DREYFUS NEW YORK TAX EXEMPT BOND FUND INC /NEW/, 497, 1999-10-07

DREYFUS NEW YORK TAX EXEMPT BOND FUND INC /NEW/
497, 1999-10-07

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Dreyfus New York Tax Exempt Funds

Dreyfus New York Tax Exempt Money Market Fund

Dreyfus New York Tax Exempt Intermediate Bond Fund

Dreyfus New York Tax Exempt Bond Fund, Inc.

Three investment choices for income exempt from federal, New York state and New
York city income taxes

PROSPECTUS October 1, 1999

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

<PAGE>

Contents

THE FUNDS
- ------------------------------------------------------

1 Introduction

2 Goal/Approach

4 Main Risks

6 Past Performance

9 Expenses

12 Management

14 Financial Highlights

YOUR INVESTMENT
- --------------------------------------------------------------------

17 Account Policies

20 Distributions and Taxes

21 Services for Fund Investors

24 Instructions for Regular Accounts

FOR MORE INFORMATION
- -------------------------------------------------------------------------------

Back Cover

Each fund's investment approach, risks, performance, expenses and related
information

Information for managing your fund account

Where to learn more about these and other Dreyfus funds

<PAGE>

The Funds

Dreyfus New York Tax Exempt Money Market Fund
-------------------------------

Ticker Symbol: DNYXX

Dreyfus New York Tax Exempt Intermediate Bond Fund
------------------------------

Ticker Symbol: DRNIX

Dreyfus New York Tax Exempt Bond Fund
-------------------------------

Ticker Symbol: DRNYX

This combined prospectus has been prepared for your convenience so that you can
consider three investment choices in one document. Each fund is a separate
entity with a separate investment portfolio. The operations and results of a
fund are unrelated to those of each other fund.

The funds differ in their average portfolio maturity, which affects their level
of income and degree of share price fluctuation. The Money Market Fund seeks to
maintain a stable $1.00 share price. It offers share price stability for
investors looking to protect principal, but has the lowest income potential of
the three funds. The Bond Funds each offer higher income and return potential,
mainly relative to their average maturities, but their share prices will
fluctuate.

Each fund is non-diversified, which means that a relatively high percentage of
its assets may be invested in a limited number of issuers. Therefore, each
fund' s performance may be more vulnerable to changes in the market value of a
single issuer or a group of issuers.

INFORMATION ON EACH FUND' S RECENT PERFORMANCE CAN BE FOUND IN ITS CURRENT
ANNUAL/SEMIANNUAL REPORT (SEE BACK COVER).

What these funds are -- and aren't

These funds are mutual funds: pooled investments that are professionally managed
and give you the opportunity to participate in financial markets. They strive to
reach their stated goals, although as with all mutual funds, they cannot offer
guaranteed results.

An investment in these funds is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in these funds, but you also have the
potential to make money.

Introduction

Dreyfus New York Tax Exempt Funds

GOAL/APPROACH

Dreyfus New York Tax Exempt Money Market Fund

THE MONEY MARKET FUND seeks as high a level of current income exempt from
federal, New York state and New York city income taxes as is consistent with the
preservation of capital and the maintenance of liquidity. As a money market
fund, the fund is subject to maturity, quality and diversification requirements
designed to help it maintain a stable share price.

To pursue this goal, the fund normally invests substantially all of its net
assets in short-term, high quality municipal obligations that provide income
exempt from federal, New York state and New York city income taxes. When the
fund manager believes that acceptable New York municipal obligations are
unavailable for investment, the fund may invest temporarily in municipal
obligations that pay income subject to New York state and New York city income
taxes, but not federal income tax.

Dreyfus New York Tax Exempt Intermediate Bond Fund

THE INTERMEDIATE BOND FUND seeks as high a level of current income exempt from
federal, New York state and New York city income taxes as is consistent with the
preservation of capital. To pursue this goal, the fund normally invests
substantially all of its assets in municipal bonds that provide income exempt
from federal, New York state and New York city personal income taxes. When the
fund manager believes that acceptable New York municipal obligations are
unavailable for investment, the fund may invest temporarily Concepts to
understand

MUNICIPAL OBLIGATIONS: debt securities that provide income free from federal
income taxes. Municipal bonds are typically of two types:

(pound) GENERAL OBLIGATION BONDS, which are secured by the full faith and credit
of the issuer and its taxing power

(pound) REVENUE BONDS, which are payable from the revenues derived from a
specific revenue source, such as charges for water and sewer service
or highway tolls

in municipal obligations that pay income subject to New York state and New York
city income taxes, but not federal income tax. The fund's dollar-weighted
average portfolio maturity ranges between three and ten years. Although the fund
currently intends to invest only in investment grade municipal bonds, or the
unrated equivalent as determined by Dreyfus, it has the ability to invest up to
20% of its net assets in bonds of below investment grade credit quality ("high
yield" or "junk" bonds).

Dreyfus New York Tax Exempt Bond Fund

THE BOND FUND seeks as high a level of current income exempt from federal, New
York state and New York city income taxes as is consistent with the preservation
of capital. To pursue this goal, the fund normally invests substantially all of
its assets in municipal bonds that provide income exempt from federal, New York
state and New York city income taxes. When the fund manager believes that
acceptable New York municipal obligations are unavailable for investment, the
fund may invest temporarily in municipal obligations that pay income subject to
New York state and New York city income taxes, but not federal income tax.

The dollar-weighted average maturity of the fund normally exceeds ten years, but
the fund is not subject to any maturity restrictions. The fund will invest at
least 80% of its assets in investment grade municipal bonds or the unrated
equivalent as determined by Dreyfus. The fund may invest up to 20% of its assets
in high yield municipal bonds.

Concepts to understand

AVERAGE MATURITY: an average of the stated maturities of the bonds held in the
fund, based on their dollar-weighted proportions in the fund.

INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a
bond issuer's credit history and ability to repay debts. Based on their
assessment, they assign letter grades that reflect the issuer's
creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the
second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa
and above are considered investment grade.

The Funds

MAIN RISKS

Dreyfus New York Tax Exempt Money Market Fund

The fund's yield will fluctuate as market conditions and interest rates change
and as the short-term securities in its portfolio mature and the proceeds are
reinvested in securities with different interest rates.

An investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the fund.

While the fund has maintained a constant share price since inception and will
continue to try to do so, the following factors could reduce the fund's income
level and/or share price:

(pound) interest rates could rise sharply, causing the
fund's share price to drop

(pound) New York' s economy and revenues underlying its
municipal obligations may decline

(pound) the fund' s portfolio securities may be more sensitive to
risks that are specific to investing primarily in a single state

(pound) any of the fund' s holdings could have its credit
rating downgraded or could default

Although the fund's objective is to generate income exempt from federal and New
York state and city income taxes, interest from some of its holdings may be
subject to the federal alternative minimum tax. In addition, the fund
temporarily may invest in taxable obligations and/or municipal obligations that
pay income exempt only from federal income tax.

Concepts to understand

CREDIT RATING: a measure of the issuer's expected ability to make all required
interest and principal payments in a timely manner.

An issuer with the highest credit rating has a very strong degree of certainty
(or safety) with respect to making all payments. An issuer with the
second-highest credit rating still has a strong capacity to make all payments,
although the degree of safety is somewhat less.

Generally, the fund is required to invest at least 95% of its assets in the
securities of issuers with the highest credit rating or the unrated equivalent
as determined by Dreyfus, with the remainder invested in securities with the
second-highest credit rating.

Dreyfus New York Tax Exempt Intermediate Bond Fund and Dreyfus New York Tax
Exempt Bond Fund

Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow a fund to invest for higher yields, the most immediate
effect is usually a drop in bond prices, and therefore in a fund's share price
as well. As a result, the value of your investment in a fund could go up and
down, which means that you could lose money.

Other risk factors could have an effect on each fund's performance:

(pound) if an issuer fails to make timely interest or principal payments,
or there is a decline in the credit quality of a bond, or perception
of a decline, the bond's value could fall, potentially lowering a
fund's share price

(pound) New York' s economy and revenues underlying its
municipal bonds may decline

(pound) investing primarily in a single state may make a
fund's portfolio securities more sensitive to risks specific to the
state

(pound) any of these funds' holdings could have its credit
rating downgraded or could default

Although each fund' s objective is to generate income exempt from federal, New
York state and New York city income taxes, interest from some of a fund's
holdings may be subject to the federal alternative minimum tax. In addition,
each fund temporarily may invest in taxable bonds and/or municipal bonds that
pay income exempt only from federal income tax.

Other potential risks

The Intermediate Bond Fund and Bond Fund may invest in certain derivatives, such
as futures and options, that may cause taxable income, and in inverse floaters.
Derivatives are used primarily to hedge the fund's portfolio or for daily
liquidity. They also may be used to increase returns. However, these practices
may lower returns or increase volatility. Derivatives can be highly sensitive to
changes in their underlying security, interest rate or index. A small
investment in certain derivatives could have a potentially large impact on a
fund's performance.

The Funds

PAST PERFORMANCE

Dreyfus New York Tax Exempt Money Market Fund

The tables below show some of the risks of investing in the fund. The first
table shows the changes in the fund's performance from year to year. The second
table averages the fund's performance over time. Both tables assume reinvestment
of dividends. Of course, past performance is no guarantee of future results.
--------------------------------------------------------

Year-by-year total return AS OF 12/31 EACH YEAR (%)

5.53 5.20 3.81 2.31 1.62 2.12 3.24 2.79 3.00 2.75
89 90 91 92 93 94 95 96 97 98
BEST QUARTER: Q2 '89 +1.44%

WORST QUARTER: Q1 '93 +0.38%

THE FUND'S YEAR-TO-DATE RETURN AS OF 6/30/99 WAS 1.16%.
--------------------------------------------------------

Average annual total return AS OF 12/31/98

1 Year 5 Years 10 Years
--------------------------------------------------------

2.75% 2.78% 3.23%

The fund's 7-day yield on 12/31/98 was 2.99%. For the fund's current yield, call
toll-free 1-800-645-6561.

Dreyfus New York Tax Exempt Intermediate Bond Fund

The tables below show some of the risks of investing in the fund. The first
table shows the changes in the fund's performance from year to year. The second
table compares the fund's performance over time to that of the Lehman Brothers
10-Year Municipal Bond Index, an unmanaged total return intermediate-term
municipal bond performance benchmark. Both tables assume reinvestment of
dividends. Of course, past performance is no guarantee of future results.
--------------------------------------------------------

Year-by-year total return AS OF 12/31 EACH YEAR (%)

9.32 6.07 11.14 9.38 11.52 -5.11 14.03 4.16 8.24 6.05
89 90 91 92 93 94 95 96 97 98

BEST QUARTER: Q1 '95 +5.68%

WORST QUARTER: Q1 '94 -4.45%

THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.95%.
--------------------------------------------------------

Average annual total return AS OF 12/31/98

1 Year 5 Years 10 Years
--------------------------------------------------------------------------------------------

<S> <C> <C> <C>
FUND 6.05% 5.28% 7.36%

LEHMAN BROTHERS
10-YEAR
MUNICIPAL BOND INDEX 6.76% 6.35% 8.33%
</TABLE>

UNLIKE THE FUND, THE LEHMAN INDEX IS NOT COMPOSED OF BONDS OF A SINGLE STATE.

The Funds

PAST PERFORMANCE (CONTINUED)

Dreyfus New York Tax Exempt Bond Fund

The tables below show some of the risks of investing in the fund. The first
table shows the changes in the fund's performance from year to year. The second
table compares the fund's performance over time to that of the Lehman Brothers
Municipal Bond Index, an unmanaged total return municipal bond performance
benchmark. Both tables assume reinvestment of dividends. Of course, past
performance is no guarantee of future results.
--------------------------------------------------------

Year-by-year total return AS OF 12/31 EACH YEAR (%)

8.93 5.51 12.42 8.85 12.65 -6.95 16.24 2.48 9.13 6.70
89 90 91 92 93 94 95 96 97 98

BEST QUARTER: Q1 '95 +6.59%

WORST QUARTER: Q1 '94 -5.52%

THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS -1.74%.
- --------------------------------------------------------

Average annual total return AS OF 12/31/98

1 Year 5 Years 10 Years
--------------------------------------------------------------------------------------------

<S> <C> <C> <C>
FUND 6.70% 5.24% 7.41%

LEHMAN BROTHERS
MUNICIPAL BOND INDEX 6.48% 6.22% 8.22%
</TABLE>

UNLIKE THE FUND, THE LEHMAN INDEX IS NOT COMPOSED OF
BONDS OF A SINGLE STATE.

EXPENSES

Dreyfus New York Tax Exempt Money Market Fund

As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the following table. Annual fund operating expenses are
paid out of fund assets, so their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
--------------------------------------------------------

Fee table

ANNUAL FUND OPERATING EXPENSES

% OF AVERAGE DAILY NET ASSETS

Management fees 0.50%

Shareholder services fee 0.06%

Other expenses 0.09%
-------------------------------------------------------

TOTAL 0.65%
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Expense example
<TABLE>
<CAPTION>

<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------

$66 $208 $362 $810
</TABLE>

This example shows what you could pay in expenses over
time. It uses the same hypothetical conditions other
funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in
expenses. The figures shown would be the same whether
you sold your shares at the end of a period or kept
them. Because actual return and expenses will be
different, the example is for comparison only.

Concepts to understand

MANAGEMENT FEE: the fee paid to Dreyfus for managing the fund's portfolio and
assisting in all aspects of the fund's operations.

SHAREHOLDER SERVICES FEE: a fee of up to 0.25% used to reimburse Dreyfus Service
Corporation for shareholder account service and maintenance.

OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.

The Funds

EXPENSES (CONTINUED)

Dreyfus New York Tax Exempt Intermediate Bond Fund

As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the following table. Shareholder transaction fees are
paid from your account. Annual fund operating expenses are paid out of fund
assets, so their effect is included in the share price. The fund has no sales
charge (load).
--------------------------------------------------------

Fee table

SHAREHOLDER TRANSACTION FEES

% OF TRANSACTION AMOUNT

Maximum redemption fee 1.00%

CHARGED ONLY WHEN SELLING SHARES YOU

HAVE OWNED FOR LESS THAN 15 DAYS
--------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES

% OF AVERAGE DAILY NET ASSETS

Management fees 0.60%

Rule 12b-1 fee 0.25%

Other expenses 0.09%
-------------------------------------------------------

TOTAL 0.94%
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Expense example

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------

$96 $300 $520 $1,155
</TABLE>

Concepts to understand

MANAGEMENT FEE: the fee paid to Dreyfus for managing the fund's portfolio and
assisting in all aspects of the fund's operations. During the past fiscal year,
Dreyfus waived receipt of a portion of its fee so that the effective management
fee paid by the fund was 0.46%, reducing total expenses from 0.94% to 0.80%.
This waiver was voluntary.

RULE 12B-1 FEE: a fee paid to reimburse the fund's distributor for distributing
fund shares and servicing shareholder accounts, and to pay Dreyfus for
advertising and shareholder account service and maintenance. Because this fee is
paid out of the fund's assets on an ongoing basis, over time it will increase
the cost of your investment and may cost you more than paying other types of
sales charges.

