GENERAL GOVERNMENT SECURITIES MONEY MARKET FUND INC, 497, 1999-10-05

GENERAL GOVERNMENT SECURITIES MONEY MARKET FUND INC
497, 1999-10-05

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October 1, 1999

GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
GENERAL MUNICIPAL MONEY MARKET FUND
GENERAL NEW YORK MUNICIPAL MONEY MARKET FUND

Supplement to Prospectus
Dated April 1, 1999

The following information supplements the information contained in the
sections of the Prospectus entitled "Goal/Approach" for General California
Municipal Money Market Fund, General Municipal Money Market Fund and General New
York Municipal Money Market Fund:

The fund may invest in high quality, short-term structured notes which are
derivative instruments whose value is tied to underlying municipal obligations.
Structured notes typically are purchased in privately negotiated transactions
from financial institutions. Derivatives can be highly volatile and the
possibility of default by the financial institution or counterparty may be
greater for structured notes than for other types of money market instruments.

_______________________________________________________

The following information supplements and supersedes any contrary
information relating to the funds contained in the section of the Prospectus
entitled "Account Policies-Buying Shares":

Your price for fund shares is the fund's net asset value (NAV), which is
generally calculated three times a day, at 12 noon, 2 p.m. and 8 p.m. for
General California Municipal Money Market Fund, General Municipal Money Market
Fund and General New York Municipal Money Market Fund, every day the New York
Stock Exchange or the fund's transfer agent is open. Your order will be priced
at the next NAV calculated after your order is accepted by the fund's transfer
agent or other authorized entity.

If your payments are received in or converted into Federal Funds by 4 p.m.
for General California Municipal Money Market Fund, General Municipal Money
Market Fund and General New York Municipal Money Market Fund, you will receive
the dividend declared that day. If your payments are received in or converted
into Federal Funds after 4 p.m., you will begin to accrue dividends on the
following business day. Qualified institutions may telephone orders to buy
shares. If such an order is made by 2 p.m. for General California Municipal
Money Market Fund, General Municipal Money Market Fund or General New York
Municipal Money Market Fund, and Federal Funds are received by 4 p.m., the
shares will be purchased at the next NAV determined after the telephone order is
accepted and will receive the dividend declared that day. If such an order is
made after 2 p.m. but by 8 p.m., and Federal Funds are received by 11 a.m. the
next business day, the shares will be purchased at the NAV determined at 8 p.m.
and will begin to accrue dividends on the next business day. All times are
Eastern time.

October 1, 1999

GENERAL MUNICIPAL MONEY MARKET FUND

Supplement to Prospectus
Dated April 1, 1999

The following information supplements the information contained in the
section of the Prospectus entitled "Goal/Approach" for General Municipal Money
Market Fund:

_______________________________________________________

The following information supplements and supersedes any contrary
information relating to the General Municipal Money Market Fund contained in the
section of the Prospectus entitled "Account Policies-Buying Shares":

Your price for fund shares is the fund's net asset value (NAV), which is
generally calculated three times a day, at 12 noon, 2 p.m. and 8 p.m. for
General Municipal Money Market Fund, every day the New York Stock Exchange or
the fund's transfer agent is open. Your order will be priced at the next NAV
calculated after your order is accepted by the fund's transfer agent or other
authorized entity.

If your payments are received in or converted into Federal Funds by 4 p.m.
for General Municipal Money Market Fund, you will receive the dividend declared
that day. If your payments are received in or converted into Federal Funds after
4 p.m., you will begin to accrue dividends on the following business day.
Qualified institutions may telephone orders to buy shares. If such an order is
made by 2 p.m. for General Municipal Money Market Fund, and Federal Funds are
received by 4 p.m., the shares will be purchased at the next NAV determined
after the telephone order is accepted and will receive the dividend declared
that day. If such an order is made after 2 p.m. but by 8 p.m., and Federal Funds
are received by 11 a.m. the next business day, the shares will be purchased at
the NAV determined at 8 p.m. and will begin to accrue dividends on the next
business day. All times are Eastern time.

<PAGE>

GENERAL GOVERNMENT SECURITIES MONEY MARKET FUND, INC.
GENERAL MONEY MARKET FUND, INC.
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
GENERAL MINNESOTA MUNICIPAL MONEY MARKET FUND
GENERAL MUNICIPAL MONEY MARKET FUND
GENERAL NEW YORK MUNICIPAL MONEY MARKET FUND

STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1999
AS REVISED, OCTOBER 1, 1999

CLASS A AND CLASS B SHARES

This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current combined
Prospectus for Class A or Class B shares of General Government Securities Money
Market Fund, Inc. (the "Government Money Fund"), General Money Market Fund, Inc.
(the "Money Fund"), General California Municipal Money Market Fund (the
"California Municipal Fund"), General Minnesota Municipal Money Market Fund (the
"Minnesota Municipal Fund"), General Municipal Money Market Fund (the "National
Municipal Fund") and General New York Municipal Money Market Fund (the "New York
Municipal Fund") (each, a "Fund" and collectively, the "Funds"), dated April 1,
1999, as it may be revised from time to time. To obtain a copy of the Prospectus
for Class A or Class B shares of a Fund, please write to a Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or call the following
numbers:

Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1396
Outside the U.S. -- Call 516-794-5452

The most recent Annual and Semi-Annual Report to Shareholders of each
Fund are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and reports of
independent auditors appearing in the Annual Report are incorporated by
reference into this Statement of Additional Information. When requesting a copy
of this Statement of Additional Information, you will receive the report(s) for
the Fund(s) in which you are a shareholder.

EACH FUND IS A SEPARATE INVESTMENT PORTFOLIO WITH OPERATIONS AND
RESULTS THAT ARE UNRELATED TO THOSE OF EACH OTHER FUND. THE MINNESOTA MUNICIPAL
FUND AND THE NATIONAL MUNICIPAL FUND ARE SEPARATE SERIES OF GENERAL MUNICIPAL
MONEY MARKET FUNDS, INC. (THE "COMPANY"). THIS COMBINED STATEMENT OF ADDITIONAL
INFORMATION HAS BEEN PROVIDED FOR YOUR CONVENIENCE TO PROVIDE YOU WITH THE
OPPORTUNITY TO CONSIDER SIX INVESTMENT CHOICES IN ONE DOCUMENT.

<PAGE>

TABLE OF CONTENTS

PAGE

DESCRIPTION OF THE FUNDS.................................................B-3
MANAGEMENT OF THE FUNDS..................................................B-24
MANAGEMENT ARRANGEMENTS..................................................B-30
HOW TO BUY SHARES........................................................B-34
SERVICE PLAN AND DISTRIBUTION PLAN.......................................B-38
SHAREHOLDER SERVICES PLANS...............................................B-40
HOW TO REDEEM SHARES.....................................................B-41
SHAREHOLDER SERVICES.....................................................B-44
DETERMINATION OF NET ASSET VALUE.........................................B-48
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................................B-49
YIELD INFORMATION........................................................B-51
PORTFOLIO TRANSACTIONS...................................................B-54
INFORMATION ABOUT THE FUNDS..............................................B-55
COUNSEL AND INDEPENDENT AUDITORS.........................................B-56
APPENDIX A...............................................................B-57
APPENDIX B...............................................................B-60
APPENDIX C...............................................................B-64
APPENDIX D...............................................................B-83
APPENDIX E...............................................................B-89
APPENDIX F...............................................................B-116

<PAGE>

DESCRIPTION OF THE FUNDS

Each of the Government Money Fund, the Company and the Money Fund is a
Maryland corporation formed on April 8, 1982, April 8, 1982 and May 15, 1981,
respectively. Each of the California Municipal Fund and the New York Municipal
Fund is a Massachusetts business trust that commenced operations on March 10,
1987 and December 2, 1986, respectively.

Each Fund is an open-end management investment company, known as a
money market mutual fund. Each of the Government Money Fund, the Money Fund and
the National Municipal Fund is a diversified fund, which means that, with
respect to 75% of its total assets, the Fund will not invest more than 5% of its
assets in the securities of any single issuer. Each of the other Funds is a
non-diversified fund, which means that the proportion of the Fund's assets that
may be invested in the securities of a single issuer is not limited by the
Investment Company Act of 1940, as amended (the "1940 Act").

The Dreyfus Corporation (the "Manager") serves as each Fund's
investment adviser.

Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of each Fund's shares.

CERTAIN PORTFOLIO SECURITIES

The following information supplements and should be read in
conjunction with the Funds' Prospectus.

U.S. GOVERNMENT SECURITIES. (GOVERNMENT MONEY FUND AND MONEY FUND)
Each of these Funds may invest in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, which include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury; others
by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit of
the agency or instrumentality. These securities bear fixed, floating or variable
rates of interest. Interest may fluctuate based on generally recognized
reference rates or the relationship of rates. While the U.S. Government
currently 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.

REPURCHASE AGREEMENTS. (GOVERNMENT MONEY FUND AND MONEY FUND) Each of
these Funds may enter into repurchase agreements. In a repurchase agreement, the
Fund 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 Fund entering into them. 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
Fund's ability to dispose of the underlying securities. In an attempt to reduce
the risk of incurring a loss on a repurchase agreement, the Fund will enter into
repurchase agreements only with domestic banks with total assets in excess of $1
billion, or primary government securities dealers reporting to the Federal
Reserve Bank of New York, with respect to securities of the type in which the
Fund may invest, and will require that additional securities be deposited with
it if the value of the securities purchased should decrease below the resale
price.

BANK OBLIGATIONS. (MONEY FUND) The Money Fund may purchase
certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations issued by domestic banks, foreign subsidiaries or foreign
branches of domestic banks, domestic and foreign branches of foreign banks,
domestic savings and loan associations and other banking institutions.

Certificates of deposit ("CDs") are negotiable certificates evidencing
the obligation of a bank to repay funds deposited with it for a specified period
of time.

Time deposits ("TDs") are non-negotiable deposits maintained in a
banking institution for a specified period of time (in no event longer than
seven days) at a stated interest rate.

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 the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.

As a result of Federal and state laws and regulations, domestic banks
whose CDs may be purchased by the Fund are, among other things, generally
required to maintain specified levels of reserves, and are subject to other
supervision and regulation designed to promote financial soundness. Domestic
commercial banks organized under Federal law are supervised and examined by the
Comptroller of the Currency and are required to be members of the Federal
Reserve System and to have their deposits insured by the Federal Deposit
Insurance Corporation (the "FDIC"). Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition, state banks
whose CDs may be purchased by the Money Fund are insured by the Bank Insurance
Fund administered by the FDIC (although such insurance may not be of material
benefit to the Fund, depending upon the principal amount of the CDs of each bank
held by the Fund) and are subject to Federal examination and to a substantial
body of Federal law and regulation. However, not all of such laws and
regulations apply to the foreign branches of domestic banks.

Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign branches of foreign
banks may be general obligations of the parent banks in addition to the issuing
branch, or may be limited by the terms of a specific obligation and governmental
regulation. Such obligations are subject to different risks than are those of
domestic banks. These risks include foreign economic and political developments,
foreign governmental restrictions that may adversely affect payment of principal
and interest on the obligations, foreign exchange controls and foreign
withholding and other taxes on interest income. These foreign branches and
subsidiaries are not necessarily subject to the same or similar regulatory
requirements as apply to domestic banks, such as mandatory reserve requirements,
loan limitations, and accounting, auditing and financial recordkeeping
requirements. In addition, less information may be publicly available about a
foreign branch of a domestic bank or about a foreign bank than about a domestic
bank.

Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation or by Federal and state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.

In addition, Federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the regulator, by depositing assets with a designated
bank within the state, a certain percentage of their assets as fixed from time
to time by the appropriate regulatory authority; and (2) maintain assets within
the state in an amount equal to a specified percentage of the aggregate amount
of liabilities of the foreign bank payable at or through all of its agencies or
branches within the state. The deposits of Federal or State Branches generally
must be insured by the FDIC if such branches take deposits of less than
$100,000.

In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Manager carefully evaluates such investments on a
case-by-case basis.

The Fund may purchase CDs issued by banks, savings and loan
associations and similar thrift institutions with less than $1 billion in
assets, the deposits of which are insured by the FDIC, provided the Fund
purchases any such CD in a principal amount of no more than $100,000, which
amount would be fully insured by the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the FDIC. Interest payments on such a
CD are not insured by the FDIC. The Fund will not own more than one such CD per
such issuer.

COMMERCIAL PAPER. (MONEY FUND) The Money Fund may purchase commercial
paper consisting of short-term, unsecured promissory notes issued to finance
short-term credit needs. The commercial paper purchased by the Fund will consist
only of direct obligations issued by domestic and foreign entities. The other
corporate obligations in which the Fund may invest consist of high quality, U.S.
dollar denominated short-term bonds and notes (including variable amount master
demand notes) issued by domestic and foreign corporations, including banks.

FLOATING AND VARIABLE RATE OBLIGATIONS. (MONEY FUND) The Money Fund
may purchase floating and variable rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of 13 months, but
which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding 13 months, in each case upon not more than 30
days' notice. Variable rate demand notes include master demand notes which are
obligations that permit the Fund to invest fluctuating amounts, at varying rates
of interest, pursuant to direct arrangements between the Fund, as lender, and
the borrower. These obligations permit daily changes in the amounts borrowed.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value, plus accrued interest. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand.

PARTICIPATION INTERESTS. (MONEY FUND) The Money Fund may purchase from
financial institutions participation interests in securities in which the Fund
may invest. A participation interest gives the Fund an undivided interest in the
security in the proportion that the Fund's participation interest bears to the
total principal amount of the security. These instruments may have fixed,
floating or variable rates of interest, with remaining maturities of 13 months
or less. If the participation interest is unrated, or has been given a rating
below that which is permissible for purchase by the Fund, the participation
interest will be backed by an irrevocable letter of credit or guarantee of a
bank, or the payment obligation otherwise will be collateralized by U.S.
Government securities, or, in the case of unrated participation interests, the
Manager must have determined that the instrument is of comparable quality to
those instruments in which the Fund may invest.

ASSET-BACKED SECURITIES. (MONEY FUND) The Money Fund may purchase
asset-backed securities, which are securities issued by special purpose entities
whose primary assets consist of a pool of mortgages, loans, receivables or other
assets. Payment of principal and interest may depend largely on the cash flows
generated by the assets backing the securities and, in certain cases, supported
by letters of credit, surety bonds or other forms of credit or liquidity
enhancements. The value of these asset-backed securities also may be affected by
the creditworthiness of the servicing agent for the pool of assets, the
originator of the loans or receivables or the financial institution providing
the credit support.

MUNICIPAL OBLIGATIONS. (CALIFORNIA MUNICIPAL FUND, MINNESOTA MUNICIPAL
FUND, NATIONAL MUNICIPAL FUND AND NEW YORK MUNICIPAL FUND (COLLECTIVELY, THE
"MUNICIPAL FUNDS")) Each Municipal Fund will invest at least 80% of the value of
its net assets (except when maintaining a temporary defensive position) in
Municipal Obligations. Municipal Obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies of authorities, the interest from which, in the opinion of
bond counsel to the issuer, is exempt from Federal income tax. Municipal
Obligations generally include debt obligations issued to obtain funds for
various public purposes as well as certain industrial development bonds issued
by or on behalf of public authorities. Municipal Obligations are classified as
general obligation bonds, revenue bonds and notes. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable from the revenue
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source, but not
from the general taxing power. Tax exempt industrial development bonds, in most
cases, are revenue bonds that do not carry the pledge of the credit of the
issuing municipality, but generally are guaranteed by the corporate entity on
whose behalf they are issued. Notes are short-term instruments which are
obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
Municipal Obligations include municipal lease/purchase agreements which are
similar to installment purchase contracts for property or equipment issued by
municipalities. Municipal Obligations bear fixed, floating or variable rates of
interest. 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.

With respect to the National Municipal Fund, for the purpose of
diversification under the 1940 Act, the identification of the issuer of
Municipal Obligations depends on the terms and conditions of the security. When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
subdivision and the security is backed only by the assets and revenues of the
subdivision, such subdivision would be deemed to be the sole issuer. Similarly,
in the case of an industrial development bond, if that bond is backed only by
the assets and revenues of the non-governmental user, then such non-governmental
user would be deemed to be the sole issuer. If, however, in either case, the
creating government or some other entity guarantees a security, such a guaranty
would be considered a separate security and will be treated as an issue of such
government or other entity.

The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a particular
offering, maturity of the obligation and rating of the issue.

CERTAIN TAX EXEMPT OBLIGATIONS. (MUNICIPAL FUNDS) Each Municipal Fund may
purchase floating and variable rate demand notes and bonds, which are tax exempt
obligations ordinarily having stated maturities in excess of 13 months, but
which permit the holder to demand payment of principal at any time or at
specified intervals not exceeding 13 months, in each case upon not more than 30
days' notice. Variable rate demand notes include master demand notes which are
obligations that permit the Fund to invest fluctuating amounts, at varying rates
of interest, pursuant to direct arrangements between the Fund, as lender, and
the borrower. These obligations permit daily changes in the amount borrowed.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value, plus accrued interest. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the 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 will meet the quality criteria established for the purchase of
Municipal Obligations.

TAX EXEMPT PARTICIPATION INTERESTS. (MUNICIPAL FUNDS) Each Municipal Fund 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 Fund an undivided interest in
the Municipal Obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the Municipal Obligation. These
instruments may have fixed, floating or variable rates of interest, with
remaining maturities of 13 months or less. If the participation interest is
unrated, it will be backed by an irrevocable letter of credit or guarantee of a
bank that the Fund's Board has determined meets prescribed quality standards for
banks, or the payment obligation otherwise will be collateralized by U.S.
Government securities. For certain participation interests, the Fund will have
the right to demand payment, on not more than seven days' notice, for all or any
part of the Fund's participation interest in the Municipal Obligation, plus
accrued interest. As to these instruments, the Fund intends to exercise its
right to demand payment only upon a default under the terms of the Municipal
Obligation, as needed to provide liquidity to meet redemptions, or to maintain
or improve the quality of its investment portfolio.

Municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations") have special risks not
ordinarily associated with Municipal Obligations. Although lease obligations do
not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation ordinarily is backed
by the municipality's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Although "non-
appropriation" lease obligations are secured by the leased property, disposition
of the property in the event of foreclosure might prove difficult. The Fund will
seek to minimize these risks by investing only in those lease obligations that
(1) are rated in one of the two highest rating categories for debt obligations
by at least two nationally recognized statistical rating organizations (or one
rating organization if the lease obligation was rated only by one such
organization) or (2) if unrated, are purchased principally from the issuer or
domestic banks or other responsible third parties, in each case only if the
seller shall have entered into an agreement with the Fund providing that the
seller or other responsible third party will either remarket or repurchase the
lease obligation within a short period after demand by the Fund. The staff of
the Securities and Exchange Commission currently considers certain lease
obligations to be illiquid. Accordingly, not more than 10% of the value of a
Fund's net assets will be invested in lease obligations that are illiquid and in
other illiquid securities.

TENDER OPTION BONDS. (MUNICIPAL FUNDS) Each Municipal Fund may purchase tender
option bonds. A tender option bond is a Municipal Obligation (generally held
pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term
tax exempt rates, that has been coupled with the agreement of a third party,
such as a bank, broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, at periodic intervals,
to tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the Municipal
Obligation's fixed coupon rate and the rate, as determined by a remarketing or
similar agent at or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term tax
exempt rate. The Manager, on behalf of the Fund, will consider on an ongoing
basis the creditworthiness of the issuer of the underlying Municipal Obligation,
of any custodian and of the third party provider of the tender option. In
certain instances and for certain tender option bonds, the option may be
terminable in the event of a default in payment of principal or interest on the
underlying Municipal Obligation and for other reasons.

The Fund will not purchase tender option bonds unless (a) the demand
feature applicable thereto is exercisable by the Fund within 13 months of the
date of such purchase upon no more than 30 days' notice and thereafter is
exercisable by the Fund no less frequently than annually upon no more than 30
days' notice and (b) at the time of such purchase, the Manager reasonably
expects (i) based upon its assessment of current and historical interest rate
trends, that prevailing short-term tax exempt rates will not exceed the stated
interest rate on the underlying Municipal Obligations at the time of the next
tender fee adjustment and (ii) that the circumstances which might entitle the
grantor of a tender option to terminate the tender option would not occur prior
to the time of the next tender opportunity. At the time of each tender
opportunity, the Fund will exercise the tender option with respect to any tender
option bonds unless the Manager reasonably expects, (x) based upon its
assessment of current and historical interest rate trends, that prevailing
short-term tax exempt rates will not exceed the stated interest rate on the
underlying Municipal Obligations at the time of the next tender fee adjustment,
and (y) that the circumstances which might entitle the grantor of a tender
option to terminate the tender option would not occur prior to the time of the
next tender opportunity. The Fund will exercise the tender feature with respect
to tender option bonds, or otherwise dispose of its tender option bonds, prior
to the time the tender option is scheduled to expire pursuant to the terms of
the agreement under which the tender option is granted. The Fund otherwise will
comply with the provisions of Rule 2a-7 in connection with the purchase of
tender option bonds, including, without limitation, the requisite determination
by the Fund's Board that the tender option bonds in question meet the quality
standards described in Rule 2a-7, which, in the case of a tender option bond
subject to a conditional demand feature, would include a determination that the
security has received both the required short-term and long-term quality rating
or is determined to be of comparable quality. In the event of a default of the
Municipal Obligation underlying a tender option bond, or the termination of the
tender option agreement, the Fund would look to the maturity date of the
underlying security for purposes of compliance with Rule 2a-7 and, if its
remaining maturity was greater than 13 months, the Fund would sell the security
as soon as would be practicable. The Fund will purchase tender option bonds only
when it 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 Fund. 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.

STAND-BY COMMITMENTS. (MUNICIPAL FUNDS) Each Municipal Fund may acquire
"stand-by commitments" with respect to Municipal Obligations held in its
portfolio. Under a stand-by commitment, the Fund obligates a broker, dealer or
bank to repurchase, at the Fund's option, specified securities at a specified
price and, in this respect, stand-by commitments are comparable to put options.
The exercise of a stand-by commitment, therefore, is subject to the ability of
the seller to make payment on demand. The Fund will acquire stand-by commitments
solely to facilitate its 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.

RATINGS OF MUNICIPAL OBLIGATIONS. (MUNICIPAL FUNDS) Each Municipal Fund may
invest only in those Municipal Obligations which are rated in one of the two
highest rating categories for debt obligations by at least two rating
organizations (or one rating organization if the instrument was rated by only
one such organization) or, if unrated, are of comparable quality as determined
in accordance with procedures established by the Fund's Board.

The average distribution of investments (at value) in Municipal
Obligations (including notes) by ratings as of the fiscal year ended November
30, 1998, computed on a monthly basis, was as follows:

PERCENTAGE OF VALUE
------------------------------------------------
MOODY'S INVESTORS STANDARD & POOR'S CALIFORNIA MINNESOTA NATIONAL NEW YORK
FITCH IBCA, INC. SERVICE, INC. RATINGS GROUP MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
("FITCH") OR ("MOODY'S") OR ("S&P") FUND FUND FUND FUND
- --------------- ---------------- ----------------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
F1+/F1 VMIG1/MIG1, P1 SP1+/SP1, A1+/A1 92.7% 80.0% 93.5% 95.1%
F2+/F2 VMIG2/MIG2, P2 SP2+/SP2 1.6% -- -- --
AAA/AA Aaa/Aa AAA/AA 2.2% 20.0% 1.5% .4%
Not Rate Not Rated Not Rated 3.5%* -- 5.0%* 4.5%*
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====

- -------------
* Included in the Not Rated category are securities which, while not rated, have been determined
by the Manager to be comparabole quality to securities in the VMIG1/MIG1 or SP-1 +/SP-1 rating
categoaries.
</TABLE>

If, subsequent to its purchase by the Fund, (a) an inssue of rated
Municipal Obligations ceases to be rated in the highest category by at least two
rating organizations (or one rating organization if the instrument was rated by
only one such organization) or the Fund's Board determines that it is no longer
of comparable quality or (b) the Manager becomes aware that any portfolio
security not so highly rated or any unrated security has been given a rating by
any rating organization below the rating organization's second highest rating
category, the Fund's Board will reassess promptly whether such security presents
minimal credit risk and will cause the Fund to take such action as it determines
is in the best interest of the Fund and its shareholders; provided that the
reassessment required by clause (b) is not required if the portfolio security is
disposed of or matures within five business days of the Manager becoming aware
of the new rating and the Fund's Board is subsequently notified of the Manager's
actions.

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, each Fund will attempt to use comparable ratings as
standards for its investments in accordance with its stated investment policies
contained in the Funds' 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 and the creditworthiness of the issuers of such securities.

TAXABLE INVESTMENTS. (MUNICIPAL FUNDS) From time to time, on a
temporary basis other than for temporary defensive purposes (but not to exceed
20% of the value of the Fund's net assets) or for temporary defensive purposes,
each Municipal Fund 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-2 by Moody's, A-2 by S&P or F-2 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 the
Fund that are attributable to income earned by the Fund from Taxable Investments
will be taxable to investors. Except for temporary defensive purposes, at no
time will more than 20% of the value of the Fund's net assets be invested in
Taxable Investments. If the Fund purchases Taxable Investments, it will value
them using the amortized cost method and comply with the provisions of Rule 2a-7
relating to purchases of taxable instruments. When the California Municipal
Fund, the Minnesota Municipal Fund or the New York Municipal Fund has adopted a
temporary defensive position, including when acceptable California, Minnesota or
New York Municipal Obligations, respectively, are unavailable for investment by
the relevant Fund, in excess of 35% of the Fund's net assets may be invested in
securities that are not exempt from California, Minnesota or New York State and
New York City income taxes, respectively. Under normal market conditions, the
Fund anticipates that not more than 5% of the value of its total assets will be
invested in any one category of Taxable Investments.

INVESTMENT COMPANIES. (CALIFORNIA MUNICIPAL FUND, NATIONAL MUNICIPAL
FUND AND NEW YORK MUNICIPAL FUND) Each of these Funds may invest in securities
issued by other investment companies to the extent consistent with its
investment objective. Under the 1940 Act, a Fund's investment in such
securities, subject to certain exceptions, currently is limited to (i) 3% of the
total voting stock of any one investment company, (ii) 5% of the Fund's total
assets with respect to any one investment company and (iii) 10% of the Fund's
total assets in the aggregate. Investments in the securities of other investment
companies may involve duplication of advisory fees and certain other expenses.

STRUCTURED NOTES. (CALIFORNIA MUNICIPAL FUND, NATIONAL MUNICIPAL FUND
AND NEW YORK MUNICIPAL FUND) Each of these Funds may invest in structured notes,
which are derivative instruments whose value is tied to underlying Municipal
Obligations. Structured notes typically are purchased in privately negotiated
transactions from financial institutions. A number of different arrangements are
possible. Some notes may have characteristics typical of an auction rate
security where at specified intervals the interest rate on the note is adjusted,
and ownership changes, based on an auction mechanism. The interest rate on such
notes generally is 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. Others are similar to variable and floating rate securities, and
others can be issued with fixed rates. When a Fund purchases a structured note,
it will make a payment of principal to the counterparty. Some structured notes
have a guaranteed repayment of principal while others place a portion (or all)
of the principal at risk. The possibility of default by the counterparty or its
credit provider may be greater for structured notes than for other types of
money market instruments.

A Fund will purchase structured notes rated in one of the two highest
rating categories for debt obligations by at least two nationally recognized
statistical rating organizations (or one rating organization if the instrument
was rated by only one such organization) or, if unrated, determined to be of
comparable quality pursuant to procedures established by the Fund's Board. In
addition, the Manager will monitor the liquidity of structured notes purchased
and notes determined to be illiquid will be aggregated with other illiquid
securities and subject to the limitation that no more than 10% of the Fund's
assets be invested in illiquid securities.

ILLIQUID SECURITIES. (ALL FUNDS) Each Fund may invest up to 10% 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. These securities may include securities that are not readily
marketable, such as securities that are subject to legal or contractual
restrictions on resale, and repurchase agreements providing for settlement in
more than seven days after notice. As to these securities, the Fund is subject
to a risk that should the Fund 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 Fund's net assets could be adversely affected.

INVESTMENT TECHNIQUES

In addition to the principal investment strategies discussed in the
Funds' Prospectus, the Funds also may engage in the investment techniques
described below.

