bucknell University; and a director of
the Muscular Dystrophy Association, HealthPlan Services Corporation,
Belding Heminway, Inc., a manufacturer and marketer of industrial
threads, specialty yarns and home furnishings and fabrics, Curtis
Industries, Inc., a national distributor of security products,
chemicals, and automotive and other hardware, Simmons Outdoor
Corporation and Staffing Resources, Inc. He is 52 years old and his
address is 200 Park Avenue, New York, New York 10166.
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. He is
Associate Clinical Professor of Psychiatry at Cornell Medical School.
For more than the past five years, Dr. Kafka has held numerous
administrative positions, including President of The New York
Psychoanalytic Society, and has published many articles on subjects in
the field of psychoanalysis. He is 62 years old and 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. He is 75 years old and his address is 431-B
Dedham Street, The Gables, Newton Center, Massachusetts 02159.
NATHAN LEVENTHAL, Trustee. President of Lincoln Center for the Performing
Arts, Inc. Mr. Leventhal was Deputy Mayor for Operations of New York
City from September 1979 to March 1984 and Commissioner of the
Department of Housing Preservation and Development of New York City
from February 1978 to September 1979. Mr. Leventhal was an associate
and then a member of the New York law firm of Poletti Freidin Prashker
Feldman and Gartner from 1974 to 1978. He was Commissioner of Rent
and Housing Maintenance for New York City from 1972 to 1973. Mr.
Leventhal serves as Chairman of Citizens Union, an organization which
strives to reform and modernize city and state government. He is 52
years old and his address is 70 Lincoln Center Plaza, New York, New
York 10023-6583.
For so long as the Fund's plans described in the section captioned
"Distribution Plan and Shareholder Services Plan" remain in effect, the
Trustees of the Fund who are not "interested persons" of the Fund, as
defined in the 1940 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 1940 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. 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 typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Fund for the fiscal year
ended July 31, 1995, and by all other funds in the Dreyfus Family of Funds
for which such person is a Board member (the number of which is set forth
in parenthesis next to each Board member's total compensation) for the year
ended December 31, 1994 is as follows:
<TABLE>
<CAPTION>
(3) (5)
(2) Pension or (4) Total Compensation
(1) Aggregate Retirement Benefits Estimated Annual from Fund and Fund
Name of Board Compensation from Accrued as Part of Benefits Upon Complex Paid to
Member Fund* Fund's Expenses Retirement Board Member
<S> <C> <C> <C> <C>
Clifford L. Alexander, Jr. $ 2,250 none none $73,210 (17)
Peggy C. Davis $ 2,250 none none $61,751 (15)
Joseph S. DiMartino $ 1,941 none none $445,000** (94)
Ernest Kafka $ 2,250 none none $61,001 (15)
Saul B. Klaman $ 2,250 none none $61,751 (15)
Nathan Leventhal $ 2,250 none none $61,751 (15)
_________________________
* Amount does not include reimbursed expenses for attending Board meetings, which amounted to $262 for all Trustees as a group.
** Estimated amount for the year ending December 31, 1995.
</TABLE>
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., the ultimate parent company of which is Boston
Institutional Group, Inc. Prior to December 1991, she served as Vice
President and Controller, and later as Senior Vice President, of The
Boston Company Advisors, Inc. She is 38 years old.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President and
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From February 1992
to July 1994, he served as Counsel for The Boston Company Advisors,
Inc. From August 1990 to February 1992, he was employed as an
Associate at Ropes & Gray. He is 31 years old.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. From 1988 to August
1994, he was manager of the High Performance Fabric Division of
Springs Industries Inc. He is 33 years old.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From September 1992
to August 1994, he was an attorney with the Board of Governors of the
Federal Reserve System. He is 30 years old.
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. He is 33 years old.
JOHN J. PYBURN, Assistant Treasurer. Assistant Treasurer of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From 1984 to July 1994, he was Assistant
Vice President in the Mutual Fund Accounting Department of the
Manager. He is 60 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
Trustees and officers of the Fund, as a group, owned less than 1% of
each Series' shares of beneficial interest outstanding on October 23, 1995.
The following shareholders are known by the Fund to own of record or
beneficially 5% or more of the indicated Series' voting securities
outstanding on October 23, 1995:
California Series
Class A: Prudential Securities FBO Ilse Jamin and Judith I. Friedman
TTEES FBO Noah Ned Jamin and Ilse Jamin Trust, Palm Springs, California--
owned of record 10.9%; Wedbush Morgan Securities Special Custody Account
for the Exclusive Benefit of Customers, Los Angeles, California--owned of
record 8.3%; Smith Barney, Inc., New York, New York--owned of record 6.8%.
Class B: Smith Barney, Inc., New York, New York--owned of record
5.5%.
Connecticut Series
Class A: Merrill Lynch Pierce Fenner & Smith, Inc., Jacksonville,
Florida--owned of record 23.5%; Prudential Securities FBO Victor A.
Coopersmith and Andrea Joving, Newton, Connecticut--owned of record 11.8%.
Florida Series
Class B: Merrill Lynch Pierce Fenner & Smith, Inc., Jacksonville,
Florida--owned of record 12.2%.
National Series
Class A: PaineWebber Incorporated, FBO John M. Wilfert, Jr.,
Woodstock, VT--owned of record 7.0%; Joseph Alden and Mary Alden, Palatine,
Illinois--owned beneficially 5.9%.
New Jersey Series
Class A: Bernard Stern & Rhoda Stern, Cranbury, NJ--owned
beneficially 7.4%.
Class B: Merrill Lynch Pierce Fenner & Smith, Inc., Jacksonville,
Florida--owned of record 11.8%; Artemio Rivera and Carmen Aida Nash,
Franklin Lakes, New Jersey--owned beneficially 6.6%.
New York Series
Class A: Prudential Securities, FBO Sherry Netherland, New York, NY--
owned of record 10.4%.
Class B: Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida--
owned of record 11.2%; Doris C. Sloan, Williamsville, NY--owned
beneficially 5.6%.
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 or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such Series, provided that in either event
the continuance also is approved by a majority of the Board members who are
not "interested persons" (as defined in the 1940 Act) of the Fund or the
Manager, by vote cast in person at a meeting called for the purpose of
voting on such approval. Shareholders of each Series approved the
Agreement on August 3, 1994. The Agreement was last approved by the Fund's
Board, including a majority of the Board members who are not "interested
persons" of any party to the Agreement, at a meeting held on January 11,
1995. The Agreement is terminable without penalty, as to each Series, on
60 days' notice, by the Fund's Board or by vote of the holders of a
majority of such Series' shares, or, on not less than 90 days' notice, by
the Manager. The Agreement will terminate automatically, as to the
relevant Series, in the event of its assignment (as defined in the 1940
Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; W. Keith
Smith, Vice Chairman of the Board; Christopher M. Condron, President, Chief
Operating Officer and a director; Stephen E. Canter, Vice Chairman, Chief
Investment Officer and a director; Lawrence S. Kash, Vice Chairman-
Distribution and a director; Philip L. Toia, Vice Chairman-Operations and
Administration and a director; Barbara E. Casey, Vice President-Dreyfus
Retirement Services; Diane M. Coffey, Vice President-Corporate Communications;
Elie M. Genadry, Vice President-Institutional Sales; William F. Glavin, Jr.,
Vice President-Corporate Development; Henry D. Gottmann, Vice President-Retail
Sales and Service; Mark N. Jacobs, Vice President-Legal and Secretary;
Daniel C. Maclean, Vice President and General Counsel; Jeffrey N. Nachman,
Vice President-Mutual Fund Accounting; Andrew S. Wasser, Vice President-
Information Services; Katherine C. Wickham, Vice President-Human Resources;
Maurice Bendrihem, Controller; Elvira Oslapas, Assistant Secretary; and
Mandell L. Berman, Frank V. Cahouet, Alvin E. Friedman, Lawrence M. Greene,
Julian M. Smerling and David B. Truman, directors.
The Manager manages each Series' portfolio of investments in
accordance with the stated policies of such Series, subject to the approval
of the Fund's Board. The Manager is responsible for investment decisions,
and provides the Fund with portfolio managers who are authorized by the
Fund's Board to execute purchases and sales of securities. The Fund's
portfolio managers are Joseph P. Darcy, A. Paul Disdier, Karen M. Hand,
Stephen C. Kris, Richard J. Moynihan, Jill C. Shaffro, L. Lawrence
Troutman, Samuel J. Weinstock and Monica S. Wieboldt. The Manager also
maintains a research department with a professional staff of portfolio
managers and securities analysts who provide research services for the Fund
as well as for other funds advised by the Manager. All purchases and sales
are reported for the Board's 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 without limitation, the following:
organizational costs, taxes, interest, loan commitment fees, interest and
distributions paid on securities sold short, brokerage fees and
commissions, if any, fees of Board members who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of
the Manager, Securities and Exchange Commission fees and state Blue Sky
qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of independent
pricing services, costs of maintaining the Fund's existence, costs
attributable to investor services (including, without limitation, telephone
and personnel expenses), costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders, costs of shareholders' reports and
meetings and any extraordinary expenses. In addition, Class B and Class C
shares are subject to an annual distribution fee and shares of each Class
are subject to an annual service fee. See "Distribution Plan and
Shareholder Services Plan." Expenses attributable to a particular Series
are charged against the assets of that Series; other expenses of the Fund
are allocated among the Series on the basis determined by the Board,
including, but not limited to, proportionately in relation to the net
assets of each Series.
The Manager maintains office facilities on behalf of the Fund and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
As compensation for the Manager's services to the Fund, the Fund has
agreed to pay the Manager a monthly management fee at the annual rate of
.55 of 1% of the value of each Series' average daily net assets. For the
period ended July 31, 1994 and the fiscal year ended July 31, 1995, the
management fee payable, the reduction in such fee and the net management
fee paid for each Series was as set forth below:
<TABLE>
<CAPTION>
Management Fee Payable Reduction in Fee Net Fee Paid
Series 1994 1995 1994 1995 1994 1995
<S> <C> <C> <C> <C> <C> <C>
California $ 13,958(1) $ 32,794 $ 13,958(1) $ 32,794 $ -0- $ -0-
Connecticut 7,485(2) 119,902 7,485(2) 119,902 -0- -0-
Florida 12,159(3) 179,450 12,159(3) 179,450 -0- -0-
National 3,491(3) 64,630 3,491(3) 64,630 -0- -0-
New Jersey 2,995(3) 38,710 2,995(3) 38,710 -0- -0-
New York 2,971(4) 38,887 2,971(4) 38,887 -0- -0-
________________
(1) For the period from August 19, 1993 (commencement of operations) through
July 31, 1994.
(2) For the period from May 5, 1994 (commencement of operations) through
July 31, 1994.
(3) For the period from May 4, 1994 (commencement of operations) through
July 31, 1994.
(4) For the period from May 6, 1994 (commencement of operations) through
July 31, 1994.
</TABLE>
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 on
a best efforts basis 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, the Dreyfus Family of Funds and
for certain other investment companies. In some states, certain financial
institutions effecting transactions in Fund shares may be required to
register as dealers pursuant to state law.
For the period August 24, 1994 through July 31, 1995, the Distributor
retained $68,122 from sales loads on Class A shares and $55,054 from
contingent deferred sales charges ("CDSC") on Class B shares. For the
period August 1, 1994 through August 23, 1994 and for the fiscal year ended
July 31, 1994, Dreyfus Service Corporation, as the Fund's distributor
during such periods, retained $18,967 and $48,739, respectively, from sales
loads on Class A shares and $598 and $0, respectively, from CDSCs on Class
B shares.
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.
Set forth below is an example of the method of computing the offering
price of Class A shares of each Series. With respect to each Series, the
example assumes a purchase of Class A shares aggregating less than $50,000
subject to the schedule of sales charges set forth in the Prospectus at a
price based upon the net asset value of the Series, Class A shares on July
31, 1995.
<TABLE>
<CAPTION>
California Connecticut Florida
Series Series Series
<S> <C> <C> <C>
Class A shares:
NET ASSET VALUE per share. . . . . . . . . . . . . . . . . . . $11.56 $12.95 $13.07
Sales load for individual sales of shares aggregating less
than $50,000 - 4.5% of offering price
(approximately 4.7% of net asset value
per share) . . . . . . . . . . . . . . . . . . . . . . . . . .54 .61 .62
Offering price to public . . . . . . . . . . . . . . . . . . . $12.10 $13.56 $13.69
National New Jersey New York
Series Series Series
Class A shares:
NET ASSET VALUE per share. . . . . . . . . . . . . . . . . . . $13.01 $12.71 $12.75
Sales load for individual sales of shares aggregating less
than $50,000 - 4.5% of offering price
(approximately 4.7% of net asset value
per share) . . . . . . . . . . . . . . . . . . . . . . . . . .61 .60 .60
Offering price to public . . . . . . . . . . . . . . . . . . . $13.62 $13.31 $13.35
</TABLE>
Using Federal Funds. Dreyfus Transfer, Inc., the Fund's transfer and
dividend disbursing agent (the "Transfer Agent"), or the Fund may attempt
to notify the investor upon receipt of checks drawn on banks that are not
members of the Federal Reserve System as to the possible delay in
conversion into Federal Funds and may attempt to arrange for a better means
of transmitting the money. If the investor is a customer of a securities
dealer ("Selected Dealer") and his order to purchase Fund shares is paid
for other than in Federal Funds, the Selected Dealer, acting on behalf of
its customer, will complete the conversion into, or itself advance, Federal
Funds generally on the business day following receipt of the customer
order. The order is effective only when so converted and received by the
Transfer Agent. An order for the purchase of Fund shares placed by an
investor with sufficient Federal Funds or a cash balance in his brokerage
account with a Selected Dealer will become effective on the day that the
order, including Federal Funds, is received by the Transfer Agent.
TeleTransfer Privilege. TeleTransfer purchase orders may be made at
any time. Purchase orders received by 4:00 p.m., New York time, on any
business day that the Transfer Agent and the New York Stock Exchange are
open for business will be credited to the shareholder's Fund account on the
next bank business day following such purchase order. Purchase orders made
after 4:00 p.m., New York time, on any business day the Transfer Agent and
the New York Stock Exchange are open for business, or orders made on
Saturday, Sunday or any Fund holiday (e.g., when the New York Stock
Exchange is not open for business), will be credited to the shareholder's
Fund account on the second bank business day following such purchase order.
To qualify to use the 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
Shareholder Services Form on file. If the proceeds of a particular
redemption are to be wired to an account at any other bank, the request
must be in writing and signature-guaranteed. See "Redemption of Fund
Shares--TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Distribution Plan and Shareholder Services Plan."
Class B and Class C shares are subject to a Distribution Plan and
Class A, Class B and Class C shares are subject to a Shareholder Services
Plan.
Distribution Plan. Rule 12b-1 (the "Rule") adopted by the Securities
and Exchange Commission under the 1940 Act provides, among other things,
that an investment company may bear expenses of distributing its shares
only pursuant to a plan adopted in accordance with the Rule. The Fund's
Board has adopted such a plan (the "Distribution Plan") with respect to
Class B and Class C shares, pursuant to which the Fund pays the Distributor
for distributing Class B and Class C shares. The Fund's Board believes
that there is a reasonable likelihood that the Distribution Plan will
benefit the Fund and holders of Class B and Class C shares.
A quarterly report of the amounts expended under the Distribution
Plan, and the purposes for which such expenditures were incurred, must be
made to the Board for its review. In addition, the Distribution Plan
provides that it may not be amended to increase materially the costs which
holders of the relevant Class of shares may bear for distribution pursuant
to the Distribution Plan without such shareholders' approval and that other
material amendments of the Distribution Plan must be approved by the Board
and by the Board members who are not "interested persons" (as defined in
the 1940 Act) of the Fund or the Manager and have no direct or indirect
financial interest in the operation of the Distribution Plan or in any
agreements entered into in connection with the Distribution Plan, by vote
cast in person at a meeting called for the purpose of considering such
amendments. The Distribution Plan is subject to annual approval by such
vote cast in person at a meeting called for the purpose of voting on the
Distribution Plan. The Distribution Plan was last so approved on April 12,
1995. The Distribution Plan is terminable, as to each Series and Class, at
any time by vote of a majority of the Board members who are not "interested
persons" and have no direct or indirect financial interest in the operation
of the 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 Class of shares.
For the period from August 24, 1994 (effective date of the
Distribution Plan), through July 31, 1995, each Series was charged with
respect to Class B the following amounts for distributing Class B shares
pursuant to the Distribution Plan. There were no payments made under the
Distribution Plan with respect to Class C shares during the fiscal year
ended July 31, 1995, as Class C shares had not yet been offered.
Amount Charged
Series Class B
California $14,865
Connecticut 54,945
Florida 79,711
National 29,012
New Jersey 18,803
New York 19,331
Shareholder Services Plan. The Fund has adopted a Shareholder
Services Plan, pursuant to which the Fund pays the Distributor for the
provision of certain services to the holders of Class A, Class B and Class
C shares. Under the Shareholder Services Plan, the Distributor may make
payments to certain securities dealers, financial institutions, and other
financial industry professionals (collectively, "Service Agents") in
respect of these services.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Board for its review. In addition, the Shareholder
Services Plan provides that it may not be amended without approval of the
Board, and by the Board members who are not "interested persons" (as
defined in the 1940 Act) of the Fund and have no direct or indirect
financial interest in the operation of the Shareholder Services Plan or in
any agreements entered into in connection with the Shareholder Services
Plan, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Shareholder Services Plan is subject to
annual approval by such vote cast in person at a meeting called for the
purpose of voting on the Shareholder Services Plan. The Shareholder
Services Plan was last so approved on April 12, 1995. As to each Series
and Class, the Shareholder Services Plan is terminable at any time by vote
of a majority of the Board members who are not "interested persons" and who
have no direct or indirect financial interest in the operation of the
Shareholder Services Plan or in any agreements entered into in connection
with the Shareholder Services Plan.
For the period from August 24, 1994 (effective date of Shareholder
Services Plan) through July 31, 1995, each Series was charged with respect
to Class A and Class B the following amounts pursuant to the Shareholder
Services Plan. There were no payments under the Shareholder Services Plan
with respect to Class C shares during the fiscal year ended July 31, 1995,
as Class C shares had not yet been offered.
Amount Charged Amount Charged
Series Class A Class B
California $ 6,797 $ 7,433
Connecticut 24,544 27,473
Florida 37,877 39,855
National 13,854 14,506
New Jersey 7,520 9,402
New York 7,282 9,665
Prior Distribution Plan and Shareholder Services Plan. As of August
24, 1994, the Fund terminated its then-existing Class B distribution plan,
which provided for payments to be made to Dreyfus Service Corporation, the
Fund's distributor prior to such date, for advertising, marketing and
distributing Class B shares at an annual rate of .50% of the value of the
average daily net assets of Class B. For the period from August 1, 1994
through August 23, 1994, the total amount charged to and paid by each
Series under such plan was as set forth below:
Series Amount Charged
California $ 830
Connecticut 2,244
Florida 4,063
National 1,139
New Jersey 689
New York 765
As of August 24, 1994, the Fund also terminated its then-existing
shareholder services plan, which provided for payments to be made to
Dreyfus Service Corporation for expenses related to the provision of
shareholder services. For the period from August 1, 1994 through August
23, 1994 each Series was charged with respect to Class A and Class B the
following amounts pursuant to such plan:
Amount Charged Amount Charged
Series Class A Class B
California $ 261 $ 415
Connecticut 1,362 1,122
Florida 1,804 2,032
National 447 570
New Jersey 329 344
New York 346 383
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, Shareholder Services Form 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,
Shareholder Services Form 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 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."
Fund Exchanges. Class A, Class B and Class C 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 or Class C shares of any fund may be exchanged for the
same Class of shares of other funds without a sales load. Class B
or Class C shares of any fund exchanged for the same Class of
shares of another fund will be subject to the higher applicable
CDSC of the two exchanged funds and, for purposes of calculating
CDSC rates and conversion periods, will be deemed to have been
held since the date the Class B or Class C shares being exchanged
were initially purchased.
To accomplish an exchange under item C above, an investor's Service
Agent must notify the Transfer Agent of the investor's prior ownership of
such Class A shares and the investor's account number.