Dreyfus New York Tax Exempt Bond Fund

As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the following table. Shareholder transaction fees are
paid from your account. Annual fund operating expenses are paid out of fund
assets, so their effect is included in the share price. The fund has no sales
charge (load) or Rule 12b-1 distribution fees.
--------------------------------------------------------

Fee table

SHAREHOLDER TRANSACTION FEES

% OF TRANSACTION AMOUNT

Maximum redemption fee 0.10%

CHARGED ONLY WHEN SELLING SHARES YOU

HAVE OWNED FOR LESS THAN 15 DAYS
--------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES

% OF AVERAGE DAILY NET ASSETS

Management fees 0.60%

Shareholder services fee 0.09%

Other expenses 0.07%
-------------------------------------------------------

TOTAL 0.76%
--------------------------------------------------------

Expense example

1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------------------

<S> <C> <C> <C>
$77 $243 $422 $942

</TABLE>

Concepts to understand

MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations. During the past
fiscal year, Dreyfus waived receipt of a portion of its fee so that the
effective management fee paid by the fund was 0.59%, reducing total expenses
from 0.76% to 0.75%. This waiver was voluntary.

SHAREHOLDER SERVICES FEE: a fee of up to 0.25% used to reimburse Dreyfus Service
Corporation for shareholder account service and maintenance.

OTHER EXPENSES: fees paid by the fund for miscellaneous items such as transfer
agency, custody, professional and registration fees.

The Funds

MANAGEMENT

The investment adviser for each fund is The Dreyfus Corporation, 200 Park
Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than
$120 billion in over 160 mutual fund portfolios. For the past fiscal year,
Dreyfus New York Tax Exempt Money Market Fund, Dreyfus New York Tax Exempt
Intermediate Bond Fund and Dreyfus New York Tax Exempt Bond Fund each paid
Dreyfus a management fee at the annual rate of 0.50%, 0.46%, and 0.59%,
respectively, of the fund' s average daily net assets.

Dreyfus is the primary mutual fund business of Mellon Bank Corporation, a
broad-based financial services company with a bank at its core. With more than
$425 billion of assets under management and $2.0 trillion of assets under
administration and custody, Mellon provides a full range of banking, investment
and trust products and services to individuals, businesses and institutions.
Mellon is headquartered in Pittsburgh, Pennsylvania.

Monica S. Wieboldt has managed Dreyfus New York Tax Exempt Intermediate Bond
Fund since May 1987 and has been a portfolio manager at Dreyfus since 1983

Samuel J. Weinstock has managed Dreyfus New York Tax Exempt Bond Fund since May
1997 and has been a portfolio manager at Dreyfus since 1987.

Concepts to understand

YEAR 2000 ISSUES: these funds could be adversely affected if the computer
systems used by Dreyfus and the funds' other service providers do not properly
process and calculate date-related information from and after January 1, 2000.

Dreyfus is working to avoid year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which a fund invests may be
adversely affected by year 2000-related problems. This could have an impact on
the value of a fund's investments and its yield and share price.

Dreyfus has a personal securities trading policy (the "Policy") which restricts
the personal securities transactions of its employees. Its primary purpose is to
ensure that personal trading by Dreyfus employees does not disadvantage any
Dreyfus-managed fund. Dreyfus portfolio managers and other investment personnel
who comply with the Policy' s preclearance and disclosure procedures may be
permitted to purchase, sell or hold certain types of securities which also may
be or are held in the fund(s) they advise.

The Funds

FINANCIAL HIGHLIGHTS

The following tables describe each fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in a fund would have
increased (or decreased) during each period, assuming you had reinvested all
dividends and distributions. These figures have been independently audited by
Ernst & Young LLP, whose report for each fund, along with each fund's financial
statements, is included in the fund's annual report.

Dreyfus New York Tax Exempt Money Market Fund
<TABLE>
<CAPTION>

YEAR ENDED MAY 31,

1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------

PER-SHARE DATA ($)

<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 1.00 1.00 1.00 1.00 1.00

Investment operations:

Investment income -- net .025 .029 .028 .030 .027

Distributions:

Dividends from investment
income -- net (.025) (.029) (.028) (.030) (.027)

Net asset value, end of period 1.00 1.00 1.00 1.00 1.00

Total return (%) 2.54 2.97 2.83 3.05 2.76
- --------------------------------------------------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA

Ratio of expenses
to average net assets (%) .65 .67 .68 .64 .68

Ratio of net investment income
to average net assets (%) 2.50 2.93 2.79 3.00 2.71
- ---------------------------------------------------------------------------------------------------------------------------------

Net assets, end of period ($ x 1,000) 295,790 281,274 291,529 298,768 317,840
</TABLE>

Dreyfus New York Tax Exempt Intermediate Bond Fund

YEAR ENDED MAY 31,

1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------

PER-SHARE DATA ($)

<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 18.62 18.06 17.83 18.05 17.71

Investment operations:

Investment income -- net .80 .82 .83 .85 .86

Net realized and unrealized gain
(loss) on investments (.10) .65 .41 (.22) .34

Total from investment operations .70 1.47 1.24 .63 1.20

Distributions:

Dividends from investment
income -- net (.80) (.82) (.83) (.85) (.86)

Dividends from net realized gain
on investments (.21) (.09) (.18) -- --

Total distributions (1.01) (.91) (1.01) (.85) (.86)

Net asset value, end of period 18.31 18.62 18.06 17.83 18.05

Total investment return (%) 3.75 8.25 7.12 3.52 7.04
- ---------------------------------------------------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA

Ratio of expenses to average net assets (%) .80 .80 .80 .84 .96

Ratio of net investment income
to average net assets (%) 4.28 4.44 4.64 4.69 4.91

Decrease reflected in above
expense ratios due to
actions by Dreyfus (%) .14 .15 .16 .12 --

Portfolio turnover rate (%) 33.08 42.40 45.29 47.48 29.78
- ---------------------------------------------------------------------------------------------------------------------------------

Net assets, end of period ($ x 1,000) 366,526 365,481 357,530 365,148 359,199

The Funds

FINANCIAL HIGHLIGHTS (CONTINUED)

Dreyfus New York Tax Exempt Bond Fund

YEAR ENDED MAY 31,

1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------

PER-SHARE DATA ($)

Net asset value, beginning of period 15.47 14.97 14.64 15.19 15.06

Investment operations:

Investment income -- net .74 .75 .76 .79 .84

Net realized and unrealized gain
(loss) on investments (.06) .63 .41 (.51) .23

Total from Investment operations .68 1.38 1.17 .28 1.07

Distributions:

Dividends from investment
income -- net (.74) (.74) (.76) (.79) (.84)

Dividends from net realized gain
on investments (.14) (.14) (.08) (.04) (.08)

Dividends in excess of net realized
gain on investments -- -- -- -- (.02)

Total distributions (.88) (.88) (.84) (.83) (.94)

Net asset value, end of period 15.27 15.47 14.97 14.64 15.19

Total return (%) 4.47 9.36 8.14 1.84 7.55
- ---------------------------------------------------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA

Ratio of expenses to average net assets (%) .75 .73 .74 .71 .72

Ratio of net investment income
to average net assets (%) 4.77 4.86 5.10 5.24 5.70

Decrease reflected in above expense
ratios due to actions by Dreyfus (%) .01 .00* -- -- --

Portfolio turnover rate (%) 20.77 35.86 74.46 81.93 49.03
- ---------------------------------------------------------------------------------------------------------------------------------

Net assets, end of period ($ x 1,000) 1,602,113 1,672,193 1,702,686 1,698,678 1,879,197

* AMOUNT REPRESENTS LESS THAN .01%
</TABLE>

Your Investment

ACCOUNT POLICIES

Buying shares

YOU PAY NO SALES CHARGES to invest in these funds. Your price for fund shares is
the net asset value per share (NAV), which is generally calculated at 12:00 noon
Eastern time for the Money Market Fund, and at the close of trading on the New
York Stock Exchange (usually 4:00 p.m. Eastern time) for the Intermediate Bond
Fund and the Bond Fund, every day the exchange is open. Your order will be
priced at the next NAV calculated after your order is accepted by the fund's
transfer agent or other authorized entity. The Money Market Fund uses the
amortized cost method of valuing its securities. The other funds' investments
are valued at fair value by an independent pricing service approved and
supervised by the fund's board. Because the funds seek tax-exempt income, they
are not recommended for purchase in IRAs or other qualified plans.
--------------------------------------------------------

Minimum investments

Initial Additional
--------------------------------------------------------

REGULAR ACCOUNTS $2,500 $100
$500 FOR
TELETRANSFER
INVESTMENTS

DREYFUS AUTOMATIC $100 $100
INVESTMENT PLANS

All investments must be in U.S. dollars. Third-party
checks cannot be accepted. You may be charged a fee for
any check that does not clear. Maximum TeleTransfer
purchase is $150,000 per day.

Concepts to understand

NET ASSET VALUE (NAV): a mutual fund's share price on a given day. A fund's NAV
is calculated by dividing the value of its net assets by the number of existing
shares.

AMORTIZED COST: a method of valuing a money market fund's portfolio securities,
which does not take into account unrealized gains or losses. As a result,
portfolio securities are valued at their acquisition cost, adjusted over time
based on the discounts or premiums reflected in their purchase price. This
method of valuation is designed to permit a fund to maintain a stable NAV.

ACCOUNT POLICIES (CONTINUED)

Selling shares

YOU MAY SELL (REDEEM) SHARES AT ANY TIME. Your shares will be sold at the next
NAV calculated after your order is accepted by the fund's transfer agent or
other authorized entity. Any certificates representing fund shares being sold
must be returned with your redemption request. Your order will be processed
promptly and you will generally receive the proceeds within a week.

BEFORE SELLING OR WRITING A CHECK for recently purchased shares, please note
that:

(pound) if a fund has not yet collected payment for the shares you are
selling, it may delay sending the proceeds for up to eight business
days or until it has collected payment

(pound) if you are selling or exchanging shares of the Intermediate Bond
Fund or Bond Fund that you have owned for less than 15 days, the fund
may deduct a redemption fee (not charged on shares sold through the
Automatic Withdrawal Plan or Dreyfus Auto-Exchange Privilege, or on
shares acquired through dividend reinvestment): the Intermediate Bond
Fund charges a 1% redemption fee and the Bond Fund charges a 0.10%
redemption fee
--------------------------------------------------------

Limitations on selling shares by phone

Proceeds
sent by Minimum Maximum
--------------------------------------------------------

CHECK NO MINIMUM $150,000 PER DAY

WIRE $1,000 $250,000 FOR JOINT
ACCOUNTS
EVERY 30 DAYS

TELETRANSFER $500 $250,000 FOR JOINT
ACCOUNTS
EVERY 30 DAYS

Written sell orders

Some circumstances require written sell orders along with signature guarantees.
These include:

(pound) amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days

(pound) requests to send the proceeds to a different payee or address

Written sell orders of $100,000 or more must also be signature guaranteed.

A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary public. For joint accounts,
each signature must be guaranteed. Please call us to ensure that your signature
guarantee will be processed correctly.

General policies

UNLESS YOU DECLINE TELEPHONE PRIVILEGES on your application, you may be
responsible for any fraudulent telephone order as long as Dreyfus takes
reasonable measures to verify the order.

EACH FUND (EXCEPT AS NOTED BELOW) RESERVES THE RIGHT TO:

(pound) refuse any purchase or exchange request including, for the
Intermediate Bond Fund and the Bond Fund, those from any individual or
group who, in the fund' s view, has or is likely to engage in
excessive trading (usually defined as more than four exchanges out of
the fund within a calendar year)

(pound) refuse any purchase or exchange request in excess of 1% of a fund's
total assets (applies mainly to the Intermediate Bond Fund and the
Bond Fund only)

(pound) change or discontinue its exchange privilege or
temporarily suspend this privilege during unusual market conditions

(pound) change its minimum investment amounts

(pound) delay sending out redemption proceeds for up to seven days
(generally applies only in cases of very large redemptions, excessive
trading or during unusual market conditions)

Each fund also reserves the right to make a "redemption in kind" -- payment in
portfolio securities rather than cash -- if the amount you are redeeming is
large enough to affect fund operations (for example, if it represents more than
1% of a fund's assets).

Small account policies

To offset the relatively higher costs of servicing smaller accounts, the Money
Market Fund and the Intermediate Bond Fund each charge regular accounts with
balances below $2,000 an annual fee of $12. The fee will be imposed during the
fourth quarter of each calendar year.

The fee will be waived for: any investor whose aggregate Dreyfus mutual fund
investments total at least $25,000; IRA accounts; accounts participating in
automatic investment programs; and accounts opened through a financial
institution.

If your account falls below $500, your fund may ask you to increase your
balance. If it is still below $500 after 45 days, the fund may close your
account and send you the proceeds.

Your Investment

DISTRIBUTIONS AND TAXES

EACH FUND USUALLY PAYS ITS SHAREHOLDERS dividends from its net investment income
once a month, and distributes any net capital gains it has realized once a year.
Your dividends and distributions will be reinvested in your fund unless you
instruct the fund otherwise. There are no fees or sales charges on
reinvestments.

EACH FUND ANTICIPATES THAT VIRTUALLY ALL OF ITS INCOME DIVIDENDS will be exempt
from federal, New York state and New York city income taxes. However, any
dividends paid from interest on taxable investments or short-term capital gains
will be taxable as ordinary income. Any distributions of long-term capital gains
will be taxable as such. The tax status of any distribution is the same
regardless of how long you have been in the fund and whether you reinvest your
distributions or take them in cash. In general, distributions are federally
taxable as follows:
--------------------------------------------------------

Taxability of distributions

Type of Tax rate for Tax rate for

distribution 15% bracket 28% bracket or above
--------------------------------------------------------

INCOME GENERALLY GENERALLY
DIVIDENDS TAX EXEMPT TAX EXEMPT

SHORT-TERM ORDINARY ORDINARY
CAPITAL GAINS INCOME RATE INCOME RATE

LONG-TERM
CAPITAL GAINS 10% 20%

The tax status of your dividends and distributions will be detailed in your
annual tax statement from the fund.

Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.

Taxes on transactions

Any sale or exchange of fund shares, including through the checkwriting
privilege, may generate a tax liability.

The table at right also can provide a guide for your potential tax liability
when selling or exchanging fund shares. "Short-term capital gains" applies to
fund shares sold or exchanged up to 12 months after buying them. "Long-term
capital gains" applies to shares sold or exchanged after 12 months.

SERVICES FOR FUND INVESTORS

Automatic services

BUYING OR SELLING SHARES AUTOMATICALLY is easy with the services described
below. With each service, you select a schedule and amount, subject to certain
restrictions. You can set up most of these services with your application or by
calling 1-800-645-6561.
--------------------------------------------------------

For investing

DREYFUS AUTOMATIC For making automatic investments
ASSET BUILDER((reg.tm)) from a designated bank account.

DREYFUS PAYROLL For making automatic investments
SAVINGS PLAN through a payroll deduction.

DREYFUS GOVERNMENT For making automatic investments
DIRECT DEPOSIT from your federal employment,
PRIVILEGE Social Security or other regular
federal government check.

DREYFUS DIVIDEND For automatically reinvesting the
SWEEP dividends and distributions from
one Dreyfus fund into another
(not available for IRAs).
--------------------------------------------------------

For exchanging shares

DREYFUS AUTO- For making regular exchanges
EXCHANGE PRIVILEGE from one Dreyfus fund into
another.
--------------------------------------------------------

For selling shares

DREYFUS AUTOMATIC For making regular withdrawals
WITHDRAWAL PLAN from most Dreyfus funds.

Dreyfus Financial Centers

Through a nationwide network of Dreyfus Financial Centers, Dreyfus offers a full
array of investment services and products. This includes information on mutual
funds, brokerage services, tax-advantaged products and retirement planning.

Experienced financial consultants can help you make informed choices and provide
you with personalized attention in handling account transactions. The Financial
Centers also offer informative seminars and events. To find the Financial Center
nearest you, call 1-800-499-3327.