BORROWING MONEY. (ALL FUNDS) Each Fund may borrow money from banks for
temporary or emergency (not leveraging) purposes in an amount up to 15% (33-1/3%
in the case of Minnesota Municipal Money Market Fund) 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 the value of a Fund's total assets, the
Fund will not make any additional investments.

FORWARD COMMITMENTS. (MUNICIPAL FUNDS) Each Municipal Fund 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 receivable on a forward commitment or when-issued security are
fixed when the Fund enters into the commitment, but the Fund does not make
payment until it receives delivery from the counterparty. The Fund will commit
to purchase such securities only with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement date if
it is deemed advisable. The Fund will segregate permissible liquid assets at
least equal at all times to the amount of the purchase commitment.

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 Fund 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 Fund is fully or almost fully invested may result in greater
potential fluctuation in the value of the Fund's net assets and its net asset
value per share.

INVESTMENT CONSIDERATIONS AND RISKS

BANK SECURITIES. (MONEY FUND) To the extent the Money Fund's
investments are concentrated in the banking industry, the Fund will have
correspondingly greater exposure to the risk factors which are characteristic of
such investments. Sustained increases in interest rates can adversely affect the
availability or liquidity and cost of capital funds for a bank's lending
activities, and a deterioration in general economic conditions could increase
the exposure to credit losses. In addition, the value of and the investment
return on the Fund's shares could be affected by economic or regulatory
developments in or related to the banking industry, which industry also is
subject to the effects of competition within the banking industry as well as
with other types of financial institutions. The Fund, however, will seek to
minimize its exposure to such risks by investing only in debt securities which
are determined to be of high quality.

FOREIGN SECURITIES. (MONEY FUND) Since the Money Fund's portfolio may
contain securities issued by foreign governments, or any of their political
subdivisions, agencies or instrumentalities, and by foreign subsidiaries and
foreign branches of domestic banks, domestic and foreign branches of foreign
banks, and commercial paper issued by foreign issuers, the Fund may be subject
to additional investment risks with respect to those securities that are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers, although such obligations may be
higher yielding when compared to the securities of U.S. domestic issuers. Such
risks include possible future political and economic developments, seizure or
nationalization of foreign deposits, imposition of foreign withholding taxes on
interest income payable on the securities, establishment of exchange controls or
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on these securities.

INVESTING IN MUNICIPAL OBLIGATIONS. (MUNICIPAL FUNDS) Each Municipal
Fund may invest more than 25% of the value of its total assets in Municipal
Obligations which are related in such a way that an economic, business or
political development or change affecting one such security also would affect
the other securities; for example, securities the interest upon which is paid
from revenues of similar types of projects. As a result, each of these Funds 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 Municipal
Funds may invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure might
prove difficult. In evaluating the credit quality of a municipal lease/purchase
obligation that is unrated, the Manager will consider, on an ongoing basis, a
number of factors including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.

Certain provisions in the Internal Revenue Code of 1986, as amended
(the "Code"), relating to the issuance of Municipal Obligations may reduce the
volume of Municipal Obligations qualifying for Federal tax exemption. One effect
of these provisions could be to increase the cost of the Municipal Obligations
available for purchase by the Fund and thus reduce 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.

INVESTING IN CALIFORNIA MUNICIPAL OBLIGATIONS. (CALIFORNIA MUNICIPAL
FUND) Since the California Municipal Fund is concentrated in securities issued
by California or entities within California, an investment in the Fund may
involve greater risk than investments in certain other types of money market
funds. You should consider carefully the special risks inherent in the Fund's
investment in California Municipal Obligations. These risks result from certain
amendments to the California Constitution and other statues that limit the
taxing and spending authority of California governmental entities, as well as
from the general financial condition of the State of California. A severe
recession from 1990 through fiscal 1994 reduced revenues and increased
expenditures for social welfare programs, resulting in a period of budget
imbalance. During this period, expenditures exceeded revenues in four out of six
years, and the State accumulated and sustained a budget deficit in its budget
reserve, the Special Fund for Economic Uncertainties, approaching $2.8 billion
at its peak at June 30, 1993. By the 1993-94 fiscal year, the accumulated budget
deficit was so large that it was impractical to budget to retire it in one year,
so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently, a second two-year
plan was implemented in 1994-95, again using cross-fiscal year revenue
anticipation warrants to partly finance the deficit into the 1995-96 fiscal
year. As a consequence of the accumulated budget deficits, the State's cash
resources available to pay its ongoing obligations were significantly reduced
causing the State to rely increasingly on external debt markets to meet its cash
needs. The last and largest of these borrowings was $4.0 billion of revenue
anticipation warrants which were issued in July 1994 and matured on April 25,
1996. Future budget problems or a deterioration in California's general
financial condition may have the effect of impairing the ability of the issuers
of California Municipal Obligations to pay interest on, or repay the principal
of, such California Municipal Obligations. You should review "Appendix C" which
sets forth additional information relating to investing in California Municipal
Obligations.

INVESTING IN MINNESOTA MUNICIPAL OBLIGATIONS. (MINNESOTA MUNICIPAL
FUND) Since the Minnesota Municipal Fund is concentrated in securities issued by
Minnesota or entities within Minnesota, an investment in the Fund may involve
greater risk than investments in certain other types of money market funds. You
should consider carefully the special risks inherent in the Fund's investment in
Minnesota Municipal Obligations. These risks result from the financial condition
of the State of Minnesota and its municipalities. The structure of Minnesota's
economy parallels the structure of the United States' economy as a whole when
viewed at a highly aggregated level of detail. Diversity and a significant
natural resource base are two important characteristics of the State's economy.
However, the State of Minnesota experienced financial difficulties in the early
1980s because of a downturn in the State's economy resulting from the national
recession. More recently, real growth has been equal to or greater than national
growth. There can be no assurance that the financial problems referred to or
similar future problems will not affect the market value or marketability of the
Minnesota Municipal Obligations or the ability of the issuer thereof to pay
interest or principal thereon. You should review "Appendix D" which sets forth
additional information relating to investing in Minnesota Municipal Obligations.

INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS. (NEW YORK MUNICIPAL FUND)
Since the New York Municipal Fund is concentrated in securities issued by New
York or entities within New York, an investment in the Fund may involve greater
risk than investments in certain other types of money market funds. You should
consider carefully the special risks inherent in the Fund's investment in New
York Municipal Obligations. These risks result from the financial condition of
New York State, certain of its public bodies and municipalities, and New York
City. Beginning in early 1975, New York State, New York City and other New York
State entities faced serious financial difficulties which jeopardized the credit
standing and impaired the borrowing abilities of such entities and contributed
to high interest rates on, and lower market prices for, debt obligations issued
by them. A recurrence of such financial difficulties or a failure of certain
financial recovery programs could result in defaults or declines in the market
values of various New York Municipal Obligations in which the Fund 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 Fund's portfolio and the interest income to the Fund could be adversely
affected. Moreover, the national recession and the significant slowdown in the
New York and regional economies in the early 1990's added substantial
uncertainty to estimates of the State's tax revenues, which, in part, caused the
State to incur cash-basis operating deficits in the General Fund and issue
deficit notes during the fiscal periods 1989 through 1992. New York State's
financial operations have improved, however, during recent fiscal years. For its
fiscal years 1993 through 1998, the State recorded balanced budgets on a cash
basis, with positive fund balances in the General Fund. New York State ended its
1997-98 fiscal year on March 31, 1998 in balance on a cash basis, with a cash
surplus in the General Fund of approximately $2.04 billion. There can be no
assurance that New York State will not face substantial potential budget gaps in
future years. You should review "Appendix E" which sets forth additional
information relating to investing in New York Municipal Obligations.

SIMULTANEOUS INVESTMENTS. (ALL FUNDS) Investment decisions for each
Fund are made independently from those of other investment companies advised by
the Manager. If, however, such other investment companies desire to invest in,
or dispose of, the same securities as a 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.

INVESTMENT RESTRICTIONS

GOVERNMENT MONEY FUND. The Government Money Fund's investment
objective is a fundamental policy, which cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. In addition, the Government Money Fund has adopted investment
restrictions numbered 1 through 10 as fundamental policies. Investment
restrictions numbered 11 and 12 are not fundamental policies and may be changed
by vote of a majority of the Fund's Board members at any time. The Government
Money Fund may not:

1. Purchase common stocks, preferred stocks, warrants or other equity
securities, or purchase corporate bonds or debentures, state bonds, municipal
bonds or industrial revenue bonds.

2. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) based on 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 the value of the Fund's total assets, the
Fund will not make any additional investments.

3. Sell securities short or purchase securities on margin.

4. Write or purchase put or call options.

5. Underwrite the securities of other issuers.

6. Purchase or sell real estate, real estate investment trust
securities, commodities, or oil and gas interests.

7. Make loans to others (except through the purchase of debt
obligations referred to in the Fund's Prospectus and this Statement of
Additional Information).

8. Invest in companies for the purpose of exercising control.

9. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.

10. Invest more than 25% of its assets in the securities of issuers in
any industry, provided that there shall be no limitation on investments in
obligations issued or guaranteed as to principal and interest by the U.S.
Government.

11. Pledge, mortgage, hypothecate or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings.

12. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 10% of the value of the Fund's net assets would be so
invested.

* * * * *

MONEY FUND. The Money Fund's investment objective is a fundamental
policy, which cannot be changed without approval by the holders of a majority
(as defined in the 1940 Act) of the Fund's outstanding voting shares. In
addition, the Money Fund has adopted investment restrictions numbered 1 through
12 as fundamental policies. Investment restriction number 13 is not a
fundamental policy and may be changed by vote of a majority of the Fund's Board
members at any time. The Money Fund may not:

1. Purchase common stocks, preferred stocks, warrants or other equity
securities, or purchase corporate bonds or debentures, state bonds, municipal
bonds or industrial revenue bonds (except through the purchase of debt
obligations referred to in the Fund's Prospectus and this Statement of
Additional Information).

3. Pledge its assets, except in an amount up to 15% of the value of
its total assets but only to secure borrowings for temporary or emergency
purposes.

4. Sell securities short.

5. Write or purchase put or call options.

6. Underwrite the securities of other issuers.

7. Purchase or sell real estate investment trust securities,
commodities, or oil and gas interests.

8. Make loans to others (except through the purchase of debt
obligations referred to in the Fund's Prospectus and this Statement of
Additional Information).

9. Invest more than 15% of its assets in the obligations of any one
bank, or invest more than 5% of its assets in the commercial paper of any one
issuer. Notwithstanding the foregoing, to the extent required by the rules of
the Securities and Exchange Commission, the Fund will not invest more than 5% of
its assets in the obligations of any one bank.

10. Invest less than 25% of its assets in securities issued by banks
or invest more than 25% of its assets in the securities of issuers in any other
industry, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.

11. Invest in companies for the purpose of exercising control.

12. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.

13. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 10% of the value of the Fund's net assets would be so
invested.

* * * * *

CALIFORNIA MUNICIPAL FUND. The California Municipal Fund's investment
objective is a fundamental policy, which cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. In addition, the California Municipal Fund has adopted investment
restrictions numbered 1 through 5 as fundamental policies. Investment
restrictions numbered 6 through 10 are not fundamental policies and may be
changed by vote of a majority of the Fund's Board members at any time. The
California Municipal Fund may not:

1. 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
Fund's total assets).

2. Act as underwriter of securities of other issuers, except (i) the
Fund 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 (ii) to the extent the Fund may be
deemed an underwriter under the Securities Act of 1933, as amended, by virtue of
disposing of portfolio securities.

3. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas interests, but
this shall not prevent the Fund from investing in Municipal Obligations secured
by real estate or interests therein.

4. Lend any security or make loans to others if, as a result, more
than 33-1/3% of its total assets would be lent to others, except that this
limitation does not apply to the purchase of qualified debt obligations and the
entry into repurchase agreements.

5. Invest more than 25% of its total assets in the securities of
issuers in any single industry; provided that there shall be no such limitation
on the purchase of Municipal Obligations and, for temporary defensive purposes,
securities issued by domestic banks and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.

6. Sell securities short or purchase securities on margin.

7. Invest in companies for the purpose of exercising control.

8. Invest in securities of other investment companies, except to the
extent permitted under the 1940 Act.

9. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings.

10. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid if, in
the aggregate, more than 10% of the value of the Fund's net assets would be so
invested.

* * * * *

MINNESOTA MUNICIPAL FUND. The Minnesota Municipal Fund's investment
objective is a fundamental policy, which cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. In addition, the Minnesota Municipal Fund has adopted investment
restrictions numbered 1 through 7 as fundamental policies. Investment
restrictions numbered 8 through 13 are not fundamental policies and may be
changed by vote of a majority of the Fund's Board members at any time. The
Minnesota Municipal Fund may not:

1. 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
Fund's total assets).

2. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the Fund may lend
its portfolio securities in an amount not to exceed 33-1/3% of the value of its
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.

3. Underwrite the securities of other issuers, except to the extent
the Fund 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 Fund may be
deemed an underwriter under the Securities Act of 1933, as amended, by virtue of
disposing of portfolio securities.

4. 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.

5. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act).

6. Purchase securities on margin.

7. Invest more than 25% 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, securities
issued by banks and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.

8. Sell securities short.

9. Invest in companies for the purpose of exercising control.

10. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.

11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings.

12. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Fund's Prospectus.

13. Enter into repurchase agreements provided for settlement in more
than seven days after notice or purchase securities which are illiquid if, in
the aggregate, more than 10% of the value of the Fund's net assets would be so
invested.

* * * * *

NATIONAL MUNICIPAL FUND. The National Municipal Fund's investment
objective is a fundamental policy, which cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. In addition, the National Municipal Fund has adopted investment
restrictions numbered 1 through 7 as fundamental policies. Investment
restrictions numbered 8 through 12 are not fundamental policies and may be
changed by vote of a majority of the Fund's Board members at any time. The
National Municipal Fund may not:

1. 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
Fund's total assets).

5. Invest more than 25% 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 defensive purposes, securities issued by banks
and obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.

6. Purchase more than 10% of the voting securities of any issuer. This
restriction applies only with respect to 75% of the Fund's total assets.

7. Invest more than 15% of its assets in the obligations of any one
bank, or invest more than 5% of its assets in the obligations of any other
issuer, except that up to 25% of the value of the Fund's total assets may be
invested, and securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities may be purchased, without regard to any such
limitations. Notwithstanding the foregoing, to the extent required by the rules
of the Securities and Exchange Commission, the Fund will not invest more than 5%
of its assets in the obligations of any one bank, except that up to 25% of the
value of the Fund's total assets may be invested without regard to such
limitation.

8. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings and in connection
with the purchase of securities on a when-issued or forward commitment basis.

9. Sell securities short or purchase securities on margin.

10. Invest in companies for the purpose of exercising control.

11. Invest in securities of other investment companies, except to the
extent permitted under the 1940 Act.

* * * * *

NEW YORK MUNICIPAL FUND. The New York Municipal Fund's investment
objective is a fundamental policy, which cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. In addition, the New York Municipal Fund has adopted investment
restrictions numbered 1 through 5 as fundamental policies. Investment
restrictions numbered 6 through 10 are not fundamental policies and may be
changed by vote of a majority of the Fund's Board members at any time. The New
York Municipal Fund may not:

1. 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
Fund's total assets).

6. Sell securities short or purchase securities on margin.

7. Invest in companies for the purpose of exercising control.

8. Invest in securities of other investment companies, except to the
extent permitted under the 1940 Act.

9. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings.

* * * * *

MUNICIPAL FUNDS. For purposes of Investment Restriction No. 5 for each
Municipal Fund other than the Minnesota Municipal Fund and Investment
Restriction No. 7 for the Minnesota Municipal Fund, 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.

ALL FUNDS. If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in values or assets will not constitute a violation of such restriction.

MANAGEMENT OF THE FUNDS

Each Fund's Board is responsible for the management and supervision of
the Fund. The Board approves all significant agreements between the Fund and
those companies that furnish services to the Fund. These companies are as
follows:

The Dreyfus Corporation..........................Investment Adviser
Premier Mutual Fund Services, Inc................Distributor
Dreyfus Transfer, Inc............................Transfer Agent
The Bank of New York.............................Custodian

Board members and officers of each Fund, together with information as
to their principal business occupations during at least the last five years, are
shown below.

BOARD MEMBERS OF THE FUNDS

JOSEPH S. DiMARTINO, CHAIRMAN OF THE BOARD. Since January 1995, Chairman of the
Board of various funds in the Dreyfus Family of Funds. He also is a
director of The Noel Group, Inc., a venture capital company (for which,
from February 1995 until November 1997, he was Chairman of the Board), The
Muscular Dystrophy Association, HealthPlan Services Corporation, a provider
of marketing, administrative and risk management services to health and
other benefit programs, Carlyle Industries, Inc. (formerly, Belding
Heminway Company, Inc.), a button packager and distributor, Career Blazers,
Inc. (formerly, Staffing Resources, Inc.), a temporary placement agency,
and Century Business Services, Inc., a provider of various outsourcing
functions for small and medium sized companies. For more than five years
prior to January 1995, he was President, a director and, until August 1994,
Chief Operating Officer of the Manager and Executive Vice President and a
director of Dreyfus Service Corporation, a wholly-owned subsidiary of the
Manager and, until August 24, 1994, the Funds' distributor. From August
1994 until December 31, 1994, he was a director of Mellon Bank Corporation.
He is 55 years old and his address is 200 Park Avenue, New York, New York
10166.

CLIFFORD L. ALEXANDER, JR., BOARD MEMBER. 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, Cognizant Corporation, a
service provider of marketing information and information technology, The
Dun & Bradstreet Corporation, MCI Communications Corporation, Mutual of
America Life Insurance Company and TLC Beatrice International Holdings,
Inc. He is 66 years old and his address is 400 C Street, N.E., Washington,
D.C. 20002.

PEGGY C. DAVIS, BOARD MEMBER. Shad Professor of Law, New York University School
of Law. Professor Davis has been a member of the New York University law
faculty since 1983. Prior to that time, she served for three years as a
judge in the courts of New York State; was engaged for eight years in the
practice of law, working in both corporate and non-profit sectors; and
served for two years as a criminal justice administrator in the government
of the City of New York. She writes and teaches in the fields of evidence,
constitutional theory, family law, social sciences and the law, legal
process and professional methodology and training. She is 56 years old and
her address is c/o New York University School of Law, 40 Washington Square
South, New York, New York 10012.

ERNEST KAFKA, BOARD MEMBER. A physician engaged in private practice specializing
in the psychoanalysis of adults and adolescents. Since 1981, he has served
as an Instructor at the New York Psychoanalytic Institute and, prior
thereto, held other teaching positions. He is Associate Clinical Professor
of Psychiatry at Cornell Medical School. For more than the past five years,
Dr. Kafka has held numerous administrative positions and has published many
articles on subjects in the field of psychoanalysis. He is 67 years old and
his address is 23 East 92nd Street, New York, New York 10128.

SAUL B. KLAMAN, BOARD MEMBER. 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 79 years
old and his address is 431-B Dedham Street, The Gables, Newton Center,
Massachusetts 02159.

NATHAN LEVENTHAL, BOARD MEMBER. President of Lincoln Center for the Performing
Arts, Inc. Mr. Leventhal was Deputy Mayor for Operations of New York City
from September 1979 until 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 served as Chairman of Citizens Union, an
organization which strives to reform and modernize city and state
government from June 1994 until June 1997. He is 56 years old and his
address is 70 Lincoln Center Plaza, New York, New York 10023-6583.

Each Fund has a standing nominating committee comprised of its Board
members who are not "interested persons" of the Fund, as defined in the 1940
Act. The function of the nominating committee is to select and nominate all
candidates who are not "interested persons" of the Fund for election to the
Fund's Board.

Each 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 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 each Fund for the fiscal year ended November 30, 1998,
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, 1998, are set forth
below.

<PAGE>

TOTAL COMPENSATION
AGGREGATE FROM FUNDS AND
COMPENSATION FUND COMPLEX PAID
NAME OF BOARD MEMBER AND FUND FROM THE FUND* TO BOARD MEMBER
- ----------------------------- -------------- ------------------

JOSEPH S. DiMARTINO $619,660 (99)

Government Money Fund $6,875
Money Fund $6,875
California Municipal Fund $5,000
National/Minnesota Municipal Fund** $6,875
New York Municipal Fund $5,000

CLIFFORD L. ALEXANDER, JR. $80,918 (21)

Government Money Fund $5,500
Money Fund $5,500
California Municipal Fund $4,000
National/Minnesota Municipal Fund** $5,500
New York Municipal Fund $4,000

PEGGY C. DAVIS $64,000 (16)

Government Money Fund $5,500
Money Fund $5,500
California Municipal Fund $4,000
National/Minnesota Municipal Fund** $5,500
New York Municipal Fund $4,000

ERNEST KAFKA $57,500 (16)

Government Money Fund $5,000
Money Fund $5,000
California Municipal Fund $3,750
National/Minnesota Municipal Fund** $5,000
New York Municipal Fund $3,750

SAUL B. KLAMAN $64,000 (16)

Government Money Fund $5,500
Money Fund $5,500
California Municipal Fund $4,000
National/Minnesota Municipal Fund** $5,500
New York Municipal Fund $4,000

NATHAN LEVENTHAL $64,000 (16)

Government Money Fund $5,500
Money Fund $5,500
California Municipal Fund $4,000
National/Minnesota Municipal Fund** $5,500
New York Municipal Fund $4,000

- ----------------
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $1,348 for the Government Money Fund, $3,177 for the
Money Fund, $1,095 for the California Municipal Fund, $1,584 for the
National/Minnesota Municipal Fund and $935 for the New York Municipal Fund,
for all Board members as a group.

** The National Municipal Fund and the Minnesota Municipal Fund are separate
series of the Company.

OFFICERS OF THE FUNDS

MARIE E. CONNOLLY, PRESIDENT AND TREASURER. President, Chief Executive Officer,
Chief Compliance Officer and a director of the Distributor and Funds
Distributor, Inc., the ultimate parent of which is Boston Institutional
Group, Inc., and an officer of other investment companies advised or
administered by the Manager. She is 42 years old.

MARGARET W. CHAMBERS, VICE PRESIDENT AND SECRETARY. Senior Vice President and
General Counsel of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From August
1996 to March 1998, she was Vice President and Assistant General Counsel
for Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was
an associate with the law firm of Ropes & Gray. She is 39 years old.

*FREDERICK C. DEY, VICE PRESIDENT, ASSISTANT TREASURER AND ASSISTANT SECRETARY.
Vice President, New Business Development of Funds Distributor, Inc. since
September 1994, and an officer of other investment companies advised or
administered by the Manager. He is 37 years old.

STEPHANIE D. PIERCE, VICE PRESIDENT, ASSISTANT SECRETARY AND ASSISTANT
TREASURER. Vice President and Client Development Manager of the Funds
Distributor, Inc., and an officer of other investment companies advised or
administered by the Manager. From April 1997 to March 1998, she was
employed as a Relationship Manager with Citibank, N.A. From August 1995 to
April 1997, she was an Assistant Vice President with Hudson Valley Bank,
and from September 1990 to August 1995, she was Second Vice President with
Chase Manhattan Bank. She is 31 years old.

*JOHN P. COVINO, VICE PRESIDENT AND ASSISTANT TREASURER. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of Funds
Distributor, Inc. since December 1998. From December 1995 to November 1998,
he was employed by Fidelity Investments where he held multiple positions in
their Institutional Brokerage Group. Prior to joining Fidelity, he was
employed by SunGard Brokerage Systems where he was responsible for the
technology and development of the accounting product group. He is 35 years
old.

MARY A. NELSON, VICE PRESIDENT AND ASSISTANT TREASURER. Vice President of the
Distributor and Funds Distributor, Inc., and an officer of other investment
companies advised or administered by the Manager. She is 35 years old.

*GEORGE A. RIO, VICE PRESIDENT AND ASSISTANT TREASURER. Executive Vice President
and Client Service Director of Funds Distributor, Inc., and an officer of
other investment companies advised or administered by the Manager. From
June 1995 to March 1998, he was Senior Vice President and Senior Key
Account Manager for Putnam Mutual Funds. From May 1994 to June 1995, he was
Director of Business Development for First Data Corporation. He is 44 years
old.

JOSEPH F. TOWER, III, VICE PRESIDENT AND ASSISTANT TREASURER. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., 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 37
years old.

DOUGLAS C. CONROY, VICE PRESIDENT AND ASSISTANT SECRETARY. Assistant Vice
President of Funds Distributor, Inc., and an officer of other investment
companies advised or administered by the Manager. From April 1993 to
January 1995, he was a Senior Fund Accountant for Investors Bank & Trust
Company. He is 30 years old.

*KAREN JACOPPO-WOOD, VICE PRESIDENT AND ASSISTANT SECRETARY. Vice President and
Senior Counsel of Funds Distributor, Inc. since February 1997, and an
officer of other investment companies advised or administered by the
Manager. From June 1994 to January 1996, she was Manager of SEC
Registration at Scudder, Stevens & Clark, Inc. She is 32 years old.

CHRISTOPHER J. KELLEY, VICE PRESIDENT AND ASSISTANT SECRETARY. Vice President
and Senior Associate General Counsel of Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From April 1994 to July 1996, he was Assistant Counsel at Forum
Financial Group. From October 1992 to March 1994, he was employed by Putnam
Investments in legal and compliance capacities. He is 34 years old.

KATHLEEN K. MORRISEY, VICE PRESIDENT AND ASSISTANT SECRETARY. Manager of
Treasury Services Administration of Funds Distributor, Inc., and an officer
of other investment companies advised or administered by the Manager. From
July 1994 to November 1995, she was a Fund Accountant for Investors Bank &
Trust Company. She is 27 years old.

ELBA VASQUEZ, VICE PRESIDENT AND ASSISTANT SECRETARY. Assistant Vice President
of Funds Distributor, Inc., and an officer of other investment companies
advised or administered by the Manager. From March 1990 to May 1996, she
was employed by U.S. Trust Company of New York where she held various sales
and marketing positions. She is 37 years old.

The address of each officer of the Funds is 200 Park Avenue, New York,
New York 10166, except those officers indicated by an (*), whose address is 60
State Street, Boston, Massachusetts 02109.

Each Fund's Board members and officers, as a group, owned less than 1%
of the Fund's shares outstanding on January 4, 1999.

Set forth in "Appendix F" to this Statement of Additional Information
are the shareholders known by each Fund (as indicated) to own of record 5% or
more of such Fund's Class A or Class B shares outstanding on January 4, 1999. A
shareholder who beneficially owns, directly or indirectly, more than 25% of the
Fund's voting securities may be deemed a "control person" (as defined in the
1940 Act) of the Fund.

MANAGEMENT ARRANGEMENTS

INVESTMENT ADVISER. The Manager is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). 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.

The Manager provides management services pursuant to separate
Management Agreements (respectively, the "Agreement") dated August 24, 1994 with
respect to each Fund. As to each Fund, 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 Fund's outstanding voting securities, provided that in either
event the continuance also is approved by a majority of the Fund's 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. Each Agreement, other than for the Minnesota Municipal Fund, was
approved by shareholders on August 3, 1994 and 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 September 16, 1998.
With respect to the Minnesota Municipal Fund, the Agreement was approved by the
Fund's initial shareholder on April 8, 1998 and 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 April 8, 1998. As to each Fund, the
Agreement is terminable without penalty, on 60 days' notice, by the Fund's Board
or by vote of the holders of a majority of the Fund's shares or, upon not less
than 90 days' notice, by the Manager. Each Agreement will terminate
automatically, as to the relevant Fund, in the event of its assignment (as
defined in the 1940 Act).

The following persons are officers and/or directors of the Manager:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment Officer
and a director; Thomas F. Eggers, Vice Chairman--Institutional; Lawrence S.
Kash, Vice Chairman and a director; J. David Officer, Vice Chairman and a
director; Ronald P. O'Hanley III, Vice Chairman; William T. Sandalls, Jr.,
Executive Vice President; Mark N. Jacobs, Vice President, General Counsel and
Secretary; Diane P. Durnin, Vice President--Product Development; Patrice M.
Kozlowski, Vice President--Corporate Communications; Mary Beth Leibig, Vice
President--Human Resources; Andrew S. Wasser, Vice President--Information
Systems; Theodore A. Schachar, Vice President; Wendy Strutt, Vice President;
Richard Terres, Vice President; William H. Maresca, Controller; James Bitetto,
Assistant Secretary; Steven F. Newman, Assistant Secretary; and Mandell L.
Berman, Burton C. Borgelt, Steven G. Elliott, Martin C. McGuinn, Richard W. Sabo
and Richard F. Syron, directors.