To request an exchange, the investor's Service Agent acting on the
investor's behalf must give exchange instructions to the Transfer Agent in
writing or by telephone. The ability to issue exchange instructions by
telephone is given to all Fund shareholders automatically, unless the
investor checks the applicable "No" box on the Account Application,
indicating that the investor specifically refuses this privilege. By using
the Telephone Exchange Privilege, the investor authorizes the Transfer
Agent to act on telephonic 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 Plans ("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, Class B or Class C shares of
a Series, shares of the same Class of one of the other Series or another
fund in the Premier Family of Funds or the Dreyfus Family of Funds. This
Privilege is available only for existing accounts. Shares will be
exchanged on the basis of relative net asset value as described above under
"Fund Exchanges." Enrollment in or modification or cancellation of this
Privilege is effective three business days following notification by the
investor. An investor will be notified if his account falls below the
amount designated to be exchanged under this Privilege. In this case, an
investor's account will fall to zero unless additional investments are made
in excess of the designated amount prior to the next Auto-Exchange
transaction. Shares held under IRA and other retirement plans are eligible
for this Privilege. Exchanges of IRA shares may be made between IRA
accounts and from regular accounts to IRA accounts, but not from IRA
accounts to regular accounts. With respect to all other retirement
accounts, exchanges may be made only among those accounts.
Fund Exchanges and the 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 by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchanges service or
the 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 or Class C 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 or Class
C shares by a fund may be invested without imposition of any
applicable CDSC in the same Class of shares of other funds and the
relevant Class of shares of such other funds will be subject on
redemption to any applicable CDSC.
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. 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. Expenses and fees, including the management fee
(reduced by the expense limitation, if any) and fees pursuant to the
Shareholder Services Plan, and, with respect to the Class B and Class C
shares only, the Distribution Plan, are accrued daily and are taken into
account for the purpose of determining the net asset value of the relevant
Class of each Series' shares. Because of the difference in operating
expenses incurred by each Class, the per share net asset value of each
Class will differ.
Subject to guidelines established by the Fund's Board, 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 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, 1995,
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. 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 certain market discount
bonds will be treated as ordinary income under Section 1276 of the Code.
In addition, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section
1258 of the Code. "Conversion transactions" are defined to include certain
forward, futures, option and "straddle" transactions, 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 and 988
of the Code. As such, all or a portion of any short or long-term capital
gain from certain "straddle" and/or conversion transactions may be
recharacterized to ordinary income.
If a Series were treated as entering into "straddles" by reason of its
engaging in certain futures or options transactions, such "straddles" would
be characterized as "mixed straddles" if the futures or options
transactions comprising a part of such "straddles" were governed by Section
1256 of the Code. A Series may make one or more elections with respect to
"mixed straddles." Depending on which election is made, if any, the
results to a Series may differ. If no election is made to the extent the
"straddle" rules apply to positions established by 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" and
conversion transaction rules, short-term capital losses on "straddle"
positions may be recharacterized as long-term capital losses, and long-term
capital gains may be treated as short-term capital gains or ordinary
income.
Investment by the Series in securities issued at a discount or
providing for deferred interest or for payment of interest in the form of
additional obligations could, under special tax rules, affect the amount,
timing and character of distributions to shareholders. For example, a
Series could be required to take into account annually a portion of the
discount (or deemed discount) at which such securities were issued and to
distribute such portion in order to maintain its qualification as a
regulated investment company. In such case, a Series may have to dispose
of securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily
are purchased directly from the issuer or from an underwriter; other
purchases and sales usually are placed with those dealers from which it
appears that the best price or execution will be obtained. Usually no
brokerage commissions, as such, are paid by the Fund for such purchases and
sales, although the price paid usually includes an undisclosed compensation
to the dealer acting as agent. The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to
the underwriter, and purchases of after-market securities from dealers
ordinarily are executed at a price between the bid and asked price. No
brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and
analysis with the views and information of other securities firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds
it advises and, conversely, research services furnished to the Manager by
brokers in connection with other funds the Manager advises may be used by
the Manager in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the overall expenses
of its research department.
Each Series anticipates that its annual portfolio turnover rate
generally will not exceed 100% but the turnover rate will not be a limiting
factor when each Series deems it desirable to sell or purchase securities.
Therefore, depending upon market conditions, each Series' annual portfolio
turnover rate may exceed 100% in 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."
Class C shares had not been offered as of the date of the financials
and, therefore, no performance data is provided for Class C.
The current yield for the 30-day period ended July 31, 1995 for Class
A and Class B of each Series was as follows:
Current Net of Absorbed
Series Yield Expenses(1)
Class A:
California 5.13% 3.80%
Connecticut 5.25 4.63
Florida 5.36 4.74
National 5.59 4.76
New Jersey 4.78 4.00
New York 5.20 4.31
____________________________
(1)This column sets forth current yield had expenses not been absorbed.
Current Net of Absorbed
Series Yield Expenses(1)
Class B:
California 4.83% 3.42%
Connecticut 4.97 4.32
Florida 5.09 4.43
National 5.32 4.45
New Jersey 4.49 3.68
New York 4.93 3.96
____________________________
(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 net asset value (maximum
offering price in the case of Class A) per share on the last day of the
period less any undistributed earned income per share reasonably expected
to be declared as a dividend shortly thereafter. The quotient is then
added to 1, and that sum is raised to the 6th power, after which 1 is
subtracted. The current yield is then arrived at by multiplying the result
by 2.
Based upon the 1995 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, 1995 for Class A and Class B of each
Series was as follows:
<TABLE>
<CAPTION>
Tax Equivalent Net of Absorbed
Series Tax Rate Yield Expenses(1)
<S> <C> <C> <C>
Class A:
California 46.24% 9.54% 7.07%
Connecticut 42.32 9.10 8.03
Florida(2) 39.60 8.87 7.85
National 39.60 9.25 7.88
New Jersey 43.57 8.47 7.09
New York 47.05 9.82 8.14
Class B:
California 46.24% 8.98% 6.36%
Connecticut 42.32 8.62 7.49
Florida(2) 39.60 8.43 7.33
National 39.60 8.81 7.37
New Jersey 43.57 7.96 6.52
New York 47.05 9.31 7.48
____________________________
(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 1995
</TABLE>
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 and for the period
indicated for Class A of each Series was as follows:
Series Year ended July 31, 1995 Since Inception
California 1.07% - 0.85% (1)
Connecticut 2.60 5.03 (2)
Florida 3.39 5.83 (3)
National 2.05 5.68 (3)
New Jersey 2.22 3.44 (3)
New York 0.80 3.67 (4)
________________
(1) For the 1.951 year period ended July 31, 1995.
(2) For the 1.244 year period ended July 31, 1995.
(3) For the 1.247 year period ended July 31, 1995.
(4) For the 1.241 year period ended July 31, 1995.
The average annual total return since inception and for the period
indicated for Class B of each Series was as follows:
Series Year ended July 31, 1995 Since Inception
California 2.27% - 0.36% (1)
Connecticut 3.95 6.13 (2)
Florida 4.86 6.97 (3)
National 3.24 6.75 (3)
New Jersey 3.48 4.43 (3)
New York 2.08 4.79 (4)
________________
(1) For the 1.951 year period ended July 31, 1995.
(2) For the 1.244 year period ended July 31, 1995.
(3) For the 1.247 year period ended July 31, 1995.
(4) For the 1.241 year period ended July 31, 1995.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased at net asset value (maximum
offering price in the case of Class A) per share with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result. A Class'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 or Class C the maximum applicable CDSC has been
paid upon redemption at the end of the period.
The total return for the period indicated for Class A of each Series
was as follows:
Class A: Based on Maximum Based on Net Asset
Series Offering Price Value per Share
California -1.65%(1) 3.00%
Connecticut 6.29(2) 11.31
Florida 7.32(3) 12.38
National 7.13(3) 12.18
New Jersey 4.31(3) 9.23
New York 4.57(4) 9.50
____________________________
(1) For the period August 19, 1993 (commencement of operations) through
July 31, 1995.
(2) For the period May 4, 1994 (commencement of operations) through
July 31, 1995.
(3) For the period May 3, 1994 (commencement of operations) through
July 31, 1995.
(4) For the period May 5, 1994 (commencement of operations) through
July 31, 1995.
The total return for the period indicated for Class B of each Series
was as follows:
Class B: Based on Net Asset Based on
Series Value per Share Maximum CDSC
California 2.07%(1) -0.71%
Connecticut 10.68(2) 7.68
Florida 11.76(3) 8.76
National 11.49(3) 8.49
New Jersey 8.55(3) 5.55
New York 8.98(4) 5.98
____________________________
(1) For the period August 19, 1993 (commencement of operations) through
July 31, 1995.
(2) For the period May 4, 1994 (commencement of operations) through
July 31, 1995.
(3) For the period May 3, 1994 (commencement of operations) through
July 31, 1995.
(4) For the period May 5, 1994 (commencement of operations) through
July 31, 1995.
Total return is calculated by subtracting the amount of the Series'
net asset value (maximum offering price per share in the case of Class A)
per share at the beginning of a stated period from the net asset value per
share at the end of the period (after giving effect to the reinvestment of
dividends and distributions during the period and any applicable CDSC), and
dividing the result by the net asset value (maximum offering price in the
case of Class A) per share at the beginning of the period. Total return
also may be calculated based on the net asset value per share at the
beginning of the period for Class A shares or without giving effect to any
applicable CDSC at the end of the period for Class B or Class C shares. In
such cases, the calculation would not reflect the deduction of the sales
load with respect to Class A shares or any applicable CDSC with respect to
Class B or Class C shares which, if reflected, would reduce the performance
quoted.
From time to time, the Fund may use hypothetical tax equivalent yields
or charts in its advertising. These hypothetical yields or charts will be
used for illustrative purposes only and not as 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.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise, to the holders of the outstanding voting securities of 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.
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, 90 Washington Street, New York, New York 10286,
is the Fund's custodian. Dreyfus Transfer, Inc., a wholly owned subsidiary
of the Manager, is located at One American Express Plaza, Providence, Rhode
Island 02903, and serves as the Fund's transfer and dividend disbursing
agent. Under a transfer agency agreement with the Fund, the Transfer Agent
arranges for the maintenance of shareholder account records for the Fund,
the handling of certain communications between shareholders and the Fund
and the payment of dividends and distributions payable by the Fund. For
these services, the Transfer Agent receives a monthly fee computed on the
basis of the number of shareholder accounts it maintains for the Fund
during the month, and is reimbursed for certain out-of-pocket expenses.
Neither The Bank of New York nor the Transfer Agent 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-36
Connecticut Series. . . . . . . . . . . . . .B-48
Florida Series. . . . . . . . . . . . . . . .B-50
New Jersey Series . . . . . . . . . . . . . .B-54
New York Series . . . . . . . . . . . . . . .B-55
California Series
Recent Developments. From mid-1990 to late 1993, the State suffered a
recession with the worst economic, fiscal and budget conditions since the
1930s. Construction, manufacturing (especially aerospace), exports and
financial services, among others, were all severely affected. Job losses
were the worst of any post-war recession. Unemployment reached 10.1% in
January 1994, but fell sharply to 7.7% in October and November 1994.
According to the State's Department of Finance, recovery from the recession
in California began in 1994.
The recession seriously affected State tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for
health and welfare programs. The State has also 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 State General Fund. As a result, the
State experienced recurring budget deficits in the late 1980s and early
1990s. The State Controller reported that expenditures exceeded revenues
for four of the five fiscal years ending with 1991-92. The State had an
operating surplus of approximately $109 million in 1992-93 and $836 million
in 1993-94. However, at June 30, 1994, according to the Department of
Finance, the State's Special Fund for Economic Uncertainties ("SFEU") still
had a deficit, on a budget basis, of approximately $1.8 billion.
The accumulated budget deficits over the past several years, together
with expenditures for school funding which have not been reflected in the
budget, and reduction of available internal borrowable funds, have combined
to significantly deplete the State's cash resources to pay its ongoing
expenses. In order to meet its cash needs, the State has had to rely for
several years on a series of external borrowings, including borrowings past
the end of a fiscal year. Such borrowings are expected to continue in
future fiscal years. To meet its cash flow needs in the 1994-95 fiscal
year the State issued, in July and August 1994, $4.0 billion of revenue
anticipation warrants which mature on April 25, 1996, and $3.0 billion of
revenue anticipation notes maturing on June 28, 1995.
As a result of the deterioration in the State's budget and cash
situation, the rating agencies reduced the State's credit ratings. Between
October 1991 and July 1994 the rating on the State's general obligation
bonds was reduced by S&P from "AAA" to "A," by Moody's from "Aaa" to "A1"
and by Fitch from "AAA" to "A."
The 1994-95 Fiscal Year Budget (as updated in the January 10, 1995
Governor's Budget) is projected to have $41.9 billion of General Fund
revenues and transfers and $40.9 billion of budgeted expenditures. In
addition, the 1994-95 Budget Act anticipates deferring retirement of about
$1 billion of the accumulated budget deficit to the 1995-96 fiscal year
when it is intended to be fully retired by June 30, 1996.
The Governor's Budget for 1995-96 proposes General Fund revenues and
transfers of $44.1 billion and expenditures of $43.4 billion, which would
leave a balance of approximately $28 million in the budget reserve, the
SFEU, at June 30, 1996 after repayment of the accumulated budget deficits.
The Budget proposal is based on a number of assumptions, including receipt
of $473 million from the Federal government to offset costs of undocumented
and refugee immigrants.
On December 6, 1994, Orange County, California (the "County"),
together with its pooled investment funds (the "Funds") filed for
protection under Chapter 9 of the Federal Bankruptcy Code, after reports
that the Funds had suffered significant market losses in their investments,
causing a liquidity crisis for the Funds and the County. More than 180
other public entities, most of which, but not all, are located in the
County, were also depositors in the Funds. As of mid-January, 1995,
following a restructuring of most of the Funds' assets to increase their
liquidity and reduce their exposure to interest rate increases, the County
estimated the Funds' loss at about $1.69 billion, or about 23% of their
initial deposits of approximately $7.5 billion. Many of the entities which
deposited moneys in the Funds, including the County, are facing cash flow
difficulties because of the bankruptcy filing and may be required to reduce
programs or capital projects. This may also effect their ability to meet
their outstanding obligations.
The State has no existing obligation with respect to any outstanding
obligations or securities of the County or any of the other participating
entities. However, in the event the County is unable to maintain county
administered State programs because of insufficient resources, it may be
necessary for the state to intervene, but the State cannot presently
predict what, if any, action may occur.
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. Although some individuals
and businesses suffered losses totaling in the billions of dollars, the
overall effect of the earthquake on the regional and State economy is not
expected to be serious.
State Finances. State moneys are segregated into the General Fund and
approximately 600 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 SFEU 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 SFEU is deemed an appropriation from the General Fund. For
year-end reporting purposes, the Controller is required to add the balance
in the SFEU 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, 1994, the General Fund had outstanding loans in the aggregate principal
amount of $5.2 billion, which consisted of $4.0 billion of internal loans
to the General Fund from the SFEU and other Special Funds and $1.2 billion
of external loans represented by the 1994 revenue anticipation warrants.
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 $7.53 billion under the limit.
The limit for the 1993-94 fiscal year was $36.60 billion, and the
appropriations subject to limitation were $6.55 billion under the limit.
The estimated limit for the 1994-95 fiscal year is $37.53 billion, and the
appropriations subject to limitations are estimated to be $5.83 billion
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 $18.4 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 the $732 million a loan "repayable" from the 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 1993-94 Governor's Budget subsequently proposed deficiency funding of
$121 million for school apportionments and special education, increasing
funding per pupil in 1992-93 to $4,244. 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 and community colleges.
Chapter 66 also adjusted the "Test 1" percentage to 35% to reflect the
property tax shift among local government agencies.
The 1994-95 Budget Act appropriated $14.4 billion of Proposition 98
funds for K14 schools based on Test 2. This exceeds the minimum
Proposition 98 guarantee by $8 million to maintain K-12 funding per pupil
at $4,217. Based upon updated State revenues, growth rates and inflation
factors, the 1994-95 Budget Act appropriated an additional $286 million
within Proposition 98 for the 1993-94 fiscal year, to reflect a need in
appropriations for school districts and county offices of education, as
well as an anticipated deficiency in special education fundings. These and
other minor appropriation adjustments increase the 1993-94 Proposition 98
guarantee to $13.8 billion, which exceeds the minimum guarantee in that
year by $272 million and provides per pupil funding of $4,225.
The 1995-96 Governor's Budget adjusts the 1993-94 minimum guarantee to
reflect changes in enrollment and inflation, and 1993-94 Proposition 98
appropriations are increased to $14.1 billion, primarily to reflect changes
in the statutory continuous appropriation for apportionments. The revised
appropriations now exceed the minimum guarantee by $32 million. This
appropriation level still provides per-pupil funding of $4,225.
The 1994-95 Proposition 98 minimum guarantee has also been adjusted
for changes in factors described above, and is now calculated to be $14.9
billion. Within the minimum guarantee, the dollars per pupil have been
maintained at the prior year's level; consequently, the 1994-95 minimum
guarantee now includes a loan repayment of $135 million, and the per-pupil
funding increases to $4,231.
The 1995-96 Governor's Budget proposes to appropriate $15.9 billion of
Proposition 98 funds to K-14 to meet the guarantee level. Included within
the guarantee is a loan repayment of $379 million for the combined
outstanding loans of $1.76 billion. Funding per pupil is estimated to
increase by $61 over 1994-95 to $4,292.
Sources of Tax Revenue. The California personal income tax, which in
1993-94 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 35% of General Fund
revenue in 1993-94. Bank and corporation tax revenues comprised about 12%
of General Fund revenue in 1993-94. 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. In the years following
enactment of the federal Tax Reform Act of 1986, and conforming changes to
the State's tax laws, taxpayer behavior became must more difficult to
predict, and the State experienced a series of fiscal years in which
revenue came in significantly higher or lower than original estimates. The
1989-90 fiscal year ended with revenues below estimates, so that the
State's budget reserve (the Special Fund for Economic Uncertainties or
"SFEU") was fully depleted by June 30, 1990. This date essentially
coincided with the state of the current recession, and the State has
subsequently accumulated a budget deficit in the SFEU approaching 2.8
billion at its peak. The State's budget problems in recent years have also
been caused by a structural imbalance which has been identified by the
current and previous Administrations. The largest General Fund Programs --
K-14 education, health, welfare and corrections -- were increasing faster
than the revenue base, driven by the State's rapid population increases.
Starting in the 1990-91 fiscal year, each budget required multibillion
dollar actions to bring projected revenues and expenditures into balance
and to close large "budget gaps" which were identified. The Legislature
and Governor eventually agreed on significant cuts in program expenditures,
some transfers of program responsibilities and funding from the State to
local governments, revenue increases (particularly in the 1991-92 fiscal
year budget), and various one-time adjustments and accounting changes.
However, as the recession took hold and deepened after the summer of 1990,
revenues dropped sharply and expenditures for health and welfare programs
increased as job losses mounted, so that the State ended each of the 1990-
91 and 1991-92 fiscal years with an unanticipated deficit in the budget
reserve, the SFEU, as compared to projected positive balances.
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 a 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.
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 provides for expenditures of $57.4 billion and consists of General Fund
expenditures of $40.8 billion and Special Fund and Bond Fund expenditures
of $16.6 billion. The Department of Finance estimates there will be a
balance in the SFEU of $28 million on June 30, 1993.
The $7.9 billion budget gap was closed primarily through cuts in the
program expenditures (principally for health and welfare programs, aid to
schools and support for higher education), together with some increases in
revenues from accelerated collections and changes in tax laws to confirm to
federal law changes, and a variety of on-time inter-fund transfers and
deferrals. The other major component of the budget compromise was a law
requiring local governments to transfer a total of $1.3 billion to K-12
school and community college districts, thereby reducing by that amount
General Fund support for those districts under Proposition 98.
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. The 1993-94 fiscal year
represents the third consecutive year the Governor and the Legislature were
faced with a very difficult budget environment, requiring revenue actions
and expenditure cuts totaling billions of dollars to produce a balanced
budget. 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 that
matured 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.
Administration reports during the course of the 1993-94 fiscal year
indicated that while economic recovery appeared to have started in the
second half of the fiscal year, recessionary conditions continued longer
than had been anticipated when the 1993-94 Budget Act was adopted.
Overall, revenues for the 1993-94 fiscal year were about $800 million lower
than original projections, and expenditures were about $780 million higher,
primarily because of higher health and welfare caseloads, lower property
taxes which require greater State support for K-14 education to make up to
shortfall, and lower than anticipated Federal government payments for
immigration-related costs. The reports in May and June 1994, indicated that
revenues in the second half of the 1993-94 fiscal year have been very close
to the projections made in the Governor's Budget of January 10, 1994, which
is consistent with a slow turn around in the economy.