Your Investment

SERVICES FOR FUND INVESTORS (CONTINUED)

Checkwriting privilege

YOU MAY WRITE REDEMPTION CHECKS against your account in amounts of $500 or more.
These checks are free; however, a fee will be charged if you request a stop
payment or if the transfer agent cannot honor a redemption check due to
insufficient funds or another valid reason. Please do not postdate your checks
or use them to close your account.

Exchange privilege

YOU CAN EXCHANGE SHARES worth $500 or more from one Dreyfus fund into another
(no minimum for retirement accounts). You can request your exchange in writing
or by phone. Be sure to read the current prospectus for any fund into which you
are exchanging. Any new account established through an exchange will have the
same privileges as your original account (as long as they are available). There
is currently no fee for exchanges, although you may be charged a sales load when
exchanging into any fund that has one.

Third-party investments

If you invest through a third party (rather than directly with Dreyfus), the
policies and fees may be different than those described here. Banks, brokers,
financial advisers and financial supermarkets may charge transaction fees and
may set different minimum investments or limitations on buying or selling
shares. Consult a representative of your financial institution if in doubt.

Dreyfus TeleTransfer privilege

TO MOVE MONEY BETWEEN YOUR BANK ACCOUNT and your Dreyfus fund account with a
phone call, use the Dreyfus TeleTransfer privilege. You can set up TeleTransfer
on your account by providing bank account information and following the
instructions on your application.

24-hour automated account access

YOU CAN EASILY MANAGE YOUR DREYFUS ACCOUNTS, check your account balances,
transfer money between your Dreyfus funds, get price and yield information and
much more -- when it's convenient for you.

Your Investment

INSTRUCTIONS FOR REGULAR ACCOUNTS

TO OPEN AN ACCOUNT

In Writing

Complete the application.

Mail your application and a check to:
The Dreyfus Family of Funds
P.O. Box 9387, Providence, RI 02940-9387

TO ADD TO AN ACCOUNT

Fill out an investment slip, and write your account number on your check.

Mail the slip and the check to: The Dreyfus Family of Funds P.O. Box 105,
Newark, NJ 07101-0105

By Telephone

WIRE Have your bank send your
investment to The Bank of New York, with these instructions:

* ABA# 021000018

* Dreyfus New York Tax Exempt
Money Market Fund DDA# 8900052007

* Dreyfus New York Tax Exempt
Intermediate Bond Fund DDA# 8900052236

* Dreyfus New York Tax Exempt Bond Fund
DDA# 8900052422

* your Social Security or tax ID number

* name(s) of investor(s)

Call us to obtain an account number. Return your application.

WIRE Have your bank send your investment to The Bank of New York, with these
instructions:

* ABA# 021000018

* Dreyfus New York Tax Exempt
Money Market Fund DDA# 8900052007

* Dreyfus New York Tax Exempt
Intermediate Bond Fund DDA# 8900052236

* Dreyfus New York Tax Exempt Bond Fund
DDA# 8900052422

* your account number

* name(s) of investor(s)

ELECTRONIC CHECK Same as wire, but insert "1111" before your account number.

TELETRANSFER Request TeleTransfer on your application. Call us to request your
transaction.

Automatically

WITH AN INITIAL INVESTMENT Indicate
on your application which automatic service(s) you want. Return your application
with your investment.

ALL SERVICES Call us to request a form to add any automatic investing service
(see "Services for Fund Investors"). Complete and return the forms along with
any other required materials.

Via the Internet

COMPUTER Visit the Dreyfus Web site http://www.dreyfus.com and follow the
instructions to download an account application.

TO SELL SHARES

Write a redemption check OR write a letter of instruction that includes:

* your name(s) and signature(s)

* your account number

* the fund name and share class

* the dollar amount you want to sell

* how and where to send the proceeds

Obtain a signature guarantee or other documentation, if required (see "Account
Policies -- Selling Shares").

Mail your request to: The Dreyfus Family of Funds P.O. Box 9671, Providence, RI
02940-9671

To reach Dreyfus, call toll free in the U.S.

1-800-645-6561

Outside the U.S. 516-794-5452

Make checks payable to:

THE DREYFUS FAMILY OF FUNDS

You also can deliver requests to any Dreyfus Financial Center. Because
processing time may vary, please ask the representative when your account will
be credited or debited.

Concepts to understand

WIRE TRANSFER: for transferring money from one financial institution to another.
Wiring is the fastest way to move money, although your bank may charge a fee to
send or receive wire transfers. Wire redemptions from the fund are subject to a
$1,000 minimum.

ELECTRONIC CHECK: for transferring money out of a bank account. Your transaction
is entered electronically, but may take up to eight business days to clear.
Electronic checks usually are available without a fee at all Automated Clearing
House (ACH) banks.

WIRE Be sure the fund has your bank account information on file. Call us to
request your transaction. Proceeds will be wired to your bank.

TELETRANSFER Be sure the fund has your bank account information on file. Call
us to request your transaction. Proceeds will be sent to your bank by electronic
check.

CHECK Call us to request your transaction. A check will be sent to the address
of record.

DREYFUS AUTOMATIC WITHDRAWAL PLAN Call us to request a form to add the plan.
Complete the form, specifying the amount and frequency of withdrawals you would
like.

Be sure to maintain an account balance of $5,000 or more.

Your Investment

For More Information

Dreyfus New York Tax Exempt Money Market Fund
----------------------------

SEC file number: 811-5160

Dreyfus New York Tax Exempt Intermediate Bond Fund
---------------------------

SEC file number: 811-5161

Dreyfus New York Tax Exempt Bond Fund, Inc.
----------------------------

SEC file number: 811-3726

More information on these funds is available free upon
request, including the following:

Annual/Semiannual Report

Describes a fund's performance, lists portfolio holding
and contains a letter from the fund's manager discussing
recent market conditions, economic trends and fund
strategies that significantly affected the fund' s
performance during the last fiscal year.

Statement of Additional Information (SAI)

Provides more details about a fund and its policies. A
current SAI is on file with the Securities and Exchange
Commission (SEC) and is incorporated by reference (is
legally considered part of this prospectus).

To obtain information:

BY TELEPHONE Call 1-800-645-6561

BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144

BY E-MAIL Send your request to [email protected]

ON THE INTERNET Text-only versions of fund documents can be viewed online or
downloaded from:

SEC
http://www.sec.gov

DREYFUS
http://www.dreyfus.com

You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009.

<PAGE>
------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
DREYFUS NEW YORK TAX EXEMPT FUNDS

STATEMENT OF ADDITIONAL INFORMATION
FOR
DREYFUS NEW YORK TAX EXEMPT MONEY MARKET FUND
DREYFUS NEW YORK TAX EXEMPT INTERMEDIATE BOND FUND
DREYFUS NEW YORK TAX EXEMPT BOND FUND, INC.
OCTOBER 1, 1999
- ------------------------------------------------------------------------------

This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current combined
Prospectus of Dreyfus New York Tax Exempt Money Market Fund (the "Money Market
Fund"), Dreyfus New York Tax Exempt Intermediate Bond Fund (the "Intermediate
Bond Fund"), and Dreyfus New York Tax Exempt Bond Fund, Inc. (the "Bond Fund")
(collectively, the "Funds"), dated October 1, 1999, as it may be revised from
time to time. To obtain a copy of the Prospectus, please write to the Funds at
144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144, or call one of the
following numbers:

Call Toll Free 1-800-645-6561
In New York City - Call 1-718-895-1206
Outside the U.S. - Call 516-794-5452

Each Fund's most recent Annual Report and Semi-Annual Report to
Shareholders are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing in the Annual Report are incorporated by
reference into this Statement of Additional Information.

Each Fund is a separate entity with a separate portfolio. The operations
and investment results of one Fund are unrelated to those of each other Fund.
This combined Statement of Additional Information has been prepared for your
convenience to provide you the opportunity to consider three investment choices
in one document.

<PAGE>

TABLE OF CONTENTS
Page
Description of the Funds...................................................B-3
Management of the Funds...................................................B-21
Management Arrangements...................................................B-25
How to Buy Shares.........................................................B-28
Service Plan and Shareholder Services Plans...............................B-31
How to Redeem Shares......................................................B-33
Shareholder Services......................................................B-36
Determination of Net Asset Value..........................................B-39
Portfolio Transactions....................................................B-41
Dividends, Distributions and Taxes........................................B-41
Performance Information...................................................B-43
Information About the Funds...............................................B-46
Counsel and Independent Auditors..........................................B-47
Appendix A................................................................B-48
Appendix B................................................................B-62

<PAGE>

DESCRIPTION OF THE FUNDS

Each of the Money Market Fund and the Intermediate Bond Fund is a
Massachusetts business trust that commenced operations on June 9, 1987 and June
12, 1987, respectively. The Bond Fund is a Maryland corporation formed on April
26, 1983. Each Fund is an open-end, management investment company, known as a
mutual fund. The Intermediate Bond Fund and Bond Fund are referred to as the
"Longer Term Funds."

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.

Municipal Obligations. (All Funds) Each Fund will invest primarily in debt
securities of the State of New York, its political subdivisions, authorities and
corporations, and certain other specified securities, the interest from which,
in the opinion of bond counsel to the issuer , is exempt from Federal, New York
State and New York City income taxes (collectively, "New York Municipal
Obligations"). To the extent acceptable New York Municipal Obligations are at
any time unavailable for investment by a Fund, the Fund will invest temporarily
in other debt securities the interest from which, in the opinion of bond counsel
to the issuer, is exempt from Federal, but not New York State and New York City,
income tax. Each 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 or 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. The Longer Term
Funds may purchase Municipal Obligations with interest rates that are determined
by formulas under which the rate will change directly or inversely to changes in
interest rates or an index, or multiples thereof, in many cases subject to a
maximum and minimum. Certain Municipal Obligations purchased by the Longer Term
Funds are subject to redemption at a date earlier than their stated maturity
pursuant to call options, which may be separated from the related Municipal
Obligation and purchased and sold separately.

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

Certain Tax Exempt Obligations. (All Funds) Each Fund may purchase
floating and variable rate demand notes and bonds, which are tax exempt
obligations ordinarily having stated maturities in excess of one year, but which
permit the holder to demand payment of principal at any time or at specified
intervals, which for the Money Market Fund will not exceed 13 months, and in
each case will be 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. (All Funds) Each 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 and, in the case of the Money
Market Fund, will have 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, each
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 Money Market Fund will invest 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 Money Market 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. With regard to the Longer Term Funds,
determination as to the liquidity of such securities is made in accordance with
guidelines established by each Fund's Board. Pursuant to such guidelines, each
Board has directed the Manager to monitor carefully each Fund's investment in
such securities with particular regard to (1) the frequency of trades and quotes
for the lease obligation; (2) the number of dealers willing to purchase or sell
the lease obligation and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the lease obligation;
(4) the nature of the marketplace trades, including the time needed to dispose
of the lease obligation, the method of soliciting offers and the mechanics of
transfer; and (5) such other factors concerning the trading market for the lease
obligation as the Manager may deem relevant. In addition, in evaluating the
liquidity and credit quality of a lease obligation that is unrated, each Fund's
Board has directed the Manager to consider (a) whether the lease can be
cancelled; (b) what assurance there is that the assets represented by the lease
can be sold; (c) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (d) the likelihood
that the municipality will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations of
the municipality (e.g., the potential for an "event of nonappropriation"); (e)
the legal recourse in the event of failure to appropriate; and (f) such other
factors concerning credit quality as the Manager may deem relevant.

Tender Option Bonds. (All Funds) Each 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 Obligations, of any
custodian and of the third party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be terminable in
the event of a default in payment of principal or interest on the underlying
Municipal Obligations and for other reasons.

The Money Market 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 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 Money Market Fund otherwise will
comply with the provisions of Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"), in connection with the purchase of tender
option bonds, including, without limitation, the requisite determination by the
Money Market 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 Money Market 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.

Each Fund will purchase tender option bonds only when the Fund is
satisfied that the custodial and tender option arrangements, including the fee
payment arrangements, will not adversely affect the tax exempt status of the
underlying Municipal Obligations and that payment of any tender fees will not
have the effect of creating taxable income for such 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.

Custodial Receipts. (Longer Term Funds only) Each of these Funds may
purchase custodial receipts representing the right to receive certain future
principal and interest payments on Municipal Obligations which underlie the
custodial receipts. A number of different arrangements are possible. In a
typical custodial receipt arrangement, an issuer or a third party owner of
Municipal Obligations deposits such obligations with a custodian in exchange for
two classes of custodial receipts. The two classes have different
characteristics, but, in each case, payments on the two classes are based on
payments received on the underlying Municipal Obligations. One class has the
characteristics of a typical auction rate security, where at specified intervals
its interest rate is adjusted, and ownership changes, based on an auction
mechanism. This class's interest rate generally is expected to be below the
coupon rate of the underlying Municipal Obligations and generally is at a level
comparable to that of a Municipal Obligation of similar quality and having a
maturity equal to the period between interest rate adjustments. The second class
bears interest at a rate that exceeds the interest rate typically borne by a
security of comparable quality and maturity; this rate also is adjusted, but in
this case inversely to changes in the rate of interest of the first class. In no
event will the aggregate interest paid with respect to the two classes exceed
the interest paid by the underlying Municipal Obligations. The value of the
second class and similar securities should be expected to fluctuate more than
the value of a Municipal Obligation of comparable quality and maturity and their
purchase by the Fund should increase the volatility of its net asset value and,
thus, its price per share. These custodial receipts are sold in private
placements. The Fund also may purchase directly from issuers, and not in a
private placement, Municipal Obligations having characteristics similar to
custodial receipts. These securities may be issued as part of a multi-class
offering and the interest rate on certain classes may be subject to a cap or
floor.

Stand-By Commitments. (All Funds) Each 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. Each Fund will acquire stand-by commitments
solely to facilitate its portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. Each 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. The Longer Term Funds also may acquire call options
on specific Municipal Obligations. A Longer Term Fund generally would purchase
these call options to protect the Fund from the issuer of the related Municipal
Obligation redeeming, or other holder of the call option from calling away, the
Municipal Obligation before maturity. The sale by a Longer Term Fund of a call
option that it owns on a specific Municipal Obligation could result in the
receipt of taxable income by the Fund.

Ratings of Municipal Obligations. (All Funds) Each of the Longer Term
Funds will invest at least 80% of the value of its net assets in Municipal
Obligations which, in the case of bonds, are rated no lower than Baa by Moody's
Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group
("S&P") or Fitch IBCA, Inc. ("Fitch" and, together with Moody's and S&P, the
"Rating Agencies"). Each Longer Term Fund may invest up to 20% of the value of
its net assets in Municipal Obligations which, in the case of bonds, are rated
lower than Baa by Moody's and BBB by S&P and Fitch and as low as the lowest
rating assigned by the Rating Agencies. Each Longer Term Fund also may invest in
securities which, while not rated, are determined by the Manager to be of
comparable quality to the rated securities in which the Fund may invest; for
purposes of the 80% requirement described in this paragraph, such unrated
securities will be considered to have the rating so determined.

The Money Market 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 Agencies (or one Rating Agency if the instrument was rated by
only one Rating Agency) or, if unrated, are of comparable quality as determined
in accordance with procedures established by the Money Market Fund's Board.