The Manager manages each Fund's portfolio of investments in accordance with
the stated policies of the Fund, subject to the approval of the Fund's Board.
The Manager is responsible for investment decisions and provides each Fund with
portfolio managers who are authorized by the Board to execute purchases and
sales of securities. The portfolio managers of the Government Money Fund and the
Money Fund are Bernard W. Kiernan, Patricia A. Larkin, James G. O'Connor and
Thomas Riordan. The portfolio managers of the Municipal Funds are Joseph P.
Darcy, A. Paul Disdier, Douglas J. Gaylor, Joseph Irace, Colleen Meehan,
Richard J. Moynihan, W. Michael Petty, Jill C. Shaffro, Scott Sprauer, Samuel J.
Weinstock and Monica S. Wieboldt. The Manager also maintains a research
department with a professional staff of portfolio managers and securities
analysts who provide research services for each Fund and for other funds advised
by the Manager.

The Manager maintains office facilities on behalf of each Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Funds. The Manager may pay the Distributor for shareholder
services from the Manager's own assets, including past profits but not including
the management fee paid by the Funds. The Distributor may use part or all of
such payments to pay Service Agents (as defined below) in respect of these
services. The Manager also may make such advertising and promotional
expenditures using its own resources, as it from time to time deems appropriate.

All expenses incurred in the operation of a Fund are borne by such
Fund, except to the extent specifically assumed by the Manager. The expenses
borne by each Fund include: taxes, interest, 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, state Blue Sky qualification fees, charges of
custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, industry association fees, outside auditing and legal expenses, costs
of maintaining the Fund's existence, investor services (including, without
limitation, telephone and personnel expenses), costs of shareholder reports and
meetings, costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to existing
shareholders, and any extraordinary expenses. Each Fund bears certain expenses
in accordance with separate written plans and also bears certain costs
associated with implementing and operating such plans. See "Service Plan and
Distribution Plan" and "Shareholder Services Plans."

As compensation for the Manager's services under the Agreement, each
Fund has agreed to pay the Manager a monthly management fee at the annual rate
of .50% of the value of such Fund's average daily net assets. All fees and
expenses are accrued daily and deducted before declaration of dividends to
investors. Set forth below are the total amounts paid by each Fund to the
Manager for each Fund's last three fiscal years, including for the Government
Money Fund, the Money Fund and the California Municipal Fund, which changed
their fiscal year end to November 30, the relevant period ended November 30,
1997:

FISCAL YEAR TEN-MONTH PERIOD
ENDED ENDED FISCAL YEAR ENDED JANUARY 31,
NOVEMBER 30, 1998 NOVEMBER 30, 1997 1997 1996
----------------- ---------------- ----------------------------------
<S> <C> <C> <C> <C>
Government Money $5,124,528 $3,330,297 $3,002,777 $2,622,700
Fund

Money Fund $13,222,636 $7,091,891 $5,285,812 $3,172,667

</TABLE>

FISCAL YEAR FOUR-MONTH PERIOD
ENDED ENDED FISCAL YEAR ENDED JULY 31,
NOVEMBER 30, 1998 NOVEMBER 30, 1997 1997 1996
----------------- ----------------- -------------------------------
<S> <C> <C> <C> <C>
California Municipal $1,794,867 $ 620,429 $1,836,034 $2,195,288
Fund
</TABLE>

FISCAL YEAR ENDED NOVEMBER 30,
--------------------------------------------------------
1998 1997 1996
---- ---- -----

<S> <C> <C> <C>
Minnesota Municipal $65,816* N/A N/A
Fund

National Municipal $3,036,316 $2,127,041 $1,566,276
Fund

New York Municipal $2,369,250 $2,599,539 $2,945,172
Fund

- --------------------
* For the period from June 1, 1998 (commencement of operations) to November 30, 1998.
</TABLE>

As to each Fund, the Manager has agreed that if in any fiscal year the
aggregate expenses of the Fund, exclusive of taxes, brokerage, interest and
(with the prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the management fee, exceed 1-1/2% of the
average market value of the net assets of such Fund for that fiscal year, the
Fund may deduct from the payment to be made to the Manager under the Agreement,
or the Manager will bear, such excess expense. 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. As to each Fund, no such deduction or payment was
required for the most recent fiscal year end.

As to each Fund, the aggregate of the fees payable to the Manager is
not subject to reduction as the value of the Fund's net assets increases.

DISTRIBUTOR. The Distributor, located at 60 State Street, Boston,
Massachusetts 02109, serves as each Fund's distributor on a best efforts basis
pursuant to an agreement which is renewable annually.

The Distributor may pay dealers a fee of up to .50% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have a
minimum of 250 employees eligible for participation in such plans or programs,
or (ii) such plan's or program's aggregate investment in the Dreyfus Family of
Funds or certain other products made available by the Distributor to such plans
or programs exceeds $1,000,000 ("Eligible Benefit Plans"). Shares of funds in
the Dreyfus Family of Funds then held by Eligible Benefit Plans will be
aggregated to determine the fee payable. The Distributor reserves the right to
cease paying these fees at any time. The Distributor will pay such fees from its
own funds, other than amounts received from the Fund, including past profits or
any other source available to it.

TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN. Dreyfus
Transfer, Inc. (the "Transfer Agent"), a wholly-owned subsidiary of the Manager,
P.O. Box 9671, Providence, Rhode Island 02940-9671, is each Fund's transfer and
dividend disbursing agent. Under a separate transfer agency agreement with each
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 from
each Fund computed on the basis of the number of shareholder accounts it
maintains for such Fund during the month, and is reimbursed for certain
out-of-pocket expenses.

The Bank of New York (the "Custodian"), 90 Washington Street, New
York, New York 10286, is each Fund's custodian. The Custodian has no part in
determining the investment policies of the Fund or which securities are to be
purchased or sold by the Fund. Under a separate custody agreement with each
Fund, the Custodian holds the Fund's securities and keeps all necessary accounts
and records. For its custody services, the Custodian receives a monthly fee from
each Fund based on the market value of the Fund's assets held in custody and
receives certain securities transactions charges.

HOW TO BUY SHARES

Each Fund's 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") that have
entered into service agreements with the Distributor. For shareholders who
purchase Fund shares from the Distributor, the Distributor will act as Service
Agent. Stock certificates are issued only upon your written request. No
certificates are issued for fractional shares. Each Fund reserves the right to
reject any purchase order.

The minimum initial investment in each Fund is $2,500, or $1,000 if
you are a client of a Service Agent which maintains an omnibus account in the
relevant Fund and has made an aggregate minimum initial purchase in the Fund for
its customers of $2,500. Subsequent investments must be at least $100. For the
Government Money Fund and the Money Fund, however, the minimum initial
investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including regular
IRAs, spousal IRAs for a non-working spouse, Roth IRAs, IRAs set up under a
Simplified Employee Pension Plan ("SEP-IRAs") and rollover IRAs) and 403(b)(7)
Plans with only one participant and $500 for Dreyfus-sponsored Education IRAs,
with no minimum for subsequent purchases. It is not recommended that the
Municipal Funds be used as a vehicle for Keogh, IRA or other qualified plans.
The initial investment must be accompanied by the Account Application. For
full-time or part-time employees of the Manager or any of its affiliates or
subsidiaries, directors of the Manager, Board members of a Fund advised by the
Manager, including members of each Fund's Board, or the spouse or minor child of
any of the foregoing, the minimum initial investment is $1,000. For full-time or
part-time employees of the Manager or any of its affiliates or subsidiaries who
elect to have a portion of their pay directly deposited into their Fund
accounts, the minimum initial investment is $50. The Government Money Fund and
the Money Fund reserve the right to offer Fund shares without regard to minimum
purchase requirements to employees participating in certain qualified and
non-qualified employee benefit plans or other programs where contributions or
account information can be transmitted in a manner and form acceptable to such
Fund. Each Fund reserves the right to vary further the initial and subsequent
investment minimum requirements at any time.

Fund shares also may be purchased through Dreyfus-AUTOMATIC Asset
Builder(R), the Government Direct Deposit Privilege or the Payroll Savings Plan
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 you
against loss in a declining market.

Service Agents may receive different levels of compensation for
selling different Classes of shares. Management understands that some Service
Agents may impose certain conditions on their clients which are different from
those described in the Funds' Prospectus and this Statement of Additional
Information, and, to the extent permitted by applicable regulatory authority,
may charge their clients direct fees. You should consult your Service Agent in
this regard.

Shares are sold on a continuous basis at the net asset value per share
next determined after an order in proper form and 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 or other entity
authorized to receive orders on behalf of the Fund in written or telegraphic
form. If you do not remit Federal Funds, your payment 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. Prior to receipt of Federal Funds, your money will not be invested. Net
asset value per share of each Class is computed by dividing the value of the
Fund's net assets represented by such Class (i.e., the value of its assets less
liabilities) by the total number of shares of such Class outstanding. See
"Determination of Net Asset Value."

GOVERNMENT MONEY FUND AND MONEY FUND--Each of these Funds determines its net
asset value per share twice each day the New York Stock Exchange or the Transfer
Agent is open for business: as of 5:00 p.m., Eastern time, and as of 8:00 p.m.,
Eastern time.

If your payments are received in or converted into Federal Funds by
12:00 Noon, Eastern time, by the Transfer Agent on a business day, you will
receive the dividend declared that day. If your payments are received in or
converted into Federal Funds after 12:00 Noon, Eastern time, by the Transfer
Agent, you will begin to accrue dividends on the following business day.

Qualified institutions may telephone orders for purchase of Fund
shares of each of these Funds. A telephone order placed with the Distributor or
its designee in New York will become effective at the price determined at 5:00
p.m., Eastern time, and the shares purchased will receive the dividend on Fund
shares declared on that day, if such order is placed with the Distributor or its
designee in New York by 5:00 p.m., Eastern time, and Federal Funds are received
by 6:00 p.m., Eastern time, on that day. A telephone order placed with the
Distributor or its designee in New York after 5:00 p.m., Eastern time, but by
8:00 p.m., Eastern time, on a given day will become effective at the price
determined at 8:00 p.m., Eastern time, on that day, and the shares purchased
will begin to accrue dividends on the next business day, if Federal Funds are
received by 11:00 a.m., Eastern time, on the next business day.

MINNESOTA MUNICIPAL FUND--The Fund determines its net asset value per share
twice each day the New York Stock Exchange or the Transfer Agent is open for
business: as of 12:00 Noon, Eastern time, and as of 8:00 p.m., Eastern time.

If your payments are received in or converted into Federal Funds by
4:00 p.m., Eastern time, by the Transfer Agent on a business day, you will
receive the dividend declared that day. If your payments are received in or
converted into Federal Funds after 4:00 p.m., Eastern time, by the Transfer
Agent, you will begin to accrue dividends on the following business day.

Qualified institutions may telephone orders for purchase of Fund
shares. A telephone order placed with the Distributor or its designee in New
York will become effective at the price determined at 12:00 Noon, Eastern time,
and the shares purchased will receive the dividend on Fund shares declared on
that day, if such order is placed with the Distributor or its designee in New
York by 12:00 Noon, Eastern time, and Federal Funds are received by 4:00 p.m.,
Eastern time, on that day. A telephone order placed with the Distributor or its
designee in New York after 12:00 Noon, Eastern time, but by 8:00 p.m., Eastern
time, on a given day will become effective at the price determined at 8:00 p.m.,
Eastern time, on that day, and the shares purchased will begin to accrue
dividends on the next business day, if Federal Funds are received by 11:00 a.m.,
Eastern time, on the next business day.

CALIFORNIA MUNICIPAL FUND, NATIONAL MUNICIPAL FUND AND NEW YORK MUNICIPAL FUND--
Each of these Funds determines its net asset value per share three times each
day the New York Stock Exchange or the Transfer Agent is open for business: as
of 12:00 Noon, Eastern time, as of 2:00 p.m., Eastern time, and as of 8:00 p.m.,
Eastern time.

If your payments are received in or converted into Federal Funds by
4:00 p.m., Eastern time, on a business day, you will receive the dividend
declared that day. If your payments are received in or converted into Federal
Funds after 4:00 p.m., Eastern time, you will begin to accrue dividends on the
following business day.

Qualified institutions may telephone orders for purchase of Fund
shares. A telephone order placed with the Distributor or its designee in New
York will become effective at the price determined at 12:00 Noon, or 2:00 p.m.,
Eastern time, depending on when the order is accepted on a given day, and the
shares purchased will receive the dividend on Fund shares declared on that day,
if the telephone order is placed with the Distributor or its designee by 2:00
p.m., Eastern time, and Federal Funds are received at 4:00 p.m., Eastern time,
on that day. A telephone order placed with the Distributor or its designee in
New York after 2:00 p.m., Eastern time, but by 8:00 p.m., Eastern time, on a
given day will become effective at the price determined at 8:00 p.m., Eastern
time, on that day, and the shares purchased will begin to accrue dividends on
the next business day, if Federal Funds are received by 11:00 a.m., Eastern
time, on the next business day.

USING FEDERAL FUNDS. The Transfer Agent or the Fund may attempt to
notify you 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 you
are a customer of a Selected Dealer and your order to purchase Fund shares is
paid for other than in Federal Funds, the Selected Dealer, acting on your
behalf, will complete the conversion into, or itself advance, Federal Funds,
generally on the business day following receipt of your order. The order is
effective only when so converted and received by the Transfer Agent. If you have
sufficient Federal Funds or a cash balance in your brokerage account with a
Selected Dealer, your order to purchase Fund shares will become effective on the
day that the order, including Federal Funds, is received by the Transfer Agent.

DREYFUS TELETRANSFER PRIVILEGE. (CALIFORNIA MUNICIPAL FUND, MINNESOTA
MUNICIPAL FUND AND NEW YORK MUNICIPAL FUND ONLY) You may purchase shares by
telephone if you have checked the appropriate box and supplied the necessary
information on the Account Application or have filed a Shareholder Services Form
with the Transfer Agent. The proceeds will be transferred between the bank
account designated in one of these documents and your Fund account. Only a bank
account maintained in a domestic financial institution which is an Automated
Clearing House ("ACH") member may be so designated.

Dreyfus TELETRANSFER purchase orders may be made at any time. Purchase
orders received by 4:00 p.m., New York time, on any day 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 day the
Transfer Agent and the New York Stock Exchange are open for business, or orders
made on Saturday, Sunday or any Fund holiday (e.g., when the New York Stock
Exchange is not open for business), will be credited to the shareholder's Fund
account on the second bank business day following such purchase order. To
qualify to use the Dreyfus TELETRANSFER Privilege, the initial payment for
purchase of 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 "How to Redeem Shares--Dreyfus TELETRANSFER
Privilege."

REOPENING AN ACCOUNT. You may reopen an account with a minimum
investment of $100 without filing a new Account Application during the calendar
year the account is closed or during the following calendar year, provided the
information on the old Account Application is still applicable.

SERVICE PLAN AND DISTRIBUTION PLAN

Class A shares of each of the Government Money Fund and the Money Fund
are subject to a Service Plan and Class B shares of each Fund are subject to a
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 Board of each of the Government Money
Fund and the Money Fund has adopted separate plans with respect to Class A and
Class B of such Funds and the Board of each of the Municipal Funds has adopted a
plan with respect to Class B of such Funds (each, a "Plan"). Under each Plan,
the respective Fund bears directly the costs of preparing, printing and
distributing prospectuses and statements of additional information and of
implementing and operating the Plan. Under each Plan adopted with respect to
Class A of the Government Money Fund and Money Fund (the "Service Plan"), the
Fund reimburses (a) the Distributor for payments made for distributing Class A
shares and servicing shareholder accounts ("Servicing") and (b) the Manager,
Dreyfus Service Corporation and any affiliate of either of them (collectively,
"Dreyfus") for payments made for Servicing, at an aggregate annual rate of up to
.20% of the value of the Fund's average daily net assets attributable to Class
A. Under each Service Plan, each of the Distributor and Dreyfus may pay one or
more Service Agents a fee in respect of Class A shares of the Fund owned by
shareholders with whom the Service Agent has a Servicing relationship or for
whom the Service Agent is the dealer or holder of record. Under each Fund's Plan
adopted with respect to Class B (the "Distribution Plan"), the Fund reimburses
the Distributor for payments made to third parties for distributing (within the
meaning of the Rule) Class B shares at an annual rate of up to .20% of the value
of the Fund's average daily net assets attributable to Class B. Each Fund's
Board believes that there is a reasonable likelihood that each Plan will benefit
the Fund and holders of the relevant Class of shares.

A quarterly report of the amounts expended under each Plan, and the
purposes for which such expenditures were incurred, must be made to the Fund's
Board for its review. In addition, each Plan provides that it may not be amended
to increase materially the costs which the Fund may bear for distribution
pursuant to the Plan without shareholder approval of the affected Class and that
other material amendments of the Plan must be approved by the Board, and by the
Fund's 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 Plan or in any related agreements entered into
in connection with such Plan, by vote cast in person at a meeting called for the
purpose of considering such amendments. Each Plan is subject to annual approval
by such vote of the Board members cast in person at a meeting called for the
purpose of voting on the Plan. The Plan was last so approved on September 16,
1998 with respect to each Fund, except the Minnesota Municipal Fund, which so
approved the Plan on April 8, 1998. Each Plan is terminable at any time by vote
of a majority of the Fund's Board members who are not "interested persons" and
have no direct or indirect financial interest in the operation of the Plan or in
any of the related agreements or by vote of a majority of the relevant Class of
shares.

Set forth below are the total amounts paid by each of the Government
Money Fund and the Money Fund pursuant to its Service Plan with respect to Class
A (i) to the Distributor ("Distributor Payments") as reimbursement for
distributing Class A shares and Servicing, (ii) to Dreyfus for payments made for
Servicing ("Dreyfus Payments"), and (iii) for costs of preparing, printing and
distributing prospectuses and statement of additional information and of
implementing and operating the Service Plan ("Printing and Implementation") for
the Fund's fiscal year ended November 30, 1998:

TOTAL AMOUNT
PAID PURSUANT TO PRINTING AND
NAME OF FUND SERVICE PLAN DISTRIBUTOR PAYMENTS DREYFUS PAYMENTS IMPLEMENTATION
- -------------------- --------------------------- ---------------------------- ------------------------ ---------------
<S> <C> <C> <C> <C>
Government
Money Fund
- Class A $1,468,487 $ 410,171 $1,058,316 $ -0-

Money Fund
- Class A $3,215,190 $1,490,345 $1,724,845 $12,690
</TABLE>

Set forth below are the total amounts paid by each Fund to the
Distributor pursuant to its Distribution Plan with respect to Class B for the
Fund's fiscal year ended November 30, 1998:

TOTAL AMOUNT PAID
NAME OF FUND PURSUANT TO DISTRIBUTION PLAN
- ---------- ------------------------------
Government
Money Fund
- Class B $ 991,495

Money Fund
- Class B $ 3,564,210

California
Municipal Fund
- Class B $ 14,052

Minnesota
Municipal Fund
- Class B $ 25,313*

National
Municipal Fund
- Class B $ 646,579
New York
Municipal Fund
- Class B $ 93,487

- ----------------
* For the period June 1, 1998 (commencement of operations) to November 30,
1998.

SHAREHOLDER SERVICES PLANS

Each Fund has adopted a Shareholder Services Plan with respect to
Class A pursuant to which the Fund reimburses Dreyfus Service Corporation an
amount not to exceed an annual rate of .25% of the value of the Fund's average
daily net assets attributable to Class A for certain allocated expenses of
providing certain services to the holders of Class A shares. Each Fund also has
adopted a Shareholder Services Plan with respect to Class B pursuant to which
the Fund pays the Distributor for the provision of certain services to the
holders of Class B shares a fee at the annual rate of .25% of the value of the
Fund's average daily net assets attributable to Class B. Under each Shareholder
Services Plan, 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. As to each Fund, under the Shareholders
Services Plan for Class B, the Distributor may make payments to Service Agents
in respect of their services.

A quarterly report of the amounts expended under each Shareholder
Services Plan, and the purposes for which such expenditures were incurred, must
be made to the Fund's Board for its review. In addition, each Shareholder
Services Plan provides that material amendments to the Shareholder Services Plan
must be approved by the Fund's Board, and by the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Fund and have no direct
or indirect financial interest in the operation of the Shareholder Services
Plan, by vote cast in person at a meeting called for the purpose of considering
such amendments. Each Shareholder Services Plan is subject to annual approval by
such vote of its Board members cast in person at a meeting called for the
purpose of voting on the Shareholder Services Plan. Each Shareholder Services
Plan was last so approved on September 16, 1998 with respect to each Fund,
except the Minnesota Municipal Fund, which so approved each Shareholder Services
Plan on April 8, 1998. Each Shareholder Services Plan is terminable at any time
by vote of a majority of the Board members who are not "interested persons" and
have no direct or indirect financial interest in the operation of the
Shareholder Services Plan.

Set forth below are the total amounts payable by each Fund pursuant to
its separate Shareholder Services Plans for Class A and Class B, the amounts
reimbursed to the Fund by the Manager pursuant to undertakings in effect, if
any, and the net amount paid by the Fund for the Fund's fiscal year ended
November 30, 1998:

TOTAL AMOUNT
NAME OF FUND PAYABLE PURSUANT TO AMOUNT REIMBURSED NET AMOUNT PAID
AND CLASS SHAREHOLDER SERVICES PLAN PURSUANT TO UNDERTAKING BY FUND
- ----------------- ------------------------- ----------------------- --------------
<S> <C> <C> <C>
Government
Money Fund
- - Class A $ 86,597 $ -0- $ 86,597
- - Class B $1,400,646 $ 269,700 $1,130,946

Money Fund
- - Class A $ 240,310 $ -0- $ 240,310
- - Class B $4,455,262 $1,046,213 $3,409,049

California
Municipal Fund
- - Class A $ 141,357 $ -0- $ 141,357
- - Class B $ 21,077 $ 4,897 $ 16,180

National
Municipal Fund
- - Class A $ 84,018 $ -0- $ 84,018
- - Class B $ 969,868 $ 282,750 $ 687,118

Minnesota
Municipal Fund

- - Class A $ -0-* $ -0-* $ -0-*
- - Class B $ 37,969* $ 37,969* $ -0-*

New York
Municipal Fund
-Class A $ 412,841 $ -0- $ 412,841
-Class B $ 140,231 $ 38,784 $ 101,447

- ----------
* For the period June 1, 1998 (commencement of operations) to November 30, 1998.
</TABLE>

HOW TO REDEEM SHARES

CHECK REDEMPTION PRIVILEGE. Each Fund provides Redemption Checks
("Checks") automatically upon opening an account, unless you specifically refuse
the Check Redemption Privilege by checking the applicable "No" box on the
Account Application. The Check Redemption Privilege may be established for an
existing account by a separate signed Shareholder Services Form. Checks will be
sent only to the registered owner(s) of the account and only to the address of
record. The Account Application or Shareholder Services Form must be manually
signed by the registered owner(s). Checks are drawn on your Fund account and may
be made payable to the order of any person in an amount of $500 or more. When a
Check is presented to the Transfer Agent for payment, the Transfer Agent, as
your agent, will cause the Fund to redeem a sufficient number of shares in your
account to cover the amount of the Check. Dividends are earned until the Check
clears. After clearance, a copy of the Check will be returned to you. You
generally will be subject to the same rules and regulations that apply to
checking accounts, although the election of this Privilege creates only a
shareholder-transfer agent relationship with the Transfer Agent.

You should date your Checks with the current date when you write them.
Please do not postdate your Checks. If you do, the Transfer Agent will honor,
upon presentment, even if presented before the date of the check, all postdated
Checks which are dated within six months of presentment for payment, if they are
otherwise in good order. If you hold shares in a Dreyfus- sponsored IRA account,
you may be permitted to make withdrawals from your IRA account using checks
furnished to you by The Dreyfus Trust Company.

Checks are free, but the Transfer Agent will impose a fee for stopping
payment of a Check upon your request or if the Transfer Agent cannot honor a
Check due to insufficient funds or other valid reason. If the amount of the
Check is greater than the value of the shares in your account, the Check will be
returned marked insufficient funds. Checks should not be used to close an
account.

WIRE REDEMPTION PRIVILEGE. By using this Privilege, you authorize the
Transfer Agent to act on wire, telephone or letter redemption 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.
Ordinarily, each Fund will initiate payment for shares redeemed pursuant to this
Privilege on the same business day if the Transfer Agent receives a redemption
request in proper form prior to 5:00 p.m., New York time, on such day; otherwise
the Fund will initiate payment on the next business day. Redemption proceeds
($1,000 minimum) will be transferred by Federal Reserve wire only to the
commercial bank account specified by you on the Account Application or the
Shareholder Services Form, or to a correspondent bank if your bank is not a
member of the Federal Reserve System. Fees ordinarily are imposed by such bank
and borne by the investor. Immediate notification by the correspondent bank to
your bank is necessary to avoid a delay in crediting the funds to your bank
account.

If you have access to telegraphic equipment, you may wire redemption
requests to the Transfer Agent by employing the following transmittal code which
may be used for domestic or overseas transmissions:

TRANSFER AGENT'S
TRANSMITTAL CODE ANSWER BACK SIGN
---------------- -----------------

144295 144295 TSSG PREP

<PAGE>

If you do not have direct access to telegraphic equipment, you may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-7171,
toll free. You should advise the operator that the above transmittal code must
be used and should also inform the operator of the Transfer Agent's answer back
sign.

To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent. This
request must be signed by each shareholder, with each signature guaranteed as
described below under "Stock Certificates; Signatures."

DREYFUS TELETRANSFER PRIVILEGE. (CALIFORNIA MUNICIPAL FUND, MINNESOTA
MUNICIPAL FUND AND NEW YORK MUNICIPAL FUND ONLY) You may request by telephone
that redemption proceeds be transferred between your Fund account and your bank
account. Only a bank account maintained in a domestic financial institution
which is an ACH member may be designated. Redemption proceeds will be on deposit
in your account at an ACH member bank ordinarily two days after receipt of the
redemption request. Holders of jointly registered Fund or bank accounts may
redeem through the Dreyfus TELETRANSFER Privilege for transfer to their bank
account not more than $250,000 within any 30-day period. You should be aware
that if you have selected the Dreyfus TELETRANSFER privilege, any request for a
wire redemption will be effected as a Dreyfus TELETRANSFER transaction through
the ACH system unless more prompt transmittal specifically is requested. See
"How to Buy Shares--Dreyfus TELETRANSFER Privilege."

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 or its designee by 12:00 Noon, New York time, with respect to
the Municipal Funds, or 5:00 p.m., New York time, with respect to the Government
Money Fund and Money Fund on a business day, the proceeds of the redemption
ordinarily will be transmitted in Federal Funds on the same day and the shares
will not receive the dividend declared on that day. If a redemption request is
received after such time, but by 8:00 p.m., New York time, the redemption
request will be effective on that day, the shares will receive the dividend
declared on that day and the proceeds of redemption ordinarily will be
transmitted in Federal Funds on the next business day. If a redemption request
is received after 8:00 p.m., New York time, 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.

STOCK 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 holder 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. For more information with respect to
signature-guarantees, please call one of the telephone numbers listed on the
cover.

REDEMPTION COMMITMENT. Each Fund has committed itself to pay in cash
all redemption requests by any shareholder of record, limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commission and is a
fundamental policy of the Fund which may not be changed without shareholder
approval. In the case of requests for redemption in excess of such amount, each
Fund's Board reserves the right to make payments in whole or in part in
securities or other assets of the Fund in case of an emergency or any time a
cash distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In such event, the securities would be valued in the same
manner as the Fund's portfolio is valued. If the recipient sells such
securities, brokerage charges might be incurred.

SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b) when
trading in the markets a Fund ordinarily utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange Commission so that
disposal of a 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 a Fund's shareholders.

SHAREHOLDER SERVICES

FUND EXCHANGES. Clients of certain Service Agents may purchase, in
exchange for shares of a Fund, shares of certain other funds managed or
administered by the Manager, to the extent such shares are offered for sale in
such client's state of residence. Shares of other funds purchased by exchange
will be purchased on the basis of relative net asset value per share as follows:

A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.