The Department of Finance's July 1994 Bulletin, which included final
June receipts, reported that June revenues were $114 million (2.5%) above
projection, with final end-of-year results at $377 million (about 1%) above
the May Revision projections. Part of this result was due to the end-of-
year adjustments and reconciliations. Personal income tax and sales tax
continued to track projections. The largest factor in the higher than
anticipated revenues was from bank and corporation taxes, which were $140
million (18.4%) above projection in June.
During the 1993-94 fiscal year, the State implemented the Deficit
Retirement Plan, which was part of the 1993-94 Budget Act, by issuing $1.2
billion of revenue anticipation warrants in February 1994 that matured
December 21, 1994. This borrowing reduced the cash deficit at the end of
the 1993-94 fiscal year. Nevertheless, because of the $1.5 billion
variance from the original 1993-94 Budget Act assumptions, the General Fund
ended the fiscal year at June 30, 1994 carrying forward an accumulated
deficit of approximately $1.8 billion.
Because of the revenue shortfall and the State's reduced internal
borrowable cash resources, in addition to the $1.2 billion of revenue
anticipation warrants issued as part of the Deficit Retirement Plan, the
State issued an additional $2.0 billion of revenue anticipation warrants
that matured July 26, 1994, which were needed to fund the State's
obligations and expenses through the end of the 1993-94 fiscal year.
The 1994-95 fiscal year represented the fourth consecutive year the
Governor and Legislature were 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 Proposal, as updated in May and June 1994, recognized that the
accumulated deficit could not be repaid in one year, and proposed a two-
year solution. The budget proposal set forth revenue and expenditure
forecasts and revenue and expenditure proposals which estimated operating
surpluses for the budget for both 1994-95 and 1995-96, and lead to the
elimination of the accumulated budget deficit, estimated at about $1.8
billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994,
projected revenues and transfers of $41.9 billion, $2.1 billion higher than
revenues in 1993-94. This reflected the Administration's forecast of an
improving economy. Also included in this figure was the projected receipt
of about $360 million from the Federal government to reimburse the State's
cost of incarcerating undocumented immigrants, most of which eventually was
not received.
The 1994-95 Budget Act projected Special Fund revenues of $12.1
billion, a decrease of 2.4% from 1993-94 estimated revenues.
The 1994-95 Budget Act projected General Fund expenditures of $40.9
billion, an increase of $1.6 billion over the 1993-94 fiscal year. The
1994-95 Budget Act also projected Special Fund expenditures of $13.7
billion, a 5.4% increase over 1993-94 fiscal year estimated expenditures.
The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended
for two years (1993 and 1994). A ballot proposition to permanently restore
the renters' tax credit after this year failed at the June 1994 election.
The Legislature enacted a further one-year suspension of the renters' tax
credit, for 1995, saving about $390 million in the 1995-96 fiscal year.
The 1994-95 Budget Act assumed that the State would use a cash flow
borrowing program in 1994-95 which combines one-year notes and two-year
warrants, which have now been issued. Issuance of the warrants allows the
State to defer repayment of approximately $1.0 billion of its accumulated
budget deficit into the 1995-96 fiscal year. The Budget Adjustment Law
enacted along with the 1994-95 Budget Act is designed to ensure that the
warrants will be repaid in the 1995-96 fiscal year.
Reports by the Department of Finance in May, 1995 indicate that, with
economic recovery well underway in the State, General Fund revenues for the
entire 1994-95 fiscal Year were above projections, and expenditures were
below projections because of slower then anticipated health/welfare
caseload growth and school enrollments. The aggregate effect improved the
budget picture by about $500 million, leaving an estimated budget deficit
of about $630 million at June 30, 1995.
For the first time in four years, the state enters the upcoming 1995-
96 fiscal year with strengthening revenues based on an improving economy.
On January 10, 1995, the Governor presented his 1995-96 Fiscal Year Budget
Proposal (the "Proposed Budget"). The Proposed Budget estimates General
Fund revenues and transfers of $42.5 billion (an increase of 0.2% over
1994-95). This nominal increase from 1994-95 fiscal year reflects the
Governor's realignment proposal and the first year of his tax cut proposal.
Without these two proposals, General Fund revenues would be projected at
approximately $43.8 billion, or an increase of 3.3% over 1994-95.
Expenditures are estimated at $41.7 billion (essentially unchanged from
1994-95). Special Fund revenues are estimated at $13.5 billion (10.7%
higher than 1994-95) and Special Fund expenditures are estimated at $13.8
billion (12.2% higher than 1994-95). The Proposed Budget projects that the
General Fund will end the fiscal year at June 30, 1996 with a budget
surplus in SFEU of about $92 million, or less than 1% of General Fund
expenditures, and will have repaid all of the accumulated budget deficits.
Recent Economic Trends. Revised employment data indicate that
California's recession ended in 1993, and following a period of stability,
a solid recovery is now underway. The State's unemployment rate fell from
9.2% in fiscal 1993 to 8.6% in fiscal 1994. The national unemployment rate
in 1994 was 6.1%. The number of employed Californians increased more than
250,000 during fiscal 1994.
Other indicators, including retail sales, homebuilding activity,
existing home sales and bank lending volume all confirm the State's
recovery.
Personal income was severely affected by the Northridge Earthquake,
which reduced the first quarter 1994 figure by $22 billion at an annual
rate, reflecting the uninsured damage to residences and unincorporated
businesses. As a result, personal income growth for all of 1994 was about
2.8%. However, excluding the Northridge effects, growth would have been in
excess of 3%.
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 1993 manufacturing employment declined 33.5%, while non-
manufacturing employment increased 63.3%, particularly in the service,
trade and finance categories, resulting in an increase of 27.6% in total
growth in non-agricultural sectors. Defense-related business plays and
important role in the Connecticut economy, and economic activity has been
affected by the volume of defense contracts awarded to Connecticut firms.
From 1984 to 1993, Connecticut ranked from sixth to twelfth among all
States in total defense contract awards, receiving 2.5% of all such
contracts in 1993. 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 these and other industrial labor force 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 1994 was $95.1 billion, a 3.3% increase over the previous
year. Total personal income in the State increased 29.6% from 1987 to 1992
and 18.0% from 1989 to 1994, compared with national increases of 37.3% and
33.9%, respectively. According to U.S. Department of Commerce projections,
the State is expected to continue to rank among the highest in State per
capita income. As of January 1995, the estimated rate of unemployment (on
a seasonably adjusted basis) in the State was 5.6%.
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, $28.0 million, $259.5 million and $808.5 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 the
fiscal year 1990-91 was $965.7 million. The total deficit amount was
funded by the issuance of General Obligation Economic Recovery Notes in
late 1991. As of March 1, 1995, $455,610,000 of such 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 comptroller's annual report for the fiscal year ended June 30, 1994
reflected a General Fund operating surplus of $19.7 million. The
unappropriated surplus in the General Fund is deemed to be appropriated for
debt service for the fiscal year ending June 30, 1995.
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 January 31, 1995
estimated that on a GAAP basis the cumulative deficit is $511 million for
fiscal 1994-95. 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 State finances its operations primarily through the General Fund.
All tax and most non-tax revenues of the State, except for motor fuels
taxes and other transportation-related taxes, fees and revenues, are paid
into, and substantially all expenditures pursuant to legislative
appropriations are made out of, the General Fund. The State derives over
70% of its revenues from taxes. Miscellaneous fees, receipts, transfers
and Federal grants account for most of the other State revenue. The Sales
and Use Taxes, the corporation business tax and the recently enacted broad
based personal income tax are the major revenue raising taxes. For fiscal
1994-95, the adopted budget anticipates General Fund expenditures of $8.116
billion and General Fund revenues of $8.117 billion.
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. The statutory spending cap limits the growth of expenditures
to either (1) the rolling five-year average annual growth in personal
income, 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 1994-95, permitted growth in
capped expenditures is 4.49%. The adoption Budget for fiscal 1994-95 is
approximately $24 million below the spending cap.
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 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. The State, as of April 17, 1990, commenced a program permitting the
issuance of up to $539 million of General Obligation Temporary Notes (the
"April 1990 Program"). Under the April 1990 Program, the State may issue
notes during a five-year period concluding in April of 1995. Additionally,
a separate $200 million temporary note program commenced as of April 30,
1991 and concluded on October 31, 1991. There are currently no notes
outstanding under either program.
The General Assembly has empowered, pursuant to bonds acts in effect,
the State Bond Commission to authorize general obligation bonds in the
amount of $10,194,811,925. As of March 1, 1995, the State Bond Commission
has authorized $8,673,257,266 in such bonds and the balance of
$1,521,554,659 was available for authorization. From such total
authorizations of $8,673,257,266, bonds in the aggregate of
$7,334,468,663.09 have been issued and the balance of $1,338,788,602.91
remained authorized but unissued as of March 1, 1995.
General obligation bonds issued by Connecticut municipalities are
payable primarily from ad valorem taxes on property subject to taxation by
the municipality. Certain Connecticut municipalities have experienced
severe fiscal difficulties and have reported operating and accumulated
deficits in recent years. The most notable of these is the City of
Bridgeport.
S&P, Moody's and Fitch rate Connecticut's municipal bonds AA-, Aa and
AA, respectively.
Florida Series
Revenues and Expenditures. Financial operations of the State of
Florida covering all receipts and expenditures are maintained through the
use of three funds: General Revenue Fund, Trust Funds and Working Capital
Fund. The General Revenue Fund receives the majority of State tax
revenues. The Trust Funds consist of monies received by the State which
under law or trust agreement are segregated for a purpose authorized by
law. Revenues in the General Revenue Fund which are in excess of the
amount needed to meet appropriations may be transferred to the Working
Capital Fund. Beginning in 1993-94, the Florida Constitution requires that
the State establish a Budget Stabilization Fund. This fund is to contain a
balance of at least 1% of the previous year's net General Revenue
collections in 1994-95, 2% in 1995-96, 3% in 1996-97, 4% in 1997-98 and 5%
in 1998-99 and thereafter. These monies can be only spent for the purpose
of covering revenue shortfalls and for emergency purposes as defined by
general law. Implementing legislation establishing this fund was enacted
during the 1994 Session of the Florida legislature.
In November of 1994, Florida voters approved an amendment to the
Florida Constitution which set forth limitations on revenue collections by
the State. With certain exceptions, State revenues collected for any
fiscal year are limited to State revenues allowed under the amendment for
the prior fiscal year plus and adjustment for growth.
As used in the amendment, "growth" means an amount equal to the
average annual rate of growth in Florida personal income over the most
recent twenty quarters times the State revenues allowed under the amendment
for the prior fiscal year. For the 1995-96 fiscal year, the State revenues
allowed under the amendment for the prior fiscal year shall equal the State
revenues collected for the 1994-95 fiscal year. Florida personal income
will be determined by the Legislature, from information available from the
United States Department of Commerce or its successor on the first day of
February prior to the beginning of the fiscal year. State revenues
collected for any fiscal year in excess of this limitation will be
transferred to the Budget Stabilization Fund until the fund reaches the
maximum balance specified above, and thereafter shall be refunded to
taxpayers as provided by general law. State revenues allowed under the
amendment for any fiscal year may be increased by a two-thirds vote of the
membership of each house of the Florida Legislature.
For purposes of the amendment "State revenues" means taxes, fees,
licenses, and charges for services imposed by the Legislature on
individuals, businesses, or agencies outside State government. However,
"State revenues" does not include: revenues that are necessary to meet the
requirements set forth in documents authorizing the issuance of bonds by
the State; revenues that are used to provide matching funds for the Federal
Medicaid program with the exception of the revenues used to support the
Public Medical Assistance Trust Fund or its successor program and with the
exception of State matching funds used to fund elective expansions made
after July 1, 1994; proceeds from the State Lottery returned as prizes;
receipts of the Florida Hurricane Catastrophe Fund; balances carried
forward from prior fiscal years; taxes, licenses, fees and charges for
services imposed by local, regional, or school district governing bodies;
or revenue from taxes, licenses, fees and charges for services required to
be imposed by any amendment or revision to the Constitution after July 1,
1994. An adjustment to the revenue limitation will be made by general law
to reflect the fiscal impact of transfers of responsibility for the funding
of governmental functions between the State and other levels of government.
The amendment became effective January 1, 1995.
The Florida Constitution and Statues 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 1992-93 and 1993-94 with General Revenue
plus Working Capital Funds unencumbered reserves of approximately $543.5
million and $351.8 million, respectively. Fiscal year 1994-95 General
Revenue plus Working Capital Funds available totaled $14.699 billion.
Total effective appropriations for the 1994-95 fiscal year were $14.406
billion, resulting in estimated unencumbered reserves of $290.3 million at
the end of the fiscal year. The massive effort to rebuild and replace
destroyed or damaged property in the wake of Hurricane Andrew is
responsible for the substantial positive revenue growth shown. Most of the
impact is in the sales tax.
In fiscal year 1994-95, the State derived approximately 66% of its
total direct revenues from the General Revenue Fund, Trust Funds and
Working Capital Fund from State taxes and fees. Federal funds and other
special revenues accounted for the remaining revenues. Major sources of
tax revenues to the General Revenue Fund are the sales and use tax,
corporate income tax, and beverage tax, which amounted to 67.0%, 7.0% and
4.0%, 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 1994-95, expenditures from the General Revenue
Fund for education, health and welfare and public safety amounted to
approximately 49.0%, 32.0% and 11.0%, respectively, of total General
Revenues.
Sales and Use Tax. The greatest single source of tax receipts in
Florida is the sales and use tax. The sales tax is 6% of the sales price
of tangible property sold at retail in the State. The use tax is 6% of the
cost price of tangible personal property when the same is not sold but is
used, or stored for use, in the State. The use tax also applies to the use
in the State of tangible personal property purchased outside Florida which
would have been subject to the sales tax if purchased from a Florida
dealer. Less than 10% of the sales tax is designated for local governments
and is distributed to the respective counties in which it is collected for
use by such counties and municipalities therein. In addition to this
distribution, local governments may (by referendum) assess a .5% or 1%
discretionary sales surtax within their county. Proceeds from this local
option sales tax are earmarked for funding local infrastructure programs
and acquiring land for public recreation or conservation or protection of
natural resources. In addition, non-consolidated counties with populations
in excess of 800,000 may levy a local option sales tax to fund indigent
health care. This tax rate may not exceed .5% and the combined levy of the
indigent health care surtax and the infrastructure surtax described above
may not exceed 1%. Furthermore, charter counties which adopted a charter
prior to June 1, 1976, and each country with a consolidated
county/municipal government, may (by referendum) assess up to a 1%
discretionary sales surtax within their county. Proceeds from this tax are
earmarked for the development, construction, maintenance and operation of a
fixed guideway rapid transit system or may be remitted to an expressway or
transportation authority for use on country roads and bridges, for a bus
system, or to service bonds financing roads and bridges. The two taxes,
sales and use, stand as complements to each other, and taken together
provide a uniform tax upon either the sale at retail or the use of all
tangible personal property irrespective of where it may have been
purchased. This tax also includes a levy on the following: (i) rentals of
tangible personal property, transient lodging and non-residential real
property; (ii) admissions to places of amusements, most sports and
recreation events; (iii) utilities, except those used in homes; and (iv)
restaurant meals. Exemptions include: groceries; medicines; hospital
rooms and meals; fuels used to produce electricity; purchases by religious,
charitable and educational nonprofit institutions; most professional,
insurance and personal service transactions; apartments used as permanent
dwellings; and 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, 1995, receipts from this source
were $10.672 billion, an increase of 6.0% from fiscal year 1993-94.
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, 1995, were $1.733 billion.
However, these revenues are almost entirely dedicated trust funds for
specific purposes and are not included in the State General Revenue Fund.
State and local taxes on motor fuels (gasoline and special fuel)
include several distinct fuel taxes: (i) the State sales tax on motor
fuels, levied at 6% of the average retail price per gallon of fuel, not to
fall below 6.9 cents per gallon; (ii) the State excise tax of four cents
per gallon of motor fuel, proceeds distributed to local governments; (iii)
the State Comprehensive Enhanced Transportation System (SCETS) tax, which
is levied at a rate in each county equal to two-thirds of the sum of the
county's local option motor fuel taxes; and (iv) local option motor fuel
taxes, which may range between one cent to seven cents per gallon.
Alcoholic Beverage Tax. Florida's alcoholic beverage tax is an excise
tax on beer, wine, and liquor. This tax is one of the State's major tax
sources, with revenues totalling $437.3 million in State fiscal year ended
June 30, 1995. 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 cargo 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 1994-95 a
total of $97.4 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, 1995, receipts from this
source were $1.064 billion, an increase of 1.5% from fiscal year 1993-94.
Documentary Stamp Tax. Deeds and other documents relating to a realty
are taxed at 70 cents per $100 of consideration, while corporate shares,
bonds, certificates of indebtedness, promissory notes, wage assignments and
retail charge accounts are taxed at 35 cents per $100 consideration.
Documentary stamp tax collections totalled $695.3 million during fiscal
year 1994-95, posting a 11.4% decrease from the previous fiscal year. The
General Revenue Fund receives approximately 63% 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 1994-95, gross receipts utilities tax collections
totalled $508.4 million, an increase of 10.4% 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 County Revenue
Sharing Trust Fund. The remainder is distributed to the General Reserve
Fund.
Fiscal year 1994-95 total intangible personal property tax collections
were $818.0 million, a 2.1% decrease 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 $61.2 million during fiscal year 1994-95, up 1.1% from the
previous fiscal year.
Lottery. The 1987 Legislature created the Department of the Lottery
to operate the State Lottery and setting forth the allocation of the
revenues. Of the revenues generated by the Lottery, 50% is to be returned
to the public as prizes; at least 38% is to be deposited in the Educational
Enhancement Trust Fund (for public education); and no more than 12% can be
spent on the administrative cost of operating the lottery.
Fiscal year 1994-95 produced ticket sales of $2.19 billion, of which
education received approximately $853.2 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, pharmaceuticals, 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 State's General Fund ended fiscal 1994 with an undesignated fund
balance of $1.265 billion.
The fiscal year 1995 Appropriations Act forecast Sales and Use Tax
collections of $4.130 billion, a 9.3% increase from fiscal year 1994
revenue, Gross Income Tax collections of $4.580 billion, a 1.9% increase
from fiscal year 1994 revenue, and Corporation Business Tax collections of
$1.054 billion, a .9% decrease from fiscal year 1994 revenue.
The State appropriated approximately $14.7 billion and $15.5 billion
for fiscal 1993 and 1994, respectively. Estimated 1995 and 1996 State
appropriations total $15.5 billion and $16.0 billion, respectively. Of the
$16.0 billion appropriated in fiscal year 1996 from the General Fund, the
Property Tax Relief Fund, the Casino Control Fund and the Casino Revenue
Fund, $6.425 billion (40.2%) is appropriated for State aid to local
governments, $3.708 billion (23.2%) is 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), $5.180 billion (32.4%) for direct State services,
$466.3 million (2.9%) for debt service on State general obligation bonds
and $217.1 million (1.3%) for capital construction.
As of June 30, 1994, the outstanding general obligation bonded
indebtedness of the State was approximately $3.7 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. There are presently no
tax and revenue anticipation notes outstanding. It is anticipated that
this program will be continued in fiscal year 1996.
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 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 Fund. 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 State, the City and the
Municipal Assistance Corporation for the City of New York ("MAC") 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.
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 gained approximately 100,000 jobs. The State's
economy is expected to continue to expand modestly during 1995, but there
will be a pronounced slow-down during the course of the year. Although
industries that export goods and services abroad are expected to benefit
from the lower dollar, growth will be slowed by government cutbacks at all
levels. On an average annual basis, employment growth will be about the
same as 1994. Both personal income and wages are expected to record
moderate gains in 1995.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature 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 1995-96 fiscal year was
formulated on June 20, 1995 and is based on the State's budget as enacted
by the Legislature and signed into law by the Governor.
The 1995-96 budget is the first to be enacted in the administration of
the Governor, who assumed office on January 1. It is the first budget in
over half a century which proposed and, as enacted, projects an absolute
year-over-year decline in General Fund disbursements. Spending for State
operations is projected to drop even more sharply, by 4.6%. Nominal
spending from all State funding sources (i.e., excluding Federal aid) is
proposed to increase by only 2.5% from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0%
annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of
unfunded 1994-95 initiatives, primarily for local aid programs; and the use
of one-time solutions, primarily surplus funds from the prior year, to fund
recurring spending in the 1994-95 budget. The Governor proposed additional
tax cuts, to spur economic growth and provide relief for low and middle-
income tax payers, which were larger than those ultimately adopted, and
which added $240 million to the then projected imbalance or budget gap,
bringing the total to approximately $5 billion.
This gap is projected to be closed in the 1995-96 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions.