The average distribution of investments (at value) in Municipal
Obligations by ratings for the fiscal year ended May 31, 1999, computed on a
monthly basis, for each Fund was as follows:
<TABLE>
<CAPTION>

Percentage of Value
Money Intermediate
Fitch or Moody's Or S&P Market Fund Bond Fund Bond Fund
- ----- ------- ------------- ----------- --------- ---------

<S> <C> <C> <C> <C> <C>
AAA Aaa AAA 2.5% 29.3% 28.7%
AA Aa AA N/A 12.1% 14.6%
A A A N/A 31.8% 38.2%
BBB Baa BBB N/A% 22.0% 38.2%
BB Ba BB N/A% - .3%
F-1 VMIG1/MIG1,P-1 SP-1,A-1 95.5% .7%* .3%
F-2 VMIG2/MIG2,P-2 SP-2,A-2 - N/A N/A
Not Rated Not Rated Not Rated 2.0%** 4.1%*** 4.8%****
------ ------- --------
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>

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

* Includes notes rated within the highest grades by Moody's, S&P or Fitch,
which, together with Municipal Obligations rated Baa/BBB, are taken into account
at the time of a purchase to ensure that the portfolios of the Intermediate Bond
Fund and Bond Fund (collectively, the "Longer Term Funds') meet the 80% minimum
quality standard discussed in the Prospectus.

** Includes securities comprising 2.0% of the Money Market Fund's market value
which, while not rated, have been determined by the Manager to be of comparable
quality to securities rated MIG1.

*** Includes securities comprising 4.1% of the Intermediate Bond Fund's market
value which, while not rated, have been determined by the Manager to be of
comparable quality to securities in the following rating categories:
Aaa/AAA (1.2%) and Baa/BBB (2.9%)

**** Includes securities comprising 4.8% of the Bond Fund's market value which,
while not rated, have been determined by the Manager to be of comparable quality
to securities rates Aaa/AAA (1.0%), Aa/AA (.2%), A(.9%) and Baa/BBB (2.7%).

If, subsequent to being purchased by the Money Market Fund, (a) an issue
of rated Municipal Obligations ceases to be rated in the highest rating category
by at least two rating organizations (or one rating organization if the
instrument was rated by only one organization), or the Money Market 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 Money Market 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. Subsequent
to being purchased by the Longer Term Funds, an issue of rated Municipal
Obligations may cease to be rated or its rating may be reduced below the minimum
required for purchase by such Funds. Neither event will require the sale of such
Municipal Obligations by a Longer Term Fund, but the Manager will consider such
event in determining whether the Fund should continue to hold the Municipal
Obligations.

To the extent the ratings by Moody's, S&P or Fitch for Municipal
Obligations may change as a result of changes in such organizations or their
rating systems, the Funds will attempt to use comparable ratings as standards
for its investments in accordance with the investment policies contained in the
Prospectus and this Statement of Additional Information. The ratings of 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. (All 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, a 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 the Rating Agencies; 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 a Fund that are attributable to income earned by the Fund from
Taxable Investments will be taxable to investors. See "Dividends, Distributions
and Taxes." Except for temporary defensive purposes, at no time will more than
20% of the value of the Fund's net assets be invested in Taxable Investments and
Municipal Obligations the interest from which gives rise to a preference item
for the purpose of the alternative minimum tax. If the Money Market Fund
purchases Taxable Investments, it will value them using the amortized cost
method and comply with Rule 2a-7 relating to purchases of taxable instruments.
When a Fund has adopted a temporary defensive position, including when
acceptable New York Municipal Obligations are unavailable for investment by the
Fund, in excess of 35% of its net assets may be invested in securities that are
not exempt from New York State and New York City income taxes. Under normal
market conditions, each Fund anticipates that not more than 5% of the value of
its total assets will be invested in any one category of Taxable Investments.

Zero Coupon Securities. (Longer Term Funds only) Each of these Funds may
invest in zero coupon securities which are debt securities issued or sold at a
discount from their face value which do not entitle the holder to any periodic
payment of interest prior to maturity or a specified redemption date (or cash
payment date). The amount of the discount varies depending on the time remaining
until maturity or cash payment date, prevailing interest rates, liquidity of the
security and perceived credit quality of the issuer. Zero coupon securities also
may take the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. The market
prices of zero coupon securities generally are more volatile than the market
prices of securities that pay interest periodically and are likely to respond to
a greater degree to changes in interest rates than non-zero coupon securities
having similar maturities and credit qualities. Each Longer Term Fund may invest
up to 5% of its assets in zero coupon bonds which are rated below investment
grade.

Illiquid Securities. (All Funds) Each Fund may invest up to 15% (10% in
the case of the Money Market Fund) 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

The following information supplements and should be read in conjunction
with the Prospectus. A Fund's use of certain of the investment techniques
described below may give rise to taxable income.

Borrowing Money. (All Funds) Each Longer Term Fund is permitted to borrow
to the extent permitted under the 1940 Act, which permits an investment company
to borrow in an amount up to 33-1/3% of the value of its total assets. Each
Longer Term Fund currently intends to, and the Money Market Fund may, borrow
money only for temporary or emergency (not leveraging) purposes, in an amount up
to 15% of the value of its total assets (including the amount borrowed) valued
at the lesser of cost or market, less liabilities (not including the amount
borrowed) at the time the borrowing is made. While borrowings exceed 5% of a
Fund's total assets, the Fund will not make any additional investments.

Lending Portfolio Securities. (Longer Term Funds only) Each Longer Term
Fund may lend securities from its portfolio to brokers, dealers and other
financial institutions needing to borrow securities to complete certain
transactions. The Fund continues to be entitled to payments in amounts equal to
the interest or other distributions payable on the loaned securities which
affords the Fund an opportunity to earn interest on the amount of the loan and
on the loaned securities' collateral. Loans of portfolio securities may not
exceed 33-1/3% of the value of the Fund's total assets, and the Fund will
receive collateral consisting of cash, U.S. Government securities or irrevocable
letters of credit which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. Such loans are
terminable by the Fund at any time upon specified notice. A Fund might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund. In connection
with its securities lending transactions, a Fund may return to the borrower or a
third party which is unaffiliated with the Fund, and which is acting as a
"placing broker," a part of the interest earned from the investment of
collateral received for securities loaned.

Derivatives. (Longer Term Funds only) Each Longer Term Fund may invest in,
or enter into derivatives, such as options and futures, for a variety of
reasons, including to hedge certain market risks, to provide a substitute for
purchasing or selling particular securities or to increase potential income
gain. Derivatives may provide a cheaper, quicker or more specifically focused
way for the Fund to invest than "traditional" securities would.

Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities. However, derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small
investment in derivatives could have a large potential impact on the Fund's
performance.

If a Fund invests in derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or result
in a loss. A Fund also could experience losses if its derivatives were poorly
correlated with its other investments, or if the Fund were unable to liquidate
its position because of an illiquid secondary market. The market for many
derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
derivatives.

Although neither Longer Term Fund will be a commodity pool, certain
derivatives subject each of these Funds to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Fund can invest in such
derivatives. Each Longer Term Fund may invest in futures contracts and options
with respect thereto for hedging purposes without limit. However, neither Fund
may invest in such contracts and options for other purposes if the sum of the
amount of initial margin deposits and premiums paid for unexpired options with
respect to such contracts, other than for bona fide hedging purposes, exceeds 5%
of the liquidation value of the Fund's assets, after taking into account
unrealized profits and unrealized losses on such contracts and options;
provided, however, that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.

Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter derivatives.
Exchange-traded derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such derivatives. This guarantee usually
is supported by a daily variation margin system operated by the clearing agency
in order to reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated with
derivatives purchased on an exchange. By contrast, no clearing agency guarantees
over-the-counter derivatives. Therefore, each party to an over-the-counter
derivative bears the risk that the counterparty will default. Accordingly, the
Manager will consider the creditworthiness of counterparties to over-the-counter
derivatives in the same manner as it would review the credit quality of a
security to be purchased by the Fund. Over-the-counter derivatives are less
liquid than exchange-traded derivatives since the other party to the transaction
may be the only investor with sufficient understanding of the derivative to be
interested in bidding for it.

Futures Transactions--In General. (Longer Term Funds only) Each of these Funds
may enter into futures contracts in U.S. domestic markets. Engaging in these
transactions involves risk of loss to the Fund which could adversely affect the
value of the Fund's net assets. Although the Funds intend to purchase or sell
futures contracts only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or trading
may be suspended for specified periods during the trading day. Futures contract
prices could move to the limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses.

Successful use of futures by each of these Funds also is subject to the
Manager's ability to predict correctly movements in the direction of the
relevant market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the securities being
hedged and the price movements of the futures contract. For example, if a Fund
uses futures to hedge against the possibility of a decline in the market value
of securities held in its portfolio and the prices of such securities instead
increase, such Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.

Pursuant to regulations and/or published positions of the Securities and
Exchange Commission, the Fund may be required to segregate permissible liquid
assets to cover its obligations relating to its transactions in derivatives. To
maintain this required cover, the Fund may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
derivative position at a reasonable price. In addition, the segregation of such
assets will have the effect of limiting the Fund's ability otherwise to invest
those assets.

Specific Futures Transactions. Each Longer Term Fund may purchase and sell
interest rate futures contracts. An interest rate future obligates the Fund to
purchase or sell an amount of a specific debt security at a future date at a
specific price.

Options--In General. (Longer Term Funds only) Each of these Funds may invest up
to 5% of its assets, represented by the premium paid, in the purchase of call
and put options. The Fund may write (i.e., sell) covered call and put option
contracts to the extent of 20% of the value of its net assets at the time such
option contracts are written. A call option gives the purchaser of the option
the right to buy, and obligates the writer to sell, the underlying security or
securities at the exercise price at any time during the option period, or at a
specific date. Conversely, a put option gives the purchaser of the option the
right to sell, and obligates the writer to buy, the underlying security or
securities at the exercise price at any time during the option period, or at a
specific date.

A covered call option written by the Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating permissible liquid assets. A put option written by the Fund is
covered when, among other things, the Fund segregates permissible liquid assets
having a value equal to or greater than the exercise price of the option to
fulfill the obligation undertaken. The principal reason for writing covered call
and put options is to realize, through the receipt of premiums, a greater return
than would be realized on the underlying securities alone. The Fund receives a
premium from writing covered call or put options which it retains whether or not
the option is exercised.

There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.

Successful use of options by these Funds will be subject to the Manager's
ability to predict correctly movements in interest rates. To the extent the
Manager's predictions are incorrect, the Funds may incur losses.

Future Developments. (Longer Term Funds only) Each Longer Term Fund may
take advantage of opportunities in the area of options and futures contracts and
options on futures contracts and any other derivatives which are not presently
contemplated for use by the Funds or which are not currently available but which
may be developed, to the extent such opportunities are both consistent with the
Fund's investment objective and legally permissible for the Fund. Before
entering into such transactions or making any such investment, appropriate
disclosure will be provided in the Funds' Prospectus or this Statement of
Additional Information.

Forward Commitments. (All Funds) Each Fund may purchase or sell Municipal
Obligations and other securities on a forward commitment, when-issued or delayed
delivery 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. A 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 Fund's purchase commitments.

Municipal Obligations and other securities purchased on a forward
commitment or when-issued basis are subject to changes in value (generally
changing in the same way, i.e., appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level of
interest rates. Securities purchased on a forward commitment or when-issued
basis may expose the 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 the 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

General. (All Funds) Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities are inversely affected by changes in interest rates and, therefore,
are subject to the risk of market price fluctuations. Certain securities that
may be purchased by a Longer Term Fund, such as those with interest rates that
fluctuate directly or indirectly based on multiples of a stated index, are
designed to be highly sensitive to changes in interest rates and can subject the
holders thereof to extreme reductions of yield and possibly loss of principal.
The values of fixed-income securities also may be affected by changes in the
credit rating or financial condition of the issuing entities. Once the rating of
a Longer Term Fund portfolio security has been changed, the Fund will consider
all circumstances deemed relevant in determining whether to continue to hold the
security. The Money Market Fund seeks to maintain a stable $1.00 share price,
while the net asset value of each Longer Term Fund generally will not be stable
and should fluctuate based upon changes in the value of its respective portfolio
securities. Securities in which the Longer Term Funds invest may earn a higher
level of current income than certain shorter-term or higher quality securities
which generally have greater liquidity, less market risk and less fluctuation in
market value.

Investing in Municipal Obligations. (All Funds) Each 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 Fund may be subject to greater risk as
compared to a fund that does not follow this practice.

Certain municipal lease/purchase obligations in which a Fund 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 a 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 a 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 Funds would treat such security as a permissible
Taxable Investment within the applicable limits set forth herein.

Investing in New York Municipal Obligations. (All Funds) [To be updated]
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 and certain of its public bodies and
municipalities, including New York City. Beginning in early 1975, New York
State, New York City and other State entities faced serious financial
difficulties which jeopardized the credit standing and impaired the borrowing
abilities of such entities and contributed to high interest rates on, and lower
market prices for, debt obligations issued by them. A recurrence of such
financial difficulties or a failure of certain financial recovery programs could
result in defaults or declines in the market values of various New York
Municipal Obligations in which the 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 issued deficit notes during the fiscal periods
1989 through 1992. For its fiscal year periods 1993 through 1997, the State
recorded balanced budgets on a cash basis, with substantial fund balances in the
General Fund in fiscal 1992-93 and 1993-94 and smaller fund balances in fiscal
1994-95 and 1995-96. The State completed its 1996-97 fiscal year in balance on a
cash basis with a General Fund cash surplus of approximately $1.4 billion. In
January 1992, Moody's lowered from A to Baa1 its ratings of certain
appropriation-backed debt of New York State and its agencies. The State's
general obligation, State-guaranteed and New York State Local Government
Assistance Corporation bonds continued to be rated A by Moody's. In January
1992, S&P lowered from A to A- ratings of New York State general obligation
bonds and stated that it continued to assess the ratings outlook as negative.
S&P also lowered its ratings of various agency debts, State moral obligations,
contractual obligations, lease purchase obligations and State guarantees. In
February 1991, Moody's lowered its rating of New York City's general obligation
bonds from A to Baa1. The rating changes reflected the rating agencies' concerns
about the financial condition of New York State and City, the heavy debt load of
the State and City, and economic uncertainties in the region. In March 1998,
Moody's changed its rating on New York City's general obligation bonds from Baa1
to A3. You should review "Appendix A" which more fully sets forth these and
other risk factors.

Lower Rated Bonds. This section applies only to the Longer Term Funds.
Lower rated bonds as described herein are not eligible investments for the Money
Market Fund. Each Longer Term Fund may invest up to 20% of the value of its net
assets in higher yielding (and, therefore, higher risk) debt securities such as
those rated below investment grade by the Rating Agencies (commonly known as
junk bonds). They may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher
rated Municipal Obligations. See "Appendix B" for a general description of the
Rating Agencies' ratings of Municipal Obligations. Although ratings may be
useful in evaluating the safety of interest and principal payments, they do not
evaluate the market value risk of these bonds. Each Fund will rely on the
Manager's judgment, analysis and experience in evaluating the creditworthiness
of an issuer.

You should be aware that the market values of many of these bonds tend to
be more sensitive to economic conditions than are higher rated securities. These
bonds generally are considered by the Rating Agencies to be, on balance,
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation and generally will
involve more credit risk than securities in the higher rating categories.

Because there is no established retail secondary market for many of these
securities, each Fund anticipates that such securities could be sold only to a
limited number of dealers or institutional investors. To the extent a secondary
trading market for these bonds does exist, it generally is not as liquid as the
secondary market for higher rated securities. The lack of a liquid secondary
market may have an adverse impact on market price and yield and a Fund's ability
to dispose of particular issues when necessary to meet its liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for a Fund to obtain accurate
market quotations for purposes of valuing its portfolio and calculating its net
asset value. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of these securities.
In such cases, judgment may play a greater role in valuation because less
reliable, objective data may be available.