B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.

C. Shares of funds purchased with a sales load may be exchanged for
shares of other funds sold without a sales load.

D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load, and additional shares acquired through reinvestment
of dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), but if the sales load applicable to the
Offered Shares exceeds the maximum sales load that could have
been imposed in connection with the Purchased Shares (at the time
the Purchased Shares were acquired), without giving effect to any
reduced loads, the difference will be deducted.

To accomplish an exchange under item D above, you or your Service
Agent acting on your behalf must notify the Transfer Agent of your prior
ownership of fund shares and your account number.

To request an exchange, you or your Service Agent acting on your
behalf must give exchange instructions to the Transfer Agent in writing or by
telephone. The ability to issue exchange instructions by telephone is given to
shareholders of each Fund automatically, unless you check the applicable "No"
box on the Account Application, indicating that you specifically refuse this
Privilege. By using the Telephone Exchange Privilege, you authorize the Transfer
Agent to act on telephonic instructions (including over The Dreyfus Touch(R)
automated telephone system) from any person representing himself or herself to
be you or a representative of your Service Agent, and reasonably believed by the
Transfer Agent to be genuine. Telephone exchanges may be subject to limitations
as to the amount involved or the number of telephone exchanges permitted. Shares
issued in certificate form are not eligible for telephone exchange. No fees
currently are charged shareholders directly in connection with exchanges,
although each Fund reserve the right, upon not less than 60 days' written
notice, to charge shareholders a nominal administrative fee in accordance with
rules promulgated by the Securities and Exchange Commission.

To establish a personal retirement plan by exchange, shares of the
fund being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.

DREYFUS AUTO-EXCHANGE PRIVILEGE. Dreyfus Auto-Exchange Privilege
permits you to purchase, in exchange for shares of a Fund, shares of certain
other funds in the Dreyfus Family of Funds of which you are a shareholder. This
Privilege is available only for existing accounts. Shares will be exchanged on
the basis of relative net asset value as described above under "Fund Exchanges."
Enrollment in or modification or cancellation of this Privilege is effective
three business days following notification by you. You will be notified if your
account falls below the amount designated to be exchanged under this Privilege.
In this case, your account will fall to zero unless additional investments are
made in excess of the designated amount prior to the next Auto-Exchange
transaction. 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
legally may 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. Each 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.

DREYFUS-AUTOMATIC ASSET BUILDER(R). DreyfuS-AUTOMATic Asset Builder
permits you to purchase Fund shares (minimum of $100 and maximum of $150,000 per
transaction) at regular intervals selected by you. Fund shares are purchased by
transferring funds from the bank account designated by you.

DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE. Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social Security,
or certain veterans', military or other payments from the Federal Government
automatically deposited into your Fund account. You may deposit as much of such
payments as you elect.

DREYFUS PAYROLL SAVINGS PLAN. The Payroll Savings Plan permits you to
purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your employer's direct deposit program, you may
have part or all of your paycheck transferred to your existing Dreyfus account
electronically through the ACH system at each pay period. To establish a Payroll
Savings Plan account, you must file an authorization form with your employer's
payroll department. It is the sole responsibility of your employer, not the
Distributor, the Manager, the Fund, the Transfer Agent or any other person, to
arrange for transactions under the Dreyfus Payroll Savings Plan.

DREYFUS DIVIDEND OPTIONS. Dreyfus Dividend Sweep allows you to invest
automatically your dividends or dividends and capital gain distributions, if
any, paid by a Fund in shares of another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares 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 by a fund may be invested
without imposition of a sales load in shares of other funds
offered without a sales load.

B. Dividends and distributions paid by a fund which does not charge
a sales load may be invested in shares of other funds sold with a
sales load, and the applicable sales load will be deducted.

C. Dividends and distributions paid by a fund that charges a sales
load may be invested in shares of other funds sold with a sales
load (referred to herein as "Offered Shares"), but if the sales
load applicable to the Offered Shares exceeds the maximum sales
load charged by the fund from which dividends or distributions
are being swept (without giving effect to any reduced loads) the
difference will be deducted.

D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge ("CDSC") and the applicable CDSC, if any, will be imposed
upon redemption of such shares.

Dreyfus Dividend ACH permits you to transfer electronically dividends
or dividends and capital gain distributions, if any, from each Fund to a
designated bank account. Only an account maintained at a domestic financial
institution which is an ACH member may be so designated. Banks may charge a fee
for this service.

QUARTERLY DISTRIBUTION PLAN. The Quarterly Distribution Plan permits
you to receive quarterly payments from a Fund consisting of proceeds from the
redemption of shares purchased for your account through the automatic
reinvestment of dividends declared on your account during the preceding calendar
quarter.

AUTOMATIC WITHDRAWAL PLAN. The Automatic Withdrawal Plan permits you
to request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. Withdrawal
payments are the proceeds from sales of Fund shares, not the yield on the
shares. If withdrawal payments exceed reinvested dividends and distributions,
your shares will be reduced and eventually may be depleted. Automatic Withdrawal
may be terminated at any time by you, the Fund or the Transfer Agent. Shares for
which certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan.

CORPORATE PENSION/PROFIT-SHARING AND PERSONAL RETIREMENT PLANS.
(GOVERNMENT MONEY FUND AND MONEY FUND) Each of the Government Money Fund and the
Money Fund makes available to corporations a variety of prototype pension and
profit-sharing plans, including a 401(k) Salary Reduction Plan. In addition,
these Funds make available Keogh Plans, IRAs (including regular IRAs, spousal
IRAs for a non-working spouse, Roth IRAs, SEP-IRAs, rollover IRAs and Education
IRAs) and 403(b)(7) Plans. Plan support services also are available.

If you wish to purchase Fund shares in conjunction with a Keogh Plan,
a 403(b)(7) Plan or an IRA, including a SEP-IRA, you may request from the
Distributor forms for adoption of such plans.

The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or
IRAs may charge a fee, payment of which could require the liquidation of shares.
All fees charged are described in the appropriate form.

SHARES MAY BE PURCHASED IN CONNECTION WITH THESE PLANS ONLY BY DIRECT
REMITTANCE TO THE ENTITY WHICH ACTS AS CUSTODIAN. SUCH PURCHASES WILL BE
EFFECTIVE WHEN PAYMENTS RECEIVED BY THE TRANSFER AGENT ARE CONVERTED INTO
FEDERAL FUNDS. PURCHASES FOR THESE PLANS MAY NOT BE MADE IN ADVANCE OF RECEIPT
OF FUNDS.

The minimum initial investment for corporate plans, salary reduction
plans, 403(b)(7) Plans and SEP-IRAs, with more than one participant, is $2,500,
with no minimum for subsequent purchases. The minimum initial investment is $750
for Dreyfus-sponsored Keogh Plans, IRAs (including regular IRAs, spousal IRAs
for a non-working spouse, Roth IRAs, SEP-IRAs and rollover IRAs) and 403(b)(7)
Plans with only one participant and $500 for Education IRAs, with no minimum for
subsequent purchases.

You should read the prototype retirement plans and the applicable form
of custodial agreement for further details as to eligibility, service fees and
tax implications, and should consult a tax adviser.

DETERMINATION OF NET ASSET VALUE

AMORTIZED COST PRICING. The valuation of each Fund's portfolio
securities is based upon their amortized cost, which does not take into account
unrealized capital gains or losses. This involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.

Each Fund's Board has established, as a particular responsibility
within the overall duty of care owed to the Fund's shareholders, procedures
reasonably designed to stabilize the Fund's price per share as computed for the
purpose of purchases and redemptions at $1.00. Such procedures include review of
the Fund's portfolio holdings by the Board, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset value calculated by using
available market quotations or market equivalents deviates from $1.00 per share
based on amortized cost. In such review, investments for which market quotations
are readily available will be valued at the most recent bid price or yield
equivalent for such securities or for securities of comparable maturity, quality
and type, as obtained from one or more of the major market makers for the
securities to be valued. Other investments and assets, to the extent a Fund is
permitted to invest in such instruments, will be valued at fair value as
determined in good faith by the Board. With respect to the Municipal Funds,
market quotations and market equivalents used in the Board's review are obtained
from an independent pricing service (the "Service") approved by the Board. The
Service values these Funds' investments based on methods which include
considerations of: yields or prices of municipal obligations of comparable
quality, coupon, maturity and type; indications of values from dealers; and
general market conditions. The Service also may employ electronic data
processing techniques and/or a matrix system to determine valuations.

The extent of any deviation between a Fund's net asset value based
upon available market quotations or market equivalents and $1.00 per share based
on amortized cost will be examined by the Fund's Board. If such deviation
exceeds 1/2 of 1%, the Board promptly will consider what action, if any, will be
initiated. In the event a Fund's Board determines that a deviation exists which
may result in material dilution or other unfair results to investors or existing
shareholders, it has agreed to take such corrective action as it regards as
necessary and appropriate, including: selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends or paying distributions from capital or capital
gains; redeeming shares in kind; or establishing a net asset value per share by
using available market quotations or market equivalents.

NEW YORK STOCK EXCHANGE AND TRANSFER AGENT CLOSINGS. The holidays (as
observed) on which both the New York Stock Exchange and the Transfer Agent are
closed currently are: New Year's Day, Martin Luther King Jr. Day, Presidents'
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Management believes that each Fund has qualified for the fiscal year
ended November 30, 1998 as a "regulated investment company" under the Code. Each
Fund intends to continue to so qualify if such qualification is in the best
interests of its shareholders. Such qualification relieves the Fund of any
liability for Federal income tax to the extent its earnings are distributed in
accordance with applicable provisions of the Code. If the Fund did not qualify
as a regulated investment company, it would be treated for tax purposes as an
ordinary corporation subject to Federal income tax.

Each Fund ordinarily declares dividends from its net investment income
on each day the New York Stock Exchange or, for the Government Money Fund and
Money Fund only, the Transfer Agent is open for business. The Fund's earnings
for Saturdays, Sundays and holidays are declared as dividends on the preceding
business day. Dividends usually are paid on the last calendar day of each month
and automatically are reinvested in additional shares at net asset value or, at
your option, paid in cash. If you redeem all shares in your account at any time
during the month, all dividends to which you are entitled will be paid to you
along with the proceeds of the redemption. If you are an omnibus accountholder
and indicate in a partial redemption request that a portion of any accrued
dividends to which such account is entitled belongs to an underlying
accountholder who has redeemed all shares in his or her account, such portion of
the accrued dividends will be paid to you along with the proceeds of the
redemption.

If you elect to receive dividends and distributions in cash, and your
dividend or distribution check is returned to the Fund as undeliverable or
remains uncashed for six months, the Fund reserves the right to reinvest such
dividends or distributions and all future dividends and distributions payable to
you in additional Fund shares at net asset value. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.

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.

With respect to the Municipal Funds, if, at the close of each quarter
of its taxable year, at least 50% of the value of the Fund's total assets
consists of Federal tax exempt obligations, then the Fund 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 Fund from their gross income for Federal income tax purposes. Dividends
derived from Taxable Investments, together with distributions from any net
realized short-term securities gains, generally are taxable as ordinary income
for Federal income tax purposes whether or not reinvested. Distributions from
net realized long-term securities gains generally are taxable as long-term
capital gains to a shareholder who is a citizen or resident of the United
States, whether or not reinvested and regardless of the length of time the
shareholder has held his shares.

With respect to the California Municipal Fund, if, at the close of
each quarter of its taxable year, at least 50% of the value of the Fund's total
assets consists of obligations which, when held by an individual, the interest
therefrom is exempt from California personal income tax, and if the Fund
qualifies as a management company under the California Revenue and Taxation
Code, then the Fund 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 Fund to a
non-corporate shareholder with respect to any taxable year cannot exceed such
shareholder's pro rata share of interest received by the Fund during such year
that is exempt from California taxation less any expenses and expenditures
deemed to have been paid from such interest.

For shareholders subject to the California personal income tax,
exempt-interest dividends derived from California Municipal Obligations will not
be subject to the California personal income tax. Distributions from net
realized short-term capital gains to California resident shareholders will be
subject to the California personal income tax distributed by the Fund as
ordinary income. Distributions from net realized long-term capital gains may
constitute long-term capital gains for individual California resident
shareholders. Unlike under Federal tax law, the California Municipal Fund's
shareholders will not be subject to California personal income tax, or receive a
credit for California taxes paid by the Fund, 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 purpose of
computing the California alternative minimum tax.

With respect to the Minnesota Municipal Fund, dividends paid by the
Fund to a Minnesota resident are not subject to the Minnesota personal income
tax to the extent that the dividends are attributable to income received by the
Fund as interest from Minnesota Municipal Obligations, provided such
attributable dividends represent 95% or more of the exempt-interest dividends
that are paid by the Fund. Moreover, dividends paid by the Fund to a Minnesota
resident are not subject to the Minnesota personal income tax to the extent that
the dividends are attributable to income received by the Fund as interest from
the Fund's investment in direct U.S. Government obligations. Dividends and
distributions by the Fund to a Minnesota resident that are attributable to most
other sources are subject to the Minnesota personal income tax. Dividends and
distributions from the Fund will be included in the determination of taxable net
income of corporate shareholders who are subject to Minnesota income (franchise)
taxes. In addition, dividends attributable to interest received by the Fund that
is a preference item for Federal income tax purposes, whether or not such
interest is from a Minnesota Municipal Obligation, may be subject to the
Minnesota alternative minimum tax. The shares of the Fund are not subject to
property taxation by Minnesota or its political subdivisions.

YIELD INFORMATION

For the seven-day period ended November 30, 1998, the yield and
effective yield for Class A and Class B shares of each Fund were as follows:

NAME OF FUND AND CLASS YIELD EFFECTIVE YIELD
- ---------------------- ----- ----------------

Government Money Fund
Class A 4.30% 4.39%
Class B 4.10% / 4.07%* 4.18% / 4.15%*

Money Fund
Class A 4.41% 4.51%
Class B 4.21% / 4.20%* 4.30% / 4.29%*

California Municipal Fund
Class A 2.52% 2.55%
Class B 2.06% / 2.00%* 2.08% / 2.02%*

Minnesota Municipal Fund
Class A 2.73% / 2.77% 2.77% / 2.60%
Class B 2.57% / 2.00%* 2.60% / 2.08%*

National Municipal Fund
Class A 2.73% / 2.77% -0-%
Class B 2.38% / 2.00%* 2.30% / 2.33%*

New York Municipal Fund
Class A 2.43% 2.46%
Class B 2.13% / 2.06%* 2.15% / 2.08%*

- ----------------
* Net of absorbed expenses.

Yield is computed in accordance with a standardized method which
involves determining the net change in the value of a hypothetical pre-existing
Fund account having a balance of one share at the beginning of a seven calendar
day period for which yield is to be quoted, dividing the net change by the value
of the account at the beginning of the period to obtain the base period return,
and annualizing the results (i.e., multiplying the base period return by 365/7).
The net change in the value of the account reflects the value of additional
shares purchased with dividends declared on the original share and any such
additional shares and fees that may be charged to shareholder accounts, in
proportion to the length of the base period and the Fund's average account size,
but does not include realized gains and losses or unrealized appreciation and
depreciation. Effective yield is computed by adding 1 to the base period return
(calculated as described above), raising that sum to a power equal to 365
divided by 7, and subtracting 1 from the result. Both yield figures take into
account any applicable distribution and service fees. As a result, at any given
time, the performance of Class B shares should be expected to be lower than that
of Class A shares.

As to the Municipal Funds, tax equivalent yield is computed by
dividing that portion of the yield or effective 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 Fund that is not tax exempt. Based
upon a 1998 Federal and State of California income tax rate of 45.22%, the tax
equivalent yield for the 7-day period ended November 30, 1998 for Class A and
Class B shares of the California Municipal Fund was as follows:

NAME OF FUND AND CLASS TAX EQUIVALENT YIELD
- ---------------------- --------------------

California Municipal Fund
Class A 4.60%
Class B 3.76% / 3.65%*

Based upon a 1998 Federal and State of Minnesota income tax rate of
44.73%, the tax equivalent yield for the seven-day period ended November 30,
1998 for the Class A and Class B shares of the Minnesota Municipal Fund was as
follows:

<PAGE>

NAME OF FUND AND CLASS TAX EQUIVALENT YIELD
- ---------------------- ---------------------

Minnesota Municipal Fund
Class A 4.94% / 4.65%
Class B .65% / 3.73%*

Based upon a 1998 Federal tax rate of 39.60%, the tax equivalent yield
for the seven-day period ended November 30, 1998 for the Class A and Class B
shares of National Municipal Fund was as follows:

NAME OF FUND AND CLASS TAX EQUIVALENT YIELD
- ---------------------- ---------------------

National Municipal Fund
Class A 4.52%
Class B 3.94% / 3.81%*

Based upon a combined 1998 Federal, New York State and New York City
personal income tax rate of 46.43%, the tax equivalent yield for the seven-day
period ended November 30, 1998 for Class A and Class B shares of the New York
Municipal Fund was as follows:

NAME OF FUND AND CLASS TAX EQUIVALENT YIELD
- ---------------------- ---------------------

New York Municipal Fund
Class A 4.54%
Class B 3.98% / 3.85%*

- --------------
* Net of absorbed expenses.

The tax equivalent yields noted above for the National Municipal Fund
represent the application of the highest Federal marginal personal income tax
rate presently in effect. The taxes equivalent figures, however, do not include
the potential effect of any state or local (including, but not limited to,
county, district or city) taxes, including applicable surcharges. The tax
equivalent yields noted above for the California Municipal Fund represents the
application of the highest Federal and State of California marginal personal
income tax rates presently in effect. The tax equivalent yields noted above for
the Minnesota Municipal Fund represent the application of the highest Federal
and State of Minnesota marginal personal income tax rates presently in effect.
The tax equivalent yields noted above for the New York Municipal Fund represent
the application of the highest Federal, New York State, and New York City
marginal personal income tax rates presently in effect. For Federal personal
income tax purposes a 39.6% tax rate has been used, for California State income
tax purposes the rate of 9.30% has been used, for Minnesota State income tax
purposes, the rate of 8.50% has been used and for New York State and New York
City personal income tax purposes, the rates of 6.85% and 4.46%, respectively,
have been used. In addition, there may be pending legislation which could affect
such stated tax rates or yields. You should consult your tax adviser, and
consider your own factual circumstances and applicable tax laws, in order to
ascertain the relevant tax equivalent yield.

Yields will fluctuate and are not necessarily representative of future
results. You should remember that yield is a function of the type and quality of
the instruments in the portfolio, portfolio maturity and operating expenses.
Your principal in a Fund is not guaranteed. See "Determination of Net Asset
Value" for a discussion of the manner in which a Fund's price per share is
determined.

From time to time, each Municipal Fund may use hypothetical tax
equivalent yields or charts in its advertising. These hypothetical yields or
charts will be used for illustrative purposes only and not as being
representative of the Fund's past or future performance.

From time to time, advertising materials for a Fund may refer to or
discuss then-current or past economic conditions, developments and/or events, or
actual or proposed tax legislation, and may refer to statistical or other
information concerning trends relating to investment companies, as compiled by
industry associations such as the Investment Company Institute.

PORTFOLIO TRANSACTIONS

Portfolio securities ordinarily are purchased directly from the issuer
or from an underwriter or a market maker for the securities. Usually no
brokerage commissions, as such, are paid by a Fund for such purchases. Purchases
from underwriters of portfolio securities include a concession paid by the
issuer to the underwriter and the purchase price paid to, and sales price
received from, market makers for the securities may include the spread between
the bid and asked price. No brokerage commissions have been paid by any Fund to
date.

Transactions are allocated to various dealers by the portfolio
managers of a Fund in their best judgment. The primary consideration is prompt
and effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and analysis
with the views and information of other securities firms and may be selected
based upon their sales of shares of a Fund or other funds advised by the Manager
or its affiliates.

Research services furnished by brokers through which a 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.

INFORMATION ABOUT THE FUNDS

Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Fund shares have equal rights as to dividends and in liquidation. Shares have no
preemptive or subscription rights and are freely transferable.

The Minnesota Municipal Fund and the National Municipal Fund are
separate series of the Company. 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 Company, 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. The Rule exempts
the selection of independent accountants and the election of Board members from
the separate voting requirements of the Rule.

Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for each Fund to hold annual meetings of shareholders. As a result,
Fund shareholders may not consider each year the election of Board members or
the appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Fund to hold a special meeting
of shareholders for purposes of removing a Board member from office. Fund
shareholders may remove a Board member by the affirmative vote of a majority, in
the case of the Government Money Fund, National Municipal Fund and Money Fund,
or two-thirds, in the case of the California Municipal Fund and New York
Municipal Fund, of the Fund's outstanding voting shares. In addition, the Board
will call a meeting of shareholders for the purpose of electing Board members
if, at any time, less than a majority of the Board members then holding office
have been elected by shareholders.

The California Municipal Fund and New York Municipal Fund are
organized as unincorporated business trusts under the laws of the Commonwealth
of Massachusetts. Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Agreement and Declaration of Trust (the "Trust Agreement") for each
of these Funds disclaims shareholder liability for acts or obligations of the
Fund and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or a Trustee. The
Trust Agreement provides for indemnification from the Fund's property for all
losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund itself would be unable to meet its obligations, a possibility which
management believes is remote. Upon payment of any liability incurred by the
Fund, the shareholder paying such liability will be entitled to reimbursement
from the general assets of the Fund. The Fund intends to conduct its operations
in such a way so as to avoid, as far as possible, ultimate liability of the
shareholder for liabilities of the Fund.

Each Fund sends annual and semi-annual financial statements to all its
share-holders.

COUNSEL AND INDEPENDENT AUDITORS

Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for each Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the shares
being sold pursuant to the Funds' Prospectus.

Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as independent auditors of each Fund.

<PAGE>

APPENDIX A
(MONEY FUND ONLY)

Description of the two highest commercial paper, bond and other short-
and long-term rating categories assigned by Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch IBCA, Inc.
("Fitch"), Duff & Phelps Credit Rating Co. ("Duff"), and Thomson BankWatch, Inc.
("BankWatch"):

COMMERCIAL PAPER AND SHORT-TERM RATINGS

The designation A-1 by S&P 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. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety is not as high as
for issues designated A-1.

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
of 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.
Issues rated Prime-2 (P-2) have a strong capacity for repayment of short-term
promissory obligations. This ordinarily will be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.

The rating Fitch-1 (Highest Grade) is the highest commercial paper
rating assigned by Fitch. Paper rated Fitch-1 is regarded as having the
strongest degree of assurance for timely payment. The rating Fitch-2 (Very Good
Grade) is the second highest commercial paper rating assigned by Fitch which
reflects an assurance of timely payment only slightly less in degree than the
strongest issues.

The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.

The rating TBW-1 is the highest short-term obligation rating assigned
by BankWatch. Obligations rated TBW-1 are regarded as having the strongest
capacity for timely repayment.

Obligations rated TBW-2 are supported by a strong capacity for timely repayment,
although the degree of safety is not as high as for issues rated TBW-1.

BOND AND LONG-TERM RATINGS

Bonds rated AAA are considered by S&P to be the highest grade
obligations and possess an extremely strong capacity to pay principal and
interest. Bonds rated AA by S&P are judged by S&P to have a very strong capacity
to pay principal and interest and, in the majority of instances, differ only in
small degrees from issues rated AAA. The rating AA may be modified by the
addition of a plus or minus sign to show relative standing within the rating
category.

Bonds rated Aaa by Moody's are judged to be of the best quality. Bonds
rated Aa by Moody's are judged by Moody's to be of high quality by all standards
and, together with the Aaa group they comprise what are generally known as
high-grade bonds. Bonds rated Aa are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuations of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category, the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
the rating category.

Bonds rated AAA by Fitch are judged by Fitch to be strictly high
grade, broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to slight market fluctuation other than through changes
in the money rate. The prime feature of an AAA bond is a showing of earnings
several times or many times interest requirements, with such stability of
applicable earnings that safety is beyond reasonable question whatever changes
occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
of market.

Bonds rated AAA by Duff are considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than U.S.
Treasury debt. Bonds rated AA are considered by Duff to be of high credit
quality with strong protection factors. Risk is modest but may vary slightly
from time to time because of economic conditions.

Fitch also assigns a rating to certain international and U.S. banks. A
Fitch bank rating represents Fitch's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, Fitch uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, Fitch assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support from central banks or
shareholders if it experienced difficulties, and such ratings are considered by
Fitch to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent Fitch's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.

In addition to ratings of short-term obligations, BankWatch assigns a
rating to each issuer it rates, in gradations of A through E. BankWatch examines
all segments of the organization including, where applicable, the holding
company, member banks or associations, and other subsidiaries. In those
instances where financial disclosure is incomplete or untimely, a qualified
rating (QR) is assigned to the institution. BankWatch also assigns, in the case
of foreign banks, a country rating which represents an assessment of the overall
political and economic stability of the country in which the bank is domiciled.

<PAGE>

APPENDIX B
(MUNICIPAL FUNDS)

Description of certain 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 of 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.

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.

MUNICIPAL NOTE RATINGS

SP-1

The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.

COMMERCIAL PAPER RATINGS

The rating A is the highest rating and is assigned by S&P to issues
that 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. Paper rated A-1 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.

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.

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.
Bonds in the Aa category which Moody's believes possess the strongest investment
attributes are designated by the symbol Aa1.

COMMERCIAL PAPER RATINGS

The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (P-2) have a strong ability for repayment of senior
short-term debt obligations. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

MUNICIPAL NOTE RATINGS

Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). Such ratings recognize the
difference between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.

A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, you 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.

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 operating
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.

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+.

Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.

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 ratings
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.

<PAGE>

APPENDIX C

INVESTING IN CALIFORNIA MUNICIPAL OBLIGATIONS

RISK FACTORS--INVESTING IN CALIFORNIA MUNICIPAL OBLIGATIONS

The following information is a summary of special factors affecting
investments in California Municipal Securities and is drawn from the Official
Statement issued by the State for its public bond issue on December 9, 1998. The
sources of payment for such obligations and the marketability thereof may be
affected by financial or other difficulties experienced by the State of
California and certain of its municipalities and public authorities. It does not
purport to be a complete description and is based on information from official
statements relating to securities offerings of California issuers.

STATE FINANCES

THE BUDGET PROCESS

The State's fiscal year begins on July 1 and ends on June 30. The
State operates on a budget basis, using a modified accrual system of accounting,
with revenues credited in the period in which they are measurable and available
and expenditures debited in the period in which the corresponding liabilities
are incurred.

The annual budget is proposed by the Governor by January 10 of each
year for the next fiscal year (the "Governor's Budget"). Under State law, the
annual proposed Governor's Budget cannot provide for projected expenditures in
excess of projected revenues and balances available from prior fiscal years.
Following the submission of the Governor's Budget, the Legislature takes up the
proposal.

Under the State Constitution, money may be drawn from the Treasury
only through an appropriation made by law. The primary source of the annual
expenditure authorizations is the Budget Act as approved by the Legislature and
signed by the Governor. The Budget Act must be approved by a two-thirds majority
vote of each House of the Legislature. The Governor may reduce or eliminate
specific line items in the Budget Act or any other appropriations bill without
vetoing the entire bill. Such individual line-item vetoes are subject to
override by a two-thirds majority vote of each House of the Legislature.

Appropriations also may be included in legislation other than the
Budget Act (except for K-14 education) must be approved by a two-thirds majority
vote in each House of the Legislature and be signed by the Governor. Bills
containing K-14 education appropriations only require a simple majority vote.
Continuing appropriations, available without regard to fiscal year, may also be
provided by statute or the State Constitution.

Funds necessary to meet an appropriation need not be in the State
Treasury at the time such appropriation is enacted; revenues may be appropriated
in anticipation of their receipt.

<PAGE>

THE GENERAL FUND

The moneys of the State are segregated into the General Fund and over
900 Special Funds, including Bond, Trust and Pension Funds. The General Fund
consists of revenues received by the State Treasury and not required by law to
be credited to any other fund, as well as earnings from the investment of State
moneys not allocable to another fund. The General Fund is the principal
operating fund for the majority of governmental activities and is the depository
of most of the major revenue sources of the State. The General Fund may be
expended as a consequence of appropriation measures enacted by the Legislature
and approved by the Governor, as well as appropriations pursuant to various
constitutional authorizations and initiative statutes.