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 General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts and transfers from other funds are
projected to be $33.110 billion, a decrease of $48 million from total
receipts in the prior fiscal year. Total General fund disbursements and
transfers to other funds are projected to be $33.055 billion, a decrease of
$344 million from the total amount disbursed 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. In
February 1991, Moody's lowered its rating on the City's general obligation
bonds from A to Baa1 and in July 1995, S&P lowered its rating on such bonds
from A- to BBB+. 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 Cash-Basis Results--General Fund. The General Fund is
the principal operating fund of the State and is used to account for all
financial transactions, except those required to be accounted for in
another fund. It is the State's largest fund and receives almost all State
taxes and other resources not dedicated to particular purposes. General
Fund moneys are also transferred to other funds, primarily to support
certain capital projects and debt service payments in other fund types.
New York State's financial operations have improved during recent
fiscal years. During the period 1989-90 through 1991-92, the State
incurred General Fund operating deficits that were closed with receipts
from the issuance of tax and revenue anticipation notes ("TRANs"). First,
the national recession, and then the lingering economic slowdown in the New
York and regional economy, resulted in repeated shortfalls in receipts and
three budget deficits. For its 1992-93, 1993-94 and 1994-95 fiscal years,
the State recorded balanced budgets on a cash basis, with substantial fund
balances in 1992-93 and 1993-94, and a smaller fund balance in 1994-95, as
described below.
New York State ended its 1994-95 fiscal year with the General fund in
balance. The closing fund balance of $158 million reflects $157 million in
the Tax Stabilization Reserve Fund and $1 million in the Contingency
Reserve Fund ("CRF"). The CRF was established in State Fiscal year 1993-
94, funded partly with surplus moneys, to assist the State in financing the
1994-95 fiscal year costs of extraordinary ligation known or anticipated at
that time; the opening fund balance in State fiscal year 1994-95 was $265
million. The $241 million change in the fund balance reflects the use of
$264 million in the CRF as planned, as well as the required deposit of $23
million to the Tax Stabilization Reserve Fund. In addition, $278 million
was on deposit in the tax refund reserve account, $250 million of which was
deposited at the end of the State's 1994-95 fiscal year to continue the
process of restructure the State's cash flow as part of the New York Local
Government Assistance Corporation ("LGAC") program.
Compared to the State Financial Plan for 1994-1995 as formulated on
June 16, 1994, reported receipts fell short of original projections by
$1.163 billion, primarily in the categories of personal income and business
taxes. Of this amount, the personal income tax accounts for $800 million,
reflecting weak estimated tax collections and lower withholding due to
reduced wage and salary growth, more severe reductions in brokerage
industry bonuses than projected earlier, and deferral of capital gains
realizations in anticipation of potential Federal tax changes. Business
taxes fell short by $373 million, primarily reflecting lower payments from
banks as substantial overpayments of 1993 liability depressed net
collections in the 1994-95 fiscal year. These shortfalls were offset by
better performance in the remaining taxes, particularly the user taxes and
fees, which exceeded projections by $210 million. Of this amount, $277
million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact
on balance in the General Fund
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to
the CRF and LGAC which raised disbursements by $38 million, the variance is
$886 million. Well over two-thirds of this variance is in the category of
grants to local governments, primarily reflecting the conservative nature
of the original estimates of projected costs for social services and other
programs. Lower education costs are attributable to the availability of
$110 million in additional lottery proceeds and the use of LGAC bond
proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap
in the 1994-95 State Financial Plan. These actions included savings from a
hiring freeze, halting the development of certain services, and the
suspension of non-essential capital projects. These actions, together with
$71 million in other measures, comprised the Governor's $259 million gap-
closing plan, submitted to the Legislature in connection with the 1995-96
Executive Budget.
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in the CRF 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 was 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 LGAC
program. The balance in the contingency reserve fund was reserved to meet
the cost of litigation facing the State in its 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 were 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 was used to restructure the State's cash flow as
part of the LGAC program. 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
the 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.
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.
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 TRANs, owing to lower-than-projected receipts.
Other Governmental Funds. Activity in the three other governmental
funds has remained relatively stable over the last three fiscal years, with
Federally-funded programs comprising approximately two-thirds of these
funds. The most significant change in the structure of these funds has
been the redirection, beginning in the 1993-94 fiscal year, of a portion of
transportation-related revenues from the General Fund to two new dedicated
funds in the Special Revenue and Capital Projects Fund types. These
revenues totalling $676 million in the 1994-95 fiscal year were used to
support the capital programs of the Department of Transportation and the
Metropolitan Transportation Authority ("MTA").
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 $25.547 billion in the State's 1995-
96 fiscal year. Disbursements from Special Revenue Funds are projected to
be $26.002 billion for the State's 1995-96 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 24%
of the $4.170 billion in total projected receipts in Capital Projects Funds
in the State's 1995-96 fiscal year. Total disbursements for capital
projects are projected to be $4.160 billion during the State's 1995-96
fiscal year.
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 $2.409 billion in the State's 1995-96
fiscal year. Total disbursements from Debt Service Funds for debt service,
lease/purchase and contractual obligation financing commitments are
projected to be $2.506 billion for the 1994-95 fiscal year.
State Borrowing Plan. The State anticipates that its capital programs
will be financed, in part, through borrowings by the State and public
authorities in the 1995-96 fiscal year. The State expects to issue $248
million in general obligation bonds (including $70 million for purposes of
redeeming outstanding BANs) and $186 million in general obligation
commercial paper. The Legislature has also authorized the issuance of up
to $33 million in COPs during the State's 1995-96 fiscal year for equipment
purchases and $14 million for capital purposes. The projection of the
State regarding its borrowings for the 1995-96 fiscal year may change if
circumstances require.
In addition, the LGAC is authorized to provide net proceeds of up to
$529 million during the 1995-96 fiscal year to redeem notes sold in June
1995.
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, 1994, 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 $70.3 billion as of September 30,
1994. As of March 31, 1995, aggregate Agency debt outstanding as State-
supported debt was $27.9 billion and as State-related was $36.1 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 1995-96 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 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 subsidies. If current revenue projections are not realized and/or
operating expenses exceed current projections, the TA or commuter railroads
may be required to seek additional State assistance, raise fares or take
other actions.
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. In
addition, since 1987, State law has required that the proceeds of .25%
mortgage recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for operating or
capital expenses. Further, in 1993, the State dedicated a portion of
certain additional State petroleum business tax receipts to fund operating
or capital assistance to the MTA. For the 1994-96 State fiscal year, total
State assistance to the MTA is estimated at approximately $1.1 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 received
approval of the 1992-1996 Capital Program based on this legislation from
the MTA Capital Program Review Board (the "CPRB"), as State law requires.
This is the third five-year plan since the Legislature authorized
procedures for the adoption, approval and amendment of a five-year plan in
1981 for a capital program designed to upgrade the performance of the MTA's
transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the TBTA and the TA are collectively
authorized to issue an aggregate of $3.1 billion of bonds (net of certain
statutory exclusions) to finance a portion of the 1992-96 Capital Program.
The 1992-96 Capital Program was expected to be financed in significant part
through dedication of the State petroleum business tax receipts referred to
above. However, in December 1994 the proposed bond resolution based on
such tax receipts was not approved by the MTA Capital Program Review Board.
Further consideration of the resolution was deferred until 1995.
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 1995-96 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 1995-96
fiscal year.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1993, the total indebtedness of
all localities in the State, other than the City, was approximately $17.7
billion. A small portion (approximately $105 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. Fifteen localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending in 1993.
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% and 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, 1994 were
balanced in accordance with GAAP, the twelfth 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 experienced
significant shortfalls in almost all of its major tax sources and increases
in social services costs, and was 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 eleventh 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.
The City requires certain amounts of financing for seasonal and
capital spending purposes. The City has issued $1.75 billion of notes for
seasonal financing purposes during the 1994 fiscal year. The City's
capital financing program projects long-term financing requirements of
approximately $17 billion for the City's fiscal years 1995 through 1998 for
the construction and rehabilitation of the City's infrastructure and other
fixed assets. The major capital requirement include expenditures for the
City's water supply system, and waste disposal systems, roads, bridges,
mass transit, schools and housing. In addition, the City and the Municipal
Water Finance Authority have issued about $1.8 billion in refunding bonds
in the 1994 fiscal year.
State Economic Trends. The State historically has been one of the
wealthiest states in the nation. For decades, however, the State has grown
more slowly than the nation as a whole, gradually eroding its relative
economic position. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an
influx of generally less affluent residents. Regionally, the older
Northeast cities have suffered because of the relative success that the
South and the West have had and in attracting people and business. The
City has also had to face greater competition as other major cities have
developed financial and business capabilities which make them less
dependent on the specialized services traditionally available almost
exclusively in the City.
During the 1982-83 recession, overall economic activity in the State
declined less than that of the nation as a whole. However, in the calendar
years 1984 through 1991, the State's rate of economic expansion was
somewhat slower than that of the nation. In the 1990-91 recession, the
economy of the State, and that of the rest of the Northeast, was more
heavily damaged than that of the nation as a whole and has been slower to
recover. The total employment growth rate in the State has been below the
national average since 1984. The unemployment rate in the State dipped
below the national rate in the second half of 1981 and remained lower until
1991; since then, it has been higher. According to date published by the
U.S. Bureau of Economic Analysis, during the past ten years, total personal
income in the State rose slightly faster than the national average only
from 1986 through 1988.
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.
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, California Series
STATEMENT OF INVESTMENTS JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS-90.1% AMOUNT VALUE
------------ ------------
<S> <C> <C>
CALIFORNIA:
Anaheim Public Financing Authority, Electric Utility Revenue (San Juan 4)
5.75%, 10/1/2022 (Insured; FGIC)........................................ $ 100,000 $ 95,885
California Health Facilities Financing Authority, Revenue:
(Children's Hospital San Diego) 6.50%, 7/1/2020 (Insured; MBIA)......... 200,000 207,410
(College of Osteopathic) 5.75%, 6/1/2018 (Insured; Connie Lee).......... 250,000 235,457
California Public Works Board, Department of Corrections, LR
(State Prison - Coalinga) 5.375%, 12/1/2019 (Insured; MBIA)............. 100,000 90,860
California Resource and Efficiency Financing Authority, Revenue (First
Resource
Efficiency Program) 6%, 7/1/2017 (Insured; AMBAC)....................... 200,000 198,064
California Statewide Communities Development Authority, COP, Revenue
(Sutter Health Obligated Group) 5.50%, 8/15/2013 (Insured; MBIA)........ 200,000 189,064
California Veterans Bonds 6.20%, 2/1/2016 (Insured; AMBAC).................. 250,000 247,710
Calleguas - Las Virgines Public Financing Authority, Installment Purpose
Revenue
5.125%, 7/1/2021 (Insured; FGIC)........................................ 100,000 87,849
Campbell Unified School District, Series A 6.25%, 8/1/2019 (Insured; MBIA).. 500,000 507,945
Central Coast Water Authority, Revenue (State Water Project-Regional
Facilities)
6.60%, 10/1/2022 (Insured; AMBAC)....................................... 200,000 209,494
Central Union High School District, Imperial County
5.50%, 8/1/2017 (Insured; AMBAC)........................................ 195,000 182,723
East Bay Municipal Utility District, Wastewater Treatment Systems Revenue
5.55%, 6/1/2020 (Insured; AMBAC)........................................ 200,000 186,246
Eastern Municipal Water District, Water and Sewer Revenue, COP
5.25%, 7/1/2023 (Insured; FGIC)......................................... 100,000 89,152
Garden Grove Public Financing Authority, Revenue
(Water Services Capital Improvement Program) 5.50%, 12/15/2023 (Insured; FGIC) 100,000 92,323
Glendale Redevelopment Agency, Tax Allocation Revenue, Refunding
(Central Glendale Redevelopment Project) 5.50%, 12/1/2014 (Insured; AMBAC) 205,000 192,899
Los Angeles Community Redevelopment Agency, Tax Allocation
(Bunker Hill Project) 5.625%, 12/1/2023 (Insured; FSA).................. 100,000 92,485
Los Angeles Convention and Exhibition Center Authority, LR, Refunding
5.125%, 8/15/2013 (Insured; MBIA)....................................... 100,000 91,723
Los Angeles Metropolitan Transportation Authority, Sales Tax Revenue,
Refunding
5%, 7/1/2021 (Insured; FGIC)............................................ 200,000 172,450
M-S-R Public Power Agency, Revenue (San Juan Project)
6%, 7/1/2020 (Insured; AMBAC)........................................... 200,000 197,694
Monrovia Redevelopment Agency, Public Parking Facilities Revenue, Refunding
5.20%, 4/1/2013 (Insured; AMBAC)........................................ 100,000 92,633
Moulton - Niguel Water District, Refunding (Consolidated Improvement
District)
5.25%, 9/1/2013 (Insured; MBIA)......................................... 100,000 93,248
PREMIER INSURED MUNICIPAL BOND FUND, California Series
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
------------ ------------
Northern California, Transmission Revenue, Refunding (Ore Transmission)
5.25%, 5/1/2020 (Insured; MBIA)......................................... $ 100,000 $ 89,673
Oxnard Financing Authority, Wastewater Revenue, Refunding
5.25%, 6/1/2020 (Insured; FGIC)......................................... 200,000 179,318
Port Oakland, Port Revenue, Series E 6.50%, 11/1/2016 (Insured; MBIA)....... 200,000 204,432
Poway Redevelopment Agency, Tax Allocation, Refunding
(Paguay Redevelopment Project) 5.50%, 12/15/2023 (Insured; FGIC)........ 100,000 92,323
Riverside County Transportation Commission, Sales Tax Revenue
5.75%, 6/1/2008 (Insured; AMBAC)........................................ 300,000 308,484
Sacramento Municipal Utility District, Electric Revenue, Refunding
5.25%, 11/15/2020 (Insured; MBIA)....................................... 200,000 179,154
San Diego, Sewer Revenue 5%, 5/15/2013 (Insured; AMBAC)..................... 100,000 89,348
San Francisco City and Community Airports, International Commission Airport
Revenue
6.25%, 5/1/2012 (Insured; FGIC)......................................... 150,000 151,619
San Jose Redevelopment Agency, Tax Allocation, Refunding
(Merged Area Redevelopment Project) 5.25%, 8/1/2016 (Insured; MBIA)..... 200,000 182,002
San Mateo County Joint Powers Financing Authority, LR, Capital Projects
5.75%, 7/15/2017 (Insured; FSA)......................................... 200,000 190,888
Santa Ana Community Redevelopment Agency, Tax Allocation, Refunding
(South Main Street Redevelopment) 5.25%, 9/1/2013 (Insured; MBIA)....... 100,000 93,248
Santa Cruz County Public Financing Authority, Tax Allocation Revenue,
Refunding
5.30%, 9/1/2023 (Insured; MBIA)......................................... 300,000 269,025
University of California, Revenue:
Fresno Association Inc. (Auxilliary Residence-Student Project)
6.25%, 2/1/2017 (Insured; MBIA)....................................... 300,000 304,845
Refunding (Housing Systems) 5.25%, 11/1/2012 (Insured; MBIA)............ 200,000 187,880
Victor, Elementary School District, Capital Appreciation Zero Coupon 6/1/2015
(Insured; MBIA)......................................................... . 1,000,000 291,100
----------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (cost $6,583,653)..................... $6,366,653
===========
SHORT-TERM MUNICIPAL INVESTMENTS-9.9%
U.S. RELATED;
Puerto Rico Electric Power Authority, Power Revenue 4.34% (Insured; FSA) (a)
(cost $700,000)......................................................... $ 700,000 $ 700,000
===========
TOTAL INVESTMENTS-100.0%
(cost $7,283,653)....................................................... $7,066,653
===========
</TABLE>
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, California Series
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation FSA Financial Security Assurance
COP Certificate of Participation LR Lease Revenue
FGIC Financial Guaranty Insurance Company MBIA Municipal Bond Investors Assurance
Insurance Corporation
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
STANDARD PERCENTAGE
FITCH (B) OR MOODY'S OR & POOR'S OF VALUE
- -------- -------- --------- -----------
<S> <C> <C> <C>
AAA Aaa AAA 100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Inverse floater security - the interest rate is subject to change
periodically.
(b) Fitch currently provides creditworthiness information for a limited
number of investments.
(c) At July 31, 1995, 40.7% of the Series' net assets are insured by
MBIA and 26.0% are insured by AMBAC.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, California Series
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $7,283,653)-see statement....................................... $7,066,653
Cash.................................................................... 121,482
Interest receivable..................................................... 103,556
Receivable for shares of Beneficial Interest subscribed................. 32,687
Prepaid expenses........................................................ 43,627
----------
7,368,005
LIABILITIES:
Due to The Dreyfus Corporation.......................................... . $ 5,770
Due to Distributor...................................................... 3,152
Accrued expenses and other liabilities.................................. 40,875 49,797
------- ----------
NET ASSETS.................................................................. $7,318,208
==========
REPRESENTED BY:
Paid-in capital......................................................... $7,546,766
Accumulated net realized (loss) on investments.......................... (11,558)
Accumulated net unrealized (depreciation) on investments-Note 3......... (217,000)
----------
NET ASSETS at value......................................................... $7,318,208
==========
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 304,979
==========
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 327,913
==========
NET ASSET VALUE per share:
Class A Shares
($3,525,094 / 304,979 shares)......................................... $11.56
======
Class B Shares
($3,793,114 / 327,913 shares)......................................... $11.57
======
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, California Series
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1995
INVESTMENT INCOME:
INTEREST INCOME......................................................... $337,279
EXPENSES:
Management fee-Note 2(a).............................................. $ 32,794
Shareholder servicing costs-Note 2(c)................................. 26,019
Distribution fees (Class B shares)-Note 2(b).......................... 15,695
Organization expenses................................................. 11,040
Registration fees..................................................... 7,790
Prosepctus and shareholders' reports.................................. 4,235
Legal fees............................................................ 2,306
Trustees' fees and expenses-Note 2(d)................................. 1,684
Custodian fees........................................................ 1,136
Auditing fees......................................................... 829
Miscellaneous......................................................... 7,465
--------
110,993
Less-expense reimbursement from Manager due to
undertakings-Note 2(a)............................................ 90,802
--------
TOTAL EXPENSES.................................................. 20,191
--------
INVESTMENT INCOME-NET........................................... 317,088
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $ (11,558)
Net unrealized appreciation on investments.............................. 67,281
--------
NET REALIZED AND UNREALIZED GAIN ON INVESMENTS.................. 55,723
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $372,811
========
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, California Series
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
------------------------------
1994* 1995
------------- -----------
OPERATIONS:
Investment income-net................................................... $ 126,669 $ 317,088
Net realized (loss) on investments...................................... --- (11,558)
Net unrealized appreciation (depreciation) on investments for the year.. (284,281) 67,281
------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS... (157,612) 372,811
------------- -----------
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net:
Class A shares........................................................ (54,412) (157,005)
Class B shares........................................................ (72,257) (160,083)
------------- -----------
TOTAL DIVIDENDS................................................... (126,669) (317,088)
------------- -----------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 2,745,985 2,395,751
Class B shares........................................................ 4,456,351 1,798,008
Dividends reinvested:
Class A shares........................................................ 31,965 52,720
Class B shares........................................................ 49,861 99,361
Cost of shares redeemed:
Class A shares........................................................ (1,218,479) (441,885)
Class B shares........................................................ (1,750,952) (771,920)
------------- -----------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 4,314,731 3,132,035
------------- -----------
TOTAL INCREASE IN NET ASSETS.................................... 4,030,450 3,187,758
NET ASSETS:
Beginning of year....................................................... 100,000 4,130,450
------------- -----------
End of year............................................................. $ 4,130,450 $ 7,318,208
============= ============
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------------------------------------------------------------------
CLASS A CLASS B
------------------------------ ------------------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
------------------------------ ------------------------------
1994* 1995 1994* 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 220,251 211,279 362,381 158,840
Shares issued for dividends reinvested. 2,657 4,664 4,168 8,762
Shares redeemed........................ (99,532) (38,340) (140,746) (69,492)
------------ ------------ ------------ ------------
NET INCREASE IN SHARES OUTSTANDING 123,376 177,603 225,803 98,110
=========== ============= ============ ============
____________________________________________________
* From August 19, 1993 (commencement of operations) to July 31, 1994.
See notes to financial statements.
</TABLE>
PREMIER INSURED MUNICIPAL BOND FUND, California Series
FINANCIAL HIGHLIGHTS
Reference is made to page 6 of the Fund's Prospectus dated December 1,
1995.