These bonds may be particularly susceptible to economic downturns. It is
likely that any economic recession would disrupt severely the market for such
securities and may have an adverse impact on the value of such securities, and
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon which would increase the incidence of default
of such securities.

Each of these Funds may acquire these bonds during an initial offering.
Such securities may involve special risks because they are new issues. Neither
Fund has any arrangements with any person concerning the acquisition of such
securities, and the Manager will review carefully the credit and other
characteristics pertinent to such new issues.

The credit risk factors pertaining to lower rated securities also apply to
lower rated zero coupon bonds and pay-in-kind bonds. Zero coupon bonds and
pay-in-kind bonds carry an additional risk in that, unlike bonds which pay
interest throughout the period to maturity, a Fund will realize no cash until
the cash payment date unless a portion of such securities are sold and, if the
issuer defaults, the Fund may obtain no return at all on its investment. See
"Zero Coupon Securities" below and "Dividends, Distributions and Taxes."

Zero Coupon Securities. (Longer Term Funds) Each of these Funds may invest
in zero coupon securities and pay-in-kind bonds (bonds which pay interest
through the issuance of additional bonds). Federal income tax law requires the
holder of a zero coupon security or of certain pay-in-kind bonds to accrue
income with respect to these securities prior to the receipt of cash payments.
To maintain its qualification as a regulated investment company and avoid
liability for Federal income taxes, the Fund may be required to distribute such
income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.

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

Money Market Fund. The 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 Fund has adopted investment restrictions numbered 1 through 9 as
fundamental policies. Investment restrictions numbered 10 and 11 are not
fundamental policies and may be changed by vote of a majority of the Fund's
Board members at any time. The Fund may not:

1. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Prospectus.

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 of the Money Market Fund exceed 5% of the value of
the Money Market Fund's total assets, it will not make any
additional investments.

3. Sell securities short or purchase securities on margin.

4. Underwrite the securities of other issuers, except that the Money
Market 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.

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

6. Make loans to others except through the purchase of qualified debt
obligations and the entry into repurchase agreements referred to
above and in the Prospectus.

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

8. Purchase more than 10% of the voting securities of any issuer or
invest in companies for the purpose of exercising control.

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

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

11. 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.

Intermediate Bond Fund and Bond Fund. Each Longer Term 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, each of these Funds 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, as to a Fund, by vote of a majority of such Fund's Board members at any
time. Neither of these Funds may:

1. 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.

2. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the
value of the Fund's total assets). For purposes of this investment
restriction, the entry into options, forward contracts, futures
contracts, including those relating to indices, and options on
futures contracts or indices shall not constitute borrowing.

3. Purchase or sell real estate, commodities or commodity contracts, or
oil and gas interests, but this shall not prevent the Fund from
investing in Municipal Obligations secured by real estate or
interests therein, or prevent the Fund from purchasing and selling
options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices.

4. Underwrite the securities of other issuers, except that the 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.

5. 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.

6. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act), except to the extent that the activities permitted
in Investment Restrictions numbered 2, 3 and 10 may be deemed to
give rise to a senior security.

7. Sell securities short or purchase securities on margin, but the Fund
may make margin deposits in connection with transactions in options,
forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices.

8. Purchase securities other than Municipal Obligations and Taxable
Investments and those arising out of transactions in futures and
options or as otherwise provided in the Prospectus.

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

10. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings and
to the extent related to the deposit of assets in escrow in
connection with the purchase of securities on a when-issued or
delayed-delivery basis and collateral and initial or variation
margin arrangements with respect to options, futures contracts,
including those related to indices, and options on futures
contracts or indices.

11. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are
illiquid (which securities could include participation interests
(including municipal lease/purchase agreements) that are not
subject to the demand feature described in the Prospectus, and
floating and variable rate demand obligations as to which the
Fund cannot exercise the demand feature as described in the
Prospectus on less than seven days' notice and as to which there
is no secondary market), if, in the aggregate, more than 15% of
its net assets would be so invested.

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

All Funds. For purposes of Investment Restriction No. 7 with respect to
the Money Market Fund, and Investment Restriction No. 1 with respect to the
Longer Term Funds, industrial development bonds, where the payment of principal
and interest is the ultimate responsibility of companies within the same
industry, are grouped together as an "industry." If a percentage restriction is
adhered to at the time of investment, a later increase 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. (formerly, International
Alliance Services, Inc.), a provider of various outsourcing functions for
small and medium size 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 Fund's distributor. From August 1994 to
December 31, 1994, he was a director of Mellon Bank Corporation. He is 56
years old and his address is 200 Park Avenue, New York, New York 10166.

DAVID W. BURKE, Board Member. Board member of various funds in the Dreyfus
Family of Funds. Chairman of the Broadcasting Board of Governors, an
independent board within the United States Information Agency, from August
1994 to November 1998. From August 1994 to December 1994, Mr. Burke was a
Consultant to the Manager and, from October 1990 to August 1994, he was
Vice President and Chief Administrative Officer of the Manager. From 1977
to 1990, Mr. Burke was involved in the management of national television
news, as Vice-President and Executive Vice President of ABC News, and
subsequently as President of CBS News. He is 62 years old and his address
is Box 654, Eastham, Massachusetts 02642.

SAMUEL CHASE, Board Member. Retired. From 1982 to 1996, Mr. Chase was
President of Samuel Chase & Company, Ltd., an economic consulting
firm. He is 67 years old and his address is 10380 Springhill Road,
Belgrade, Montana 59714.

GORDON J. DAVIS, Board Member. Since October 1994, a senior partner with the law
firm of LeBoeuf, Lamb, Greene & MacRae. From 1983 to September 1994, Mr.
Davis was a senior partner with the law firm of Lord Day & Lord, Barrett
Smith. From 1978 to 1983, he was Commissioner of Parks and Recreation for
the City of New York. He is also a director of Consolidated Edison, a
utility company, and Phoenix Home Life Insurance Company and a member of
various other corporate and not-for-profit boards. He is 57 years old and
his address is 241 Central Park West, New York, New York 10023.

JONI EVANS, Board Member. Senior Vice President of the William Morris Agency
since September 1993. From September 1987 to May 1993, Executive Vice
President of Random House, Inc. and, from January 1991 to May 1993,
President and Publisher of Turtle Bay Books; from January 1987 to December
1990, Publisher of Random House--Adult Trade Division; and from 1985 to
1987, President of Simon & Schuster--Trade Division. She is 56 years old
and her address is 1325 Avenue of the Americas, 16th Floor, New York, New
York 10019.

ARNOLD S. HIATT, Board Member. Chairman of the Stride Rite Foundation. From
1969 to June 1992, Chairman of the Board, President or Chief Executive
Officer of The Stride Rite Corporation, a multidivisional footwear
manufacturing and retailing company. Mr. Hiatt is also a Director of
the Cabot Corporation. He is 71 years old and his address is 400
Atlantic Avenue, Boston, Massachusetts 02110.

BURTON N. WALLACK, Board Member. President and co-owner of Wallack Management
Company, a real estate management company managing real estate in the New
York City area. He is 48 years old and his address is 18 East 64th Street,
Suite 3D, New York, New York 10021.

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 May 31, 1999,

and by all funds in the Dreyfus Family of Funds for which such person was a
Board member (the number of which is set forth in parenthesis next to each Board
member's total compensation)* for the year ended December 31, 1998, was as
follows:
Total
--------------------------------------------- Compensation
From Funds
and Fund
Name of Board Complex Paid
Member to Board
Aggregate Compensation From Fund** Member

--------------- Interm. Bond --------------
Money Market Fund
Fund --------------
Bond Fund
- --------------------

- --------------------
Joseph S. DiMartino $3,438 $6,250 $8,750 $619,660 (187)

David W. Burke $2,750 $5,000 $7,000 $233,500 (62)

Samuel Chase $2,500 $4,500 $6,500 $45,000 (12)

Gordon J. Davis $2,750 $5,000 $7,000 $83,500 (29)

Joni Evans $2,500 $4,500 $6,500 $45,000 (12)

Arnold S. Hiatt $2,250 $4,000 $6,000 $37,500 (12)

Burton N. Wallack $2,750 $5,000 $7,000 $45,000 (12)

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

* Represents the number of separate portfolios comprising the investment
companies in the Fund Complex, including the Funds, for which the Board
member serves.

** Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $920, $1,125 and $3,452 for the Money Market Fund,
Intermediate Bond Fund and Bond Fund, respectively, for all Board members
as a group.

Officers of the Fund

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 41 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 38 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 of the Distributor and 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 30 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 34
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 43
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 36 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 29 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 33 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 26 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 Fund 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
such Fund's shares outstanding as of September 15, 1999.

The following shareholder is known by the Intermediate Bond Fund to own of
record 5% or more of the indicated Fund's shares of beneficial interest
outstanding on September 15, 1999:

CHARLES SCHWAB & CO INC
REINVEST ACCOUNT
101 MONTGOMERY ST # DEPT
SAN FRANCISCO CA 94104-4122 7.5695% of shares

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") with each Fund dated August 24, 1994.
As to each Fund, its 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 of
the Agreement also is approved by a majority of such Fund's Board members who
are not "interested persons" (as defined in the 1940 Act) of the Fund or of the
Manager, by vote cast in person at a meeting called for the purpose of voting on
such approval. Each Agreement was approved by shareholders on August 2, 1994,
and was last approved by each 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 21, 1999. 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 its 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; Lawrence S. Kash, Vice Chairman and a director; J.
David Officer, Vice Chairman and a director; Thomas F. Eggers, Vice
Chairman--Institutional 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. Elliot, 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 its Board to execute
purchases and sales of securities. Each Fund's portfolio managers are
Richard J. Moynihan, Joseph P. Darcy, A. Paul Disdier, Douglas J. Gaylor,
Stephen C. Kris, W. Michael Petty, Jill C. Shaffro, Samuel J. Weinstock and
Monica S. Wieboldt. Also, Joseph Irace is a portfolio manager of the Money
Market Fund. 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.

All expenses incurred in the operation of a Fund are borne by that 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, advisory 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, costs of independent
pricing services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of shareholders' reports
and meetings, costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and distribution to existing
shareholders, and any extraordinary expenses. Pursuant to the Service Plan of
the Intermediate Bond Fund, such Fund bears expenses for advertising, marketing
and distributing the Fund's shares and servicing shareholder accounts. Pursuant
to separate Shareholder Services Plans, the Money Market Fund and Bond Fund bear
certain allocated expenses for shareholder servicing. See "Service Plan and
Shareholder Services Plans."

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 Fund. The Manager may pay the Distributor for shareholder
services from the Manager's own assets, including past profits but not including
the management fee paid by the Fund. The Distributor may use part or all of such
payments to pay Service Agents (as defined below) in respect of these services.
The Manager also may make such advertising and promotional expenditures, using
its own resources, as it from time to time deems appropriate.

As compensation for the Manager's services, the Money Market Fund has
agreed to pay the Manager a monthly management fee at the annual rate of .50% of
the value of the Fund's average daily net assets. As compensation for the
Manager's services, each Longer Term Fund has agreed to pay the Manager a
monthly management fee at the annual rate of .60% of the value of its average
daily net assets. All fees and expenses for each Fund are accrued daily and
deducted before the declaration of dividends to investors. For the last three
fiscal years of the Funds, the management fees payable by each Fund, the amounts
waived by the Manager and the net fee paid by the Fund were as follows:
<TABLE>
<CAPTION>

Management Fee Payable Reduction Fee Net Fee Paid
Name of Fund 1997 1998 1999 1997 1998 1999 1997 1998 1999

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market $1,487,34 $1,470,42 $1,476,8 N/A N/A N/A $1,487,34 $1,470,42 $1,476,899
Fund

Intermediate $2,167,64 $2,175,98 $2,232,5 $574,29 $47,04 $538,882 $1,593,35 $1,628,93 $1,693,694
Bond Fund

Bond Fund $10,336,0 $10,080,9 $9,906,0 N/A $78,73 $90,536 $10,336,0 $10,002,2 $9,815,481

</TABLE>

The Manager has agreed that if, in any fiscal year, a Fund's aggregate
expenses, exclusive of taxes, brokerage, interest on borrowings and (with the
prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the management fee, exceed 1 1/2% of the
value of such Fund's average net assets for the fiscal year, the Fund may deduct
from the payment to be made to the Manager under the Agreement, or the Manager
will bear, the 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.

The aggregate of the fees payable to the Manager by a Fund is not subject
to reduction as the value of the Fund's net assets increase.

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.

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 computed on the basis
of the number of shareholder accounts it maintains for the Fund during the
month, and is reimbursed for certain out-of-pocket expenses.

The Bank of New York (the "Custodian"), 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 Funds or which securities are to be
purchased or sold by the Funds. 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
based on the market value of the Fund's assets held in custody and receives
certain securities transactions charges.

HOW TO BUY SHARES

General. Fund shares are sold through the Distributor or certain financial
institutions, securities dealers ("Selected Dealers") and other industry
professionals (collectively, "Service Agents") that have entered into service
agreements with the Distributor. Share certificates are issued only upon your
written request. No certificates are issued for fractional shares. It is not
recommended that any Fund be used as a vehicle for Keogh, IRA or other qualified
plans. 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 Fund
and has made an aggregate minimum initial purchase for its customers of $2,500.
Subsequent investments must be at least $100. 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 a 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. Each Fund reserves the right to vary the initial and subsequent investment
minimum requirements at any time.

Fund shares also are offered without regard to the minimum initial
investment requirements through Dreyfus-Automatic Asset Builder(R), Dreyfus
Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan pursuant to
the Dreyfus Step Program described under "Shareholder Services." These services
enable you to make regularly scheduled investments and may provide you with a
convenient way to invest for long-term financial goals. You should be aware,
however, that periodic investment plans do not guarantee a profit and will not
protect an investor against loss in a declining market.

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 of the Money Market Fund 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. 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 or 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.

The Money Market Fund's net asset value per share is determined as of
12:00 Noon, New York time, on each day that the New York Stock Exchange is open
for business. Net asset value per share is computed by dividing the value of the
Money Market Fund's net assets (i.e., the value of its assets less liabilities)
by the total number of shares outstanding. See "Determination of Net Asset
Value."

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

Qualified institutions may telephone orders for the purchase of Money
Market Fund shares. These orders will become effective at the price determined
at 12:00 Noon, New York time, and the shares purchased will receive the dividend
on Fund shares declared on that day if the telephone order is placed by 12:00
Noon, New York time, and Federal Funds are received by 4:00 p.m., New York time,
on that day.

Shares of each Longer Term Fund are sold on a continuous basis at the net
asset value per share next determined after an order in proper form is received
by the Transfer Agent or other entity authorized to receive orders on behalf of
the Fund. Each Longer Term Fund's net asset value per share is determined as of
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m., New York time) on each day the New York Stock Exchange is open for
business. For purposes of computing net asset value per share of each Longer
Term Fund, options and futures contracts will be valued 15 minutes after the
close of trading on the floor of the New York Stock Exchange. Net asset value
per share is computed by dividing the value of the Fund's net assets (i.e., the
value of its assets less liabilities) by the total number of shares outstanding.
The investments of each Longer Term Fund are valued by an independent pricing
service approved by the Fund's Board and are valued at fair value as determined
by the pricing service. The pricing service's procedures are reviewed under the
general supervision of the Fund's Board. For further information regarding the
methods employed in valuing each Longer Term Fund's investments, see
"Determination of Net Asset Value."

Using Federal Funds. The following information is applicable only to
shares of the Money Market Fund. 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. An order
for the purchase of Fund shares placed by you with sufficient Federal Funds or
cash balance in your brokerage account with a Selected Dealer will become
effective on the day that the order, including Federal Funds, is received by the
Transfer Agent.