THE SPECIAL FUND FOR ECONOMIC UNCERTAINTIES

The Special Fund for Economic Uncertainties ("SFEU") is funded with
General Fund revenues and was established to protect the State from unforeseen
revenue reductions and/or unanticipated expenditure increases. Amounts in the
SFEU may be transferred by the State Controller as necessary to meet cash needs
of the General Fund. The State Controller is required to return moneys so
transferred without payment of interest as soon as there are sufficient moneys
in the General Fund.

The legislation creating the SFEU contains a continuous appropriation
from the General Fund authorizing the State Controller to transfer to the SFEU,
as of the end of each fiscal year, the lesser of (i) the unencumbered balance in
the General Fund and (ii) the difference between the State's "appropriations
subject to limitation" for the fiscal year then ended and its "appropriations
limit" as defined in Section 8 of Article XIII B of the State Constitution and
established in the Budget Act for that fiscal year, as jointly estimated by the
State's Legislative Analyst's Office and the Department of Finance. In certain
circumstances, moneys in the SFEU may be used in connection with disaster
relief.

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 State Controller is required to add the balance in the SFEU to the
balance in the General Fund so as to show the total moneys then available for
General Fund purposes.

The SFEU projection reflects the enactment of the Budget Act on August
21, 1998. This figure contains the latest revenue projections and expenditure
amounts appropriated in the Budget Act and trailer bills at that point in time.
As in any year, the Budget Act and related trailer bills are not the only pieces
of legislation which appropriate funds. Other factors including re-estimates of
revenues and expenditures, existing statutory requirements, and additional
legislation introduced and passed by the Legislature may impact the reserve
amount.

In the Budget Act for Fiscal Year 1998-99, signed on August 21, 1998,
the Department of Finance projects the SFEU will have a balance of about $1.255
billion at June 30, 1999.

PRIOR FISCAL YEARS' FINANCIAL RESULTS

FISCAL YEARS PRIOR TO 1995-96

Pressures on the State's budget in the late 1980's and early 1990's
were caused by a combination of external economic conditions (including a
recession which began in 1990) and growth of the largest General Fund Programs -
K-14 education, health, welfare and corrections - at rates faster than the
revenue base. During this period, expenditures exceeded revenues in four out of
six years up to 1992-93, and the State accumulated and sustained a budget
deficit approaching $2.8 billion at its peak at June 30, 1993. Between the
1991-92 and 1994-95 Fiscal Years, each budget required multibillion dollar
actions to bring projected revenues and expenditures into balance, including
significant cuts in health and welfare program expenditures; transfers of
program responsibilities and funding from the State to local governments,
transfer of about $3.6 billion in annual local property tax revenues from other
local governments to local school districts, thereby reducing State funding for
schools under Proposition 98; and revenue increases (particularly in the 1991-92
Fiscal Year Budget), most of which were for a short duration.

Despite these budget actions, the effects of the recession led to
large, unanticipated budget deficits. By the 1993-94 Fiscal Year, the
accumulated deficit was so large that it was impractical to budget to retire it
in one year, so a two-year program was implemented, using the issuance of
revenue anticipation warrants to carry a portion of the deficit over the end of
the fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, again using cross-fiscal year
revenue anticipation warrants to partly finance the deficit into the 1995-96
fiscal year.

Another consequence of the accumulated budget deficits, together with
other factors such as disbursement of funds to local school districts "borrowed"
from future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing to replenish its cash reserves,
the State Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4,
1992, when the budget was adopted, the State Controller issued a total of
approximately $3.8 billion of registered warrants.

For several fiscal years during the recession, the State was forced to
rely on external debt markets to meet its cash needs, as a succession of notes
and revenue anticipation warrants were issued in the period from June 1992 to
July 1994, often needed to pay previously maturing notes or warrants. These
borrowings were used also in part to spread out the repayment of the accumulated
budget deficit over the end of a fiscal year, as noted earlier. The last and
largest of these borrowings was $4.0 billion of revenue anticipation warrants
which were issued in July, 1994 and matured on April 25, 1996.

1995-96 AND 1996-97 FISCAL YEARS

The State's financial condition improved markedly during the 1995-96,
1996-97 and 1997-98 fiscal years, with a combination of better than expected
revenues, slowdown in growth of social welfare programs, and continued spending
restraint based on the actions taken in earlier years. The State's cash position
also improved, and no external deficit borrowing has occurred over the end of
these three fiscal years.

The economy grew strongly during these fiscal years, and as a result,
the General Fund took in substantially greater tax revenues (around $2.2 billion
in 1995-96, $1.6 billion in 1996-97 and $2.2 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid in 1995-96 and
1996-97. The accumulated budget deficit from the recession years was finally
eliminated. The Department of Finance estimates that the State's budget reserve
(the SFEU) totaled $639.8 million as of June 30, 1997 and $1.782 billion at June
30, 1998.

The following were major features of the 1997-98 Budget Act:

1. For the second year in a row, the Budget contained a large
increase in funding for K-14 education under Proposition 98,
reflecting strong revenues which exceeded initial budgeted
amounts. Part of the nearly $1.75 billion in increased spending
was allocated to prior fiscal years. Funds were provided to fully
pay for the cost-of-living-increase component of Proposition 98,
and to extend the class size reduction and reduction and reading
initiatives.

2. The Budget Act reflected the $1.228 billion pension case judgment
payment, and brought funding of the State's pension contribution
back to the quarterly basis which existed prior to the deferral
actions which were invalidated by the courts.

3. Funding from the General Fund for the University of California
and California State University was increased by about 6 percent
($121 million and $107 million, respectively), and there was no
increase in student fees.

4. Because of the effect of the pension payment, most other State
programs were continued at 1996-97 levels, adjusted for caseload
changes.

5. Health and welfare costs were contained, continuing generally the
grant levels from prior years, as part of the initial
implementation of the new CalWORKs program.

6. Unlike prior years, this Budget Act did not depend on uncertain
federal budget actions. About $300 million in federal funds,
already included in the federal FY 1997 and 1998 budgets, was
included in the Budget Act, to offset incarceration costs for
illegal aliens.

7. The Budget Act contained no tax increases, and no tax reductions.
The Renters Tax Credit was suspended for another year, saving
approximately $500 million.

The Department of Finance released updated estimates for the 1997-98
Fiscal Year on January 9, 1998 as part of the Governor's 1998-99 Fiscal Year
Budget Proposal. Total revenues and transfers are projected at $52.9 billion, up
approximately $360 million from the Budget Act projection. Expenditures for the
fiscal year are expected to rise approximately $200 million above the original
Budget Act, to $53.0 billion. The balance in the budget reserve, the SFEU, is
projected to be $329 million at June 30, 1998, compared to $461 million at June
30, 1997.

CURRENT STATE BUDGET

1998-99 FISCAL YEAR BUDGET

When the Governor released his proposed 1998-99 Fiscal Year Budget on
January 9, 1998, he projected General Fund revenues for the 1998-99 Fiscal Year
of $55.4 billion, and proposed expenditures in the same amount. By the time the
Governor released the May Revision to the 1998-99 Budget ("May Revision") on May
14, 1998, the Administration projected that revenues for the 1997-98 and 1998-99
Fiscal Years combined would be more than $4.2 billion higher than was projected
in January. The Governor proposed that most of this increased revenue be
dedicated to fund a 75% cut in the Vehicle License Fee ("VLF").

The Legislature passed the 1998-99 Budget Bill on August 11, 1998, and
the Governor signed it on August 21, 1998. Some 33 companion bills necessary to
implement the budget were also signed. In signing the Budget Bill, the Governor
used his line-item veto power to reduce expenditures by $1.360 billion from the
General Fund, and $160 million from Special Funds. Of this total, the Governor
indicated that about $250 million of vetoed funds were "set aside" to fund
programs for education. Vetoed items included education funds, salary increases
and many individual resources and capital projects.

The 1998-99 Budget Act is based on projected General Fund revenues and
transfers of $57.0 billion (after giving effect to various tax reductions
enacted in 1997 and 1998), a 4.2% increase from the revised 1997-98 figures.
Special Fund revenues were estimated at $14.3 billion. The revenue projections
were based on the May Revision. Economic problems overseas since that time may
affect the May Revision projections. See "Economic Assumptions" below.

After giving effect to the Governor's vetoes, the Budget Act provides
authority for expenditures of $57.3 billion from the General Fund (a 7.3%
increase from 1997-98), $14.7 billion from Special Funds, and $3.4 billion from
bond funds. The Budget Act projects a balance in the SFEU at June 30, 1999 (but
without including the "set aside" veto amount) of $1.255 billion, a little more
than 2% of General Fund revenues. The Budget Act assumes the State will carry
out its normal intra-year cash flow borrowing in the amount of $1.7 billion of
revenue anticipation notes, which were issued on October 1, 1998.

The most significant feature of the 1998-99 budget was agreement on a
total of $1.4 billion of tax cuts. The central element is a bill which provides
for a phased-in reduction of the VLF. Since the VLF is currently transferred to
cities and counties, the bill provides for the General Fund to replace the lost
revenues. Starting on January 1, 1999, the VLF will be reduced by 25%, at a cost
to the General Fund of approximately $500 million in the 1998-99 Fiscal Year and
about $1 billion annually thereafter.

In addition to the cut in VLF, the 1998-99 budget includes both
temporary and permanent increase in the personal income tax dependent credit
($612 million General Fund cost in 1998-99, but less in future years), a
nonrefundable renters tax credit ($133 million), and various targeted business
tax credits ($106 million).

Other significant elements of the 1998-99 Budget Act are as follows:

1. Proposition 98 funding for K-12 schools is increased by $1.7
billion in General Fund moneys over revised 1997-98 levels, about $300 million
higher than the minimum Proposition 98 guaranty. An additional $600 million was
appropriated to "settle up" prior years' Proposition 98 entitlements, and was
primarily devoted to one-time uses such as block grants, deferred maintenance,
and computer and laboratory equipment. Of the 1998-99 funds, major new programs
include money for instructional and library materials, deferred maintenance,
support for increasing the school year to 180 days and reduction of class sizes
in Grade 9. The Governor held $250 million of education funds which were vetoed
as set-aside for enactment of additional reforms. Overall, per-pupil spending
for K-12 schools under Proposition 98 is increased to $5,695, more than
one-third higher than the level in the last recession year of 1993-94. The
Budget also includes $250 million as repayment of prior years' loans to schools,
as part of the settlement of the CTA V. GOULD lawsuit.

2. Funding for higher education increased substantially above the
level called for in the Governor's four-year compact. General Fund support was
increased by $340 million (15.6%) for the University of California and $267
million (14.1%) for the California State University system. In addition,
Community Colleges received a $300 million (6.6%) increase under Proposition 98.

3. The Budget includes increased funding for health, welfare and
social services programs. A 4.9% grant increase was included in the basic
welfare grants, the first increase in those grants in 9 years. Future increases
will depend on sufficient General Fund revenue to trigger the phased cuts in VLF
described above.

4. Funding for the judiciary and criminal justice programs increased
by about 11% over 1997-98, primarily to reflect increased State support for
local trial courts and rising prison population.

5. Various other highlights of the Budget included new funding for
resources projects, dedication of $376 million of General Fund moneys for
capital outlay projects, funding of a 3% State employee salary increase, funding
of 2,000 new Department of Transportation positions to accelerate transportation
construction projects, and funding of the Infrastructure and Economic
Development Bank ($50 million).

6. The State of California received approximately $167 million of
federal reimbursements to offset costs related to the incarceration of
undocumented alien felons for federal fiscal year 1997. The State anticipates
receiving approximately $195 million in federal reimbursements for federal
fiscal year 1998.

After the Budget Act was signed, and prior to the close of the
Legislative session on August 31, 1998, the Legislature passed a variety of
fiscal bills. The Governor had until September 30, 1998 to sign or veto these
bills. The bills with the most significant fiscal impact which the Governor
signed include $235 million for certain water system improvements in Southern
California, $243 million for the State's share of the purchase of
environmentally sensitive forest lands, $178 million for state prisons, $160
million for housing assistance ($40 million of which was included in the 1998-99
Budget Act and an additional $120 million reflected in Proposition IA), and $125
million for juvenile facilities. The Governor also signed bills totaling $223
million for education programs which were part of the Governor's $250 million
veto "set aside," and $32 million for local governments fiscal relief. In
addition, he signed a bill reducing by $577 million the State's obligation to
contribute to the State Teachers' Retirement System in the 1998-99 Fiscal Year.

Based solely on the legislation enacted, on a net basis, the reserve
for June 30, 1999, was reduced by $256 million. On the other hand, 1997-98
revenues have been increased by $160 million. The revised June 30, 1999, reserve
is projected to be $1,159 million or $96 million below the level projected at
the Budget Act. The reserve projected in the Budget Act was $1,255 million. It
is important to emphasize that the new reserve level is based on 1998-99 revenue
and expenditure assumptions as of the Budget Act except to augment for
legislation signed after the budget enactment. These assumptions will not be
updated until the 1999-00 Governor's Budget is released on January 10, 1999. In
November, 1998, the Legislative Analyst's Office released a report predicting
that General Fund revenues for 1998-99 would be somewhat lower, and expenditures
somewhat higher, than the Budget Act forecasts, but the net variance would be
within the projected $1.2 billion year-end reserve amount.

LOCAL GOVERNMENTS

The primary units of local government in California are the counties,
ranging in population from 1,200 in Alpine County to almost 9,600,000 in Los
Angeles County. Counties are responsible for the provision of many basic
services, including indigent health care, welfare, jails and public safety in
unincorporated areas. There are also about 480 incorporated cities, and
thousands of other special districts formed for education, utility and other
services. The fiscal condition of local governments has been constrained since
the enactment of "Proposition 13" in 1978, which reduced and limited the future
growth of property taxes, and limited the ability of local governments to impose
"special taxes" (those devoted to a specific purpose) without two-thirds voter
approval. Counties, in particular, have had fewer options to raise revenues than
many other local government entities, and have been required to maintain many
services.

Historically, funding for the State's trial court system was divided
between the State and the counties. However, Chapter 850, Statutes of 1997,
implemented a restructuring of the State's trial court funding system. Funding
for the courts, with the exception of costs for facilities, local judicial
benefits, and revenue collection, was consolidated at the State level. The
county contribution for both their general fund and fine and penalty amounts is
capped at the 1994-95 level and becomes part of the Trial Court Trust Fund,
which supports all trial court operations. The State assumed responsibility for
future growth in trial court funding. The consolidation of funding is intended
to streamline the operation of the courts, provide a dedicated revenue source,
and relieve fiscal pressure on the counties. Beginning in 1998-99, the county
general fund contribution for court operations is reduced by $300 million,
including $10.7 million to buy out the contribution of the 20 smallest counties,
and cities will retain $62 million in fine and penalty revenue previously
remitted to the state; the General Fund backfilled the $362 million revenue loss
to the Trial Court Trust Fund. In addition to this general fund backfill, a $50
million augmentation is included in the 1998 Budget Act for the trial courts to
fund workload increases and high priority issues such as court security. In
1999-2000, the county general fund contribution will be further reduced by an
additional $92 million to buy out the next 17 smallest counties and reduce by 10
percent of the general fund contribution of the remaining 21 counties.

The entire statewide welfare system has been changed in response to
the change in federal welfare law enacted in 1996 (see "Welfare Reform" above).
Under the CalWORKs program, counties are given flexibility to develop their own
plans, consistent with state law, to implement the program and to administer
many of its elements, and their costs for administrative and supportive services
are capped at the 1996-97 levels. Counties are also given financial incentives
if, at the individual county level or statewide, the CalWORKs program produces
savings associated with specified standards. Counties will still be required to
provide "general assistance" aid to certain persons who cannot obtain welfare
from other programs.

In the aftermath of Proposition 13, the State provided aid from the
General Fund to make up some of the loss of property tax moneys, including
taking over the principal responsibility for funding K-12 schools and community
colleges. During the recession, the Legislature eliminated most of the remaining
components of post-Proposition 13 aid to local government entities other than
K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced certain mandates for local services.
Since then the State has also provided additional funding to counties and cities
through such programs as health and welfare realignment, welfare reform, trial
court restructuring, the COPs program supporting local public safety
departments, and various other measures.

In 1996, voters approved Proposition 218, entitled the "Right to Vote
on Taxes Act," which incorporates new Articles XIIIC and XIIID into the
California Constitution. These new provisions place limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges and
assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995 must be approved by voters in order to remain in effect. In
addition, Article XIIIC clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives. There are a number of
ambiguities concerning the Proposition and its impact on local governments and
their bonded debt which will require interpretation by the courts or the
Legislature. Proposition 218 does not affect the State or its ability to levy or
collect taxes.

On December 23, 1997, a consortium of California counties filed a test
claim with the Commission on State Mandates (the "Commission") asking the
Commission to determine whether the property tax shift from counties to the
Educational Revenue Augmentation Fund, which is a funding source for schools, is
a reimbursable state mandated cost. On August 11, 1998, the State Department of
Justice, on behalf of the State Department of Finance, filed a rebuttal in
opposition to the counties' claim. The issue is currently scheduled to be heard
by the Commission on October 22, 1998. The fiscal impact to the State General
fund if the Commission determines that the property tax shifts created a
reimbursable state mandate could total approximately $8 billion for the 1996-97
($2.5 billion), 1997-98 ($2.6 billion) and 1998-99 ($2.7 billion) property tax
shifts. Ongoing costs to the State General Fund would be approximately $2.7
billion annually. Any Commission decision adverse to the State can be appealed
to the courts.

STATE APPROPRIATIONS LIMIT

The State is subject to an annual appropriations limit imposed by
Article XIII B of the State Constitution (the "Appropriations Limit"). The
Appropriations Limit does not restrict appropriations to pay debt service on the
Bonds or other voter-authorized bonds.

Article XIII B prohibits the State from spending "appropriations
subject to limitation" in excess of the Appropriations Limit. "Appropriations
subject to limitation," with respect to the State, 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 that entity in
providing the regulation, product or service," but "proceeds of taxes" exclude
most state subventions to local governments, tax refunds and some benefit
payments such as unemployment insurance. No limit is imposed on appropriations
of funds which are not "proceeds of taxes," such as reasonable user charges or
fees and certain other non-tax funds.

Not included in the Appropriations Limit are appropriations for the
debt service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government, appropriations for qualified
capital outlay projects, appropriations of revenues derived from any increase in
gasoline taxes and motor vehicle weight fees above January 1, 1990 levels, and
appropriation of certain special taxes imposed by initiative (e.g., cigarette
and tobacco taxes). The Appropriations Limit may also be exceeded in cases of
emergency.

The State's Appropriations Limit in each year is based on the limit
for the prior year, adjusted annually for changes in State 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. The Appropriations Limit is tested
over consecutive two-year periods. Any excess of the aggregate "proceeds of
taxes" received over such two-year transfers to K-14 districts and refunds to
taxpayers.

The Legislature has enacted legislation to implement Article XIII B
which defines certain terms used in Article XIII B and sets forth the methods
for determining the Appropriations Limit. California Government Code Section
7912 requires an estimate of the 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.

In the Budget Act for Fiscal Year 1998-99 enacted August 21, 1998, the
Department of Finance projects the State's Appropriations Subject to Limitations
will be $6.3 billion under the State's Appropriations Limit in Fiscal Year
1998-99.

PROPOSITION 98

On November 8, 1988, voters of the State approved Proposition 98, a
combined initiative constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act." Proposition 98 changed State
funding of public education below the university level and the operation of the
State 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 on June 5, 1990), K-14 schools are guaranteed the greater
of (a) in general, a fixed percent 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 XIII B by reference to State per
capita personal income) and enrollment ("Test 2"), or (c) a third test, which
would replace Test 2 in any year when the percentage growth in per capita
General Fund revenues from the prior year plus one half of one percent is less
than the percentage growth in State 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. Legislation adopted
prior to the end of the 1988-89 Fiscal Year, implementing Proposition 98,
determined the K-14 schools' funding guarantee under Test 1 to be 40.3 percent
of the General Fund tax revenues, based on 1986-87 appropriations. However, that
percent has been adjusted to approximately 35 percent to account for a
subsequent redirection of local property taxes, since such redirection directly
affects the share of General Fund revenues to schools.

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. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit to
K-14 schools.

During the recent recession, General Fund revenues for several years
were less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements, and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,200 from Fiscal Year
1991-92 to Fiscal Year 1993-94.

In 1992, a lawsuit was filed, called CALIFORNIA TEACHERS' ASSOCIATION
V. GOULD, which challenged the validity of these off-budget loans. The
settlement of this case, finalized in July, 1996, provides, among other things,
that both the State and K-14 schools share in the repayment of prior years'
emergency loans to schools. Of the total $1.76 billion in loans, the State will
repay $935 million by forgiveness of the amount owed, while schools will repay
$825 million. The State share of the repayment will be reflected as an
appropriation above the current Proposition 98 base calculation. The schools'
share of the repayment will count as appropriations that count toward satisfying
the Proposition 98 guarantee, or from "below" the current base. Repayments are
spread over the eight-year period of 1994-95 through 2001-02 to mitigate any
adverse fiscal impact.

Substantially increased General Fund revenues, above initial budget
projections, in the fiscal years 1994-95 and thereafter have resulted or will
result in retroactive increases in Proposition 98 appropriations from subsequent
fiscal years' budgets. Because of the State's increasing revenues, per-pupil
funding at the K-12 level has increased by about 36% from the level in place
from 1991-92 through 1993-94, and is estimated at about $5,695 per ADA in 1998-
99. A significant amount of the "extra" Proposition 98 monies in the last few
years have been allocated to special programs, most particularly an initiative
to allow each classroom from grades K-3 to have no more than 20 pupils by the
end of the 1997-98 school year. There are also new initiatives increasing
instructional time, for purchasing new instructional and library materials, and
expanding teacher preparation and support.

ECONOMY AND POPULATION

INTRODUCTION

California's economy, the largest among the 50 states and one of the
largest in the world, has major components in high technology, trade,
entertainment, agriculture, manufacturing, tourism, construction and services.
Since 1994, California's economy has been performing strongly after suffering a
deep recession between 1990-94.

POPULATION AND LABOR FORCE

The State's July 1, 1997 population of over 32.9 million represented
over 12 percent of the total United States population.

California's population is concentrated in metropolitan areas. As of
the April 1, 1990 census, 96 percent resided in the 23 Metropolitan Statistical
Areas in the State. As of July 1, 1997, the 5-county Los Angeles area accounted
for 49 percent of the State's population, with 16.0 million residents, and the
10-county San Francisco Bay Area represented 21 percent, with a population of
6.9 million.

The following table shows California's population data for 1992
through 1997.

<TABLE>
<CAPTION>
POPULATION 1992-97

% INCREASE % INCREASE
OVER OVER CALIFORNIA AS %
CALIFORNIA PRECEDING UNITED STATES PRECEDING OF UNITED STATES
YEAR POPULATION(A) YEAR POPULATION(A) YEAR
<S> <C> <C> <C> <C> <C>
1992 31,188,000 2.0 255,011,000 1.2 12.2
1993 31,517,000 1.1 257,795,000 1.1 12.2
1994 31,790,000 0.9 260,372,000 1.0 12.2
1995 32,063,000 0.9 262,890,000 1.0 12.2
1996 32,383,000 1.0 265,284,000 0.9 12.2
1997 32,957,000 1.8 267,575,000 0.9 12.3

- ------------------------
(a) Population as of July 1.

SOURCE: U.S. Department of Commerce, Bureau of the Census; State of California,
Department of Finance.
</TABLE>

The following table presents civilian labor force data for the
resident population, age 16 and over, for the years 1992 to 1997.

<PAGE>

LABOR FORCE
1992-97

LABOR FORCE TRENDS (THOUSANDS) UNEMPLOYMENT RATE(%)
----------------------------- --------------------
YEAR LABOR FORCE EMPLOYMENT CALIFORNIA UNITED STATES
- ---- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
1992 15,404 13,973 9.3 7.5
1993 15,359 13,918 9.4 6.9
1994 15,450 14,122 8.6 6.1
1995 15,412 14,203 7.8 5.6
1996 15,568 14,444 7.2 5.4
1997 15,971 14,965 6.3 4.9

- --------------------

SOURCE: State of California, Employment Development Department.
</TABLE>

<PAGE>

EMPLOYMENT, INCOME, CONSTRUCTION AND RETAIL SALES

The following table shows California's nonagricultural employment
distribution and growth for 1990 and 1997. PAYROLL EMPLOYMENT BY MAJOR SECTOR
1990 AND 1997

EMPLOYMENT % DISTRIBUTION
(THOUSANDS) OF EMPLOYMENT
INDUSTRY SECTOR 1990 1997 1990 1997
--------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Mining ...................................... 39 29 0.3 0.2
Construction ................................ 605 554 4.8 4.2
Manufacturing
Nondurable goods .......................... 721 728 5.7 5.5
High Technology ........................... 686 517 5.4 3.9
Other Durable goods ....................... 690 669 5.4 5.1
Transportation and Utilities ................ 624 663 4.9 5.1
Wholesale and Retail Trade .................. 3,002 3,057 23.7 23.2
Finance, Insurance
and Real Estate ........................... 825 756 6.5 5.7
Services .................................... 3,395 4,051 26.8 30.8
Government
Federal ................................... 362 285 2.9 2.2
State and Local ........................... 1,713 1,858 13.5 14.1
TOTAL
AGRICULTURAL .............................. 12,662 13,167 100 100

- -------------------
SOURCE: State of California, Employment Development Department and State of
California, Department of Finance.
</TABLE>

<PAGE>

The following tables show California's total and per capita income
patterns for selected years.

TOTAL PERSONAL INCOME 1992-97
CALIFORNIA
---------------------------------------------------
YEAR MILLIONS %CHANGE CALIFORNIA % OF U.S.
- ---- -------- ------- --------------------
1992 684,674 4.8(*) 13.1
1993 698,130 2.0 12.8
1994(a) 718,321 2.9 12.5
1995 754,269 5.0 12.4
1996 798,020 5.8 12.5
1997 846,017 6.0 12.5

- ---------------------
(*) Change from prior year.
(a) Reflects Northridge earthquake, which caused an estimated $15 billion drop
in personal income.
Note: Omits income for government employees overseas.

SOURCE: U.S. Department of Commerce, Bureau of Economic Analysis.

PER CAPITA PERSONAL INCOME 1992-97

CALIFORNIA
YEAR CALIFORNIA % CHANGE UNITED STATES % CHANGE % OF U.S.
- ---- ---------- -------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
1992 22,163 3.2(*) 20,546 4.7(*) 107.9
1993 22,388 1.0 21,220 3.3 105.5
1994(a) 23,899 2.3 22,056 3.9 103.8
1995 23,901 4.4 23,063 4.6 103.6
1996 25,050 4.8 24,169 4.8 103.6
1997 26,218 4.7 25,298 4.7 103.6

- ------------------------
(*) Change from prior year.

(a) Reflects Northridge earthquake, which caused an estimated $15 billion drop
in personal income.

SOURCE: U.S. Department of Commerce, Bureau of Economic Analysis.
</TABLE>

<PAGE>

LITIGATION

In the case of BOARD OF ADMINISTRATION, CALIFORNIA PUBLIC EMPLOYEES'
RETIREMENT SYSTEM, ET AL. V. PETE WILSON, GOVERNOR, ET AL., plaintiffs
challenged the constitutionality of legislation which deferred payment of the
State's employer contribution to the Public Employees' Retirement System
beginning in Fiscal Year 1992-93. On January 11, 1995, the Sacramento County
Superior Court entered a judgment finding that the legislation
unconstitutionally impaired the vested contract rights of PERS members. The
judgment provides for issuance of a writ of mandate directing State defendants
to disregard the provisions of the legislation, to implement the statute
governing employer contributions that existed before the changes in the
legislation found to be unconstitutional, and to transfer to PERS the
contributions that were unpaid to date. On February 19, 1997, the State Court of
Appeal affirmed the decision of the Superior Court, and the Supreme Court
subsequently refused to hear the case, making the Court of Appeals' ruling
final.

On July 30, 1997, the Controller transferred $1.228 billion from the
General Fund to PERS in repayment of the principal amount determined to have
been improperly deferred. Subsequent State payments to PERS will be made on a
quarterly basis. On July 7, 1998, pursuant to Chapter 94, Statutes of 1998, the
State paid PERS $332.7 million for the accrued interest on the judgment and
interest on the unpaid accrued interest amount. See "CURRENT STATE BUDGET -
1998-99 Fiscal Year Budget" above.