PREMIER INSURED MUNICIPAL BOND FUND, California Series
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Premier Insured Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering six series including the California Series (the "Series"). Dreyfus
Service Corporation, until August 24, 1994, acted as the distributor of the
Fund's shares. Dreyfus Service Corporation is a wholly-owned subsidiary of
the The Dreyfus Corporation ("Manager"). Effective August 24, 1994, the
Manager became a direct subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of FDI Distribution Services, Inc., a provider of mutual fund
administration services, which in turn is a wholly-owned subsidiary of FDI
Holdings, Inc., the parent company of which is Boston Institutional Group,
Inc.
The Fund accounts separately for the assets, liabilities and operations
of each series. Expenses directly attributable to each series are charged to
that series' operations; expenses which are applicable to all series are
allocated among them on a pro rata basis.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Options
and financial futures on municipal and U.S. treasury securities are valued at
the last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market
on each business day. Investments not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
PREMIER INSURED MUNICIPAL BOND FUND, California Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Series follows an investment policy of investing primarily in
municipal obligations of one state. Economic changes
affecting the state and certain of its public bodies and municipalities may
affect the ability of issuers within the state to pay interest on, or repay
principal of, municipal obligations held by the Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain, if any, are normally declared and
paid annually, but the Series may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. The most stringent
state expense limitation applicable to the Series presently requires
reimbursement of expenses in any full fiscal year that such expenses
(exclusive of distribution expenses and certain expenses as described above)
exceed 2-1\2% of the first $30 million, 2% of the next $70 million and
1-1\2% of the excess over $100 million of the average value of the Series' net
assets in accordance with California "blue sky" regulations. However, the
Manager had undertaken from August 1, 1994 through September 28, 1995, to
reduce the management fee and reimburse such excess expenses paid by the
Series, to the extent that the Series' aggregate expenses (excluding certain
expenses as described above) exceeded specified annual percentages of the
Series' average daily net assets. The expense reimbursement, pursuant to the
undertakings, amounted to $90,802 for the year ended July 31, 1995.
The Manager has currently undertaken through September 30, 1995, to
reduce the management fee paid by, or reimburse such excess expenses of the
Series, to the extent that the Series' aggregate annual expenses (excluding
12b-1 Distribution Plan fees and certain expenses as described above) exceed
an annual rate of 1.25 of 1% of the average daily value of the Series' net
assets.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
Prior to August 24, 1994, Dreyfus Service Corporation retained $598 from
contingent deferred sales charges imposed upon redemptions of the Series'
Class B shares.
PREMIER INSURED MUNICIPAL BOND FUND, California Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(B) On August 3, 1994, the Series' shareholders approved a revised
Distribution Plan with respect to Class B shares only (the
"Class B Distribution Plan") pursuant to Rule 12b-1 under the Act. Pursuant
to the Class B Distribution Plan effective August 24, 1994, the Fund pays the
Distributor for distributing the Series' Class B shares at an annual rate of
.50 of 1% of the value of the average daily net assets of Class B shares.
Prior to August 24, 1994, the Distribution Plan ("prior Class B
Distribution Plan") provided that the Series pay Dreyfus Service Corporation
at an annual rate of .50 of 1% of the value of the Series' Class B shares
average daily net assets, for the costs and expenses in connection with
advertising, marketing and distributing the Series' Class B shares. Dreyfus
Service Corporation made payments to one or more Service Agents based on the
value of the Series' Class B shares owned by clients of the Service Agent.
During the year ended July 31, 1995, $14,865 was charged to the Series
pursuant to the Class B Distribution Plan and $830 was charged to the Series
pursuant to the prior Class B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. From August 1, 1994 through August 23,
1994, $261 and $415 were charged to the Class A and Class B shares,
respectively, by Dreyfus Service Corporation. From August 24, 1994 through
July 31, 1995, $6,797 and $7,433 were charged to Class A and Class B shares,
respectively, by the Distributor pursuant to the Shareholder Services Plan.
(D) Prior to August 24, 1994, certain officers and trustees of the Fund
were "affiliated persons," as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities
amounted to $12,459,315 and $10,087,321, respectively, for the year ended
July 31, 1995, and consisted entirely of long-term and short-term municipal
investments.
At July 31, 1995, accumulated net unrealized depreciation on investments
was $217,000, consisting of $29,923 gross unrealized appreciation and
$246,923 gross unrealized depreciation.
At July 31, 1995, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
PREMIER INSURED MUNICIPAL BOND FUND, California Series
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER INSURED MUNICIPAL BOND FUND, CALIFORNIA SERIES
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Premier Insured Municipal Bond
Fund, California Series (one of the Series constituting the Premier Insured
Municipal Bond Fund) as of July 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 1995 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Premier Insured Municipal Bond Fund, California Series at July
31, 1995, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and the
financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
[Ernst and Young signature logo]
New York, New York
September 6, 1995
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
STATEMENT OF INVESTMENTS JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS-100.0% AMOUNT VALUE
------------- -------------
<S> <C> <C>
CONNECTICUT-96.0.%
Cheshire:
5.80%, 8/15/2010 (Insured; FGIC)........................................ $ 500,000 $ 510,200
5.85%, 8/15/2011 (Insured; FGIC)........................................ 675,000 688,730
Columbia:
5.75%, 4/1/2014 (Insured; MBIA)......................................... 320,000 320,509
5.75%, 4/1/2015 (Insured; MBIA)......................................... 320,000 319,222
Connecticut:
Airport Revenue, Refunding 7.20%, 10/1/1997 (Insured; FGIC)............. 220,000 233,983
COP (Middletown Courthouse Facilities Project)
5.90%, 12/15/2001 (Insured; MBIA)..................................... 250,000 266,620
Special Tax Obligation Revenue (Transportation Infrastructure)
5.65%, 4/1/2013 (Insured; FGIC)....................................... 1,500,000 1,481,715
Connecticut Development Authority:
Governmental LR 6.60%, 6/15/2014 (Insured; MBIA)........................ 350,000 371,735
Health Care Revenue (Masonic) 6.50%, 8/1/2020 (Insured; AMBAC).......... 250,000 259,380
Water Facility Revenue, Refunding:
(Bridgeport Hydraulic) 5.60%, 6/1/2028 (Insured; MBIA)................ 700,000 648,207
(Connecticut Water Co. Project) 5.875%, 9/1/2022 (Insured; AMBAC)..... 250,000 241,290
Connecticut Health and Educational Facilities Authority, Revenue:
(Bridgeport Hospital) 6.625%, 7/1/2018 (Insured; MBIA).................. 700,000 738,220
(Connecticut College) 6.625%, 7/1/2011 (Insured; MBIA).................. 200,000 212,296
(Danbury Hospital) 6.50%, 7/1/2014 (Insured; MBIA)...................... 250,000 260,967
(Lawrence and Memorial Hospital):
7%, 7/1/2020 (Insured; MBIA).......................................... 250,000 281,887
6.25%, 7/1/2022 (Insured; MBIA)....................................... 285,000 315,660
(Loomis Chaffee School Project) 6%, 7/1/2025 (Insured; MBIA)............ 1,000,000 988,970
(Manchester Memorial Hospital) 5.75%, 7/1/2022 (Insured; MBIA).......... 100,000 95,776
(Mansfield Nursing) 5.875%, 11/1/2012 (Insured; AMBAC).................. 500,000 502,810
(Middlesex Hospital) 6.25%, 7/1/2022 (Insured; MBIA).................... 1,000,000 1,012,870
(New Britain General Hospital):
6.125%, 7/1/2014 (Insured; AMBAC)..................................... 1,000,000 1,011,440
6%, 7/1/2024 (Insured; AMBAC)......................................... 200,000 197,820
(Newington Children's Hospital):
6.05%, 7/1/2010 (Insured; MBIA)....................................... 235,000 239,308
6.10%, 7/1/2011 (Insured; MBIA)....................................... 250,000 254,470
6.25%, 7/1/2015 (Insured; MBIA)....................................... 500,000 512,690
(Norwalk Hospital) 6.25%, 7/1/2022 (Insured; MBIA)...................... 2,260,000 2,289,086
(Refunding-Hospital of Saint Raphael) 6.625%, 7/1/2014 (Insured; AMBAC). 250,000 262,928
(Refunding-Sharon Health Care Project) 6.25%, 11/1/2021 (Insured; AMBAC) 500,000 507,605
(Saint Francis Hospital and Medical Center) 5%, 7/1/2023 (Insured; FGIC) 760,000 652,126
(Waterbury Hospital) 7%, 7/1/2020 (Insured; FSA)........................ 1,000,000 1,087,680
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- -------------
CONNECTICUT (CONTINUED)
Connecticut Housing Finance Authority (Housing Mortgage Finance Program):
6.20%, 5/15/2012 (Insured; MBIA)........................................ $ 1,000,000 $ 1,018,980
6.40%, 5/15/2015 (Insured; MBIA)........................................ 1,000,000 1,024,930
6.125%, 5/15/2018 (Insured; MBIA)....................................... 1,655,000 1,659,634
6.30%, 5/15/2024 (Insured; MBIA)........................................ 1,000,000 1,015,200
Connecticut Municipal Electric Energy Cooperative, Power Supply Systems
Revenue
7%, 1/1/2016 (Insured; AMBAC)........................................... 310,000 320,249
Derby 5.90%, 5/15/2010 (Insured; AMBAC)..................................... 615,000 635,602
East Hampton:
5.80%, 7/15/2010 (Insured; FGIC)........................................ 295,000 301,224
5.90%, 7/15/2011 (Insured; FGIC)........................................ 320,000 328,298
Meriden 5.50%, 11/15/2001 (Insured; MBIA)................................... 250,000 266,785
New Britain 5.375%, 3/1/2003 (Insured; MBIA)................................ 250,000 259,840
New Haven:
5.75%, 2/15/2012 (Insured; FGIC)........................................ 500,000 504,180
Air Rights Parking Facility Revenue 6.50%, 12/1/2015 (Insured; MBIA).... 500,000 522,145
New London 5.10%, 10/1/2002 (Insured; MBIA)................................. 275,000 282,282
Plainfield 5.80%, 8/1/2001 (Insured; MBIA).................................. 250,000 270,057
Regional School District Number 5:
5.90%, 1/15/2010 (Insured; MBIA)........................................ 280,000 287,538
5.90%, 1/15/2011 (Insured; MBIA)........................................ 320,000 327,434
South Central Regional Water Authority, Water Systems Revenue
5.75%, 8/1/2012 (Insured; FGIC)......................................... 250,000 251,510
Waterbury, Refunding 4.90%, 4/15/2002 (Insured; FGIC)....................... 280,000 283,811
Woodstock:
5.85%, 2/15/2009 (Insured; FGIC)........................................ 345,000 357,406
6%, 2/15/2013 (Insured; FGIC)........................................... 340,000 348,425
U.S. RELATED-4.0%
Puerto Rico Commonwealth, Refunding 5.375%, 7/1/2022 (Insured; MBIA)........ 1,200,000 1,123,128
-----------
TOTAL INVESTMENTS (cost $27,472,365)........................................ $28,154,858
===========
</TABLE>
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation LR Lease Revenue
COP Certificate of Participation MBIA Municipal Bond Investors Assurance
FGIC Financial Guaranty Insurance Company Insurance Corporation
FSA Financial Security Assurance
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (A) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- -------- -------- ------------------ --------------------
<S> <C> <C> <C>
AAA Aaa AAA 100.0%
=======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Fitch currently provides creditworthiness information for a limited
number of investments.
(b) At July 31, 1995, 59.1% of the Series' net assets are insured by
MBIA.
(c) At July 31, 1995, the Series had $10,223,343 (35.2% of net assets)
invested in securities whose payment of principal and interest is
dependent upon revenues generated from health care projects.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $27,472,365)-see statement...................................... $28,154,858
Cash.................................................................... 487,629
Interest receivable..................................................... 379,792
Receivable for shares of Beneficial Interest subscribed................. 95,157
Prepaid expenses........................................................ 10,708
Due from The Dreyfus Corporation........................................ 3,691
-----------
29,131,835
LIABILITIES:
Due to Distributor...................................................... $13,048
Accrued expenses and other liabilities.................................. 56,105 69,153
------- -----------
NET ASSETS.................................................................. $29,062,682
============
REPRESENTED BY:
Paid-in capital......................................................... $28,400,221
Accumulated net realized (loss) on investments.......................... (20,032)
Accumulated net unrealized appreciation on investments-Note 3........... 682,493
-----------
NET ASSETS at value......................................................... $29,062,682
============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 961,386
============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 1,281,815
============
NET ASSET VALUE per share:
Class A Shares
($12,450,926 / 961,386 shares)........................................ $12.95
=======
Class B Shares
($16,611,756 / 1,281,815 shares)...................................... $12.96
=======
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1995
INVESTMENT INCOME:
INTEREST INCOME......................................................... $1,244,275
EXPENSES:
Management fee-Note 2(a).............................................. $119,902
Shareholder servicing costs-Note 2(c)................................. 81,660
Distribution fees (Class B shares)-Note 2(b).......................... 57,189
Legal fees............................................................ 13,796
Auditing fees......................................................... 9,688
Registration fees..................................................... 9,096
Prospectus and shareholders' reports.................................. 5,997
Trustees' fees and expenses-Note 2(d)................................. 2,930
Custodian fees........................................................ 2,723
Miscellaneous......................................................... 9,167
--------
312,148
Less-expense reimbursement from Manager due to
undertaking-Note 2(a)............................................. 237,903
--------
TOTAL EXPENSES.................................................. 74,245
----------
INVESTMENT INCOME-NET........................................... 1,170,030
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $ (20,032)
Net unrealized appreciation on investments.............................. 543,616
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 523,584
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $1,693,614
==========
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
-------------------------------
1994* 1995
--------------------------
OPERATIONS:
Investment income-net................................................... $ 67,908 $ 1,170,030
Net realized (loss) on investments...................................... --- (20,032)
Net unrealized appreciation on investments for the year................. 138,877 543,616
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 206,785 1,693,614
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net:
Class A shares........................................................ (38,771) (586,262)
Class B shares........................................................ (29,137) (583,768)
----------- -----------
TOTAL DIVIDENDS................................................... (67,908) (1,170,030)
----------- -----------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 8,721,961 6,196,536
Class B shares........................................................ 7,229,976 11,068,365
Dividends reinvested:
Class A shares........................................................ 26,966 320,037
Class B shares........................................................ 18,182 359,096
Cost of shares redeemed:
Class A shares........................................................ (391,623) (2,682,798)
Class B shares........................................................ (390,000) (2,076,477)
----------- -----------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 15,215,462 13,184,759
----------- -----------
TOTAL INCREASE IN NET ASSETS.................................... 15,354,339 13,708,343
NET ASSETS:
Beginning of year....................................................... --- 15,354,339
----------- -----------
End of year............................................................. $15,354,339 $29,062,682
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
SHARES
--------------------------------------------------------------------
CLASS A CLASS B
------------------------------- -------------------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
------------------------------- -------------------------------
1994* 1995 1994* 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 689,991 490,513 570,954 875,988
Shares issued for dividends reinvested. 2,120 25,429 1,431 28,348
Shares redeemed........................ (30,621) (216,046) (30,492) (164,414)
------------- ------------- ------------- -------------
NET INCREASE IN SHARES OUTSTANDING 661,490 299,896 541,893 739,922
============= ============= ============= =============
* From May 5, 1994 (commencement of operations) to July 31, 1994.
See notes to financial statements.
</TABLE>
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
FINANCIAL HIGHLIGHTS
Reference is made to page 6 of the Fund's Prospectus dated December 1,
1995.
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Premier Insured Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering six series including the Connecticut Series (the "Series"). Dreyfus
Service Corporation, until August 24, 1994, acted as the distributor of the
Fund's shares. Dreyfus Service Corporation is a wholly-owned subsidiary of
The Dreyfus Corporation ("Manager"). Effective August 24, 1994, the Manager
became a direct subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of FDI Distribution Services, Inc., a provider of mutual fund
administration services, which in turn is a wholly-owned subsidiary of FDI
Holdings, Inc., the parent company of which is Boston Institutional Group,
Inc.
The Fund accounts separately for the assets, liabilities and operations
of each series. Expenses directly attributable to each series are charged to
that series' operations; expenses which are applicable to all series are
allocated among them on a pro rata basis.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Options
and financial futures on municipal and U.S. treasury securities are valued at
the last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market
on each business day. Investments not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Series follows an investment policy of investing primarily in
municipal obligations of one state. Economic changes
affecting the state and certain of its public bodies and municipalities may
affect the ability of issuers within the state to pay interest on, or repay
principal of, municipal obligations held by the Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain, if any, are normally declared and
paid annually, but the Series may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Series not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
The Series has an unused capital loss carryover of approximately $7,100
available for Federal income tax purposes to be applied against future net
securities profit, if any, realized subsequent to July 31, 1995. The
carryover does not include net realized securities losses from November 1,
1994 through July 31, 1995 which are treated, for Federal income tax
purposes, as arising in fiscal 1996. If not applied, the carryover expires in
fiscal 2003.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. The most stringent
state expense limitation applicable to the Series presently requires
reimbursement of expenses in any full fiscal year that such expenses
(exclusive of distribution expenses and certain expenses as described above)
exceed 2-1\2% of the first $30 million, 2% of the next $70 million and
1-1\2% of the excess over $100 million of the average value of the Series' net
assets in accordance with California "blue sky" regulations. However, the
Manager had undertaken from August 1, 1994 through September 28, 1995 to
reduce the management fee and reimburse such excess expenses paid by the
Series, to the extent that the Series' aggregate expenses (excluding certain
expenses as described above) exceeded specified annual percentages of the
Series' average daily net assets. The expense reimbursement, pursuant to the
undertakings, amounted to $237,903 for the year ended July 31, 1995.
The Manager has currently undertaken through September 30, 1995, to
reduce the management fee paid by, or reimburse such excess expenses of the
Series, to the extent that the Series' aggregate annual expenses (excluding
12b-1 distribution plan fees and certain expenses as described above) exceed
an annual rate of 1.25 of 1% of the average daily value of the Series' net
assets.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Dreyfus Service Corporation retained $7,248 during the year ended July 31,
1995 from commissions earned on sales of the
Series' Class A shares.
(B) On August 3, 1994, Series' shareholders approved a revised
Distribution Plan with respect to Class B shares only (the "Class B
Distribution Plan") pursuant to Rule 12b-1 under the Act. Pursuant to the
Class B Distribution Plan, effective August 24, 1994, the Fund pays the
Distributor for distributing the Series' Class B shares at an annual rate of
.50 of 1% of the value of the average daily net assets of Class B Shares.
Prior to August 24, 1994, the Distribution Plan ("prior Class B
Distribution Plan") provided that the Series pays Dreyfus Service Corporation
at an annual rate of .50 of 1% of the value of the Series' Class B shares
average daily net assets, for the costs and expenses in connection with
advertising, marketing and distributing the Series' Class B shares. Dreyfus
Service Corporation made payments to one or more Service Agents based on the
value of the Series' Class B shares owned by clients of the Service Agents.
During the year ended July 31, 1995, $54,945 was charged to the Series
pursuant to the Class B Distribution Plan and $2,244 was charged to the
Series pursuant to the prior Class B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. From August 1, 1994 through August 23,
1994, $1,362 and $1,122 were charged to Class A and Class B shares,
respectively, by Dreyfus Service Corporation. From August 24, 1994 through
July 31, 1995, $24,544 and $27,473 were charged to Class A and Class B
shares, respectively, by the Distributor pursuant to the Shareholder Services
Plan.
(D) Prior to August 24, 1994, certain officers and trustees of the Fund
were "affiliated persons," as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities
amounted to $25,299,055 and $12,225,638, respectively, for the year ended
July 31, 1995, and consisted entirely of long-term and short-term municipal
investments.
At July 31, 1995, accumulated net unrealized appreciation on investments
was $682,493, consisting of $692,441 gross unrealized appreciation and $9,948
gross unrealized depreciation.