Dreyfus TeleTransfer Privilege. (All Funds) You may purchase shares by
telephone if you have checked the appropriate box and supplied the necessary
information on the Account Application or have filed a Shareholder Services Form
with the Transfer Agent. The proceeds will be transferred between the bank
account designated in one of these documents and your Fund account. Only a bank
account maintained in a domestic financial institution which is an Automated
Clearing House ("ACH") member may be so designated.

Dreyfus TeleTransfer purchase orders may be made at any time. Purchase
orders received by 4:00 p.m., New York time, on any day the Transfer Agent and
the New York Stock Exchange are open for business will be credited to the
shareholder's Fund account on the next bank business day following such purchase
order. Purchase orders made after 4:00 p.m., New York time, on any day the
Transfer Agent and the New York Stock Exchange are open for business or orders
made on Saturday, Sunday or any holiday (e.g., when the New York Stock Exchange
is not open for business) will be credited to the shareholder's Fund account 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 SHAREHOLDER SERVICES PLANS

The Intermediate Bond Fund has adopted a Service Plan pursuant to Rule
12b-1 under the 1940 Act and the Money Market Fund and Bond Fund have adopted
separate Shareholder Services Plans.

Service Plan (Intermediate Bond Fund only) Rule l2b-1 (the "Rule") adopted
by the Securities and Exchange Commission under the 1940 Act provides, among
other things, that an investment company may bear expenses of distributing its
shares only pursuant to a plan adopted in accordance with the Rule. The Fund's
Board has adopted such a plan (the "Service Plan"), pursuant to which the Fund
(a) reimburses the Distributor for payments to certain Service Agents for
distributing the Fund's shares and servicing shareholder accounts ("Servicing")
and (b) pays the Manager, Dreyfus Service Corporation and any affiliates of
either of them (collectively, "Dreyfus") for advertising and marketing relating
to the Fund and for Servicing at an aggregate annual rate of .25% of the value
of the Fund's average daily net assets. The Fund's Board believes that there is
a reasonable likelihood that the Service Plan adopted will benefit the Fund and
its shareholders.

Each of the Distributor and Dreyfus may pay one or more Service Agents a
fee in respect of Fund shares 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. The Distributor and Dreyfus determine the amount, if any, to
be paid to Service Agents under the Service Plan and the basis on which such
payments are made. The fees payable under the Service Plan are payable without
regard to actual expenses incurred.

The Fund also bears the costs of preparing and printing prospectuses and
statements of additional information used for regulatory purposes and for
distribution to existing shareholders. Under the Service Plan, the Fund bears
(a) the costs of preparing, printing and distributing prospectuses and
statements of additional information used for other purposes, and (b) the costs
associated with implementing and operating the Service Plan (such as costs of
printing and mailing service agreements), the aggregate of such amounts not to
exceed in any fiscal year of the Fund the greater of $100,000 or .005 of 1% of
the value of its average daily net assets for such fiscal year.

A quarterly report of the amounts expended under the Service Plan, and the
purposes for which such expenditures were incurred, must be made to the Fund's
Board for its review. In addition, the Service Plan provides that it may not be
amended to increase materially the costs which the Fund may bear for
distribution pursuant to the Service Plan without shareholder approval and that
other material amendments of the Service Plan must be approved by the Board, and
by the Board members who are not "interested persons" (as defined in the 1940
Act) of the Fund or the Manager and have no direct or indirect financial
interest in the operation of the Service Plan or in the related service
agreements, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Service Plan and the related service agreements
are 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 Service Plan. The Service
Plan was last so approved at a meeting held on April 21, 1999. The Service 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 Service Plan or in any of the related service agreements
or by vote of the holders of a majority of such Fund's shares. Any service
agreement is terminable without penalty, at any time, by such vote of the Board
members or, upon not more than 60 days' written notice to the Service Agent, by
vote of the holders of a majority of Fund's shares, or, upon 15 days' notice, by
the Distributor. A service agreement will terminate automatically in the event
of its assignment (as defined in the 1940 Act).

For the fiscal year ended May 31, 1999, the total amount payable by the
Fund pursuant to the Service Plan was $934,624, of which $57,608 was paid to the
Distributor as reimbursement for payments made by the Distributor to Service
Agents for distributing Fund shares, $872,632, was paid to Dreyfus for
advertising and marketing and Servicing, and $4,384 was paid for preparing,
printing and distributing prospectuses and statements of additional information
and for costs associated with implementing and operating the Service Plan.

Shareholder Services Plans. (Money Market Fund and Bond Fund only) Each of
these Funds has adopted a separate Shareholder Services Plan, 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 for
certain allocated expenses for the provision of certain services to such Fund's
shareholders. 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.

A quarterly report of the amounts expended under the Shareholder Services
Plan, and the purposes for which such expenditures were incurred, must be made
to the respective Fund's Board for its review. In addition, the Shareholder
Services Plan provides that material amendments of the Plan must be approved by
the Board, and by the Board members who are not "interested persons" (as defined
in the 1940 Act) of the Fund 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. The Shareholder
Services Plan is subject to annual approval by such vote of the Board members
cast in person at a meeting called for the purpose of voting on the Shareholder
Services Plan. Each Shareholder Services Plan was last so approved on April 15,
1998. The Shareholder Services Plan is terminable at any time by vote of a
majority of the Board members who are not "interested persons" and who have no
direct or indirect financial interest in the operation of the Shareholder
Services Plan.

For the fiscal year ended May 31, 1999, the Money Market Fund paid
$165,861, and the Bond Fund paid $1,500,901, pursuant to the Fund's Shareholder
Services Plan.

HOW TO REDEEM SHARES

Redemption Fee. (Longer Term Funds only) The Intermediate Bond Fund and
Bond Fund will deduct a redemption fee equal to 1% and .10%, respectively, of
the net asset value of Fund shares redeemed (including redemptions through the
use of the Fund Exchanges service) less than 15 days following the issuance of
such shares. The redemption fee will be deducted from the redemption proceeds
and retained by the Fund. For the fiscal year ended May 31, 1999, the Bond Fund
retained $3,452 and the Intermediate Bond Fund retained $293 in redemption fees.

No redemption fee will be charged on the redemption or exchange of shares
(1) through the Fund's Check Redemption Privilege, Automatic Withdrawal Plan or
Dreyfus Auto-Exchange Privilege, (2) through accounts that are reflected on the
records of the Transfer Agent as omnibus accounts approved by Dreyfus Service
Corporation, (3) through accounts established by Service Agents approved by
Dreyfus Service Corporation that utilize the National Securities Clearing
Corporation's networking system, or (4) acquired through the reinvestment of
dividends or distributions. The redemption fee may be waived, modified or
terminated at any time, or from time to time.

Check Redemption Privilege. (All Funds) 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.
Potential fluctuations in the net asset value of a Longer Term Fund's shares
should be considered in determining the amount of any Check drawn on an account
in a Longer Term Fund. When a Check is presented to the Transfer Agent for
payment, the Transfer Agent, as your agent, will cause the Fund to redeem a
sufficient number of full or fractional shares in the investor's account to
cover the amount of the Check. Dividends are earned until the Check clears.
After clearance, a copy of the Check will be returned to you. You generally will
be subject to the same rules and regulations that apply to checking accounts,
although election of this Privilege creates only a shareholder-transfer agent
relationship with the Transfer Agent.

You should date your Checks with the current date when you write them.
Please do not postdate your Checks. If you do, the Transfer Agent will honor,
upon presentment, even if presented before the date of the check, all postdated
Checks which are dated within six months of presentment for payment, if they are
otherwise in good order.

Checks are free, but the Transfer Agent will impose a fee for stopping
payment of a Check upon your request or if the Transfer Agent cannot honor a
Check due to insufficient funds or other valid reason. If the amount of the
Check is greater than the value of the shares in your account, the Check will be
returned marked insufficient funds. Checks should not be used to close an
account. This Privilege will be terminated immediately, without notice, with
respect to any Longer Term Fund account which is, or becomes, subject to backup
withholding on redemptions. Any Check written on a Longer Term Fund account
which has become subject to backup withholding on redemptions will not be
honored by the Transfer Agent.

Wire Redemption Privilege. (All Funds) 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, the Money Market Fund will initiate payment for
shares redeemed pursuant to this Privilege on the same business day if the
Transfer Agent receives the redemption request in proper form prior to Noon on
such day; otherwise the Money Market Fund will initiate payment on the next
business day. The Longer Term Funds ordinarily will initiate payment for shares
redeemed pursuant to this privilege on the next business day after receipt by
the Transfer Agent of a redemption request in proper form. 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

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 "Share Certificates; Signatures."

Dreyfus TeleTransfer Privilege. (All Funds) 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 business 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. (Intermediate Bond Fund only) If you
are a shareholder of the Intermediate Bond Fund and 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 by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time) on a given day, the redemption
request will be effective on that day. If a redemption request is received by
the Transfer Agent after the close of trading on the floor of the New York Stock
Exchange, the redemption request will be effective on the next business day. It
is the responsibility of the Selected Dealer to transmit a request so that it is
received in a timely manner. The proceeds of the redemption are credited to your
account with the Selected Dealer.

Share Certificates; Signatures. (All Funds) 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. (All Funds) 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. (All Funds) The right of redemption may be
suspended or the date of payment postponed (a) during any period when the New
York Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities and
Exchange Commission so that disposal of 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. (All Funds) You 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 your state of residence. The
Intermediate Bond Fund and Bond Fund will deduct a redemption fee equal to 1%
and .10%, respectively, of the net asset value of Fund shares exchanged where
the exchange is made less than 15 days after the issuance of such shares. 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 offered without a sales load will be
made without a sales load.

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

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

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

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

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

Dreyfus Auto-Exchange Privilege. (All Funds) Dreyfus Auto-Exchange
Privilege permits you to purchase, in exchange for shares of a Fund, shares of
another fund 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 Dreyfus Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the fund being acquired
may legally be sold. Shares may be exchanged only between accounts having
identical names and other identifying designations.

Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. Each Fund reserves the right to reject any
exchange request in whole or in part. The Fund Exchanges service or the Dreyfus
Auto-Exchange Privilege may be modified or terminated at any time by a Fund upon
notice to its shareholders.

Dreyfus-Automatic Asset Builder(R). (All Funds) 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. (All Funds) Dreyfus
Government Direct Deposit Privilege enables you to purchase Fund shares (minimum
of $100 and maximum of $50,000 per transaction) by having Federal salary, Social
Security, or certain veterans', military or other payments from the U.S.
Government automatically deposited into your Fund account. You may deposit as
much of such payments as you elect.

Dreyfus Payroll Savings Plan. (All Funds) Dreyfus 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 Dreyfus Payroll Savings Plan account, you must file an authorization
form with your employer's payroll department. It is the sole responsibility of
your employer to arrange for transactions under the Dreyfus Payroll Savings
Plan.

Dreyfus Step Program. (All Funds) Dreyfus Step Program enables you to
purchase Fund shares without regard to the Fund's minimum initial investment
requirements through Dreyfus-Automatic Asset Builder(R), Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan. To establish a Dreyfus
Step Program account, you must supply the necessary information on the Account
Application and file the required authorization form(s) with the Transfer Agent.
For more information concerning this Program, or to request the necessary
authorization form(s), please call toll free 1-800-782-6620. You may terminate
your participation in this Program at any time by discontinuing your
participation in Dreyfus-Automatic Asset Builder, Dreyfus Government Direct
Deposit Privilege or Dreyfus Payroll Savings Plan, as the case may be, as
provided under the terms of such Privilege(s). Each Fund may modify or terminate
this Program at any time.

Dreyfus Dividend Options. (All Funds) Dreyfus Dividend Sweep allows you to
invest automatically your dividends or dividends and capital gain distributions,
if any, from 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 a Fund to a designated
bank account. Only an account maintained at a domestic financial institution
which is an ACH member may be so designated. Banks may charge a fee for this
service.

Automatic Withdrawal Plan. (All Funds) 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.

DETERMINATION OF NET ASSET VALUE

Amortized Cost Pricing. The information contained in this section is
applicable only to the Money Market Fund. The valuation of the 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.

The Fund's Board has established, as a particular responsibility within
the overall duty of care owed to the Fund's investors, 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 deems 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. Market quotations and market equivalents used in such review are
obtained from an independent pricing service (the "Service") approved by the
Board. The Service values the Fund's investments based on methods which include
consideration of: yields or prices of municipal bonds 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 the 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 Board. If such deviation exceeds 1/2 of
1%, the Board promptly will consider what action, if any, will be initiated. In
the event the 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.

Valuation of Portfolio Securities. The information contained in this
section is applicable only to the Longer Term Funds. The investments of each
Fund are valued each business day by an independent pricing service (the
"Service") approved by such Fund's Board. When, in the judgment of the Service,
quoted bid prices for investments are readily available and are representative
of the bid side of the market, these investments are valued at the mean between
the quoted bid prices (as obtained by the Service from dealers in such
securities) and asked prices (as calculated by the Service based upon its
evaluation of the market for such securities). Other investments (which
constitute a majority of the portfolio securities) are carried at fair value as
determined by the Service, based on methods which include consideration of:
yields or prices of municipal bonds of comparable quality, coupon, maturity and
type; indications as to values from dealers; and general market conditions. The
Service may employ electronic data processing techniques and/or a matrix system
to determine valuations. The Service's procedures are reviewed by the Fund's
officers under the general supervision of the relevant Fund's Board. As to each
Fund, expenses and fees, including the management fees (reduced by the expense
limitation, if any) and fees pursuant to the Service Plan or Shareholder
Services Plan, as the case may be, are accrued daily and are taken into account
for the purpose of determining the net asset value of such Fund's shares.

New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.

PORTFOLIO TRANSACTIONS

Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases and
sales usually are placed with those dealers from which it appears that the best
price or execution will be obtained. Usually no brokerage commissions, as such,
are paid by any Fund for such purchases and sales, although the price paid
usually includes an undisclosed compensation to the dealer acting as agent. The
prices paid to underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter, and purchases of after-market
securities from dealers ordinarily are executed at a price between the bid and
asked price. No brokerage commissions have been paid by 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 each 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.

DIVIDENDS, DISTRIBUTIONS AND TAXES

All Funds. Management believes that each Fund has qualified for the fiscal
year ended May 31, 1999 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 is open for business. Earnings for
Saturdays, Sundays and holidays are declared as dividends on the preceding
business day for the Money Market Fund and on the next business day for the
Longer Term Funds. With respect to the Longer Term Funds, Fund shares begin
earning income dividends on the day following the date of purchase. Dividends
usually are paid on the last business day (calendar day in the case of the Money
Market Fund) 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 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.

Longer Term Funds Only. The Code provides that if a shareholder has not
held his Fund shares for more than six months (or such shorter period as the
Internal Revenue Service may prescribe by regulation) and has received an
exempt-interest dividend with respect to such shares, any loss incurred on the
sale of such shares will be disallowed to the extent of the exempt-interest
dividend received. In addition, any dividend or distribution paid shortly after
an investor's purchase may have the effect of reducing the net asset value of
his shares below the cost of his investment. Such a distribution would be a
return on investment in an economic sense although taxable as stated under
"Distributions and Taxes" in the Prospectus.

In addition, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section 1258
of the Code. "Conversion transactions" are defined to include certain forward,
futures, option and "straddle" transactions, transactions marketed or sold to
produce capital gains, or transactions described in Treasury regulations to be
issued in the future.

Under Section 1256 of the Code, gain or loss realized by the Fund from
certain financial futures and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. Gain or
loss will arise upon exercise or lapse of such futures and options as well as
from closing transactions. In addition, any such futures or options remaining
unexercised at the end of the Fund's taxable year will be treated as sold for
their then fair market value, resulting in additional gain or loss to the Fund
characterized as described above.