On June 24, 1998, plaintiffs in HOWARD JARVIS TAXPAYERS ASSOCIATION ET
AL. V. KATHLEEN CONNELL filed a complaint for certain declaratory and injunctive
relief challenging the authority of the State Controller to make payments from
the State Treasury in the absence of a state budget. On July 21, 1998, the trial
court issued a preliminary injunction prohibiting the State Controller from
paying moneys from the State Treasury for fiscal year 1998-99, with certain
limited exceptions, in the absence of a state budget. The preliminary
injunction, among other things, prohibited the State Controller from making any
payments pursuant to any continuing appropriation.

On July 22 and 27, 1998, various employee unions which had intervened
in the case appealed the trial court's preliminary injunction and asked the
Court of Appeal to stay the preliminary injunction. On July 28, 1998, the Court
of Appeal granted the unions' requests and stayed the preliminary injunction
pending the Court of Appeal's decision on the merits of the appeal. On August 5,
1998, the Court of Appeal denied the plaintiffs' request to reconsider the stay.
Also on July 22, 1998, the State Controller asked the California Supreme Court
to immediately stay the trial court's preliminary injunction and to overrule the
order granting the preliminary injunction on the merits. On July 29, 1998, the
Supreme Court transferred the State Controller's request to the Court of Appeal.
The matters are now pending before the Court of Appeal.

In JORDAN V. DEPARTMENT OF MOTOR VEHICLES, plaintiff challenged the
validity and constitutionality of the State's smog impact fee and requested a
refund of the fee. In October 1997, the trial court ruled in favor of plaintiff
and, in addition, ordered the State to provide refunds to all persons who paid
the smog impact fee from three years before the filing of the lawsuit in 1995 to
the present. Plaintiff asserts that the total amount required to be refunded
will exceed $350 million. The State has appealed.

A judgment was entered for plaintiffs in CALIFORNIA AMBULANCE
ASSOCIATION V. SHALALA ET AL., described at page 63 of Exhibit I to this
Appendix. The Ninth Circuit Court of Appeals, however, reversed the trial
court's decision. Plaintiffs filed a petition for certiorari at the United
States Supreme Court, which the State opposed. The petition is currently pending
at the Supreme Court.

A judgment was entered for plaintiff in August 1998 in the case of
CERIDIAN CORPORATION V. FRANCHISE TAX BOARD, described at pages 63-64 of Exhibit
1. The State will appeal.

In HATHAWAY, ET AL. V. WILSON, ET AL., described at page 65 of Exhibit
1, the plaintiffs and the State reached a settlement which resolved all the
issues presented in the case. Pursuant to the settlement, judgment was entered
in August 1998, requiring the State to return $19,427,000 from the General Fund
to one special fund.

In THOMAS HAYES V. COMMISSION ON STATE MANDATES, described at page 64
of Exhibit 1, the Commission on State Mandates is now expected to issue a final
consolidated decision in late 1998.

In February 1998, the Court of Appeal in CALIFORNIA STATE EMPLOYEES
ASSOCIATION V. WILSON, described at page 64 of Exhibit 1, modified, then
affirmed, a judgment in favor of the plaintiffs invalidating the transfer of
$12,290,000 from the State Highway Account to the General Fund.

In July 1998, the parties in BENO V. SULLIVAN and WELCH V. ANDERSON,
described at page 65 of Exhibit 1, entered into a settlement agreement in which
the State agreed to pay $42 million in return for plaintiffs' agreement to
dismiss both actions.

INFORMATION TECHNOLOGY

The State's reliance on information technology in every aspect of its
operations has made Year 2000-related ("Y2K") information technology ("IT")
issues a high priority for the State. The Department of Information Technology
("DOIT"), an independent office reporting directly to the Governor, is
responsible for ensuring the State's information technology processes are fully
functional before the year 2000. The DOIT has created a Year 2000 Task Force and
a California 2000 Office to establish statewide policy requirements; to gather,
coordinate, and share information; and to monitor statewide progress. In
December 1996, the DOIT began requiring departments to report on Y2K activities
and currently requires departmental monthly reporting of Y2K status. The DOIT
has emphasized to departments that efforts should be focused on applications
that support mission-critical business practices.

The risks posed by Y2K information technology related issues are not
confined to computer systems, but also include problems presented by embedded
microchips (products or systems that contain microchips to perform functions
such as traffic control, instruments used in hospitals or medical laboratories,
and California Aqueduct monitoring). To address these problems, the Governor
issued Executive Order W-163-97, broadening the responsibilities of the DOIT to
resolve these issues as well as legal questions associated with Y2K issues. The
executive order also required that mission critical systems be remediated by
December 31, 1998, that purchases of new systems, hardware, software and
equipment be Year 2000 compliant and further limited new computer projects to
those required by law until a department's Y2K problems are resolved. The DOIT
has also more recently required departments to address interfacing of State IT
systems with external IT systems, and to report on contingency planning status
for problems which might occur if IT systems are not fully remediated by the end
of 1999.

In its quarterly report for the period ending June 30, 1998 (the "July
Quarterly Report"), the DOIT reported that departments under its supervision had
identified 642 mission critical IT systems out of a total of 2,432 systems. Of
the mission-critical systems, 87 were reported as already Y2K compliant. Of the
remaining 555 mission critical systems requiring remediation, 128 were reported
as completed. While the DOIT does not oversee certain independent State
entities, such as the judiciary, the Legislature, the University of California
and California State University System, it believes these other agencies are
well under way with their own Y2K remediation plans.

In its quarterly report for the period ending September 30, 1998 (the
"October Quarterly Report"), the DOIT updated its survey of State departments,
and reported that the number of mission-critical systems needing remediation was
reduced to 532, and 220 of them had been remediated. However, the DOIT reported
that fewer projects were completed by September 30, 1998 than had been planned
by departments, and more projects were falling into fourth quarter 1998 and
first quarter 1999. Thus, some mission-critical systems (less than 10%) would
not meet the Governor's Executive Order target to be remediated by December 31,
1998.

In late August, 1998, the State Auditor ("BSA") released a report on
"Year 2000 Computer Problems." The BSA surveyed 39 State departments and
compared their status to the March 31, 1998 DOIT quarterly report. (The work for
BSA's report was done before the DOIT July Quarterly Report was ready.) The BSA
Report concluded that some agencies had fallen behind schedule by as much as 1-3
months compared to their March expectations. The BSA Report also noted concern
that departments were not making adequate plans to test remediated systems, were
not focusing sufficiently on problems associated with data interface with other
governmental and private bodies, and were not far enough along in developing
"business continuation plans" to ensure continued operations after January 1,
2000 in the event of IT problems. The DOIT responded in some detail to the BSA
report, generally agreeing with its identification of issue areas, and stating
that it was following up on all areas with the departments.

In the July Quarterly Report, the DOIT estimates total Y2K costs
identified by the departments under its supervision at about $239 million, of
which more than $100 million was projected to be expended in fiscal years
1998-99 and 1999-2000. The October Quarterly Report indicated the total costs
were now estimated to be at least $290 million, and the estimate would likely
increase in the future. These costs are part of much larger overall IT costs
incurred annually by State departments and do not include costs for remediation
for embedded technology, desktop systems and additional costs resulting from
discoveries in the testing process. For fiscal year 1998-99, the Legislature
created a $20 million fund for unanticipated Y2K costs, which can be increased
if necessary.

Although the DOIT reports that State departments are making
substantial progress overall toward the goal of Y2K compliance, the task is very
large and will likely encounter unexpected difficulties. The State cannot
predict whether all mission critical systems will be ready and tested by late
1999 or what impact failure of any particular IT system(s) or of outside
interfaces with State IT systems might have. The State Treasurer's Office and
the State Controller's Office report that they are both on schedule to complete
their Y2K remediation projects by December 31, 1998, allowing full testing
during 1999. These systems include debt service payments on State debt and the
State fiscal and accounting system.

<PAGE>

APPENDIX D

INVESTING IN MINNESOTA MUNICIPAL OBLIGATIONS

RISK FACTORS -- INVESTING IN MINNESOTA MUNICIPAL OBLIGATIONS

STATE GOVERNMENT. The State of Minnesota was formally organized as a
territory in 1849 and was admitted to the Union in 1858 as the 32nd state.
Bordered by Canada on the north, Lake Superior and Wisconsin on the east, Iowa
on the south, and North and South Dakota on the west, it is the 12th largest and
20th most populous state in the Union.

The Minnesota Constitution organizes State government into three
branches: Executive, Legislative and Judicial. The Legislative Branch is
composed of a Senate and a House of Representatives. Fiscal administration is
performed by the Department of Finance under the control and supervision of the
Commissioner of Finance.

STATE AND STATE-RELATED INDEBTEDNESS. The Minnesota Constitution
authorizes public debt to be incurred for the acquisition and betterment of
public land, buildings and other improvements of a capital nature or for
appropriations or loans to Minnesota state agencies or political subdivisions
for this purpose, as the Legislature by the three-fifths vote of each House may
direct, and to finance the development of agricultural resources of the State by
extending credit on real estate security, as the Legislature may direct. All
such debt is evidenced by the issuance of State of Minnesota bonds maturing
within 20 years of their date of issue, for which the full faith and credit and
taxing powers of the State are irrevocably pledged. There is no limitation as to
the amount or interest rate of such general obligation issues.

As of November 1, 1998, the outstanding principal amount of all
Minnesota general obligation bonds was approximately $2.4 billion.

The Minnesota Constitution limits Minnesota general obligation debt to
(i) short-term debt for Minnesota operating purposes, (ii) short-term debt for
making loans to school districts and (iii) voter-approved long-term debt.

Short-term debt for operating purposes is limited to an amount not in
excess of 15 percent of undedicated revenues received during the preceding
fiscal year and must be issued only to meeting obligations incurred pursuant to
appropriation and repaid during the fiscal year in which incurred. The April,
1998, end of session cash flow analysis for Minnesota's Statutory General Fund
indicates that Minnesota will have a positive cash flow balance during the
Current Biennium which began on July 1, 1997 and ends June 30, 1999. Minnesota
has no short-term debt outstanding and, therefore, Minnesota does not expect to
do any short-term borrowing for cash flow purposes during the Current Biennium.

There are also various Minnesota authorities and special purpose
agencies created by the state which issue bonds secured by specific revenues.
Such debt is not a general obligation of the State of Minnesota.

CONSTITUTIONAL AND STATUTORY PROVISIONS RELATING TO MINNESOTA AND
LOCAL FUNDING. Minnesota revenues in Minnesota are generated primarily from
individual income taxes, corporate franchise taxes, sales and use taxes,
insurance gross earnings taxes, estate taxes, motor vehicle excise taxes, excise
taxes on liquor and tobacco, mortgage taxes, deed taxes, legalized gambling
taxes, rental motor vehicle taxes, 900 telephone service taxes, taconite and
iron ore taxes, and health care provider taxes. In addition to the major taxes
described above, other sources of non-dedicated revenue include minor taxes, 60%
of Minnesota's lottery net proceeds, unrestricted grants, fees and charges of
Minnesota state agencies and departments, and investment income. County,
municipal and certain special purpose districts (such as water, flood or
mosquito control districts) are authorized to levy property taxes within
specified legislative limits. A portion of Minnesota's revenues is allocated
from state government to other governmental units within Minnesota such as
municipal and county governments, school districts and state agencies through a
complex series of appropriations and financial aid formulas. This financial
interdependency of the Minnesota state government with other units of
government, subject all levels of government, in varying degrees, to
fluctuations in Minnesota's overall economy.

Minnesota's constitutional prescribed fiscal period is a biennium, and
Minnesota operates on a biennial budget basis with revenues created in the
period in which they are collected and expenditures debited in the period in
which the corresponding liabilities are incurred. The biennium begins on July
1st of the odd numbered year and runs through June 30th of the next odd numbered
year.

Minnesota's ability to appropriate funds is limited by the Minnesota
Constitution, which directs that Minnesota government shall not in any biennium
appropriate funds in excess of projected tax revenues from all sources.
Minnesota is authorized to levy additional taxes to resolve any inadvertent
shortfalls.

Appropriations for each biennium are enacted during the final
legislative session of the immediately preceding biennium. A revenue forecast is
prepared during the legislative session to provide the legislature with updated
information for the appropriations process. During each biennium, regular
forecasts of revenues and expenditures are prepared.

Minnesota's biennial appropriation process relies on revenue
forecasting as the basis for establishing aggregate expenditure levels. Risks
are inherent in the revenue and expenditure forecasts. Assumptions about U.S.
economic activity and federal tax and expenditure policies underlie these
forecasts. Any federal law changes that increase federal income taxes or reduce
federal spending programs may adversely affect these forecasts. Finally, even if
economic and federal tax assumptions are correct, revenue forecasts are still
subject to some normal level of error. The correctness of revenue forecasts and
the strength of Minnesota's overall economy may restrict future aid or
appropriations from Minnesota government to other units of government.

Prior to the Current Biennium, Minnesota law established a Budget
Reserve and Cash Flow Account in the Accounting General Fund which served two
functions. However, in 1995 the Minnesota Legislature departed the Budget
Reserve and Cash Flow Account into two separate accounts: the Cash Flow Account
and the Budget Reserve Account, each having a different function. The Cash Flow
Account was established in the General Accounting Fund for the purpose of
providing sufficient cash balances to cover monthly revenue and expenditure
imbalances. The use of funds from the Cash Flow Account is governed by statute.
The Cash Flow Account balance is set for the Current Biennium at $350 million.
No provision has been made for increasing the balance of the Cash Flow Account
from increases in forecast revenues over forecast expenditures. The Budget
Reserve Account was established in the Accounting General Fund for the purpose
of reserving funds to cushion the State from an economic downturn. The use of
funds from the Budget Reserve Account and the allocation of surplus forecast
balances to the Budget Reserve Account are governed by statute. The Budget
Reserve Account balance is set for the Current Biennium at $613 million.

For the fiscal year ended June 30, 1995, net revenues received were
$8.984 billion. After total expenditures and net transfers of $8.894 billion,
Fiscal Year 1995 ended with an Unrestricted Accounting General Fund balance of
$445 million and an Unreserved Accounting General Fund balance of $1.021
million.

For the fiscal year ended June 30, 1996, net revenues received were
$9.617 billion and total expenditures and net transfers were $9.302 billion.

For the fiscal year ended June 30, 1997, net revenues received were
$10.538 billion. After total expenditures and net transfers of $10.229 billion,
Fiscal Year 1997 ended with an Unrestricted Accounting General Fund balance of
$1.167 billion.

Based on end of 1998 legislative session estimates, total revenues for
the Current Biennium, which began July 1, 1997 and ends on June 30, 1999, are
estimated to be approximately $10.365 billion for fiscal year 1998 and $10.613
billion for fiscal year 1999.

In 1992 the Minnesota Legislature established the MinnesotaCare(R)
program to provide subsidized health care insurance for long-term uninsured
Minnesotans, reform individual and small group health insurance regulations,
create a health care analysis unit to collect condition-specific data about
health care practices in order to develop practice parameters for health care
providers, implement certain cost containment measures into the system, and
establish an office of rural health to ensure the health care needs of all
Minnesotans are being met. The program is not part of the Accounting General
Fund. A separate account, called the Health Care Access Fund, has been
established in Minnesota's Special Reserve Fund to account for revenues and
expenditures for the MinnesotaCare(R) program. Program expenditures are limited
to revenues received in the Health Care Access Fund. Program revenues are
derived from dedication of insurance premiums paid by individuals, five cents of
the state cigarette tax through December 31, 1993, and permanent taxes including
a 2% gross revenue tax on hospitals, health care providers and wholesale drug
distributors, a 2% use tax on prescription drugs and a 1% gross premium tax on
nonprofit health service plans and HMOs. A previously required transfer from the
Health Care Access Fund to the Accounting General Fund was eliminated after
Fiscal year 1995. The purpose of the transfer was to pay for increased costs in
the generally funded Medicaid (MA) and General Assistance Medical Care (GAMC)
programs, due to applicants found ineligible for MinnesotaCare(R), but
qualifying for MA or GAMC.

The 1993 Legislature adopted legislation establishing a school
district credit enhancement program. The legislation authorizes and directs the
Commissioner of Finance, under certain circumstances and subject to the
availability of funds, to issue a warrant and authorize the Commissioner of
Children, Families and Learning to pay debt service coming due on school
district tax and state-aid anticipation certificates of indebtedness and school
district general obligation bonds in the event that the school district notifies
the Commissioner of Children, Families and Learning that it does not have
sufficient money in its debt service fund for that purpose, or the paying agent
informs the Commissioner of Children, Families and Learning that it has not
received from the school district timely payment of moneys to be used to pay
debt service. The legislation appropriates annually from the Accounting General
Fund to the Commissioner of Children, Families and Learning the amount needed to
pay any warrants which are issued. The amounts paid on behalf of any school
district are required to be repaid by it with interest, either through a
reduction of subsequent state-aid payments or by the levy of an ad valorem tax
which may be made with the approval of the Commissioner of Children, Families
and Learning. As of October l, 1998, there were approximately $103 million of
certificates of indebtedness enrolled in the program, all of which will mature
within a 13 month period. The State has not had to make any debt service
payments on behalf of school districts under the program and does not expect to
make any payments in the future. The state expects that school districts will
issue certificates of indebtedness next year and will enroll these certificates
in the program in about the same amount of principal as this year.

School districts may issue certificates of indebtedness or capital
notes to purchase certain equipment. The certificates or notes may be issued by
resolution of the Board, are general obligations of the school district and must
be payable in not more than five years. As of October 1, 1998, there are
approximately $17 million principal amount of certificates and notes enrolled in
the program.

School districts are authorized to issue general obligation bonds only
when authorized by school district electors or special law, and only after
levying a direct, irrevocable ad valorem tax on all taxable property in the
school district for the years and in amounts sufficient to produce sums not less
than 5% in excess of the principal of an interest on the bonds when due. As of
October 1, 1998, the total amount of principal on certificates and capital notes
issued for equipment and bonds, plus the interest on these obligations, through
the year 2026, is approximately $5.3 billion.

The amount of revenue generated by Minnesota's tax structure, because
of the dependence on the income and sales taxes, is sensitive to the status of
the national and local economy. There can be no assurance that the financial
problems referred to or similar future problems will not affect the market value
or marketability of the Minnesota Municipal Obligations or the ability of the
issuers thereof to pay the interest or principal of such obligations.

Minnesota general obligation bonds are rated Aaa by Moody's and AA+ by
S&P and AAA by Fitch.

SELECTED ECONOMIC AND DEMOGRAPHIC FACTORS. Diversity and a significant
natural resource base are two important characteristics of Minnesota's economy.
Minnesota's economy is being lifted by strong earnings growth in the service
industry, rising housing construction, and job gains which are slowly firming up
to labor market.

When viewed in 1997 at a highly aggregative level of detail, the
structure of Minnesota's economy parallels the structure of the U.S. economy as
a whole. Minnesota employment in ten major industrial sectors was distributed in
approximately the same proportions as national employment. In all sectors, the
share of total Minnesota employment was within two percentage points of national
employment share.

Minnesota's employment in the durable goods industries continues to be
highly concentrated in industries specializing in the manufacturing of
industrial machinery, fabricated metal and instruments. This emphasis is
partially explained by the location in Minnesota of computer-related equipment
manufacturers. Further, manufacturers of food products, wood products, and
printed and published materials joined the high technology manufacturing group
which has lead to significant business expansion in Minnesota in this decade.

The importance of Minnesota's rich natural resource base for overall
employment is apparent in the employment mix in non-durable goods industries. In
1997, approximately 30% of Minnesota's non-durable goods employment was
concentrated in food and kindred industries, and approximately 17% in paper and
allied industries. This compares to approximately 22% and 9%, respectively, for
comparable sectors in the national economy. Both of these industries rely
heavily on renewable resources in Minnesota. Over half of Minnesota's acreage is
devoted to agricultural purposes and nearly one-third to forestry. Printing and
publishing are also relatively more important in Minnesota than in the U.S.

Mining is currently a less significant factor in the Minnesota economy
than it once was. Mining employment, primarily in the iron ore or taconite
industry, dropped from 17.3 per thousand in 1979 to 7.9 per thousand in 1997. It
is not expected that mining employment will soon return to 1979 levels. However,
Minnesota retains vast quantities of taconite as well as copper, nickel, cobalt
and peat which may be utilized in the future.

While Minnesota's involvement in the defense industry is limited, as
military procurement cuts continue, Minnesota employers may face challenges in
maintaining employment and sales. More importantly, Minnesota firms producing
electronic components, communication equipment, electrical equipment, chemicals,
plastics, computers and software may face additional competition from companies
converting from military to civilian production.

Minnesota resident population grew from 4,085,000 in 1980 to 4,387 in
1990 or, at an average annual compound rate of .7%. In comparison, U.S.
population grew at an annual compound rate of .9% during this period. Minnesota
population is currently forecast by the U.S. Department of Commerce to grow at
an annual compound rate of .8% through 2005.

EMPLOYMENT AND INCOME GROWTH IN MINNESOTA. In the period 1980 to 1990,
overall employment growth in Minnesota lagged behind national growth. However,
manufacturing has been a strong sector, with Minnesota employment outperforming
its U.S. counterpart in both the 1980-1990 and 1990-1997 periods.

In spite of the strong manufacturing sector, during the 1980 to 1990
period, total employment in Minnesota increased 17.9% as compared to 20.1%
nationally. Most of Minnesota's slower growth can be associated with declining
agricultural employment and two recessions in the U.S. economy in the early
1980's which were more severe in Minnesota than nationwide. Minnesota non-farm
employment growth generally kept pace with the nation in the period after the
1981-82 recession ended in late 1982. In the period 1990 to 1997, non-farm
employment growth in Minnesota exceeded national growth. Minnesota's non-farm
employment grew 16.7% compared to 12.2% nationwide.

Since 1980, Minnesota per capita personal income has been within six
percentage points of national per capita personal income. The state's per capita
income, which is computed by dividing personal income by total resident
population, has generally remained above the national average in spite of the
early 1980's recessions and some difficult years in agriculture. In 1997,
Minnesota per capita personal income was 103.9% of its U.S. counterpart.

Another measure of the vitality of Minnesota's economy is its
unemployment rate. During 1996 and 1997, respectively, Minnesota's monthly
unemployment rate was generally less than the national unemployment rate,
averaging 3.3% in 1997, as compared to the national average of 4.9%.

<PAGE>

APPENDIX E

INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS

RISK FACTORS--INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS

The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the Annual Information
Statement of the State of New York dated June 26, 1998 and a supplement thereto
dated November 4, 1998. The factors affecting the financial condition of New
York State (the "State") and New York City (the "City") are complex and the
following description constitutes only a summary.

GENERAL

New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The state's economy is diverse, with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State's location and its excellent air
transport facilities and natural harbors have made it an important link in
international commerce. Travel and tourism constitute an important part of the
economy. Like the rest of the nation, New York has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries.

SERVICES: The services sector, which includes entertainment, personal
services, such as health care and auto repairs, and business-related services,
such as information processing, law and accounting, is the State's leading
economic sector. The services sector accounts for more than three of every ten
nonagricultural jobs in New York and has a noticeably higher proportion of total
jobs than does the rest of the nation.

MANUFACTURING: Manufacturing employment continues to decline in
importance in New York, as in most other states, and New York's economy is less
reliant on this sector than is the nation. The principal manufacturing
industries in recent years produced printing and publishing materials,
instruments and related products, machinery, apparel and finished fabric
products, electronic and other electric equipment, food and related products,
chemicals and allied products, and fabricated metal products.

TRADE: Wholesale and retail trade is the second largest sector in
terms of nonagricultural jobs in New York but is considerably smaller when
measured by income share. Trade consists of wholesale businesses and retail
businesses, such as department stores and eating and drinking establishments.

FINANCE, INSURANCE AND REAL ESTATE: New York City is the nation's
leading center of banking and finance and, as a result, this is a far more
important sector in the State than in the nation as a whole. Although this
sector accounts for under one-tenth of all nonagricultural jobs in the State, it
contributes over one-sixth of all nonfarm labor and proprietors' income.

AGRICULTURE: Farming is an important part of the economy of large
regions of the State, although it constitutes a very minor part of total State
output. Principal agricultural products of the State include milk and dairy
products, greenhouse and nursery products, apples and other fruits, and fresh
vegetables. New York ranks among the nation's leaders in the production of these
commodities.

GOVERNMENT: Federal, State and local government together are the third
largest sector in terms of nonagricultural jobs, with the bulk of the employment
accounted for by local governments. Public education is the source of nearly
one-half of total state and local government employment.

Relative to the nation, the State has a smaller share of manufacturing
and construction and a larger share of service-related industries. The State's
finance, insurance, and real estate share, as measured by income, is
particularly large relative to the nation. The State is likely to be less
affected than the nation as a whole during an economic recession that is
concentrated in manufacturing and construction, but likely to be more affected
during a recession that is concentrated in the service-producing sector.

ECONOMIC OUTLOOK

U. S. ECONOMY

Economic growth during both 1998 and 1999 is expected to be slower
than it was during 1997. The financial and economic turmoil which started in
Asia and has spread to other parts of the world is expected to continue to
negatively affect U.S. trade balances throughout most of 1999. In addition,
growth in domestic consumption, which has been a major driving force behind the
nation's strong economic performance in recent years, is expected to slow in
1999 as consumer confidence retreats from historic highs and the stock market
ceases to provide large amounts of extra discretionary income. However, the
lower short-term interest rates which are expected to be in force during 1999
should help prevent a recession. The revised forecast projects real GDP growth
of 3.4 percent in 1998, moderately below the 1997 growth rate. In 1999, real GDP
growth is expected to fall further, to 1.6 percent. The growth of nominal GDP is
projected to decline from 5.9 percent in 1997 to 4.6 percent in 1998 and 3.7
percent in 1999. The inflation rate is expected to drop to 1.7 percent in 1998
before rising to 2.7 percent in 1999. The annual rate of job growth is expected
to be 2.5 percent in 1998, almost equaling the strong growth rate experienced in
1997. In 1999, however, employment growth is forecast to slow markedly, to 1.9
percent. Growth in personal income and wages is expected to slow in 1998 and
again in 1999.

STATE ECONOMY

Continued growth is projected in 1998 and 1999 for employment, wages,
and personal income, although, for 1999, a significant slowdown in the growth
rates of personal income and wages are expected. The growth of personal income
is projected to rise from 4.7 percent in 1997 to 5.0 percent in 1998, but then
drop to 3.4 percent in 1999, in part because growth in bonus payments is
expected to moderate significantly, a distinct shift from the unusually high
increases of the last few years. Overall employment growth is expected to be 2.0
percent in 1998, the strongest in a decade, but is expected to drop to 1.0
percent in 1999, reflecting the slowing growth of the national economy,
continued spending restraint in government, less robust profitability in the
financial sector and continued restructuring in the manufacturing, health care,
and banking sectors.

STATE FINANCIAL PLAN

The State Constitution requires the Governor to submit to the
legislature a balanced executive budget which contains a complete plan of
expenditures (the "State Financial Plan") for the ensuing fiscal year and all
moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
A final budget must be approved before the statutory deadline of April 1. The
State Financial Plan is updated quarterly pursuant to law.

1998-99 FISCAL YEAR

The State's current fiscal year began on April 1, 1998 and ends on
March 31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).

General Fund disbursements in 1998-99 are now projected to grow by
$2.43 billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.

The State's enacted budget includes several new multi-year tax
reduction initiatives, including acceleration of State-funded property and local
income tax relief for senior citizens under the School Tax Relief Program
(STAR), expansion of the child care income-tax credit for middle-income
families, a phased-in reduction of the general business tax, and reduction of
several other taxes and fees, including an accelerated phase-out of assessments
on medical providers. The enacted budget also provides for significant increases
in spending for public schools, special education programs, and for the State
and City university systems. It also allocates $50 million for a new Debt
Reduction Reserve Fund (DRRF) that may eventually be used to pay debt service
costs on or to prepay outstanding State-supported bonds.

The 1998-99 State Financial Plan projects a closing balance in the
General Fund of $1.42 billion that is comprised of a reserve of $761 million
available for future needs, a balance of $400 million in the Tax Stabilization
Reserve Fund (TSRF), a balance of $158 million in the Community Projects Fund
(CPF), and a balance of $100 million in the Contingency Reserve Fund (CRF). The
TSRF can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is used to finance various legislative and executive initiatives. The CRF
provides resources to help finance any extraordinary litigation costs during the
fiscal year.

Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and organizations that are
not subject to the State's control. The State Financial Plan is also necessarily
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. The Division of Budget believes that
its projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable.
Actual results, however, could differ materially and adversely from the
projections set forth herein, and those projections may be changed materially
and adversely from time to time. See "Special Considerations" below for a
discussion of risks and uncertainties faced by the State.

SECOND UPDATE (CURRENT FISCAL YEAR)

On October 30, 1998, the State issued the second of its three
quarterly updates to the 1998-99 Financial Plan. In the Mid-Year Update, the
State continues to project that the State Financial Plan for 1998-99 will remain
in balance. The State now projects total receipts in 1998-99 of $37.84 billion,
an increase of $29 million over the amount projected in the First Quarterly
Update. The State has made no changes to its July disbursement projections, with
total disbursements of $36.78 billion expected for the current fiscal year. The
additional receipts increase the State's projected surplus (reserve for future
needs) by $29 million over the July estimate, to $1.04 billion.

The Financial Plan now projects a closing balance in the General Fund
of $1.7 billion. The balance is comprised of the $1.04 billion reserve for
future needs, $400 million in the Tax Stabilization Reserve Fund, $100 million
in the Contingency Reserve Fund (after a planned deposit of $32 million in
1998-99), and $158 million in the Community Projects Fund.

The State ended the first six months of 1998-99 fiscal year with a
General Fund cash balance of $5.02 billion, roughly $143 million higher than
projected in the cash flow accompanying the July Update to the Financial Plan.
Total receipts, including transfers from other funds, were approximately $52
million higher than expected, with the increase comprised of additional tax
revenues ($22 million) and transfers from other funds ($30 million). Total
spending through the first six months of the fiscal year was $16.28 billion, or
$91 million lower than projected in July. This variance resulted primarily from
higher spending in Grants to Local Governments ($27 million), offset by lower
spending in State Operations ($124 million). These variances are timing-related
and should not affect total disbursements for the fiscal year.

OUTYEAR PROJECTIONS OF RECEIPTS AND DISBURSEMENTS

State law requires the Governor to propose a balanced budget each
year. In recent years, the State has closed projected budget gaps of $5.0
billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than
$1 billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.

Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1999-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.

The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The STAR program, which dedicates a portion of
personal income tax receipts to fund school tax reductions, has a significant
impact on General Fund receipts. STAR is projected to reduce personal income tax
revenues available to the General Fund by an estimated $1.3 billion in 2000-01.
Measured from the 1998-99 base, scheduled reductions to estate and gift, sales
and other taxes, reflecting tax cuts enacted in 1997-98 and 1998-99, will lower
General Fund taxes and fees by an estimated $1.8 billion in 2000-01.
Disbursement projections for the outyears currently assume additional outlays
for school aid, Medicaid, welfare reform, mental health community reinvestment,
and other multi-year spending commitments in law. See "Special Considerations"
below for a description of other risks and uncertainties associated with the
State Financial Plan process.

SPECIAL CONSIDERATIONS

The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. These factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. Because of the uncertainty and
unpredictability of these factors, their impact cannot, as a practical matter,
be included in the assumptions underlying the State's projections at this time.

The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. 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, the extent of
corporate and governmental restructuring, the condition of the financial sector,
federal fiscal and monetary policies, the level of interest rates, 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 results in
the current fiscal year that are worse than predicted, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.

Projections of total State receipts in the Financial Plan are based on
the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages, consumption, profits and employment have
been particularly important. The projection of receipts from most tax or revenue
sources is generally made by estimating the change in yield of such tax or
revenue source caused by economic and other factors, rather than by estimating
the total yield of such tax or revenue source from its estimated tax base. The
forecasting methodology, however, ensures that State fiscal year collection
estimates for taxes that are based on a computation of annual liability, such as
the business and personal income taxes, are consistent with estimates of total
liability under such taxes.

Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations. Factors
that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the federal government, and changes in the demand for and use of State
services.

An additional risk to the State Financial Plan arises from the
potential impact of certain litigation and of federal disallowances now pending
against the State, which could adversely affect the State's projections of
receipts and disbursements. The State Financial Plan assumes no significant
litigation or federal disallowance or other federal actions that could affect
State finances, but has significant reserves in the event of such an action.

The Division of the Budget believes that its projections of receipts
and disbursements relating to the current State Financial Plan, and the
assumptions on which they are based, are reasonable. Actual results, however,
could differ materially and adversely from the projections set forth herein. In
the past, the State has taken management actions to address potential Financial
Plan shortfalls, and DOB believes it could take similar actions should variances
occur in its projections for the current fiscal year.

Despite recent budgetary surpluses recorded by the State, actions
affecting the level of receipts and disbursements, the relative strength of the
State and regional economy, and actions by the federal government have helped to
create projected structural budget gaps for the State. These gaps result from a
significant disparity between recurring revenues and the costs of maintaining or
increasing the level of support for State programs. To address a potential
imbalance in any given fiscal year, the State would be required to take actions
to increase receipts and/or or reduce disbursements as it enacts the budget for
that year, and, under the State Constitution, the Governor is required to
propose a balanced budget each year. There can be no assurance, however, that
the Legislature will enact the Governor's proposals or that the State's actions
will be sufficient to preserve budgetary balance in a given fiscal year or to
align recurring receipts and disbursements in future fiscal years. For example,
the fiscal effects of tax reductions adopted in the last several fiscal years
(including 1998-99) are projected to grow more substantially beyond the 1998-99
fiscal year, with the incremental annual cost of all currently enacted tax
reductions estimated at over $4 billion by the time they are fully effective in
State fiscal year 2002-03. These actions will place pressure on future budget
balance in New York State.

1998-99 STATE FINANCIAL PLAN

Four governmental fund types comprise the State Financial Plan: the
General Fund, the Special Revenue Funds, the Capital Projects Funds, and the
Debt Service Funds.

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.
In the State's 1998-99 fiscal year, the General Fund is expected to account for
approximately 47.6 percent of all Governmental Funds disbursements and 70.1
percent of total State Funds disbursements. General Fund moneys are also
transferred to other funds, primarily to support certain capital projects and
debt service payments in other fund types. Total receipts and transfers from
other funds are projected to be $37.56 billion, an increase of $3.01 billion
from the 1997-98 fiscal year. Total General Fund disbursements and transfers to
other funds are projected to be $36.78 billion, an increase of $2.43 billion
from the 1997-98 fiscal year.

PROJECTED GENERAL FUND RECEIPTS

Total General Fund receipts in 1998-99 are projected to be $37.56
billion, an increase of over $3 billion from the $34.55 billion recorded in
1997-98. This total includes $34.36 billion in tax receipts, $1.40 billion in
miscellaneous receipts, and $1.80 billion in transfers from other funds.

The transfer of a portion of the surplus recorded in 1997-98 to
1998-99 exaggerates the "real" growth in State receipts from year to year by
depressing reported 1997-98 figures and inflating 1998-99 projections.
Conversely, the incremental cost of tax reductions newly effective in 1998-99
and the impact of statutes earmarking certain tax receipts to other funds work
to depress apparent growth below the underlying growth in receipts attributable
to expansion of the State's economy. On an adjusted basis, State tax revenues in
the 1998-99 fiscal year are projected to grow at approximately 7.5 percent,
following an adjusted growth of roughly nine percent in the 1997-98 fiscal year.
The discussion below summarizes the State's projections of General Fund taxes
and other revenues for the 1998-99 Fiscal year.

The PERSONAL INCOME TAX is imposed on the income of individuals,
estates and trusts and is based with certain modifications on federal
definitions of income and deductions. This tax continues to account for over
half of the State's General Fund receipts base. Net personal income tax
collections are projected to reach $21.24 billion, nearly $3.5 billion above the
reported 1997-98 collection total. Since 1997 represented the completion of the
20 percent income tax reduction program enacted in 1995, growth from 1997 to
1998 will be unaffected by major income tax reductions. Adding to the projected
annual growth is the net impact of the transfer of the surplus from 1997-98 to
the current year which affects reported collections by over $2.4 billion on a
year-over-year basis, as partially offset by the diversion of slightly over $700
million in income tax receipts to the STAR fund to finance the initial year of
the school tax reduction program. The STAR program was enacted in 1997 to
increase the State share of school funding and reduce residential school taxes.
Adjusted for these transactions, the growth in net income tax receipts is
roughly $1.7 billion, an increase of over 9 percent. This growth is largely a
function of over 8 percent growth in income tax liability projected for 1998 as
well as the impact of the 1997 tax year settlement on 1998-99 net collections.

USER TAXES AND FEES are comprised of three-quarters of the State four
percent sales and use tax (the balance, one percent, flows to support Local
Government Assistance Corporation (LGAC) debt service requirements), cigarette,
alcoholic beverage, container, and auto rental taxes, and a portion of the motor
fuel excise levies. Also included in this category are receipts from the motor
vehicle registration fees and alcoholic beverage license fees. A portion of the
motor fuel tax and motor vehicle registration fees and all of the highway use
tax are earmarked for dedicated transportation funds.

Receipts from user taxes and fees are projected to total $7.14
billion, an increase of $107 million from reported collections in the prior
year. The sales tax component of this category accounts for all of the 1998-99
growth, as receipts from all other sources decline $100 million. The growth in
yield of the sales tax in 1998-99, after adjusting for tax law and other
changes, is projected at 4.7 percent. The yields of most of the excise taxes in
this category show a long-term declining trend, particularly cigarette and
alcoholic beverage taxes. These General Fund declines are exacerbated in 1998-99
by revenue losses from scheduled and newly enacted tax reductions, and by an
increase in earmarking of motor vehicle registration fees to the Dedicated
Highway and Bridge Trust Fund.

BUSINESS TAXES include franchise taxes based generally on net income
of general business, bank and insurance corporations, as well as
gross-receipts-based taxes on utilities and gallonage-based petroleum business
taxes. Beginning in 1994, a 15 percent surcharge on these levies began to be
phased out and, for most taxpayers, there is no surcharge liability for taxable
periods ending in 1997 and thereafter.

Total business tax collections in 1998-99 are now projected to be
$4.96 billion, $91 million less than received in the prior fiscal year. The
category includes receipts from the largely income-based levies on general
business corporations, banks and insurance companies, gross receipts taxes on
energy and telecommunication service providers and a per-gallon imposition on
petroleum business. The year-over-year decline in projected receipts in this
category is largely attributable to statutory changes between the two years.
These include the first year of utility-tax rate cuts and the Power for Jobs tax
reduction program for energy providers, and the scheduled additional diversion
of General Fund petroleum business and utility tax receipts to other funds. In
addition, profit growth is also expected to slow in 1998.

OTHER TAXES include estate, gift and real estate transfer taxes, a tax
on gains from the sale or transfer of certain real estate (this tax was repealed
in 1996), a pari-mutuel tax and other minor levies. They are now projected to
total $1.02 billion -- $75 million below last year's amount. Two factors account
for a significant part of the expected decline in collections from this
category. First, the effects of the elimination of the real property gains tax
collections; second, a decline in estate tax receipts, following the explosive
growth recorded in 1997-98, when receipts expanded by over 16 percent.

MISCELLANEOUS RECEIPTS include investment income, abandoned property
receipts, medical provider assessments, minor federal grants, receipts from
public authorities, and certain other license and fee revenues. Total
miscellaneous receipts are projected to reach $1.40 billion, down almost $200
million from the prior year, reflecting the loss of non-recurring receipts in
1997-98 and the growing effects of the phase-out of the medical provider
assessments.

TRANSFERS FROM OTHER FUNDS to the General Fund consist primarily of
tax revenues in excess of debt service requirements, particularly the one
percent sales tax used to support payments to LGAC. Transfers from other funds
are expected to total $1.8 billion, or $222 million less than total receipts
from this category during 1997-98. Total transfers of sales taxes in excess of
LGAC debt service requirements are expected to increase by approximately $51
million, while transfers from all other funds are expected to fall by $273
million, primarily reflecting the absence, in 1998-99, of a one-time transfer of
nearly $200 million for retroactive reimbursement of certain social services
claims from the federal government.

PROJECTED GENERAL FUND DISBURSEMENTS

General Fund disbursements in 1998-99, including transfers to support
capital projects, debt service and other funds are estimated at $36.78 billion.
This represents an increase of $2.43 billion or 7.1 percent from 1997-98. Nearly
one-half of the growth is for educational purposes, reflecting increased support
for public schools, special education programs and the State and City university
systems. The remaining increase is primarily for Medicaid, mental hygiene, and
other health and social welfare programs, including children and family
services. The 1998-99 Financial Plan also includes funds for the current
negotiated salary increases for State employees, as well as increased transfers
for debt service.

GRANTS TO LOCAL GOVERNMENTS is the largest category of General Fund
disbursements and includes financial assistance to local governments and
not-for-profit corporations, as well as entitlement benefits to individuals. The
1998-99 Financial Plan projects spending of $25.14 billion in this category, an
increase of $1.88 billion or 8.1 percent over the prior year. The largest annual
increases are for educational programs, Medicaid, other health and social
welfare programs, and community projects grants.

The 1998-99 budget provides $9.65 billion in support of public
schools. The year-to-year increase of $769 million is comprised of partial
funding for a 1998-99 school year increase of $847 million as well as the
remainder of the 1997-98 school year increase that occurs in State fiscal year
1998-99. Spending for all other educational programs, which includes the State
and City university systems, the Tuition Assistance Programs, and handicapped
programs, is estimated at $3.00 billion, an increase of $270 million over
1997-98 levels.

Medicaid costs are estimated at $5.60 billion, an increase of $144
million from the prior year. After adjusting 1997-98 for the $116 million
prepayment of an additional Medicaid cycle, Medicaid spending is projected to
increase $260 million or 4.9 percent. Disbursements for all other health and
social welfare programs are projected to total $3.63 billion, an increase of
$131 million from 1997-98. This includes an increase in support for children and
families and local public health programs, offset by a decline in welfare
spending of $75 million that reflects continuing State and local efforts to
reduce welfare fraud, declining caseloads, and the impact of State and federal
welfare reform legislation.

Remaining disbursements primarily support community-based mental
hygiene programs, community and public health programs, local transportation
programs, and revenue sharing payments to local governments. Revenue sharing and
other general purpose aid to local governments are projected at $837 million, an
increase of approximately $37 million from 1997-98.

STATE OPERATIONS spending reflects the administrative costs of
operating the State's agencies, including the prison system, mental hygiene
institutions, the State University system (SUNY), the Legislature, and the court
system. Personal service costs account for approximately 73 percent of spending
in this category. Since January 1995, the State's workforce has been reduced by
about 10 percent and is projected to remain at its current level of
approximately 191,000 persons in 1998-99.

State operations spending is projected at $6.70 billion, an increase
of $511 million of 8.3 percent from the prior year. This increase is primarily
due to an additional payroll cycle in 1998-99, a 3.5 percent general salary
increase on October 1, 1998 for most State employees, the loss of federal
receipts that would otherwise lower General Fund spending in mental hygiene
programs, and a projected 15.6 percent increase in the Judiciary's budget.

GENERAL STATE CHARGES account primarily for the costs of providing
fringe benefits for State employees, including contributions to pension systems,
the employer's share of social security contributions, employer contributions
toward the cost of health insurance, and the costs of providing worker's
compensation and unemployment insurance benefits. This category also reflects
certain fixed costs such as payments in lieu of taxes, and payments of judgments
against the State or its public officers.

Disbursements in this category are estimated at $2.22 billion, a
decrease of $50 million from the prior year. This annual decline reflects
projected decreases in pension costs and Court of Claims payments, offset by
modest projected increases for health insurance contributions, social security
costs, and the loss of reimbursements due to a reduction in the fringe benefit
rate charged to positions financed by non-General Fund sources.

DEBT SERVICE paid from the General Fund reflects debt service on
short-term obligations of the State, and includes only interest costs on the
State's commercial paper program. The 1998-99 debt service estimate is $11
million, reflecting relative stability in short-term interest rates. The State's
short-term TRAN borrowing program was eliminated in 1995.

TRANSFERS TO OTHER FUNDS from the General Fund are made primarily to
finance certain portions of State capital projects spending and debt service on
long-term bonds where these costs are not funded from other sources.

Transfers in support of debt service are projected at $2.13 billion in
1998-99, an increase of $110 million from 1997-98. The increase reflects the
impact of certain prior year bond sales (net of refunding savings), and certain
bond sales planned to occur during the 1998-99 fiscal year. The State Financial
Plan also establishes a transfer of $50 million to the new Debt Reduction
Reserve Fund. The Fund may be used, subject to enactment of new appropriations,
to pay the debt service costs on or to prepay State-supported bonds.

Transfers in support of capital projects provide General Fund support
for projects not otherwise financed through bond proceeds, dedicated taxes and
other revenues, or federal grants. These transfers are projected at $200 million
for 1998-99, comparable to last year.

Remaining transfers from the General Fund to other funds are estimated
to decline $59 million in 1998-99 to $327 million. This decline is primarily the
net impact of one-time transfers in 1997-98 to the State University Tuition
Stabilization Fund and to the Lottery Fund to support school aid, offset by a
1998-99 increase in the State subsidy to the Roswell Park Cancer Research
Institute.

NON-RECURRING RESOURCES

The Division of the Budget estimates that the 1998-99 State Financial
Plan contains actions that provide non-recurring resources or savings totaling
approximately $64 million, the largest of which is a retroactive reimbursement
of federal welfare claims.

The 1998-99 Financial Plan projects a closing fund balance in the
General Fund of $1.42 billion. This fund balance is composed of a reserve of
$761 million available for future needs, a $400 million balance in the TSRF, a
$158 million balance in the CPF, and a balance of $100 million in the CRF, after
a projected deposit of $32 million in 1998-99.

OTHER GOVERNMENTAL FUNDS

In addition to the General Fund, the State Financial Plan includes
Special Revenue Funds, Capital Projects Funds and Debt Service Funds which are
discussed below. Amounts below do not include other sources and uses of funds
transferred to or from other fund types.

SPECIAL REVENUE FUNDS

Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes.
Although activity in this fund type is expected to comprise approximately 41
percent of total governmental funds receipts in the 1998-99 fiscal year, three-
quarters of that activity relates to federally-funded programs.

Total disbursements for programs supported by Special Revenue Funds
are projected at $29.97 billion, an increase of $2.32 billion or 8.4 percent
from 1997-98. Federal grants account for approximately three-quarters of all
spending in the Special Revenue fund type. Disbursements from federal funds are
estimated at $21.78 billion, an increase of $1.12 billion or 5.4 percent. The
single largest program in this fund group is Medicaid, which is projected at
$13.65 billion, an increase of $465 million or 3.5 percent above last year.
Federal support for welfare programs is projected at $2.53 billion, similar to
1997-98. The remaining growth in federal funds is primarily due to the new Child
Health Plus program, estimated at $197 million in 1998-99. This program will
expand health insurance coverage to children of indigent families.

State special revenue spending is projected to be $8.19 billion, an
increase of $1.20 billion or 17.2 percent from last year's levels. Most of this
projected increase in spending is due to the $704 million cost of the first
phase of the STAR program, as well as $231 million in additional operating
assistance for mass transportation, and $113 million for the State share of the
new Child Health Plus program.

CAPITAL PROJECTS FUNDS

Capital Projects Funds account for the financial resources used in the
acquisition, construction, or rehabilitation of major State capital facilities,
and for capital assistance grants to certain local governments or public
authorities. This fund type consists of the Capital Projects Fund, which is
supported by tax receipts transferred from the General Fund, and various other
capital funds established to distinguish specific capital construction purposes
supported by other revenues. In the 1998-99 fiscal year, activity in these funds
is expected to comprise 5.5 percent of total governmental receipts.

Capital Projects Funds spending in fiscal year 1998-99 is projected at
$4.14 billion, an increase of $575 million or 16.1 percent from last year. The
major components of this expected growth are transportation and environmental
programs, including continued increased spending for 1996 Clean Water/Clean Air
Bond Act projects and higher projected disbursements from the Environmental
Protection Fund (EPF). Another significant component of this projected increase
is in the area of public protection, primarily for facility rehabilitation and
construction of additional prison capacity.

DEBT SERVICE FUNDS

Debt Service Funds are used to account for the payment of principal
and interest on long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements. This
fund type is expected to comprise 3.8 percent of total governmental fund
receipts in the 1998-99 fiscal year. Receipts in these funds in excess of debt
service requirements may be transferred to the General Fund, Capital Projects
Funds and Special Revenue Funds, pursuant to law.

Total disbursements form the Debt Service Fund type are estimated at
$3.36 billion in 1998-99, an increase of $275 million or 8.9 percent from
1997-98 levels. Of the increase, $102 million is for transportation purposes,
including debt service on bonds issued for State and local highway and bridge
programs financed through the New York State Thruway Authority and supported by
the Dedicated Highway and Bridge Trust Fund. Another $45 million is for
education purposes, including State and City University programs financed
through the Dormitory Authority of the State of New York (DASNY). The remainder
is for a variety of programs in such areas as mental health and corrections, and
for general obligation financings.

YEAR 2000 COMPLIANCE

New York State is currently addressing "Year 2000" data processing
compliance issues. The Year 2000 compliance issue ("Y2K") arises because most
computer software programs allocate two digits to the data field for "year" on
the assumption that the first two digits will be "19." Such programs will thus
interpret the year 2000 as the year 1900 absent reprogramming. Y2K could impact
both the ability to enter data into computer programs and the ability of such
programs to correctly process data.

In 1996, the State created the Office for Technology (OFT) to help
address statewide technology issues, including the Year 2000 issue. OFT has
estimated that investments of at least $140 million will be required to bring
approximately 350 State mission-critical and high-priority computer systems not
otherwise scheduled for replacement into Year 2000 compliance, and the State is
planning to spend $100 million in the 1998-99 fiscal year for this purpose.
Mission-critical computer applications are those which impact the health,
safety and welfare of the State and its citizens, and for which failure to be in
Y2K compliance could have a material and adverse impact upon State operations.
High-priority computer applications are those that are critical for a State
agency to fulfill its mission and deliver services, but for which they are
manual alternatives. Work has been completed on roughly 20 percent of these
systems. All remaining unfinished mission-critical and high-priority systems
have at least 40 percent or more of the work completed. Contingency planning is
underway for those systems which may be non-compliant prior to failure dates.
The enacted budget also continues funding for major systems scheduled for
replacement, including the State payroll, civil service, tax and finance and
welfare management systems, for which Year 2000 compliance is included as a part
of the project.

OFT is monitoring compliance on a quarterly basis and is providing
assistance and assigning resources to accelerate compliance for mission-critical
systems, with most compliance testing expected to be completed by mid-1999.
There can be no guarantee, however, that all of the State's mission-critical and
high-priority computer systems will be Year 2000 compliant and that there will
not be an adverse impact upon State operations or State finances as a result.

CASH-BASIS RESULTS FOR PRIOR FISCAL YEARS

The State reports its financial results on two bases of accounting:
the cash basis, showing receipts and disbursements; and the modified accrual
basis, prescribed by Generally Accepted Accounting Principles ("GAAP"), showing
revenues and expenditures.

GENERAL FUND 1995-96 THROUGH 1997-98

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 most
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. A narrative
description of cash-basis results in the General Fund is presented below.

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"). A national recession, followed
by the lingering economic slowdown in New York and the regional economy,
resulted in repeated shortfalls in receipts and three budget deficits during
those years. During its last six fiscal years, however, the State has recorded
balanced budgets on a cash basis, with positive fund balances as described
below.

1997-98 FISCAL YEAR

The State ended its 1997-98 fiscal year in balance on a cash basis,
with a General Fund cash surplus as reported by DOB of approximately $2.04
billion. The cash surplus was derived primarily from higher-than-anticipated
receipts and lower spending on welfare, Medicaid, and other entitlement
programs.

The General Fund had a closing balance of $638 million, an increase of
$205 million from the prior fiscal year. The balance is held in three accounts
within the General Fund: the Tax Stabilization Reserve Fund (TSRF), the
Contingency Reserve Fund (CRF) and the Community Projects Fund (CPF). The TSRF
closing balance was $400 million, following a required deposit of $15 million
(repaying a transfer made in 1991-92) and an extraordinary deposit of $68
million made from the 1997-98 surplus. The CRF closing balance was $68 million,
following a $27 million deposit from the surplus. The CPF, which finances
legislative initiatives, closed the fiscal year with a balance of $170 million,
an increase of $95 million. The General Fund closing balance did not include
$2.39 billion in the tax refund reserve account, of which $521 million was made
available as a result of the Local Government Assistance Corporation (LGAC)
financing program and was required to be on deposit on March 31, 1998.

General Fund receipts and transfers from other funds for the 1997-98
fiscal year (including net tax refund reserve account activity) totaled $34.55
billion, an annual increase of $1.51 billion, or 4.57 percent over 1996-97.
General Fund disbursements and transfers to other funds were $34.35 billion, an
annual increase of $1.45 billion or 4.41 percent.

1996-97 FISCAL YEAR

The State ended its 1996-97 fiscal year on March 31, 1997 in balance
on a cash basis, with a General Fund cash surplus as reported by DOB of
approximately $1.42 billion. The cash surplus was derived primarily from
higher-than-expected receipts and lower-than-expected spending for social
services programs.

The General Fund closing balance was $433 million, an increase of $146
million from the 1995-96 fiscal year. The balance included $317 million in the
TSRF, after a required deposit of $15 million and an additional deposit of $65
million in 1996-97. In addition, $41 million remained on deposit in the CRF. The
remaining $75 million reflected amounts then on deposit in the Community
Projects Fund. The General Fund closing balance did not include $1.86 billion in
the tax refund reserve account, of which $521 million was made available as a
result of the LGAC financing program and was required to be on deposit as of
March 31, 1997.

General Fund receipts and transfers from other funds for the 1996-97
fiscal year totaled $33.04 billion, an increase of 0.7 percent from the previous
fiscal year (including net tax refund reserve account activity). General Fund
disbursements and transfers to other funds totaled $32.90 billion for the
1996-97 fiscal year, an increase of 0.7 percent from the 1995-96 fiscal year.

1995-96 FISCAL YEAR

The State ended its 1995-96 fiscal year on March 31, 1996 with a
General Fund cash surplus, as reported by DOB, of $445 million. The cash surplus
was derived from higher-than-expected receipts, savings generated through
agency cost controls, and lower-than-expected welfare spending.

The General Fund closing fund balance was $287 million, an increase of
$129 million from 1994-95 levels. The $129 million change in fund balance is
attributable to a $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million deposit to the CRF, and a $9 million
deposit to the Revenue Accumulation Fund. The closing fund balance included $237
million on deposit in the TSRF. In addition, $41 million was on deposit in the
CRF. The remaining $9 million reflected amounts then on deposit in the Revenue
Accumulation Fund. The General Fund closing balance did not include $678 million
in the tax refund reserve account of which $521 million was made available as a
result of the LGAC financing program and was required to be on deposit as of
March 31, 1996.

General Fund receipts and transfers from other funds (including net
refund reserve account activity) totaled $32.81 billion, a decrease of 1.1
percent from 1994-95 levels. General Fund disbursements and transfers to other
funds totaled $32.68 billion for the 1995-96 fiscal year, a decrease of 2.2
percent from 1994-95 levels.

OTHER GOVERNMENTAL FUNDS (1995-96 THROUGH 1997-98)

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 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 are used
to support the capital programs of the Department of Transportation and the
Metropolitan Transportation Authority (MTA).

In the SPECIAL REVENUE FUNDS, disbursements increased from $26.26
billion to $27.65 billion over the last three years, primarily as a result of
increased costs for the federal share of Medicaid. Other activity reflected
dedication of taxes to a new fund for mass transportation, new lottery games,
and new fees for criminal justice programs.

Disbursements in the CAPITAL PROJECTS FUNDS declined over the three
year period from $3.97 billion to $3.56 billion as spending for miscellaneous
capital programs decreased, partially offset by increases for mental hygiene,
health and environmental programs. The composition of this fund type's receipts
also changed as the dedicated transportation taxes began to be deposited,
general obligation bond proceeds declined substantially, federal grants remained
stable, and reimbursements from public authority bonds (primarily transportation
related) increased.