At July 31, 1995, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
PREMIER INSURED MUNICIPAL BOND FUND, Connecticut Series
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER INSURED MUNICIPAL BOND FUND, CONNECTICUT SERIES
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Premier Insured Municipal Bond
Fund, Connecticut Series, (one of the Series constituting the Premier Insured
Municipal Bond Fund) as of July 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 1995 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Premier Insured Municipal Bond Fund, Connecticut Series at July
31, 1995, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and the
financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
[Ernst and Young signature logo]
New York, New York
September 6, 1995
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
STATEMENT OF INVESTMENTS JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS-99.7% AMOUNT VALUE
-------------- ------------
<S> <C> <C>
Boca Raton Community Redevelopment Agency, Tax Increment Revenue
(Mizner Park Project) 5.875%, 3/1/2013 (Insured; FGIC).................. $ 250,000 $ 252,585
Brevard County, IDR (NUI Corp. Project) 6.40%, 10/1/2024 (Insured; AMBAC)... 1,000,000 1,036,220
Broward County Tourist Development, Tax Special Revenue, Refunding
(Convention Center) 5.60%, 10/1/2009 (Insured; AMBAC)................... 350,000 351,410
Celebration Community Development District, Special Assessment
6.10%, 5/1/2016 (Insured; MBIA)......................................... 500,000 515,880
Collier County, Capital Improvement Revenue, Refunding
6%, 10/1/2012 (Insured; MBIA)........................................... 1,000,000 1,018,640
Collier County Water - Sewer District, Water Revenue 5%, 7/1/2016 (Insured; FGIC) 1,000,000 891,510
Dade County:
Aviation Revenue 6.125%, 10/1/2020 (Insured; MBIA)...................... 1,000,000 997,980
Public Facilities Revenue, Refunding (Jackson Memorial Hospital)
5.625%, 6/1/2018 (Insured; MBIA)...................................... 250,000 237,213
Seaport 6.50%, 10/1/2026 (Insured; AMBAC)............................... 1,000,000 1,040,150
Dade County Housing Finance Authority, MFMR, Refunding
(Lincoln Fields Apartments) 6.25%, 7/1/2024 (Insured; MBIA)............. 600,000 604,848
Escambia County, Sales Tax Revenue, Refunding 5.80%, 1/1/2015 (Insured; FGIC) 500,000 492,530
Florida Board of Education, Capital Outlay 5.80%, 6/1/2024 (Insured; FGIC).. 1,000,000 973,960
Florida Correctional Privatization Commission, COP:
(Correctional Facility Bay County Project) 6%, 8/1/2015 (Insured; MBIA). 250,000 252,505
(Glades County Correctional Facility) 6%, 8/1/2014 (Insured; MBIA)...... 350,000 363,741
Florida Department of General Services Division, Facilities Management
Revenue
6.125%, 9/1/2023 (Insured; AMBAC)....................................... 1,000,000 1,012,300
Florida Divison of Bond Finance Department, General Services Revenues:
(Department of Environmental-Preservation 2000):
5.625%, 7/1/2008 (Insured; AMBAC)..................................... 2,000,000 2,048,240
5.75%, 7/1/2013 (Insured; AMBAC)...................................... 1,000,000 1,002,350
(Department of Natural Resources-Preservation 2000)
5.80%, 7/1/2013 (Insured; FSA)........................................ 700,000 703,829
Florida Housing Finance Agency, Single Family Mortgage
6.65%, 7/1/2026 (Insured; MBIA)......................................... 1,930,000 1,996,469
Florida Municipal Power Agency, Revenue 5.10%, 10/1/2025 (Insured; AMBAC)... 1,000,000 873,870
Florida Turnpike Authority, Turnpike Revenue, Refunding
5%, 7/1/2019 (Insured; FGIC)............................................ 1,000,000 878,410
Fort Pierce Utilities Authority, Revenue, Refunding
5.25%, 10/1/2016 (Insured; AMBAC)....................................... 500,000 460,390
Gainesville, Guaranteed Entitlement Revenue, Refunding
5.50%, 8/1/2017 (Insured; AMBAC)........................................ 750,000 708,893
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- -------------
Hillsborough County Aviation Authority, Revenue (Tampa International
Airport):
5.375%, 10/1/2023 (Insured; FGIC)....................................... $ 1,000,000 $ 904,170
Refunding 5.50%, 10/1/2013 (Insured; FGIC).............................. 500,000 481,615
Hillsborough County Industrial Development Authority:
IDR:
(Allegany Health Systems-J. Knox Village) 5.75%, 12/1/2021 (Insured; MBIA). 2,950,000 2,826,395
(University Community Hospital) 5.80%, 8/15/2024 (Insured; MBIA)...... 500,000 482,980
PCR, Refunding (Tampa Electric Company Project)
6.25%, 12/1/2034 (Insured; MBIA)...................................... 1,000,000 1,020,240
Hillsborough County Port District, Special Revenue, Refunding
(Tampa Port Authority) 6%, 6/1/2020 (Insured; FSA)...................... 1,000,000 993,510
Hollywood, Water and Sewer Revenue 5.50%, 10/1/2015 (Insured; FGIC)......... 500,000 476,550
Jacksonville, Capital Improvement Revenue (Gator Bowl Project):
5.50%, 10/1/2019 (Insured; AMBAC)....................................... 1,000,000 937,750
5.875%, 10/1/2025 (Insured; AMBAC)...................................... 1,000,000 983,940
Jacksonville Health Facilities Authority, HR
(Memorial Regional Rehabilitation Center Project)
6.625%, 5/1/2022 (Insured; MBIA)........................................ 500,000 522,355
Lee County, Tourist Development Tax Revenue, Refunding
5.625%, 10/1/2011 (Insured; FGIC)....................................... 250,000 249,977
Miami Health Facilities Authority, Health Facilities Revenue, Refunding
(Mercy Hospital Project) 5.125%, 8/15/2020 (Insured; AMBAC)............. 200,000 175,590
Miramar:
Public Service Tax Revenue 6.15%, 10/1/2024 (Insured; FGIC)............. 1,000,000 1,013,330
Water Improvement Assessment Revenue 5.60%, 10/1/2024 (Insured; FGIC)... 200,000 189,288
Okeechobee, Water and Sewer Revenue 6.50%, 1/1/2017 (Insured; MBIA)......... 1,220,000 1,307,730
Orange County, Tourist Development Tax Revenue:
6.50%, 10/1/2019 (Insured; AMBAC)....................................... 1,000,000 1,041,190
6%, 10/1/2024 (Insured; MBIA)........................................... 200,000 200,464
Orlando and Orange County Expressway Authority, Expressway Revenue,
Refunding:
(Junior Lien) 5.25%, 7/1/2019 (Insured; FGIC)........................... 250,000 227,515
(Senior Lien) 5.50%, 7/1/2018 (Insured; FGIC)........................... 200,000 187,858
Osceola County School Board, COP 5.75%, 6/1/2014 (Insured; AMBAC)........... 250,000 246,445
Palm Beach County School Board, COP 5.375%, 8/1/2015 (Insured; AMBAC)....... 1,000,000 938,830
Polk County School Board, COP (Master Lease Program)
5.875%, 1/1/2015 (Insured; MBIA)........................................ 1,000,000 1,003,560
Port Saint Lucie, Utility Revenue 6%, 9/1/2024 (Insured; FGIC).............. 1,300,000 1,302,613
Reedy Creek Improvement District, Utilities Revenue, Refunding
5%, 10/1/2014 (Insured; MBIA)........................................... 1,000,000 894,250
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- -------------
Seminole County School Board, COP 6.125%, 7/1/2019 (Insured; MBIA).......... $ 325,000 $ 329,238
Tampa, Revenue (Allegany Health Systems - Saint Joseph)
6.50%, 12/1/2023 (Insured; MBIA)........................................ 1,000,000 1,043,930
Venice, Utility Revenue, Refunding 5.50%, 7/1/2014 (Insured; MBIA).......... 500,000 478,730
Volusia County, Sales Tax Improvement Revenue 5.75%, 10/1/2013 (Insured; MBIA) 500,000 501,010
-----------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (cost $38,564,442).................... $39,674,976
===========
SHORT-TERM MUNICIPAL INVESTMENTS-.3%
U.S. RELATED;
Puerto Rico Electric Power Authority, Power Revenue
3.56% (Insured; FSA) (a) (cost $100,000)................................ $ 100,000 $ 100,000
===========
TOTAL INVESTMENTS-100.0%
(cost $38,664,442)...................................................... $39,774,976
===========
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation IDR Industrial Development Revenue
COP Certificate of Participation MBIA Municipal Bond Investors Assurance
FGIC Financial Guaranty Insurance Company Insurance Corporation
FSA Financial Security Assurance MFMR Multi-Family Mortgage Revenue
HR Hospital Revenue PCR Pollution Control Revenue
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (B) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- -------- -------- ------------------ --------------------
<S> <C> <C> <C>
AAA Aaa AAA 99.7%
F1+ & F1 MIG1, VMIG1 & P1 SP1 & A1 .3
-------
100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Inverse Floater Security - the interest rate is subject to change
periodically.
(b) Fitch currently provides creditworthiness information for a limited
number of investments.
(c) At July 31, 1995, 31.5% of the Series' net assets are insured by AMBAC
and 40.7% are insured by MBIA.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $38,664,442)-see statement...................................... $39,774,976
Cash.................................................................... 517,708
Interest receivable..................................................... 560,721
Receivable for shares of Beneficial Interest subscribed................. 19,547
Prepaid expenses........................................................ 10,497
Due from The Dreyfus Corporation........................................ 8,144
-----------
40,891,593
LIABILITIES:
Due to Distributor...................................................... $17,718
Payable for shares of Beneficial Interest redeemed...................... 9,816
Accrued expenses and other liabilities.................................. 47,388 74,922
------- -----------
NET ASSETS.................................................................. $40,816,671
============
REPRESENTED BY:
Paid-in capital......................................................... $39,720,077
Accumulated net realized (loss) on investments.......................... (13,940)
Accumulated net unrealized appreciation on investments-Note 3........... 1,110,534
-----------
NET ASSETS at value......................................................... $40,816,671
============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 1,494,713
============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 1,627,059
============
NET ASSET VALUE per share:
Class A Shares
($19,541,377 / 1,494,713 shares)...................................... $13.07
=======
Class B Shares
($21,275,294 / 1,627,059 shares)...................................... $13.08
=======
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1995
INVESTMENT INCOME:
INTEREST INCOME......................................................... $1,892,525
EXPENSES:
Management fee-Note 2(a).............................................. $ 179,450
Shareholder servicing costs-Note 2(c)................................. 119,496
Distribution fees (Class B shares)-Note 2(b).......................... 83,774
Auditing fees......................................................... 18,617
Registration fees..................................................... 9,612
Legal fees............................................................ 8,047
Prospectus and shareholders' reports.................................. 5,688
Trustees' fees and expenses-Note 2(d)................................. 5,438
Custodian fees........................................................ 3,875
Miscellaneous......................................................... 9,702
----------
443,699
Less-expense reimbursement from Manager due to
undertakings-Note 2(a)............................................ 329,946
----------
TOTAL EXPENSES.................................................. 113,753
----------
INVESTMENT INCOME-NET........................................... 1,778,772
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $ (13,940)
Net unrealized appreciation on investments.............................. 1,006,080
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................... 992,140
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $2,770,912
==========
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
-------------------------------
1994* 1995
--------------------------
OPERATIONS:
Investment income-net................................................... $ 107,429 $ 1,778,772
Net realized (loss) on investments...................................... --- (13,940)
Net unrealized appreciation on investments for the year................. 104,454 1,006,080
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 211,883 2,770,912
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net:
Class A shares........................................................ (54,853) (908,374)
Class B shares........................................................ (52,576) (870,398)
----------- -----------
TOTAL DIVIDENDS................................................... (107,429) (1,778,772)
----------- -----------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 10,719,728 10,509,582
Class B shares........................................................ 12,540,671 10,076,918
Dividends reinvested:
Class A shares........................................................ 16,155 247,303
Class B shares........................................................ 15,330 207,188
Cost of shares redeemed:
Class A shares........................................................ (371,138) (2,204,011)
Class B shares........................................................ (300,000) (1,737,649)
----------- -----------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 22,620,746 17,099,331
----------- -----------
TOTAL INCREASE IN NET ASSETS.................................... 22,725,200 18,091,471
NET ASSETS:
Beginning of year....................................................... --- 22,725,200
----------- -----------
End of year............................................................. $22,725,200 $40,816,671
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
SHARES
--------------------------------------------------------------------
CLASS A CLASS B
------------------------------- -------------------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
------------------------------- -------------------------------
1994* 1995 1994* 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 841,413 835,533 985,948 788,466
Shares issued for dividends reinvested. 1,270 19,412 1,205 16,298
Shares redeemed........................ (28,948) (173,967) (23,346) (141,512)
----------- ----------- ----------- -----------
NET INCREASE IN SHARES OUTSTANDING 813,735 680,978 963,807 663,252
=========== =========== =========== ===========
* From May 4, 1994 (commencement of operations) to July 31, 1994.
See notes to financial statements.
</TABLE>
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
FINANCIAL HIGHLIGHTS
Reference is made to page 6 of the Fund's Prospectus dated December 1,
1995.
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Premier Insured Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering six series including the Florida Series (the "Series"). Dreyfus
Service Corporation, until August 24, 1994, acted as the distributor of the
Fund's shares. Dreyfus Service Corporation is a wholly-owned subsidiary of
The Dreyfus Corporation ("Manager"). Effective August 24, 1994, the Manager
became a direct subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of FDI Distribution Services, Inc., a provider of mutual fund
administration services, which in turn is a wholly-owned subsidiary of FDI
Holdings, Inc., the parent company of which is Boston Institutional Group,
Inc.
The Fund accounts separately for the assets, liabilities and operations
of each series. Expenses directly attributable to each series are charged to
that series' operations; expenses which are applicable to all series are
allocated among them on a pro rata basis.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Options
and financial futures on municipal and U.S. treasury securities are valued at
the last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market
on each business day. Investments not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Series follows an investment policy of investing primarily in
municipal obligations of one state. Economic changes
affecting the state and certain of its public bodies and municipalities may
affect the ability of issuers within the state to pay interest on, or repay
principal of, municipal obligations held by the Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain, if any, are normally declared and
paid annually, but the Series may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. The most stringent
state expense limitation applicable to the Series presently requires
reimbursement of expenses in any full fiscal year that such expenses
(exclusive of distribution expenses and certain expenses as described above)
exceed 2-1\2% of the first $30 million, 2% of the next $70 million and 1-1\2%
of the excess over $100 million of the average value of the Series' net
assets in accordance with California "blue sky" regulations. However, the
Manager had undertaken from August 1, 1994 through
September 28, 1995 to reduce the management fee and reimburse such excess
expenses paid by the Series, to the extent that the Series' aggregate
expenses (excluding certain expenses as described above) exceeded specified
annual percentages of the Series' average daily net assets. The expense
reimbursement, pursuant to the undertakings, amounted to $329,946 for the
year ended July 31, 1995.
The Manager has currently undertaken through September 30, 1995, to
reduce the management fees paid by, or reimburse such excess expenses of the
Series, to the extent that the Series aggregate annual expenses (excluding
12b-1 distribution plan fees and certain expenses as described above) exceed
an annual rate of 1.25 of 1% of the average daily value of the Series' net
assets.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
Dreyfus Service Corporation retained $12,615 during the year ended July
31, 1995 from commissions earned on sales of the Series' Class A shares.
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(B) On August 3, 1994, the Series' shareholders approved a revised
Distribution Plan with respect to Class B shares only (the
"Class B Distribution Plan") pursuant to Rule 12b-1 under the Act. Pursuant
to the Class B Distribution Plan, effective August 24, 1994, the Fund pays
the Distributor for distributing the Series' Class B shares at an annual rate
of .50 of 1% of the value of the average daily net assets of Class B shares.
Prior to August 24, 1994, the Distribution Plan ("prior Class B
Distribution Plan") provided that the Series pay Dreyfus Service Corporation
at an annual rate of .50 of 1% of the value of the Series' Class B shares
average daily net assets, for the costs and expenses in connection with
advertising, marketing and distributing the Series' Class B shares. Dreyfus
Service Corporation made payments to one or more Service Agents based on the
value of the Series' Class B shares owned by clients of the Service Agent.
During the year ended July 31, 1995, $79,711 was charged to the Series
pursuant to the Class B Distribution Plan and $4,063 was charged to the
Series pursuant to the prior Class B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. From August 1, 1994 through August 23,
1994, $1,804 and $2,032 were charged to Class A and Class B shares,
respectively, by Dreyfus Service Corporation. From August 24, 1994 through
July 31, 1995, $37,877 and $39,855 were charged to Class A and Class B
shares, respectively, by the Distributor pursuant to the Shareholder Services
Plan.
(D) Prior to August 24, 1994, certain officers and trustees of the Fund
were "affiliated persons" as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities
amounted to $33,557,209 and $17,691,400, respectively, for the year ended
July 31, 1995, and consisted entirely of long-term and short-term municipal
investments.
At July 31, 1995, accumulated net unrealized appreciation on investments
was $1,110,534, consisting of $1,172,285 gross unrealized appreciation and
$61,751 gross unrealized depreciation.
At July 31, 1995, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
PREMIER INSURED MUNICIPAL BOND FUND, Florida Series
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER INSURED MUNICIPAL BOND FUND, FLORIDA SERIES
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Premier Insured Municipal Bond
Fund, Florida Series (one of the series constituting the Premier Insured
Municipal Bond Fund) as of July 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 1995 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Premier Insured Municipal Bond Fund, Florida Series at July 31,
1995, the results of its operations for the period then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
[Ernst and Young LLP signature logo]
New York, New York
September 6, 1995
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, National Series
STATEMENT OF INVESTMENTS JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS-97.7% AMOUNT VALUE
_______ ______
<S> <C> <C>
CALIFORNIA-22.2%
Bay Area Association, Tax Allocation Revenue (California Redevelopment Agency
Pool)
6%, 12/15/2024 (Insured; CGIC).......................................... $ 250,000 $ 243,585
California Housing Finance Agency, Revenue 5.70%, 8/1/2016 (Insured; MBIA).. 200,000 190,824
California Pollution Control Financing Authority, PCR
(Southern California Edison Co.) 6.40%, 12/1/2024 (Insured; AMBAC)...... 400,000 406,692
California Veterans Bonds 6.375%, 2/1/2027 (Insured; AMBAC)................. 1,000,000 1,005,610
Los Angeles, Wastewater System Revenue:
5.20%, 11/1/2021 (Insured; FGIC)........................................ 200,000 177,518
Refunding, 5.875%, 6/1/2024 (Insured; MBIA)............................. 200,000 193,644
Redding Redevelopment Agency, Tax Allocation Notes
5%, 9/1/2023 (Insured; CGIC)............................................ 200,000 171,548
San Marcos Public Facilities Authority, Tax Allocation Revenue, Refunding
5.50%, 8/1/2023 (Insured; CGIC)......................................... 1,000,000 913,690
San Mateo County Joint Powers Financing Authority, LR
(San Mateo County Health Care Center) 5.75%, 7/15/2022 (Insured; FSA)... 500,000 471,310
FLORIDA-1.0%
Miami Health Facilities Authority, Health Facility Revenue, Refunding
(Mercy Hospital Project) 5.125%, 8/15/2020 (Insured; AMBAC)............. 200,000 175,590
ILLINOIS-7.7%
Chicago, Wastewater Transmission Revenue 6.375%, 1/1/2024 (Insured; MBIA)... 200,000 204,462
Chicago Midway Airport, Revenue 6.25%, 1/1/2024 (Insured; MBIA)............. 200,000 200,592
Chicago O'Hare International Airport, Revenue, Refunding
5.60%, 1/1/2018 (Insured; MBIA)......................................... 200,000 184,648
Illinois Health Facilities Authority, Revenue:
(Northwestern Medical Faculty Foundation-Health Care)
6.625%, 11/15/2025 (Insured; MBIA).................................... 500,000 524,880
Refunding (Lutheran General Health System) 6.25%, 4/1/2018 (Insured; FSA) 200,000 201,274
INDIANA-10.8%
Indiana Health Facility Financing Authority, HR:
(Lutheran Hospital of Indiana, Inc.) 7%, 2/15/2019 (Insured; AMBAC)..... 600,000 642,270
Refunding (County Hospital of Anderson Project) 6%, 1/1/2014 (Insured; MBIA). 1,000,000 995,520
Lafayette Redevelopment Authority, Redevelopment Lease Rent
5.95%, 1/1/2020 (Insured; MBIA)......................................... 200,000 196,452
IOWA-1.8%
Clinton, PCR, Refunding (Interstate Power Co. Project)
6.35%, 12/1/2012 (Insured; AMBAC)....................................... 300,000 310,176
PREMIER INSURED MUNICIPAL BOND FUND, National Series
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
_______ ______
MASSACHUSETTS-12.1%
Massachusetts Housing Finance Agency:
Housing Revenue, Refunding 6.75%, 7/1/2028 (Insured; AMBAC)............. $ 1,000,000 $ 1,026,330
SFHR 6.60%, 12/1/2026 (Insured; AMBAC).................................. 1,000,000 1,029,640
NEVADA-2.3%
Clark County Passenger Facility Charge, Revenue
(Las Vegas McCarran International Airport) 6.25%, 7/1/2022 (Insured; AMBAC) 200,000 198,442
Washoe County, Gas & Water Facilities Revenue (Sierra Pacific Power Co.)