Offsetting positions held by the Fund involving certain financial futures
contracts or options transactions may be considered, for tax purposes, to
constitute "straddles." "Straddles" are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of
"straddles" is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, override or modify the provisions of Sections 1256 and 988 of the
Code. As such, all or a portion of any short-or long-term capital gain from
certain "straddle" and/or conversion transactions may be recharacterized as
ordinary income.

If the Fund were treated as entering into "straddles" by reason of its
engaging in financial futures contracts or options transactions, such
"straddles" would be characterized as "mixed straddles" if the futures or
options comprising a part of such "straddles" were governed by Section 1256 of
the Code. The Fund may make one or more elections with respect to "mixed
straddles." Depending on which election is made, if any, the results to the Fund
may differ. If no election is made, to the extent the straddle and conversion
transaction rules apply to positions established by the Fund, losses realized by
the Fund will be deferred to the extent of unrealized gain in the offsetting
position. Moreover, as a result of the straddle and the conversion transaction
rules, short-term capital losses on straddle positions may be recharacterized as
long-term capital losses, and long-term capital gains on straddled positions may
be recharacterized as short-term capital gains or ordinary income.

The Taxpayer Relief Act of 1997 included constructive sale provisions that
generally apply if the Fund either (1) holds an appreciated financial position
with respect to stock, certain debt obligations, or partnership interests
("appreciated financial position") and then enters into a short sale, futures,
forward, or offsetting notional principal contract (collectively, a "Contract")
respecting the same or substantially identical property or (2) holds an
appreciated financial position that is a Contract and then acquires property
that is the same as, or substantially identical to, the underlying property. In
each instance, with certain exceptions, the Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund enters into the financial position or acquires the property,
respectively. Transactions that are identified as hedging or straddle
transactions under other provisions of the Code can be subject to the
constructive sale provisions.

Investment by the Funds in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to shareholders. For example, a Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such portion in
order to maintain its qualification as a regulated investment company. In that
case, the Fund may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.

PERFORMANCE INFORMATION

Money Market Fund. For the seven-day period ended May 31, 1999, the Fund's
yield was 2.38% and its effective yield was 2.41%. The Fund's 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.

Based upon a combined 1999 Federal, New York State and New York City
personal income tax rate of 46.43%, the Fund's tax equivalent yield for the
seven-day period ended May 31, 1999 was 4.41%.

Longer Term Funds. The Intermediate Bond Fund's and Bond Fund's yields for
the 30-day period ended May 31, 1999 were 3.80% and 4.08%, respectively. These
yields reflect the waiver of a portion of the management fee and/or absorption
of certain expense by the Manager, without which the Intermediate Bond Fund's
and Bond Fund's 30-day yields for the period ended May 31, 1999 would have been
3.65% and 4.06%, respectively. Current yield for a Longer Term Fund is computed
pursuant to a formula which operates as follows: the amount of a Fund's expenses
accrued for a 30-day period is subtracted from the amount of the dividends and
interest earned (computed in accordance with regulatory requirements) by it
during the period. That result is then divided by the product of: (a) the
average daily number of shares outstanding during the period that were entitled
to receive dividends and distributions, and (b) the net asset value per share on
the last day of the period less any undistributed earned income per share
reasonably expected to be declared as a dividend shortly thereafter. The
quotient is then added to 1, and that sum is raised to the 6th power, after
which 1 is subtracted. The current yield is then arrived at by multiplying the
result by 2.

Based upon a combined 1999 Federal, New York State and New York City
personal income tax rate of 46.05%, the Intermediate Bond Fund's tax equivalent
yield for the 30-day period ended May 31, 1999 was 7.04%, and the Bond Fund's
tax equivalent yield for such period was 7.56%. Without the above-referenced
absorption by the Manager, the Intermediate Bond Fund's tax equivalent yield for
the 30-day period ended May 31, 1999 would have been 6.77% and the Bond Fund's
tax equivalent yield for the 30-day period ended May 31, 1999 would have been
6.72%.

The Intermediate Bond Fund's average annual total return for the one, five
and ten year periods ended May 31, 1999 was 3.75%, 5.92% and 6.87%,
respectively. The Bond Fund's average annual total return for the one, five and
ten year periods ended May 31, 1999 was 4.47%, 6.23% and 6.96%, respectively.
Average annual total return is calculated by determining the ending redeemable
value of an investment purchased with a hypothetical $1,000 payment made at the
beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result.

The Intermediate Bond Fund's total return for the period June 12, 1987
(commencement of operations) to May 31, 1999 was 121.91%. The Bond Fund's total
return for the period July 26, 1983 (commencement of operations) to May 31, 1999
was 254.94%. Total return is calculated by subtracting the amount of the Fund's
net asset value per share at the beginning of a stated period from the net asset
value per share at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period), and dividing the
result by the net asset value per share at the beginning of the period.

All Funds. Tax equivalent yield is computed by dividing that portion of
the current yield (calculated as described above) which is tax exempt by 1 minus
a stated tax rate and adding the quotient to that portion, if any, of the yield
of the Fund that is not tax exempt. The tax equivalent yields noted above
represent the application of the highest Federal, New York State and New York
City marginal personal income tax rates presently in effect. For Federal income
tax purposes, a 39.6% tax rate has been used. For New York State and New York
City personal income tax purposes, tax rates of 7.875% and 4.46%, respectively,
have been used. The tax equivalent figure, however, does not reflect the
potential effect of local (including, but not limited to, county, district or
city) taxes, including applicable surcharges. In addition, there may be pending
legislation which could affect such stated tax rates or yield. Each investor
should consult its tax adviser, and consider its own factual circumstances and
applicable tax laws, in order to ascertain the relevant tax equivalent yield.

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 the Fund is not guaranteed. See "Determination of Net Asset
Value" for a discussion of the manner in which the Money Market Fund's price per
share is determined.

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

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

Comparative performance information may be used from time to time in
advertising or marketing shares of the Funds, including data from CDA Investment
Technologies, Inc., Lipper Analytical Services, Inc., Bank Rate Monitor(TM),
IBC's Money Fund Report(TM), Moody's Bond Survey Bond Index, Lehman Brothers
Municipal Bond Index, Morningstar, Inc. and other industry
publications.

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. Each Fund
share is of one class and has equal rights as to dividends and in liquidation.
Shares have no preemptive, subscription or conversion rights and are freely
transferable.

Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for a 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 Bond Fund, or two-thirds, in the case of the Money Market Fund
and Intermediate Bond 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 Money Market Fund and Intermediate Bond 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 Money Market
Fund and Intermediate Bond Funds of which they are shareholders. However, each
Fund's Agreement and Declaration of Trust ("Trust Agreement") disclaims
shareholder liability for acts or obligations of the Fund and requires that
notice of such disclaimer be given in each agreement, obligation or instruments
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 a Fund, the shareholder paying such
liability will be entitled to reimbursement from the general assets of the Fund.
Each of these Funds intends to conduct its operations in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.

The following information applies to the Intermediate Bond Fund and Bond
Fund only. Each Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating on short-term market
movements. A pattern of frequent purchases and exchanges can be disruptive to
efficient portfolio management and, consequently, can be detrimental to the
Fund's performance and its shareholders. Accordingly, if the Fund's management
determines that an investor is following a market-timing strategy or is
otherwise engaging in excessive trading, the Fund, with or without prior notice,
may temporarily or permanently terminate the availability of Fund Exchanges, or
reject in whole or part any purchase or exchange request, with respect to such
investor's account. Such investors also may be barred from purchasing other
funds in the Dreyfus Family of Funds. Generally, an investor who makes more than
four exchanges out of the Fund during any calendar year or who makes exchanges
that appear to coincide with a market-timing strategy may be deemed to be
engaged in excessive trading. Accounts under common ownership or control will be
considered as one account for purposes of determining a pattern of excessive
trading. In addition, the Fund may refuse or restrict purchase or exchange
requests by any person or group if, in the judgment of the Fund's management,
the Fund would be unable to invest the money effectively in accordance with its
investment objective and policies or could otherwise be adversely affected or if
the Fund receives or anticipates receiving simultaneous orders that may
significantly affect the Fund (e.g., amounts equal to 1% or more of the Fund's
total assets). If an exchange request is refused, the Fund will take no other
action with respect to the shares until it receives further instructions from
the investor. The Fund may delay forwarding redemption proceeds for up to seven
days if the investor redeeming shares is engaged in excessive trading or if the
amount of the redemption request otherwise would be disruptive to efficient
portfolio management or would adversely affect the Fund. Each Fund's policy on
excessive trading applies to investors who invest in the Fund directly or
through financial intermediaries, but does not apply to the Dreyfus
Auto-Exchange Privilege, to any automatic investment or withdrawal privilege
described herein, or to participants in employer-sponsored retirement plans.

During times of drastic economic or market conditions, the Intermediate
Bond Fund and Bond Fund may suspend Fund Exchanges temporarily without notice
and treat exchange requests based on their separate components -- redemption
orders with a simultaneous request to purchase the other fund's shares. In such
a case, the redemption request would be processed at the Fund's next determined
net asset value but the purchase order would be effective only at the net asset
value next determined after the fund being purchased receives the proceeds of
the redemption, which may result in the purchase being delayed.

Each Fund sends annual and semi-annual financial statements to all its
respective shareholders.

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 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

INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS

RISK FACTORS--INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS

The financial condition of New York State (the "State") and certain of its
public bodies (the "Agencies") and municipalities, particularly New York City
(the "City"), could affect the market values and marketability of New York
Municipal Obligations which may be held by the Fund. The following information
constitutes only a brief summary, does not purport to be a complete description,
and is based on information drawn from official statements relating to
securities offerings of the State, the City and the Municipal Assistance
Corporation for the City of New York ("MAC") available as of the date of this
Statement of Additional Information. While the Fund has not independently
verified such information, it has no reason to believe that such information is
not correct in all material respects.

The State's budget for the 1997-98 fiscal year was enacted by the
Legislature on August 4, 1997, more than four months after the start of the
fiscal year on April 1. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including all necessary appropriations for debt service.

For 1997-98, total revenues in the General Fund are projected at $33.37
billion, total expenditures are projected at $34.66 billion, and net operating
sources and uses are projected to contribute $331 million. For all government
funds, total revenues are projected at $67.48 billion, total expenditures are
projected at $68.24 billion, and financing uses are projected to exceed
financing sources by $220 million.

After adjustments for comparability between fiscal years, the adopted
1997-98 budget projects an increase in General Fund disbursements of $1.7
billion or 5.2% over 1996-97 levels. The average annual growth rate over the
last three fiscal years has been 1.2%. Adjusted State Funds (excluding Federal
grants) disbursements are projected to increase by 5.4% from the 1996-97 fiscal
year. All Governmental Funds disbursements are projected to increase by 7.0%
over the prior fiscal year, after adjustments for comparability.

The State revised the cash-basis 1997-98 State Financial plan on January
20, 1998, in conjunction with the release of the Executive Budget for the
1998-99 fiscal year. The changes reflect actual results through December 1997,
as well as modified economic and spending projections for the balance of the
current fiscal year.

The 1997-98 General Fund Financial Plan continues to be balanced, with a
projected cash surplus of $1.83 billion, an increase of $1.3 billion over the
surplus estimate of $530 million in the October 1997 update. The increase in the
surplus results primarily from higher-than-expected tax receipts, which are
forecast to exceed the October estimate by $1.28 billion.

In order to make the surplus available to help finance 1998-99
requirements, the State plans to accelerate $1.18 billion in income tax refund
payments into 1997-98, or provide reserves for such payments. The balance in the
refund reserve on March 31, 1998 is projected to be $1.647 billion.

Personal income tax collections for 1997-98 are now projected at $18.50
billion, or $363 million less than projected in October after accounting for the
refund reserve transaction. Business tax receipts are projected at $4.98
billion, an increase of $158 million. User tax collections are estimated at
$7.06 billion, or $52 million higher than the prior update, and reflected a
projected loss of $20 million in sales tax receipts from an additional week of
sales tax exemption for clothing and footwear costing less than $500, which was
authorized and implemented in January 1998. Other tax receipts are projected to
increase by $103 million over the prior update and total $1.09 billion for the
fiscal year. Miscellaneous receipts and transfers from other funds are projected
to reach $3.57 billion, or $153 million higher than the mid-year update.

The State projects that disbursements will increase by $565 million over
the mid-year update, with nearly the entire increase attributable to one-time
disbursements of $561 million that pre-pay expenditures previously scheduled for
1998-99. In the absence of these accelerated payments, projected General Fund
spending in the current year would have remained essentially unchanged from the
mid-year update. The Governor is proposing legislation to use a portion of the
current year surplus to transfer $425 million to pay for capital projects
authorized under the Community Enhancement Facilities Assistance Program (CEFAP)
that were previously planned to be financed with bond proceeds in 1998-99 and
thereafter, and $136 million in costs for an additional Medicaid payment
originally schedule for 1998-99.

The 1997-98 State Financial Plan is projected to be balanced on a cash
basis. The Financial Plan projections include a reserve for future needs of $530
million. As compared to the Governor's Executive Budget as amended in February
1997, the State's adopted budget for 1997-98 increases General Fund spending by
$1.7 billion, primarily from increases for local assistance ($1.3 billion).
Resources used to fund these additional expenditures include increased revenues
projected for the 1997-98 fiscal year, increased resources produced in the
1996-97 fiscal year that will be utilized in 1997-98, reestimates of social
service, fringe benefit and other spending, and certain non-recurring resources.
Total non-recurring resources included in the 1997-98 Financial Plan are
projected by State Division of the Budget ("DOB") to be $270 million, or 0.7% of
total General Fund receipts.

The 1997-98 adopted budget includes multi-year tax reductions, including a
State funded property and local income tax reduction program, estate tax relief,
utility gross receipts tax reductions, permanent reductions in the State sales
tax on clothing, and elimination of assessments on medical providers. These
reductions are intended to reduce the overall level of State and local taxes in
New York and to improve the State's competitive position vis-a-vis other states.
The various elements of the State and local tax and assessment reductions have
little or no impact on the 1997-98 Financial Plan, and do not begin to
materially affect the outyear projections until the State's 1999-2000 fiscal
year.

The 1997-98 Financial Plan also includes: a projected General Fund reserve
of $465 million; a projected balance of $400 million in the Tax Stabilization
Reserve Fund; and a projected $65 million balance in the Contingency Reserve
Fund.

The State Financial Plan was based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economies. Many uncertainties exist in forecasts of both the national and State
economies, including consumer attitudes toward spending, Federal financial and
monetary policies, the availability of credit and the condition of the world
economy, which could have an adverse effect on the State. There can be no
assurance that the State economy will not experience worse-than-predicted
results, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.

The Governor presented his 1998-99 Executive Budget to the Legislature on
January 20, 1998. The Executive Budget contains financial projections for the
State's 1997-98 through 2000-01 fiscal years, detailed estimates of receipts and
a proposed Capital Program and Financing Plan for the 1997-98 through 2002-03
fiscal years. It is expected that the Governor will prepare amendments to his
Executive Budget as permitted under law and that these amendments will be
reflected in a revised Financial Plan to be released on or before February 19,
1998.