Activity in the DEBT SERVICE FUNDS reflected increased use of bonds
during the three-year period for improvements to the State's capital facilities
and the continued costs of the LGAC fiscal reform program. The increases were
moderated by the refunding savings achieved by the State over the last several
years using strict present value savings criteria. The growth in LGAC debt
service was offset by reduced short-term borrowing costs reflected in the
General Fund.

LITIGATION
STATE FINANCE POLICIES

INSURANCE LAW

Proceedings have been brought by two groups of petitioners challenging
regulations promulgated by the Superintendent of Insurance that established
excess medical malpractice premium rates for fiscal years 1986-87 through
1996-97 (NEW YORK STATE HEALTH MAINTENANCE ORGANIZATION CONFERENCE, INC., ET AL.
V. MUHL, ET AL. ["HMO"], and NEW YORK STATE CONFERENCE OF BLUE CROSS AND BLUE
SHIELD PLANS, ET AL. V. MUHL, ET AL. ["BLUE CROSS 'I' AND 'II'"], Supreme Court,
Albany County). By order filed January 22, 1997, the Court in BLUE CROSS I
permitted the plaintiffs in HMO to intervene and dismissed the challenges to the
rates for the period prior to 1995-96. By decision dated July 24, 1997, the
Court in BLUE CROSS I held that the determination made by the Superintendent in
establishing the 1995-96 rate was arbitrary and capricious and directed that
premiums paid pursuant to that determination be returned to the payors. The
State has appealed this decision. The petitioners did not cross appeal. In BLUE
CROSS II, by amended judgment dated April 2, 1998, the Supreme Court annulled
the regulation setting the 1996-97 premium rate and directed that all 1996-97
excess malpractice premiums be returned to the payors. The State will not be
obligated in either case to pay moneys to any petitioner. Adverse determinations
would result in refunds from the affected insurers.

TAX LAW

In NEW YORK ASSOCIATION OF CONVENIENCE STORES, ET AL. V. URBACH, ET
AL., petitioners, New York Association of Convenience Stores, National
Association of Convenience Stores, M.W.S. Enterprises, Inc. and Sugarcreek
Stores, Inc. seek to compel respondents, the Commissioner of Taxation and
Finance and the Department of Taxation and Finance, to enforce sales and excise
taxes imposed pursuant to Tax Law Articles 12-A, 20 and 28 on tobacco products
and motor fuel sold to non-Indian consumers on Indian reservations. In orders
dated August 13, 1996 and August 24, 1996, the Supreme Court, Albany County,
ordered, INTER ALIA, that there be equal implementation and enforcement of said
taxes for sales to non-Indian consumers on and off Indian reservations, and
further ordered that, if respondents failed to comply within 120 days, no
tobacco products or motor fuel could be introduced onto Indian reservations
other than for Indian consumption or, alternately, the collection and
enforcement of such taxes would be suspended statewide. Respondents appealed to
the Appellate Division, Third Department, and invoked CPLR 5519(a)(1), which
provides that the taking of the appeal stayed all proceedings to enforce the
orders pending the appeal. Petitioner's motion to vacate the stay was denied. In
a decision entered May 8, 1997, the Third Department modified the orders by
deleting the portion thereof that provided for the statewide suspension of the
enforcement and collection of the sales and excise taxes on motor fuel and
tobacco products. The Third Department held, INTER ALIA, that petitioners had
not sought such relief in their petition and that it was an error for the
Supreme Court to have awarded such undemanded relief without adequate notice of
its intent to do so. On May 22, 1997, respondents appealed to the Court of
Appeals on other grounds, and again invoked the statutory stay. On October 23,
1997, the Court of Appeals granted petitioners' motion for leave to cross-appeal
from the portion of the Third Department's decision that deleted the statewide
suspension of the enforcement and collection of the sales and excise taxes on
motor fuel and tobacco. The case was argued before the Court of Appeals on March
24, 1998.

CLEAN WATER/CLEAN AIR BOND ACT OF 1996

In ROBERT L. SCHULZ, ET AL. V. THE NEW York STATE EXECUTIVE, ET AL.
(Supreme Court, Albany County, commenced October 16, 1996), plaintiffs challenge
the enactment of the Clean Water/Clean Air Bond Act of 1996 and its implementing
legislation (1996 Laws of New York, Chapters 412 and 413). Plaintiffs claim,
INTER ALIA, that the Bond Act and its implementing legislation violate
provisions of the State Constitution requiring that such debt be authorized by
law for some single work or purpose distinctly specified therein and forbidding
incorporation of other statutes by reference.

In an opinion dated June 9, 1998, the Court of Appeals affirmed the
July 17, 1997 order of the Appellate Division, Third Department, affirming the
lower court dismissal of this case.

LINE ITEM VETO

In an action commenced in June 1998 by the Speaker of the Assembly of
the State of New York against the Governor of the State of New York (SILVER V.
PATAKI, Supreme Court, New York County), the Speaker challenges the Governor's
application of his constitutional line item veto authority to certain portions
of budget bills adopted by the State Legislature contained in Chapters 56, 57
and 58 of the Laws of 1998.

STATE PROGRAMS
MEDICAID

Several cases challenge provisions of Chapter 81 of the Laws of 1995
which alter the nursing home Medicaid reimbursement methodology on and after
April 1, 1995. Included are NEW YORK STATE HEALTH FACILITIES ASSOCIATION, ET AL.
V. DEBUONO, ET AL., ST. LUKE'S NURSING CENTER, ET AL. V. DEBUONO, ET AL., NEW
YORK ASSOCIATION OF HOMES AND SERVICES FOR THE AGING V DEBUONO ET AL (three
cases), HEALTHCARE ASSOCIATION OF NEW YORK STATE V. DEBUONO and BAYBERRY NURSING
HOME ET AL. V. PATAKI, ET AL. Plaintiffs allege that the changes in methodology
have been adopted in violation of procedural and substantive requirements of
State and federal law.

In a consolidated action commenced in 1992, Medicaid recipients and
home health care providers and organizations challenge promulgation by the State
Department of Social Services (DSS) in June 1992 of a home assessment resource
review instrument (HARRI), which is to be used by DSS to determine eligibility
for and the nature of home care services for Medicaid recipients, and challenge
the policy of DSS of limiting reimbursable hours of service until a patient is
assessed using the HARRI (DOWD, ET AL. V. BANE, Supreme Court, New York County).

In several cases, plaintiffs seek retroactive claims for reimbursement
for services provided to Medicaid recipients who were also eligible for Medicare
during the period January 1, 1987 to June 2, 1992. Included are MATTER OF NEW
YORK STATE RADIOLOGICAL SOCIETY V. WING, APPEL V. WING, E.F.S. MEDICAL SUPPLIES
V. DOWLING, KELLOGG V. WING, LIFSHITZ V. WING, NEW YORK STATE PODIATRIC MEDICAL
ASSOCIATION V. WING and NEW YORK STATE PSYCHIATRIC ASSOCIATION V. WING. These
cases were commenced after the State's reimbursement methodology was held
invalid in NEW YORK CITY HEALTH AND HOSPITAL CORP. V. PERALES. The State
contends that these claims are time-barred. In a judgment dated September 5,
1996, the Supreme Court, Albany County, dismissed MATTER OF NEW YORK STATE
RADIOLOGICAL SOCIETY V. WING as time-barred. By order dated November 26, 1997,
the Appellate Division, Third Department, affirmed that judgment. By decision
dated June 9, 1998, the Court of Appeals denied leave to appeal.

Several cases, including PORT JEFFERSON HEALTH CARE FACILITY, ET AL.
V. WING (Supreme Court, Suffolk County), challenge the constitutionality of
Public Health Law ss. 2807-d, which imposes a tax on the gross receipts
hospitals and residential health care facilities receive from all patient care
services. Plaintiffs allege that the tax assessments were not uniformly applied,
in violation of federal regulations. In a decision dated June 30, 1997, the
Court held that the 1.2 percent and 3.8 percent assessments on gross receipts
imposed pursuant to Public Health Law ss.ss. 2807-d(2)(b)(ii) and
2807-d(2)(b)(iii), respectively, are unconstitutional. An order entered August
27, 1997 enforced the terms of the decision. The State has appealed that order.

SHELTER ALLOWANCE

In an action commenced in March 1987 against State and New York City
officials (JIGGETTS, ET AL. V. BANE, ET AL., Supreme Court, New York County),
plaintiffs allege that the shelter allowance granted to recipients of public
assistance is not adequate for proper housing. In a decision dated April 16,
1997, the Court held that the shelter allowance promulgated by the Legislature
and enforced through DSS regulations is not reasonably related to the cost of
rental housing in New York City and results in homelessness to families in New
York City. A judgment was entered on July 25, 1997, directing, INTER ALIA, that
the State (i) submit a proposed schedule of shelter allowances (for the Aid to
Dependent Children program and any successor program) that bears a reasonable
relation to the cost of housing in New York City; and (ii) compel the New York
City Department of Social Services to pay plaintiffs a monthly shelter allowance
in the full amount of their contract rents, provided they continue to meet the
eligibility requirements for public assistance, until such time as a lawful
shelter allowance is implemented, and provide interim relief to other eligible
recipients of Aid to Dependent Children under the interim relief system
established in this case. The State has appealed to the Appellate Division,
First Department from each and every provision of this judgment except that
portion directing the continued provision of interim relief.

CIVIL RIGHTS CLAIMS

In an action commenced in 1980 (UNITED STATES, ET AL. V. YONKERS BOARD
OF EDUCATION, ET AL.), the United States District Court for the Southern
District of New York found, in 1985, that Yonkers and its public schools were
intentionally segregated. In 1986, the District Court ordered Yonkers to develop
and comply with a remedial educational improvement plan (EIP I). On January 19,
1989, the District Court granted motions by Yonkers and the NAACP to add the
State Education Department, the Yonkers Board of Education, and the State Urban
Development Corporation as defendants, based on allegations that they had
participated in the perpetuation of the segregated school system. On August 30,
1993, the District Court found that vestiges of a dual school system continued
to exist in Yonkers. On March 27, 1995, the District Court made factual findings
regarding the role of the State and the other State defendants (the State) in
connection with the creation and maintenance of the dual school system, but
found no legal basis for imposing liability. On September 3, 1996, the United
States Court of Appeals for the Second Circuit, based on the District Court's
factual findings, held the State defendants liable under 42 USC ss. 1983 and the
Equal Educational Opportunity Act, 20 USC ss.ss. 1701, ET seq., for the unlawful
dual school system, because the State, INTER alia, had taken no action to force
the school district to desegregate despite its actual or constructive knowledge
of DE JURE segregation. By order dated October 8, 1997, the District Court held
that vestiges of the prior segregated school system continued to exist and that,
based on the State's conduct in creating and maintaining that system, the State
is liable for eliminating segregation and its vestiges in Yonkers and must fund
a remedy to accomplish that goal. Yonkers presented a proposed educational
improvement plan (EIP II) to eradicate these vestiges of segregation. The
October 8, 1997 order of the District Court ordered that EIP II be implemented
and directed that, within 10 days of the entry of the Order, the State make
available to Yonkers $450,000 to support planning activities to prepare the EIP
II budget for 1997-98 and the accompanying capital facilities plan. A final
judgment to implement EIP II was entered on October 14, 1997. On November 7,
1997, the State appealed that judgment to the Second Circuit. The appeal is
pending. Additionally, the Court adopted a requirement that the State pay to
Yonkers approximately $9.85 million as its pro rata share of the funding of EIP
I for the 1996-97 school year. The requirement for State funding of EIP I was
reduced to an order on December 2, 1997 and reduced to a judgment on February
10, 1998. The State appealed that order to the Second Circuit on December 31,
1997 and amended the notice of appeal after entry of the judgment. That appeal
has been consolidated with the appeal of the EIP II appeal, and is also pending.

On June 15, 1998, the District Court issued an opinion setting forth
the formula for the allocation of the costs of EIP I and EIP II between the
State and the City for the school years 1997-98 through 2005-06. That opinion
has not yet been reduced to an order.

REAL PROPERTY CLAIMS

On March 4, 1985 in ONEIDA INDIAN NATION OF NEW YORK, ET AL. V. COUNTY
OF ONEIDA, the United States Supreme Court affirmed a judgment of the United
States Court of Appeals for the Second Circuit holding that the Oneida Indians
have a common-law right of action against Madison and Oneida Counties for
wrongful possession of 872 acres of land illegally sold to the State in 1795. At
the same time, however, the Court reversed the Second Circuit by holding that a
third-party claim by the counties against the State for indemnification was not
properly before the federal courts. The case was remanded to the District Court
for an assessment of damages, which action is still pending. The counties may
still seek indemnification in the State courts.

Several other actions involving Indian claims to land in upstate New
York are also pending. Included are CAYUGA INDIAN NATION OF NEW YORK V. CUOMO,
ET AL., and CANADIAN ST. REGIS BAND OF MOHAWK INDIANS, ET AL. V. STATE OF NEW
YORK ET AL., both in the United States District Court for the Northern District
of New York. The Supreme Court's holding in ONEIDA INDIAN NATION OF NEW YORK may
impair or eliminate certain of the State's defenses to these actions but may
enhance others.

AUTHORITIES AND LOCALITIES

PUBLIC AUTHORITIES

The fiscal stability of the State is related in part to the fiscal
stability of its public authorities. For the purposes of this summary, public
authorities refer to public benefit corporations created pursuant to State law,
other than local authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts and restrictions set
forth in legislative authorization. The State's access to the public credit
markets could be impaired and the market price of its outstanding debt may be
materially and adversely affected if any of its public authorities were to
default on their respective obligations. As of December 31, 1997, there were 17
public authorities that had outstanding debt of $100 million or more, and the
aggregate outstanding debt, including refunding bonds, of all State authorities
was $84 billion, only a portion of which constitutes State-supported or
State-related debt.

The State has numerous public authorities with various
responsibilities, including those which finance, construct and/or operate
revenue producing public facilities. Public authorities generally pay their
operating expenses and debt service costs from revenues generated by the
projects they finance or operate, such as tolls charged for the use of highways,
bridges or tunnels, charges for public power, electric and gas utility services,
rentals charged for housing units, and charges for occupancy at medical care
facilities. Also, there are statutory arrangements providing for State local
assistance payments otherwise payable to localities to be made under certain
circumstances to public authorities. Although the State has no obligation to
provide additional assistance to localities whose local assistance payments have
been paid to public authorities under these arrangements, the affected
localities may seek additional State assistance if local assistance payments are
diverted. Some authorities also receive moneys from State appropriations to pay
for the operating costs of certain of their programs. As described below, the
MTA receives the bulk of this money in order to provide transit and commuter
services.

Beginning in 1998, the Long Island Power Authority (LIPA) assumed
responsibility for the provision of electric utility services previously
provided by Long Island Lighting Company for Nassau, Suffolk and a portion of
Queen Counties, as part of an estimated $7 billion financing plan. As of the
date of this AIS, LIPA has issued over $5 billion in bonds secured solely by
ratepayer charges. LIPA's debt is not considered either State-supported or
State-related debt.

METROPOLITAN TRANSPORTATION AUTHORITY

The MTA oversees the operation of subway and bus lines in New York
City by its affiliates, the New York City Transit Authority and the Manhattan
and Bronx Surface Transit Operating Authority (collectively, the "TA"). The MTA
operates certain commuter rail and bus services in the New York Metropolitan
area through MTA's subsidiaries, the Long Island Rail Road Company, the
Metro-North Commuter Railroad Company, and the Metropolitan Suburban Bus
Authority. In addition, the Staten Island Rapid Transit Operating 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 intrastate toll bridges and tunnels. Because fare revenues
are not sufficient to finance the mass transit portion of these operations, the
MTA has depended on, and will continue to depend on, operating support from the
State, local governments and TBTA, 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.

Since 1980, 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 Metropolitan Transportation Region
served by the MTA and a special one-quarter of 1 percent regional sales and use
tax--that provide revenues for mass transit purposes, including assistance to
the MTA. Since 1987, State law also has required that the proceeds of a
one-quarter of 1 percent mortgage recording tax paid on certain mortgages in the
Metropolitan Transportation Region be deposited in a special MTA fund for
operating or capital expenses. 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 1998-99 fiscal year, State assistance to the MTA
is projected to total approximately $1.3 billion, an increase of $133 million
over the 1997-98 fiscal year.

State legislation accompanying the 1996-97 adopted State budget
authorized the MTA, TBTA and TA to issue an aggregate of $6.5 billion in bonds
to finance a portion of the $12.17 billion MTA capital plan for the 1995 through
1999 calendar years (the "1995-99 Capital Program"). In July 1997, the Capital
Program Review Board ("CPRB") approved the 1995-99 Capital Program (subsequently
amended in August 1997), which supersedes the overlapping portion of the MTA's
1992-96 Capital Program. The 1995-99 Capital Program is the fourth capital plan
since the Legislature authorized procedures for the adoption, approval and
amendment of MTA capital programs and is designed to upgrade the performance of
the MTA's transportation systems by investing in new rolling stock, maintaining
replacement schedules for existing assets and bringing the MTA system into a
state of good repair. The 1995-99 Capital Program assumes the issuance of an
estimated $5.2 billion in bonds under this $6.5 billion aggregate bonding
authority. The remainder of the plan is projected to be financed through
assistance from the State, the federal government, and the City of New York, and
from various other revenues generated from actions taken by the MTA.

There can be no assurance that all the necessary governmental actions
for future capital programs will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99 Capital
Program, or parts thereof, will not be delayed or reduced. Should funding levels
fall below current projections, the MTA would have to revise its 1995-99 Capital
Program accordingly. If the 1995-99 Capital Program is delayed or reduced,
ridership and fare revenues may decline, which could, among other things, impair
the MTA's ability to meet its operating expenses without additional assistance.

THE CITY OF NEW YORK

The fiscal health of the State may also be affected by the fiscal
health of New York City (the "City"), which continues to receive significant
financial assistance from the State. State aid contributes to the City's ability
to balance its budget and to meet its cash requirements. The State may also be
affected by the ability of the City and certain entities issuing debt for the
benefit of the City to market their securities successfully in the public credit
markets.

The City has achieved balanced operating results for each of its
fiscal years since 1981 as measured by the GAAP standards in force at that time.
The City prepares a four-year financial plan ("Financial Plan") annually and
updates it periodically, and prepares a comprehensive annual financial report
describing its most recent fiscal year each October.

THE CITY OF NEW YORK
FISCAL OVERSIGHT

In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions, the
State established the Municipal Assistance Corporation for the City of New York
to provide financing assistance to the City; the New York State Financial
Control Board (the "Control Board") to oversee the City's financial affairs; and
the Office of the State Deputy Comptroller for the City of New York ("OSDC") to
assist the Control Board in exercising its powers and responsibilities. A
"control period" existed from 1975 to 1986 during which the City was subject to
certain statutorily-prescribed fiscal controls. The Control Board terminated the
Control Period in 1986 when certain statutory conditions were met. State law
requires the Control Board to reimpose a control period upon the occurrence, or
"substantial likelihood and imminence" of the occurrence, of certain events,
including (but not limited to) a City operating budget deficit of more than $100
million of impaired access to the public credit markets.

Currently, the City and its Covered Organizations (i.e., those which
received or may receive moneys from the City directly, indirectly or
contingently) operate under the Financial Plan. The City's Financial Plan
summarizes its capital, revenue and expense projections and outlines proposed
gap-closing programs for years with projected budget gaps. The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies, some of which are uncertain and may not materialize. Unforeseen
developments and changes in major assumptions could significantly affect the
city's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements.

To successfully implement its Financial Plan, the City and certain
entities issuing debt for the benefit of the city must market their securities
successfully. The City issues securities to finance, refinance and rehabilitate
infrastructure and other capital needs, as well as for seasonal financing needs.
In 1997, the State created the New York City Transitional Finance Authority
("TFA") to finance a portion of the City's capital program because the City was
approaching its State Constitutional general debt limit. Without the additional
financing capacity of the TFA, projected contracts for City capital projects
would have exceeded the City's debt limit during City fiscal year 1997-98.
Despite this additional financing mechanism, the City currently projects that,
if no further action is taken, it will reach its debt limit in City fiscal year
1999-2000. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the TFA to be unconstitutional.
On November 25, 1997 the State Supreme Court found the legislation establishing
the TFA to be constitutional and granted the defendants' motion for summary
judgment. The plaintiffs have appealed the decision. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.

MONITORING AGENCIES

The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's Financial Plans. The reports analyze the City's
forecasts of revenues and expenditures, cash flow, and debt service
requirements, as well as evaluate compliance by the City and its Covered
Organizations with the Financial Plan. According to recent staff reports, while
economic growth in New York City has been slower than in other regions of the
country, a surge in Wall Street profitability resulted in increased tax revenues
and generated a substantial surplus for the City in City fiscal year 1996-97.
Recent staff reports also indicate that the City projects a substantial surplus
for City fiscal year 1997-98. Although several sectors of the City's economy
have expanded recently, especially tourism and business and professional
services, City tax revenues remain heavily dependent on the continued
profitability of the securities industries and the course of the national
economy. These reports have also indicated that recent City budgets have been
balanced in part through the use of non-recurring resources and that the City's
Financial Plan tends to rely on actions outside its direct control. These
reports have indicated that the City has not yet brought its long-term
expenditure growth in line with recurring revenue growth and that the City is
likely to continue to face substantial gaps between forecast revenues and
expenditures in future years that must be closed with reduced expenditures
and/or increased revenues. In addition to these monitoring agencies, the
Independent Budget Office ("IBO") has been established pursuant to the City
Charter to provide analysis to elected officials and the public on relevant
fiscal and budgetary issues affecting the City.

OTHER LOCALITIES

Certain localities outside New York City have experienced financial
problems and have requested and received additional State assistance during the
last several State fiscal years. The cities of Yonkers and Troy continue to
operate under State-ordered control agencies. The potential impact on the State
of any future requests by localities for additional oversight or financial
assistance is not included in the projections of the State's receipts and
disbursements for the State's 1998-99 fiscal year.

Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities, and twenty-eight municipalities received more than $32
million in targeted unrestricted aid in the 1997-98 budget. Both of these
emergency aid packages were largely continued through the 1998-99 budget. The
State also dispersed an additional $21 million among all cities, towns and
villages after enacting a 3.9 percent increase in General Purpose State Aid in
1997-98 and continued this increase in 1998-99.

The 1998-99 budget includes an additional $29.4 million in
unrestricted aid targeted to 57 municipalities across the State. Other
assistance for municipalities with special needs totals more than $25.6 million.
Twelve upstate cities will receive $24.2 million in one-time assistance from a
cash flow acceleration of State aid.

The appropriation and allocation of general purpose local government
aid among localities, including New York City, is currently the subject of
investigation by a State commission. While the distribution of general purpose
local government aid was originally based on a statutory formula, in recent
years both the total amount appropriated and the amounts appropriated to
localities have been determined by the Legislature. A State commission was
established to study the distribution and amounts of general purpose local
government aid and recommend a new formula by June 30, 1999, which may change
the way aid is allocated.

Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1996, the total indebtedness of all
localities in the State other than New York City was approximately $20.0
billion. A small portion (approximately $77.2 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
State enabling legislation. State law requires the Comptroller to review and
make recommendations concerning the budgets of those local government units
other than New York City that are authorized by State law to issue debt to
finance deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.

Like the State, local governments must respond to changing political,
economic and financial influences over which they have little or no control.
Such changes may adversely affect the financial condition of certain local
governments. For example, the federal government may reduce (or in some cases
eliminate) federal funding of some local programs which, in turn, may require
local governments to fund these expenditures from their own resources. It is
also possible that the State, New York City, or any of their respective public
authorities may suffer serious financial difficulties that could jeopardize
local access to the public credit markets, which may adversely affect the
marketability of notes and bonds issued by localities within the State.
Localities may also face unanticipated problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Other large-scale
potential problems, such as declining urban populations, increasing
expenditures, and the loss of skilled manufacturing jobs, may also adversely
affect localities and necessitate State assistance.

<PAGE>

APPENDIX F

Set forth below, as to each share Class of each Fund, as applicable,
are those shareholders known by the Fund to own of record 5% or more of a Class
of shares of the Fund outstanding as of January 4, 1999.

GOVERNMENT MONEY FUND

Class A: Boston Safe Deposit & Trust Co. TTEE, as agent - Omnibus
Account, 1 Cabot Road, Medford, MA 02155-5141 - owned of record
6.1603%

Class B: Robert W. Baird & Co., Omnibus Account for the Exclusive
Benefit of Customers, P.O. Box 672, Milwaukee, WI 53201-0672 -
owned of record 42.0382%;

Stifel Nicolaus & Co. Inc., for the Exclusive Benefit of Customers,
Attn. Money Fund Dept., 500 N. Broadway, Saint Louis, MO
63102-2110 - owned of record 27.9079%;

First Albany Corporation, P.O. Box 22024, Albany, New York 12201-2024
- owned of record 12.3761%;

Olcoba Co., 7575 Golden Valley, MN 55427-4572 - owned of record
6.0094%

MONEY FUND

Class A: NationsBanc Montgomery Securities LLC, Money Market Funds
Omnibus, 600 Montgomery Street, Suite 4, San Francisco, CA
94111-02702 - owned of record 14.0392%

Class B: Robert W. Baird & Co., Omnibus Account for the Exclusive
Benefit of Customers, P.O. Box 672, Milwaukee, WI 53201-2024 -
owned of record 40.8057%;

First Albany Corporation, P.O. Box 22024, Albany, New York
12201-2024 - owned of record 22.6502%;

Stifel Nicolaus & Co. Inc. for the Exclusive Benefit of
Customers, 500 N. Broadway, Saint Louis, MO 63102-2110 - owned of
record 18.1161%;

NationsBanc Montgomery Securities LLC, Money Market Fund Omnibus,
600 Montgomery Street, Suite 4, San Francisco, CA 94111-2702 -
owned of record 8.0239%

CALIFORNIA MUNICIPAL FUND

Class A: NationsBanc Montgomery Securities LLC, Money Market Funds
Omnibus, 600 Montgomery Street, Suite 4, San Francisco, CA
94111-2702 - owned of record 17.1357%

Class B: Robert W. Baird & Co., Omnibus Account for the Exclusive
Benefit of Customers, P.O. Box 572, Milwaukee, WI 53231-0672 -
owned of record 78.0738%;

First Albany Corporation, P.O. Box 22024, Albany, New York 12201-2024
- owned of record 8.5518%;

NationsBanc Montgomery Securities LLC, Money Market Funds Omnibus, 600
Montgomery Street, Suite 4, San Francisco, CA 94111-2702 - owned
of record 6.2260%;

Stifel Nicolas & Co. Inc. for the Exclusive Benefit of Customers, 500
N. Broadway, Saint Louis, MO 63102-2110 - owned of record 6.0875%

MINNESOTA MUNICIPAL FUND

Class A: MBCIC, c/o Mellon Bank, Attn. Michael Botsford, 919 N. Market
Street, Wilmington, DE 19801-3023 - owned of record 99.7052%

Class B: NationsBanc Montgomery Securities LLC, Money Market Funds
Omnibus, 600 Montgomery Street, Suite 4, San Francisco, CA
94111-2702 - owned of record 92.8857%

NATIONAL MUNICIPAL FUND

Class A: NationsBanc Montgomery Securities LLC, Money Market Funds
Omnibus, 600 Montgomery Street, Suite 4, San Francisco, CA
94111-2702 - owned of record 26.6291%

Class B: Robert W. Baird & Co., Omnibus Accounts for the Exclusive
Benefit of Customers, P.O. Box 672, Milwaukee, WI 53201-0672 -
owned of record 42.0383%;

Stifel Nicolaus & Co. Inc. for the Exclusive Benefit of Customers, 500
N. Broadway, Saint Louis, MO 63102-2110 - owned of record
16.3868%;

George K. Baum & Company, Attn. Ron Frazier, 120 W. 12th Street,
Kansas City, WI 53201-0672 - owned of record 9.9699%

NEW YORK MUNICIPAL FUND

Class A: As of January 4, 1999, there were no shareholders who owned 5%
or more of the Class A shares of the New York Municipal Fund.

Class B: First Albany Corporation, P.O. Box 22024, Albany, NY
11201-2024 - owned of record 88.6012%;

Robert W. Baird & Co., Omnibus Account for the Exclusive Benefit of
Customers, P.O. Box 672, Milwaukee, WI 53201-0672 - owned of
record 7.0359%