5.90%, 6/1/2023 (Insured; MBIA)......................................... 200,000 193,356
NEW JERSEY-7.3%
New Jersey Economic Development Authority:
PCR (Public Service Electric & Gas Co.) 6.40%, 5/1/2032 (Insured; MBIA). 200,000 205,608
Water Facilities Revenue (New Jersey American Water Co., Inc. Project)
6.875%, 11/1/2034 (Insured; FGIC)..................................... 500,000 530,725
New Jersey Housing and Mortgage Finance Agency, Home Buyer Revenue
6.375%, 10/1/2026 (Insured; MBIA)...................................... 500,000 512,410
NEW MEXICO-6.9%
Farmington, PCR, Refunding (Southern California Edison Co.)
5.875%, 6/1/2023 (Insured; MBIA)........................................ 1,000,000 972,550
Santa Fe 6.30%, 6/1/2024 (Insured; AMBAC)................................... 200,000 204,046
NEW YORK-7.2%
New York City Municipal Water Financing Authority, Water and Sewer Systems
Revenue 6.20%, 6/15/2021 (Insured; AMBAC)............................... 1,000,000 1,022,120
New York State Energy Research and Development Authority, PCR, Refunding
(Rochester Gas & Electric Project) 6.50%, 5/15/2032 (Insured; MBIA)..... 200,000 204,402
NORTH DAKOTA-1.2%
Grand Forks, Health Care Facilities Revenue (United Hospital Obligated Group)
6.25%, 12/1/2019 (Insured; MBIA)........................................ 200,000 202,734
OKLAHOMA-2.5%
Oklahoma Industries Authority, HR (Baptist Medical Center)
7%, 8/15/2014 (Insured; AMBAC).......................................... 400,000 429,876
SOUTH CAROLINA-1.2%
South Carolina Public Service Authority, Revenue, Refunding
6.375%, 7/1/2021 (Insured; AMBAC)....................................... 200,000 204,002
TEXAS-1.2%
Gulf Coast Waste Disposal Authority, Revenue, Refunding
(Houston Light & Power Co. Project) 6.375%, 4/1/2012 (Insured; MBIA).... 200,000 206,488
PREMIER INSURED MUNICIPAL BOND FUND, National Series
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
_______ ______
VERMONT-1.6%
Vermont Student Assistance Corp. (Education Loan Revenue Financing Program)
6.70%, 12/15/2012 (Insured; FSA)........................................ $ 250,000 $ 261,075
WASHINGTON-6.3%
Washington, MFMR 7.40%, 1/1/2030 (Insured; FSA)............................. 1,000,000 1,070,000
U.S. RELATED-4.4%
Commonwealth of Puerto Rico 5.375%, 7/1/2022 (Insured; MBIA)................ 600,000 561,564
Puerto Rico Electric Public Buildings Authority, Guaranteed Public Education
& Health
Facilities, Refunding 5.50%, 7/1/2021 (Insured; FSA).................... 200,000 190,452
----------
TOTAL LONG_TERM MUNICIPAL INVESTMENTS
(cost $16,199,620)...................................................... $16,636,105
===========
SHORT_TERM MUNICIPAL INVESTMENTS-2.3%
NEW YORK;
New York City Municipal Water Financing Authority, Water and Sewer Systems
Revenue
VRDN 4.90% (Insured; FGIC) (a) (cost $400,000).......................... $ 400,000 $ 400,000
============
TOTAL MUNICIPAL INVESTMENTS-100.0%
(cost $16,599,620)...................................................... $17,036,105
============
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation MBIA Municipal Bond Investors Assurance
CGIC Capital Guaranty Insurance Corporation Insurance Corporation
FGIC Financial Guaranty Insurance Company MFMR Multi-Family Mortgage Revenue
FSA Financial Security Assurance PCR Pollution Control Revenue
HR Hospital Revenue SFHR Single Family Housing Revenue
LR Lease Revenue VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
<S> <C> <C> <C>
FITCH (B) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- ------- ------- ----------------- ---------------------
AAA Aaa AAA 100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(b) Fitch currently provides creditworthiness information for a limited
number of investments.
(c) At July 31, 1995, 36.9% of the Series' net assets are insured by
AMBAC and 28.8% are insured by MBIA.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, National Series
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $16,599,620)-see statement...................................... $17,036,105
Cash.................................................................... 681,856
Interest receivable..................................................... 229,005
Receivable for shares of Beneficial Interest subscribed................. 73,377
Prepaid expenses........................................................ 38,398
Due from The Dreyfus Corporation........................................ 10,831
-------
18,069,572
LIABILITIES:
Due to Distributor...................................................... $ 7,726
Accrued expenses and other liabilities.................................. 50,778 58,504
-------- --------
NET ASSETS.................................................................. $18,011,068
============
REPRESENTED BY:
Paid-in capital......................................................... $17,544,083
Accumulated undistributed net realized gain on investments.............. 30,500
Accumulated net unrealized appreciation on investments-Note 3........... 436,485
-------
NET ASSETS at value......................................................... $18,011,068
============
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 635,847
============
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 748,375
============
NET ASSET VALUE per share:
Class A Shares
($8,272,145 / 635,847 shares)......................................... $13.01
=======
Class B Shares
($9,738,923 / 748,375 shares)......................................... $13.01
=======
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, National Series
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1995
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 716,883
EXPENSES:
Management fee-Note 2(a).............................................. $ 64,630
Shareholder servicing costs-Note 2(c)................................. 48,942
Distribution fees (Class B shares)-Note 2(b).......................... 30,151
Registration fees..................................................... 14,950
Professional fees..................................................... 10,391
Organization expenses................................................. 7,668
Prospectus and shareholders' reports.................................. 4,172
Custodian fees........................................................ 1,637
Trustees' fees and expenses-Note 2(d)................................. 1,055
Miscellaneous......................................................... 5,220
------
188,816
Less-expense reimbursement from Manager due to
undertakings-Note 2(a)............................................ 148,356
------
TOTAL EXPENSES.................................................. 40,460
--------
INVESTMENT INCOME-NET........................................... 676,423
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments-Note 3................................. $ 30,500
Net unrealized appreciation on investments.............................. 350,233
------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 380,733
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $1,057,156
==========
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, National Series
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
________________
1994* 1995
_______ ______
OPERATIONS:
Investment income-net................................................... $ 32,675 $ 676,423
Net realized gain on investments........................................ - 30,500
Net unrealized appreciation on investments for the year................. 86,252 350,233
------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 118,927 1,057,156
-------- ---------
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net:
Class A shares........................................................ (15,892) (344,399)
Class B shares........................................................ (16,783) (332,024)
-------- ---------
TOTAL DIVIDENDS................................................... (32,675) (676,423)
-------- ---------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 2,575,673 6,783,807
Class B shares........................................................ 3,600,764 6,636,400
Dividends reinvested:
Class A shares........................................................ 13,458 196,495
Class B shares........................................................ 13,568 220,212
Cost of shares redeemed:
Class A shares........................................................ (100,012) (1,446,725)
Class B shares........................................................ (321,396) (628,161)
-------- ---------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 5,782,055 11,762,028
-------- ---------
TOTAL INCREASE IN NET ASSETS.................................... 5,868,307 12,142,761
NET ASSETS:
Beginning of year....................................................... - 5,868,307
-------- ---------
End of year............................................................. $ 5,868,307 $18,011,068
======== =========
</TABLE>
<TABLE>
<CAPTION>
SHARES
__________________________________________________________________
CLASS A CLASS B
_____________________________ _____________________________
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
_________________________________ ______________________________
1994* 1995 1994* 1995
______ _______ _______ _______
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 201,758 542,334 281,840 522,906
Shares issued for dividends reinvested. 1,050 15,476 1,057 17,318
Shares redeemed........................ (7,681) (117,090) (24,803) (49,943)
______ _______ _______ _______
NET INCREASE IN SHARES OUTSTANDING 195,127 440,720 258,094 490,281
====== ======= ======= =======
</TABLE>
* From May 4, 1994 (commencement of operations) to July 31, 1994.
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, National Series
FINANCIAL HIGHLIGHTS
Reference is made to page 6 of the Fund's Prospectus dated December 1,
1995.
PREMIER INSURED MUNICIPAL BOND FUND, National Series
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Premier Insured Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering six series including the National Series (the "Series"). Dreyfus
Service Corporation, until August 24, 1994, acted as the distributor of the
Fund's shares. Dreyfus Service Corporation is a wholly-owned subsidiary of
The Dreyfus Corporation ("Manager"). Effective August 24, 1994, the Manager
became a direct subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of FDI Distribution Services, Inc., a provider of mutual fund
administration services, which in turn is a wholly-owned subsidiary of FDI
Holdings, Inc., the parent company of which is Boston Institutional Group,
Inc.
The Fund accounts separately for the assets, liabilities and operations
of each series. Expenses directly attributable to each series are charged to
that series' operations; expenses which are applicable to all series are
allocated among them on a pro rata basis.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Options
and financial futures on municipal and U.S. treasury securities are valued at
the last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market
on each business day. Investments not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
PREMIER INSURED MUNICIPAL BOND FUND, National Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series to declare
dividends daily from investment income-net. Such
dividends are paid monthly. Dividends from net realized capital gain are
normally declared and paid annually, but the Series may make distributions on
a more frequent basis to comply with the distribution requirements of the
Internal Revenue Code. To the extent that net realized capital gain can be
offset by capital loss carryovers, if any, it is the policy of the Series not
to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. The most stringent
state expense limitation applicable to the Series presently requires
reimbursement of expenses in any full fiscal year that such expenses
(exclusive of distribution expenses and certain expenses as described above)
exceed 2-1\2% of the first $30 million, 2% of the next $70 million and 1-1\2%
of the excess over $100 million of the average value of the Series' net
assets in accordance with California "blue sky" regulations. However, the
Manager had undertaken from August 1, 1994 through
September 28, 1995 to reduce the management fee and reimburse such excess
expenses paid by the Series', to the extent that the Series' aggregate
expenses (excluding certain expenses as described above) exceeded specified
annual percentages of the Series' average daily net assets. The expense
reimbursement, pursuant to the undertakings, amounted to $148,356 for the
year ended July 31, 1995.
The Manager has currently undertaken through September 30, 1995, to
reduce the management fee paid by, or reimburse such excess expenses of the
Series, to the extent that the Series' aggregate annual expenses (excluding
12b-1 distribution plan fees and certain expenses as described above) exceed
an annual rate of 1.25 of 1% of the average daily value of the Series' net
assets.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
Dreyfus Service Corporation retained $5,913 during the year ended July
31, 1995 from commissions earned on sales of the Series' Class A shares.
(B) On August 3, 1994, Series' shareholders approved a revised
Distribution Plan with respect to Class B shares only (the "Class B
Distribution Plan") pursuant to Rule 12b-1 under the Act. Pursuant to the
Class B Distribution Plan, effective August 24, 1994, the Fund pays the
Distributor for distributing the Series' Class B shares at an annual rate of
.50 of 1% of the value of the average daily net assets of Class B shares.
PREMIER INSURED MUNICIPAL BOND FUND, National Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Prior to August 24, 1994, the Distribution Plan ("prior Class B
Distribution Plan") provided that the Series pay Dreyfus
Service Corporation at an annual rate of .50 of 1% of the value of the
Series' Class B shares average daily net assets, for the costs and expenses
in connection with advertising, marketing and distributing the Series' Class
B shares. Dreyfus Service Corporation made payments to one or more Service
Agents based on the value of the Series' Class B shares owned by clients of
the Service Agent.
During the year ended July 31, 1995, $29,012 was charged to the Series
pursuant to the Class B Distribution Plan and $1,139 was charged to the
Series pursuant to the prior Class B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. From August 1, 1994, through August 23,
1994, $447 and $570 were charged to the Class A and Class B shares,
respectively, by Dreyfus Service Corporation. From August 24, 1994 through
July 31, 1995, $13,854 and $14,506 were charged to the Class A and Class B
shares, respectively, by the Distributor pursuant to the Shareholder Services
Plan.
(D) Prior to August 24, 1994, certain officers and trustees of the Fund
were "affiliated persons," as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities
amounted to $24,195,572 and $12,451,000, respectively, for the year ended
July 31, 1995, and consisted entirely of long-term and short-term municipal
investments.
At July 31, 1995, accumulated net unrealized appreciation on investments
was $436,485, consisting of $456,477 gross unrealized appreciation and
$19,992 gross unrealized depreciation.
At July 31, 1995, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
PREMIER INSURED MUNICIPAL BOND FUND, National Series
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER INSURED MUNICIPAL BOND FUND, NATIONAL SERIES
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Premier Insured Municipal Bond
Fund, National Series (one of the Series constituting the Premier Insured
Municipal Bond Fund) as of July 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 1995 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Premier Insured Municipal Bond Fund, National Series at July 31,
1995, and the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and
the financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
[Ernst and Young LLP signature logo]
New York, New York
September 6, 1995
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, New Jersey Series
STATEMENT OF INVESTMENTS JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS-96.1% AMOUNT VALUE
_______ ______
<S> <C> <C>
NEW JERSEY-92.9%
Cape May County Industrial Pollution Control Financing Authority, Revenue
(Atlantic City Electric Co. Project)
7.20%, 11/1/2029 (Insured; MBIA)........................................ $ 800,000 $ 928,744
Evesham Township Board of Education, COP
6.875%, 9/1/2011 (Insured; FGIC)........................................ 200,000 217,460
Gloucester Township Municipal Utilities Authority, Refunding
5.65%, 3/1/2018 (Insured; AMBAC)........................................ 200,000 195,010
New Jersey Economic Development Authority Revenue:
Market Transition Facility 5.80%, 7/1/2008 (Insured; MBIA).............. 350,000 359,090
Pollution Control (Public Service Electric and Gas) 6.40%, 5/1/2032 (Insured; MBIA) 365,000 375,235
(Rutgers State University - Civic Square)
6.10%, 7/1/2018 (Insured; AMBAC)...................................... 200,000 203,818
Water Facilities:
(Hackensack Water Co. Project)
Refunding 5.80%, 3/1/2024 (Insured; MBIA)......................... 350,000 339,535
(New Jersey American Water Co. Inc. Project)
6.875%, 11/1/2034 (Insured; FGIC)................................. 400,000 424,580
New Jersey Educational Facilities Authority, Revenue, Refunding:
(New Jersey Institute of Technology) 6%, 7/1/2024 (Insured; MBIA)....... 400,000 401,564
(Trenton State College) 6%, 7/1/2019 (Insured; AMBAC)................... 1,000,000 1,003,360
New Jersey Health Care Facilities Financing Authority, Revenue:
(General Hospital Center at Passaic) 6.75%, 7/1/2019 (Insured; FSA)..... 885,000 961,199
(Jersey Shore Medical Center) 6.25%, 7/1/2021 (Insured; AMBAC).......... 400,000 407,896
(Newark Beth Israel Medical Center) 6%, 7/1/2024 (Insured; FSA)......... 1,000,000 995,850
Refunding (Monmouth Medical Center):
6.25%, 7/1/2016 (Insured; CGIC)....................................... 250,000 255,942
6.25%, 7/1/2024 (Insured; CGIC)....................................... 200,000 203,628
(Saint Clares - Riverside Medical Center) 5.75%, 7/1/2014 (Insured; MBIA) 250,000 243,523
(Underwood Memorial Hospital) 5.70%, 7/1/2023 (Insured; AMBAC).......... 400,000 384,860
New Jersey Housing and Mortgage Finance Agency, Home Buyer Revenue:
6.20%, 10/1/2025 (Insured; MBIA)........................................ 450,000 454,846
6.375%, 10/1/2026 (Insured; MBIA)....................................... 230,000 235,708
Passaic Valley Sewer Commissioner, Sewer System Refunding
5.75%, 12/1/2015 (Insured; AMBAC)....................................... 500,000 485,380
Salem County Industrial Pollution Control Financing Authority, Revenue,
Refunding (Atlantic City Electric) 6.15%, 6/1/2029 (Insured; FSA)....... 400,000 404,368
U.S. RELATED-3.2%
Commonwealth of Puerto Rico, Refunding
5.375%, 7/1/2022 (Insured: MBIA)........................................ 350,000 327,579
--------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(cost $9,569,273)....................................................... $ 9,809,175
=========
PREMIER INSURED MUNICIPAL BOND FUND, New Jersey Series
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1995
PRINCIPAL
SHORT-TERM MUNICIPAL INVESTMENTS-3.9% AMOUNT VALUE
_______ ______
U.S. RELATED;
Puerto Rico Electric Power Authority, Power Revenue
(Insured; FSA) 3.56% (a)
(cost $400,000)......................................................... $ 400,000 $ 400,000
--------
TOTAL INVESTMENTS-100.0%
(cost $9,969,273)....................................................... $10,209,175
=========
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation FGIC Financial Guaranty Insurance Company
CGIC Capital Guaranty Insurance Corporation FSA Financial Security Assurance
COP Certificate of Participation MBIA Municipal Bond Investors Assurance
Insurance Corporation
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
<S> <C> <C> <C>
FITCH (B) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- ------- ----------------- --------------------
AAA Aaa AAA 100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Inverse Floater Security-the interest rate is subject to change
periodically.
(b) Fitch currently provides creditworthiness information for a limited
number of investments.
(c) At July 31, 1995, 31.0% of the Series' net assets are insured by MBIA.
(d) At July 31, 1995, the Series had $3,452,897 (29.2% of net assets)
invested in securities whose payment of principal and interest is dependent
upon revenues generated from health care projects.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, New Jersey Series
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $9,969,273)-see statement....................................... $10,209,175
Cash.................................................................... 2,610,057
Interest receivable..................................................... 102,311
Receivable for shares of Beneficial Interest subscribed................. 10,000
Prepaid expenses........................................................ 11,049
Due from The Dreyfus Corporation........................................ 2,678
------
12,945,270
LIABILITIES:
Due to Distributor...................................................... $ 5,331
Payable for investment securities purchased............................. 1,076,473
Accrued expenses and other liabilities.................................. 30,943 1,112,747
------ ------
NET ASSETS.................................................................. $11,832,523
==========
REPRESENTED BY:
Paid-in capital......................................................... $11,597,891
Accumulated net realized (loss) on investments.......................... (5,270)
Accumulated net unrealized appreciation on investments-Note 3........... 239,902
------
NET ASSETS at value......................................................... $11,832,523
==========
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 391,871
==========
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 539,157
==========
NET ASSET VALUE per share:
Class A Shares
($4,980,623 / 391,871 shares)......................................... $12.71
=====
Class B Shares
($6,851,900 / 539,157 shares)......................................... $12.71
=====
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, New Jersey Series
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1995
INVESTMENT INCOME:
INTEREST INCOME......................................................... $397,819
EXPENSES:
Management fee-Note 2(a).............................................. $ 38,710
Shareholder servicing costs-Note 2(c)................................. 34,594
Distribution fees (Class B shares)-Note 2(b).......................... 19,492
Registration fees..................................................... 8,193
Auditing fees......................................................... 6,439
Prospectus and shareholders' reports.................................. 2,954
Organization expenses................................................. 2,405
Legal fees............................................................ 1,330
Custodian fees........................................................ 1,138
Trustees' fees and expenses-Note 2(d)................................. 636
Miscellaneous......................................................... 3,556
-------
119,447
Less-expense reimbursement from Manager due to
undertakings-Note 2(a)............................................ 92,762
-------
TOTAL EXPENSES.................................................. 26,685
--------
INVESTMENT INCOME-NET........................................... 371,134
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $ (5,270)
Net unrealized appreciation on investments.............................. 221,333
========
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 216,063
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $587,197
==========
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, New Jersey Series
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
________________
1994* 1995
______ _______
OPERATIONS:
Investment income-net................................................... $ 26,971 $ 371,134
Net realized (loss) on investments...................................... _- (5,270)
Net unrealized appreciation on investments for the year................. 18,569 221,333
______ _______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 45,540 587,197
______ _______
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net:
Class A shares........................................................ (13,489) (176,046)
Class B shares........................................................ (13,482) (195,088)
______ _______
TOTAL DIVIDENDS................................................... (26,971) (371,134)
______ _______
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 2,446,730 3,591,050
Class B shares........................................................ 2,511,009 5,060,548
Dividends reinvested:
Class A shares........................................................ 8,343 97,360
Class B shares........................................................ 6,037 81,648
Cost of shares redeemed:
Class A shares........................................................ (150,000) (1,128,148)
Class B shares........................................................ (150,000) (776,686)
______ _______
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 4,672,119 6,925,772
______ _______
TOTAL INCREASE IN NET ASSETS.................................... 4,690,688 7,141,835
NET ASSETS:
Beginning of year....................................................... _ 4,690,688
______ _______
End of year............................................................. $ 4,690,688 $11,832,523
====== =======
</TABLE>
<TABLE>
<CAPTION>
SHARES
__________________________________
CLASS A CLASS B
________________ ________________
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
________________ ________________
1994* 1995 1994* 1995
______ _______ _______ _______
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 195,433 291,207 200,021 406,583
Shares issued for dividends reinvested. 667 7,845 483 6,544
Shares redeemed........................ (11,839) (91,442) (11,839) (62,636)
______ _______ _______ _______
NET INCREASE IN SHARES OUTSTANDING 184,261 207,610 188,665 350,491
====== ======= ======= =======
</TABLE>
* From May 4, 1994 (commencement of operations) to July 31, 1994.
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, New Jersey Series
FINANCIAL HIGHLIGHTS
Reference is made to page 6 of the Fund's Prospectus dated December 1,
1995.
PREMIER INSURED MUNICIPAL BOND FUND, New Jersey Series
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Premier Insured Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering six series including the New Jersey Series (the "Series"). Dreyfus
Service Corporation, until August 24, 1994, acted as the distributor of the
Fund's shares. Dreyfus Service Corporation is a wholly-owned subsidiary of
The Dreyfus Corporation ("Manager"). Effective August 24, 1994, the Manager
became a direct subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of FDI Distribution Services, Inc., a provider of mutual fund
administration services, which in turn is a wholly-owned subsidiary of FDI
Holdings, Inc., the parent company of which is Boston Institutional Group,
Inc.
The Fund accounts separately for the assets, liabilities and operations
of each series. Expenses directly attributable to each series are charged to
that series' operations; expenses which are applicable to all series are
allocated among them on a pro rata basis.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid price
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of; yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Options
and financial futures on municipal and U.S. treasury securities are valued at
the last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market
on each business day. Investments not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
PREMIER INSURED MUNICIPAL BOND FUND, New Jersey Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Series follows an investment policy of investing primarily in
municipal obligations of one state. Economic changes
affecting the state and certain of its public bodies and municipalities may
affect the ability of issuers within the state to pay interest on, or repay
principal of, municipal obligations held by the Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain, if any, are normally declared and
paid annually, but the Series may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Series not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
The Series has an unused capital loss carryover of approximately $5,000
available for Federal income tax purposes to be applied against future net
securities profit, if any, realized subsequent to July 31, 1995. If not
applied, the carryover expires in fiscal 2003.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. The most stringent
state expense limitation applicable to the Series presently requires
reimbursement of expenses in any full fiscal year that such expenses
(exclusive of distribution expenses and certain expenses as described above)
exceed 2-1\2% of the first $30 million, 2% of the next $70 million and 1-1\2%
of the excess over $100 million of the average value of the Series' net
assets in accordance with California "blue sky" regulations. However, the
Manager has undertaken from August 1, 1994 through September 17, 1995 to
reduce the management fee and reimburse such excess expenses paid by the
Series', to the extent that the Series' aggregate expenses (excluding certain
expenses as described above) exceeded specified annual percentages of the
Series' average daily net assets. The expense reimbursement, pursuant to the
undertakings, amounted to $92,762 for the year ended July 31, 1995.
The Manager has currently undertaken from September 18, 1995 through
September 30, 1995, to reduce the management fees paid by, or reimburse such
excess expenses of the Series, to the extent that the Series' aggregate
annual expenses (excluding 12b-1 distribution plan fees and certain expenses
as described above) exceed an annual rate of 1.25 of 1% of the average daily
value of the Series' net assets.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
Dreyfus Service Corporation retained $1,602 during the year ended July
31, 1995 from commissions earned on sales of the Series' Class A shares.
PREMIER INSURED MUNICIPAL BOND FUND, New Jersey Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(B) On August 3, 1994, Series' shareholders approved a revised
Distribution Plan with respect to Class B shares only (the
"Class B Distribution Plan") pursuant to Rule 12b-1 under the Act. Pursuant
to the Class B Distribution Plan, effective August 24, 1994, the Fund pays
the Distributor for distributing the Series' Class B shares at an annual rate
of .50 of 1% of the value of the average daily net assets of Class B shares.
Prior to August 24, 1994, the Distribution Plan ("prior Class B
Distribution Plan") provided that the Series pays Dreyfus Service Corporation
at an annual rate of .50 of 1% of the value of the Series' Class B shares
average daily net assets, for the costs and expenses in connection with
advertising, marketing and distributing the Series' Class B shares. Dreyfus
Service Corporation made payments to one or more Service Agents based on the
value of the Series' Class B shares owned by clients of the Service Agents.
During the year ended July 31, 1995, $18,803 was charged to the Series
pursuant to the Class B Distribution Plan and $689 was charged to the Series
pursuant to the prior Class B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. From August 1, 1994 through August 23,
1994, $329 and $344 were charged to Class A and Class B shares, respectively,
by Dreyfus Service Corporation. From August 24, 1994 through July 31, 1995,
$7,520 and $9,402 were charged to Class A and Class B shares, respectively,
by the Distributor pursuant to the Shareholder Services Plan.
(D) Prior to August 24, 1994, certain officers and trustees of the Fund
were "affiliated persons," as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities
amounted to $17,073,874 and $11,024,576, respectively, for the year ended
July 31, 1995, and consisted entirely of long-term and short-term municipal
investments.
At July 31, 1995, accumulated net unrealized appreciation on investments
was $239,902 consisting of $272,359 gross unrealized appreciation and $32,457
gross unrealized depreciation.
At July 31, 1995, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
PREMIER INSURED MUNICIPAL BOND FUND, New Jersey Series
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER INSURED MUNICIPAL BOND FUND, NEW JERSEY SERIES
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Premier Insured Municipal Bond
Fund, New Jersey Series (one of the Series constituting the Premier Insured
Municipal Bond Fund) as of July 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 1995 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Premier Insured Municipal Bond Fund, New Jersey Series at July
31, 1995, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and the
financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
[Ernst and Young LLP signature logo]
New York, New York
September 6, 1995
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, New York Series
STATEMENT OF INVESTMENTS JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS-100.0% AMOUNT VALUE
______ _______
<S> <C> <C>
NEW YORK-96.9%
Buffalo Municipal Water Finance Authority,
Water System Revenue 5%, 7/01/2025 (Insured; FGIC)...................... $ 750,000 $ 648,135
Erie County 5.50%, 6/15/2025 (Insured; FGIC)................................ 500,000 468,045
Metropolitan Transportation Authority,
Transit Facility Revenue 6.375%, 7/1/2020 (Insured; MBIA)............... 750,000 772,845
New York City Health and Hospital Corp., Revenue, Refunding:
5.625%, 2/15/2013 (Insured; AMBAC)...................................... 1,000,000 963,820
5.75%, 2/15/2022 (Insured; AMBAC)....................................... 200,000 192,626
New York City Municipal Water Finance Authority, Water and Sewer System
Revenue:
6%, 6/15/2019 (Insured; FGIC)........................................... 200,000 201,352
6.20%, 6/15/2021 (Insured; AMBAC)....................................... 600,000 613,272
New York City Transit Authority, Transit Facility Revenue
(Livingston Plaza Project) 6%, 1/1/2021 (Insured; FSA).................. 200,000 198,954
New York State, COP (City University - John Jay College)
5.50%, 8/15/2009 (Insured; AMBAC)....................................... 200,000 200,430
New York State Dormitory Authority, Revenue:
(City University System - Third Resolution) 6.30%, 7/1/2024 (Insured; AMBAC) 200,000 204,902
(Refunding - Fordham University) 5.75%, 7/1/2015 (Insured; FGIC)........ 200,000 194,900
(Refunding - Skidmore College) 5.375%, 7/1/2023 (Insured; FSA).......... 200,000 184,168
(Rochester University) 5.90%, 7/1/2017 (Insured; MBIA).................. 950,000 940,719
New York State Energy Research and Development Authority, Revenue:
Facilities (Refunding - Con Edison Co. of New York Inc. Project)
5.25%, 8/15/2020 (Insured; MBIA)...................................... 200,000 180,206
Gas Facilities (Brooklyn Union Gas) 5.60%, 6/1/2025 (Insured; MBIA)..... 200,000 183,756
Pollution Control, Refunding:
(New York State Electric and Gas Corp.) 6.05%, 4/1/2034 (Insured; MBIA) 500,000 500,335
(Rochester Gas and Electric Project) 6.50%, 5/15/2032 (Insured; MBIA). 400,000 408,804
New York State Housing Finance Agency, MFMR
6.35%, 8/15/2023 (Insured; AMBAC)....................................... 500,000 506,710
New York State Medical Care Facilities Finance Agency, Revenue:
(Hospital and Nursing Home) 6.125%, 2/15/2015 (Insured; MBIA)........... 400,000 404,436
(Long Term Health Care) 6.50%, 11/1/2015 (Insured; CGIC)................ 200,000 207,138
(Mental Health Service Facilities Improvement)
5.80%, 2/15/2019 (Insured; CGIC)...................................... 400,000 386,548
(Refunding - Saint Mary's Hospital Project) 6.20%, 11/1/2014 (Insured; AMBAC) 200,000 202,242
Niagara Falls Bridge Commission, Toll Revenue, Refunding
5.25%, 10/1/2021 (Insured; FGIC)........................................ 200,000 181,526
Suffolk County Water Authority, Waterworks Revenue
5%, 6/1/2012 (Insured; MBIA)............................................ 200,000 183,740
PREMIER INSURED MUNICIPAL BOND FUND, New York Series
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1995
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
______ _______
NEW YORK (CONTINUED)
Triboro Bridge and Tunnel Authority, Special Obligation Refunding
6%, 1/1/2019 (Insured; MBIA)............................................ $ 1,000,000 $ 998,690
U.S. RELATED-3.1%
Commonwealth of Puerto Rico, Refunding
5.375%, 7/01/2022 (Insured; MBIA)....................................... 350,000 327,578
---------
TOTAL INVESTMENTS (cost $10,358,322)........................................ $10,455,877
===========
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation FSA Financial Security Assurance
COP Certificate of Participation MBIA Municipal Bond Investors Assurance
CGIC Capital Guaranty Insurance Corporation Insurance Corporation
FGIC Financial Guaranty Insurance Company MFMR Multi-Family Mortgage Revenue
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (A) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- -------- ------- ----------------- -------------------
<S> <C> <C> <C>
AAA Aaa AAA 100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Fitch currently provides creditworthiness information for a limited
number of investments.
(b) At July 31, 1995, 25.3% of the series' net assets are insured by
AMBAC and 43.0% are insured by MBIA.
See notes to financial statements.
<TABLE>
<CAPTION>
PREMIER INSURED MUNICIPAL BOND FUND, New York Series
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $10,358,322)-see statement...................................... $10,455,877
Cash.................................................................... 782,528
Interest receivable..................................................... 144,080
Receivable for shares of Beneficial Interest subscribed................. 41,431
Prepaid expenses........................................................ 14,369
Due from The Dreyfus Corporation........................................ 3,058
-------
11,441,343
LIABILITIES:
Due to Distributor...................................................... $ 5,132
Accrued expenses and other liabilities.................................. 33,800 38,932
------- --------
NET ASSETS.................................................................. $11,402,411
=========
REPRESENTED BY:
Paid-in capital......................................................... 11,317,746
Accumulated net realized (loss) on investments.......................... (12,890)
Accumulated net unrealized appreciation on investments-Note 3........... 97,555
-------
NET ASSETS at value......................................................... $11,402,411
=========
Shares of Beneficial Interest outstanding:
Class A Shares
(unlimited number of $.001 par value shares authorized)............... 375,629
=========
Class B Shares
(unlimited number of $.001 par value shares authorized)............... 517,832
=========
NET ASSET VALUE per share:
Class A Shares
($4,790,734 / 375,629 shares)......................................... $12.75
=====
Class B Shares
($6,611,677 / 517,832 shares)......................................... $12.77
=====
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, New York Series
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1995
INVESTMENT INCOME:
INTEREST INCOME......................................................... $400,649
EXPENSES:
Management fee-Note 2(a).............................................. $ 38,887
Shareholder servicing costs-Note 2(c)................................. 32,924
Distribution fees (Class B shares)-Note 2(b).......................... 20,096
Registration fees..................................................... 13,625
Auditing fees......................................................... 8,168
Prospectus and shareholders' reports.................................. 2,978
Organization expenses................................................. 2,620
Legal fees............................................................ 1,205
Custodian fees........................................................ 1,076
Trustees' fees and expenses-Note 2(d)................................. 689
Miscellaneous......................................................... 4,614
------
126,882
Less-expense reimbursement from Manager due to
undertakings-Note 2(a)............................................ 99,971
------
TOTAL EXPENSES.................................................. 26,911
-------
INVESTMENT INCOME-NET........................................... 373,738
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $ (12,890)
Net unrealized appreciation on investments.............................. 76,318
------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 63,428
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $437,166
=======
See notes to financial statements.
PREMIER INSURED MUNICIPAL BOND FUND, New York Series
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
________________________
1994(1) 1995
_______ ______
OPERATIONS:
Investment income-net................................................... $ 27,373 $ 373,738
Net realized (loss) on investments...................................... - (12,890)
Net unrealized appreciation on investments for the year................. 21,237 76,318
_______ ______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. 48,610 437,166
_______ ______
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net:
Class A shares........................................................ (13,922) (172,061)
Class B shares........................................................ (13,451) (201,677)
_______ ______
TOTAL DIVIDENDS................................................... (27,373) (373,738)
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares........................................................ 2,104,443 3,665,511
Class B shares........................................................ 2,247,963 5,533,055
Dividends reinvested:
Class A shares........................................................ 8,502 98,623
Class B shares........................................................ 10,790 118,605
Cost of shares redeemed:
Class A shares........................................................ (70,000) (1,027,887)
Class B shares........................................................ (70,000) (1,301,859)
_______ ______
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...... 4,231,698 7,086,048
_______ ______
TOTAL INCREASE IN NET ASSETS.................................... 4,252,935 7,149,476
NET ASSETS:
Beginning of year....................................................... _ 4,252,935
_______ ______
End of year............................................................. $ 4,252,935 $11,402,411
======== =======
</TABLE>
<TABLE>
<CAPTION>
SHARES
________________________________________________
CLASS A CLASS B
________________ ________________
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
________________ ________________
1994(1) 1995 1994(1) 1995
______ _______ _______ _______
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................ 165,298 292,256 176,308 441,378
Shares issued for dividends reinvested. 669 7,927 849 9,489
Shares redeemed........................ (5,356) (85,165) (5,356) (104,836)
______ _______ _______ _______
NET INCREASE IN SHARES OUTSTANDING. 160,611 215,018 171,801 346,031
====== ======= ======= =======
(1) From May 6, 1994 (commencement of operations) to July 31, 1994.
See notes to financial statements.
</TABLE>
PREMIER INSURED MUNICIPAL BOND FUND, New York Series
FINANCIAL HIGHLIGHTS
Reference is made to page 6 of the Fund's Prospectus dated December 1,
1995.
PREMIER INSURED MUNICIPAL BOND FUND, New York Series
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Premier Insured Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a non-diversified open-end
management investment company and operates as a series company currently
offering six series including the New York Series (the "Series"). Dreyfus
Service Corporation, until August 24, 1994, acted as the distributor of the
Fund's shares. Dreyfus Service Corporation is a wholly-owned subsidiary of
The Dreyfus Corporation ("Manager"). Effective August 24, 1994, the Manager
became a direct subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of FDI Distribution Services, Inc., a provider of mutual fund
administration services, which in turn is a wholly-owned subsidiary of FDI
Holdings, Inc., the parent company of which is Boston Institutional Group,
Inc.
The Fund accounts separately for the assets, liabilities and operations
of each series. Expenses directly attributable to each series are charged to
that series' operations; expenses which are applicable to all series are
allocated among them on a pro rata basis.
The Series offers both Class A and Class B shares. Class A shares are
subject to a sales charge imposed at the time of purchase and Class B shares
are subject to a contingent deferred sales charge imposed at the time of
redemption on redemptions made within five years of purchase. Other
differences between the two Classes include the services offered to and the
expenses borne by each Class and certain voting rights.
(A) PORTFOLIO VALUATION: The Series' investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Options
and financial futures on municipal and U.S. treasury securities are valued at
the last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market
on each business day. Investments not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
PREMIER INSURED MUNICIPAL BOND FUND, New York Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Series follows an investment policy of investing primarily in
municipal obligations of one state. Economic changes
affecting the state and certain of its public bodies and municipalities may
affect the ability of issuers within the state to pay interest on, or repay
principal of, municipal obligations held by the Series.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Series to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain, if any, are normally declared and
paid annually, but the Series may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .55 of 1% of the average
daily value of the Series' net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Series'
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series for any full fiscal year. The most stringent
state expense limitation applicable to the Series presently requires
reimbursement of expenses in any full fiscal year that such expenses
(exclusive of distribution expenses and certain expenses as described above)
exceed 2-1\2% of the first $30 million, 2% of the next $70 million and
1-1\2% of the excess over $100 million of the average value of the Series' net
assets in accordance with California "blue sky" regulations. However, the
Manager has undertaken from August 1, 1994 through September 17, 1995 to
reduce the management fee and reimburse such excess expenses paid by the
Series', to the extent that the Series' aggregate expenses (excludung certain
expenses as described above) exceeded specified annual percentages of the
Series' average daily net assets. The expense reimbursement, pursuant to the
undertakings, amounted to $99,971 for the year ended July 31, 1995.
The Manager has currently undertaken from September 18, 1995 through
September 30, 1995, to reduce the management fees paid by, or reimburse such
excess expenses of the Series, to the extent that the Series' aggregate
annual expenses (excluding 12b-1 distribution plan fees and certain expenses
as described above) exceed an annual rate of 1.25 of 1% of the average daily
value of the Series' net assets.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
Dreyfus Service Corporation retained $2,028 during the year ended July
31, 1995 from commissions earned on sales of the Series' Class A shares.
PREMIER INSURED MUNICIPAL BOND FUND, New York Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(B) On August 3, 1994, the Series' shareholders approved a revised
Distribution Plan with respect to Class B shares only (the
"Class B Distribution Plan") pursuant to Rule 12b-1 under the Act. Pursuant
to the Class B Distribution Plan, effective August 24, 1994, the Fund pays
the Distributor for distributing the Series' Class B shares at an annual rate
of .50 of 1% of the value of the average daily net assets of Class B Shares.
Prior to August 24, 1994, the Distribution Plan ("prior Class B
Distribution Plan") provided that the Series pay Dreyfus Service Corporation
at an annual rate of .50 of 1% of the value of the Series' Class B shares
average daily net assets, for the costs and expenses in connection with
advertising, marketing and distributing the Series' Class B shares. Dreyfus
Service Corporation made payments to one or more Service Agents based on the
value of the Series' Class B shares owned by clients of the Service Agent.
During the year ended July 31, 1995, $19,331 was charged to the Series
pursuant to the Class B Distribution Plan and $765 was charged to the Series
pursuant to the prior Class B Distribution Plan.
(C) Under the Shareholder Services Plan, the Series pays the Distributor,
at an annual rate of .25 of 1% of the value of the average daily net assets
of Class A and Class B shares for servicing shareholder accounts. The
services provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Series and
providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents. From August 1, 1994 through August 23,
1994, $346 and $383 were charged to the Class A and Class B shares,
respectively, by Dreyfus Service Corporation. From August 24, 1994 through
July 31, 1995, $7,282 and $9,665 were charged to the Class A and Class B
shares, respectively, by the Distributor pursuant to the Shareholder Services
Plan.
(D) Prior to August 24, 1994, certain officers and trustees of the Fund
were "affiliated persons" as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives from the Fund an annual fee of $1,000 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities
amounted to $16,601,710 and $10,071,400, respectively, for the year ended
July 31, 1995, and consisted entirely of long-term and short-term municipal
investments.
At July 31, 1995, accumulated net unrealized appreciation on investments
was $97,555, consisting of $114,128 gross unrealized appreciation and $16,573
gross unrealized depreciation.
At July 31, 1995, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
PREMIER INSURED MUNICIPAL BOND FUND, New York Series
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
PREMIER INSURED MUNICIPAL BOND FUND, NEW YORK SERIES
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Premier Insured Municipal Bond
Fund, New York Series (one of the Series constituting the Premier Insured
Municipal Bond Fund) as of July 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditings
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 1995 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Premier Insured Municipal Bond Fund, New York Series at July 31,
1995, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
[Ernst and Young LLP signature logo]
New York, New York
September 6, 1995