The 1998-99 Financial Plan is projected to be balanced on a cash basis in
the General Fund. Total General Fund receipts, including transfers from other
funds, are projected to be $36.22 billion, an increase of $1.02 billion over
projected receipts in the current fiscal year. Total General Fund disbursements,
including transfers to other funds, are projected to be $36.18 billion, an
increase of $1.02 billion over the projected expenditures (including
prepayments) for the current fiscal year. As compared to the 1997-98 State
Financial Plan, the Executive Budget proposes year-to-year growth in General
Fund spending of 2.89%. State Funds spending (i.e., General Fund plus other
dedicated funds, with the exception of federal aid) is projected to grow by
8.5%. Spending from All Governmental Funds (excluding transfers) is proposed to
increase by 7.6% from the prior fiscal year.

There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions to
align recurring receipts and disbursements in future fiscal years.

On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from A1 to A. On March 26, 1990 and January
13, 1992, S&P changed its ratings on all of the State's outstanding general
obligation bonds from "AA- to A" and from "A to A-", respectively. In February
1991, Moody's lowered its rating on the City's general obligation bonds from A
to Baa1 and in July 1995, S&P lowered its rating on such bonds from "A- to
BBB+". Ratings reflect only the respective views of such organizations, and
their concerns about the financial condition of New York State and City, the
debt load of the State and City and any economic uncertainties about the region.
There is no assurance that a particular rating will continue for any given
period of time or that any such rating will not be revised downward or withdrawn
entirely if, in the judgment of the agency originally establishing the rating,
circumstances so warrant.

(1)...The State, Agencies and Other Municipalities. During the mid-1970s,
some of the Agencies and municipalities (in particular, the City) faced
extraordinary financial difficulties, which affected the State's own financial
condition. These events, including a default on short-term notes issued by the
New York State Urban Development Corporation ("UDC") in February 1975, which
default was cured shortly thereafter, and a continuation of the financial
difficulties of the City, created substantial investor resistance to securities
issued by the State and by some of its municipalities and Agencies. For a time,
in late 1975 and early 1976, these difficulties resulted in a virtual closing of
public credit markets for State and many State related securities.

In response to the financial problems confronting it, the State developed
and implemented programs for its 1977 fiscal year that included the adoption of
a balanced budget on a cash basis (a deficit of $92 million that actually
resulted was financed by issuing notes that were paid during the first quarter
of the State's 1978 fiscal year). In addition, legislation was enacted limiting
the occurrence of additional so-called "moral obligation" and certain other
Agency debt, which legislation does not, however, apply to MAC debt.

GAAP-Basis Results--1996-97 Fiscal Year. The State completed its 196-97 fiscal
year with a combined Governmental Funds operating surplus of $2.1 billion, which
included an operating surplus in the General Fund of $1.9 billion, in Capital
Projects Funds of $98 million and in the Special Revenue Funds of $65 million,
offset in part by an operating deficit of $37 million in the Debt Service Funds.

GAAP-Basis Results--1995-96 Fiscal Year. The State completed its 1995-96 fiscal
year with a combined Governmental Funds operating surplus of $432 million, which
included an operating surplus in the General Fund of $380 million, in the
Capital Projects Funds of $276 million and in the Debt Service Funds of $185
million. There was an operating deficit of $409 million in the Special Revenue
Funds.

GAAP-Basis Results--1994-95 Fiscal Year. The State's Combined Balance Sheet as
of March 31, 1995 showed an accumulated deficit in its combined Governmental
Funds of $1.666 billion reflecting liabilities of $14.778 billion and assets of
$13.112 billion. This accumulated Governmental Funds deficit includes a $3.308
billion accumulated deficit in the General Fund, as well as accumulated
surpluses in the Special Revenue and Debt Service Fund types of $877 million and
$1.753 billion, respectively, and a $988 million accumulated deficit in the
Capital Projects Fund type.

The State completed its 1994-95 fiscal year with a combined Governmental
Funds operating deficit of $1.791 billion, which included operating deficits in
the General Fund of $1.426 billion, in the Capital Projects Funds of $366
million, and in the Debt Service Funds of $38 million. There was an operating
surplus in the Special Revenue Funds of $39 million.

State Financial Plan--Cash-Basis Results--General Fund. The General Fund
is the principal operating fund of the State and is used to account for all
financial transactions, except those required to be accounted for in another
fund. It is the State's largest fund and receives almost all State taxes and
other resources not dedicated to particular purposes. General Fund moneys are
also transferred to other funds, primarily to support certain capital projects
and debt service payments in other fund types.

In the State's 1997-98 fiscal year, the General Fund is expected to
account for approximately 48% of total Governmental Funds disbursements and 71%
of total State Funds disbursements. The General Fund is projected to be balanced
on a cash basis for the 1997-98 fiscal year. Total receipts and transfers from
other funds are projected to be $35.20 billion, an increase of $2.16 billion
from the prior fiscal year. Total General Fund disbursements and transfers to
other funds are projected to be $35.17 billion, an increase of $2.23 billion
from the total in the prior 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
$1.4 billion. The cash surplus was derived primarily from higher-than-expected
revenues and lower-than-expected spending for social services programs. The
Governor in his Executive Budget applied $1.05 billion of the cash surplus
amount to finance the 1997-98 Financial Plan, and the additional $373 million is
available for use in financing the 1997-98 Financial Plan when enacted by the
State Legislature.

The General Fund closing fund balance was $433 million. Of that amount,
$317 million was in the Tax Stabilization Reserve Fund ("TSRF"), after a
required deposit of $15 million and an additional deposit of $65 million in
1996-97. The TSRF can be used in the event of any future General Fund deficit,
as provided under the State Constitution and State Finance Law. In addition, $41
million remains on deposit in the Contingency Reserve Fund ("CRF"). This fund
assists the State in financing any extraordinary litigation costs during the
fiscal year. The remaining $75 million reflects amounts on deposit in the
Community Projects Fund. This fund was created to fund certain legislative
initiatives. The General Fund closing fund balance does not include $1.86
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 as 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, and increase of 0.7% from the previous
fiscal year (excluding deposits into the tax refund reserve account). General
Fund disbursements and transfers to other funds totaled $32.90 billion for the
1996-97 fiscal year, an increase of 0.7% from the 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. Of that amount, $65
million was deposited into the TSRF, and $380 million was used to reduce 1996-97
Financial Plan liabilities by accelerating 1996-97 payments, deferring 1995-96
revenues, and making a deposit to the tax refund reserve account.

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 the $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 includes $237
million on deposit in the TSRF, to be used in the event of any future General
Fund deficit as provided under the State Constitution and State Finance Law. In
addition, $41 million is on deposit in the CRF. The CRF was established in State
fiscal year 1993-94 to assist the State in financing the costs of extraordinary
litigation. The remaining $9 million reflects amounts on deposit in the Revenue
Accumulation Fund. This fund was created to hold certain tax receipts
temporarily before their deposit to other accounts. In addition, $678 million
was on deposit in the tax refund reserve account, of which $521 million was
necessary to complete the restructuring of the State's cash flow under the LGAC
program.

General Fund receipts totaled $32.81 billion, a decrease of 1.1% from
1994-95 levels. This decrease reflects the impact of tax reductions enacted and
effective in both 1994 and 1995. General Fund disbursements totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2% from 1994-95 levels.

The State ended its 1994-95 fiscal year with the General Fund in balance.
The $241 million decline in the fund balance reflects the planned use of $264
million from the CRF, partially offset by the required deposit of $23 million to
the TSRF. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited to continue the process of
restructuring the State's cash flow as part of the LGAC program. The closing
fund balance of $158 million reflects $157 million in the TSRF and $1 million in
the CRF.

General Fund receipts totaled $33.16 billion, an increase of 2.9% from
1993-94 levels. General Fund disbursements totaled $33.40 billion for the
1994-95 fiscal year, an increase of 4.7% from the previous fiscal year.

Cash-Basis Results--Other Governmental Funds. Activity in the three other
governmental funds has remained relatively stable over the last three fiscal
years ended March 31, 1997, 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").

The Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as federal agents that are legally restricted, either by
the legislative or outside parties, to expenditures for specified purposes.
Disbursements from Special Revenue Funds increased from $24.38 billion to $26.02
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. Although activity in this fund type is expected to comprise
approximately 42% of total governmental funds receipts in the 1997-98 fiscal
year, three-quarters of that activity relates to federally-funded programs.
Projected receipts in this fund type for the 1997-98 fiscal year total $28.22
billion, an increase of $2.51 billion (9.7%) over the prior year. Projected
disbursements in this fund type total $28.45 billion, an increase of $2.43
billion (9.3%) over 1996-97 levels. Disbursements from federal funds, primarily
the federal share of Medicaid and other social services programs, are projected
to total $21.19 billion in the 1997-98 fiscal year. Remaining projected spending
of $7.26 billion primarily reflects aid to SUNY supported by tuition and
dormitory fees, education aid funded from lottery receipts, operating aid
payments to the MTA funded from the proceeds of dedicated transportation taxes,
and costs of a variety of self-supporting programs which deliver services
financed by user fees.

The Capital Projects Funds are used to finance the acquisition,
construction or rehabilitation of major state capital facilities and to aid
local government units and Agencies in financing capital construction.
Disbursements in the Capital Projects Funds declined from $3.62 billion to $3.54
billion over the last three years, 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. The increase in the negative fund balance in 1994-95
resulted from delays in reimbursements caused by delays in the timing of public
authority bond sales.

In the 1997-98 fiscal year, activity in these funds is expected to
comprise 5% of total governmental receipts.

Total receipts in this fund type for the 1997-98 fiscal year are projected
at $3.30 billion. Bond and note proceeds are expected to provide $605 million in
other financing sources. Disbursements from this fund type are projected to be
$3.70 billion, an increase of $154 million (4.3%) over prior-year levels. The
Dedicated Highway and Bridge Trust Fund is the single largest dedicated fund,
comprising an estimated $982 million (27%) of the activity in this fund type.
Total spending for capital projects will be financed through a combination of
sources: federal grants (29%), public authority bond proceeds (31%), general
obligation bond proceeds (15%), and pay-as-you-go revenues (25%).

The Debt Service Funds are used to account for the payment of principal
of, and interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements.

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 implementation 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. This fund type is expected to comprise 4% of total governmental
fund receipts and 4.7% of total government disbursements in the 1997-98 fiscal
year. Receipts in these funds in excess of debt service requirements may be
transferred to the General Fund and Special Revenue Funds, pursuant to law.

The Debt Service fund type consists of the General Debt Service Fund,
which is supported primarily by tax receipts transferred from the General Fund,
and other funds established to accumulate moneys for the payment of debt
service. In the 1997-998 fiscal year, total disbursements in this fund type are
projected at $3.17 billion, an increase of $641 million or 25.3%, most of which
is explained by increases in the General Fund transfer as discussed earlier. The
projected transfer from the General Fund of $2.07 billion is expected to finance
65% of these payments.

The remaining payments are expected to be financed by pledged revenues,
including $2.03 billion in taxes and $601 million in dedicated fees and other
miscellaneous receipts. After required impoundment for debt service, $3.77
billion is expected to be transferred to the General Fund and other funds in
support of State operations. The largest transfer-$1.86 billion-is made to the
Special Revenue fund type in support of operations of the mental hygiene
agencies. Another $1.47 billion in excess sales taxes is expected to be
transferred to the General Fund, following payments of projected debt service on
LGAC bonds.

State Borrowing Plan. The State anticipates that its capital programs will
be financed, in part, through borrowings by the State and public authorities in
the 1997-98 fiscal year. The State expects to issue $605 million in general
obligation bonds (including $140 million for purposes of redeeming outstanding
BANs) and $140 million in general obligation commercial paper. The Legislature
has also authorized the issuance of $83 million in COPs during the State's
1997-98 fiscal year for equipment purchases, and approximately $1.8 billion in
borrowing by public authorities pursuant to lease purchase and contractual
obligation financing for capital programs of the state. The projection of the
State regarding its borrowings for the 1997-98 fiscal year may change if
circumstances require.

State Agencies. The fiscal stability of the State is related, at least in
part, to the fiscal stability of its localities and various of its Agencies.
Various Agencies have issued bonds secured, in part, by non-binding statutory
provisions for State appropriations to maintain various debt service reserve
funds established for such bonds (commonly referred to as "moral obligation"
provisions).

At September 30, 1996, there were 17 Agencies that had outstanding debt of
$100 million or more. The aggregate outstanding debt, including refunding bonds,
of these 17 Agencies was $75.4 billion as of September 30, 1996. As of March 31,
1997, aggregate Agency debt outstanding as State-supported debt was $32.8
billion and as State-related was $37.1 billion. Debt service on the outstanding
Agency obligations normally is paid out of revenues generated by the Agencies'
projects or programs, but in recent years the State has provided special
financial assistance, in some cases on a recurring basis, to certain Agencies
for operating and other expenses and for debt service pursuant to moral
obligation indebtedness provisions or otherwise. Additional assistance is
expected to continue to be required in future years.

Several Agencies have experienced financial difficulties in the past.
Certain Agencies continue to experience financial difficulties requiring
financial assistance from the State. Failure of the State to appropriate
necessary amounts or to take other action to permit certain Agencies to meet
their obligations could result in a default by one or more of such Agencies. If
a default were to occur, it would likely have a significant effect on the
marketability of obligations of the State and the Agencies. These Agencies are
discussed below.

The New York State Housing Finance Agency ("HFA") provides financing for
multifamily housing, State University construction, hospital and nursing home
development, and other programs. In general, HFA depends upon mortgagors in the
housing programs it finances to generate sufficient funds from rental income,
subsidies and other payments to meet their respective mortgage repayment
obligations to HFA, which provide the principal source of funds for the payment
of debt service on HFA bonds, as well as to meet operating and maintenance costs
of the projects financed. From January 1, 1976 through March 31, 1987, the State
was called upon to appropriate a total of $162.8 million to make up deficiencies
in the debt service reserve funds of HFA pursuant to moral obligation
provisions. The State has not been called upon to make such payments since the
1986-87 fiscal year.

UDC has experienced, and expects to continue to experience, financial
difficulties with the housing programs it had undertaken prior to 1975, because
a substantial number of these housing program mortgagors are unable to make full
payments on their mortgage loans. Through a subsidiary, UDC is currently
attempting to increase its rate of collection by accelerating its program of
foreclosures and by entering into settlement agreements. UDC has been, and will
remain, dependent upon the State for appropriations to meet its operating
expenses. The State also has appropriated money to assist in the curing of a
default by UDC on notes which did not contain the State's moral obligation
provision.

The MTA oversees New York City's subway and bus lines by its affiliates,
the New York City Transit Authority and the Manhattan and Bronx Surface Transit
Operating Authority (collectively, the "TA"). Through MTA's subsidiaries, the
Long Island Rail Road Company, the Metro-North Commuter Railroad Company and the
Metropolitan Suburban Bus Authority, the MTA operates certain commuter rail and
bus lines in the New York metropolitan area. In addition, the Staten Island
Rapid Transit Authority, an MTA subsidiary, operates a rapid transit line on
Staten Island. Through its affiliated agency, the Triborough Bridge and Tunnel
Authority (the "TBTA"), the MTA operates certain toll bridges and tunnels.
Because fare revenues are not sufficient to finance the mass transit portion of
these operations, the MTA has depended and will continue to depend for operating
support upon a system of State, local government and TBTA support and, to the
extent available, Federal operating assistance, including loans, grants and
subsidies. If current revenue projections are not realized and/or operating
expenses exceed current projections, the TA or commuter railroads may be
required to seek additional State assistance, raise fares or take other actions.

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 region (the "Metropolitan Transportation
Region") served by the MTA and a special .25% regional sales and use tax that
provide additional revenues for mass transit purposes, including assistance to
the MTA. In addition, since 1987, State law has required that the proceeds of
.25% mortgage recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for operating or
capital expenses. Further, in 1993, the State dedicated a portion of certain
additional State petroleum business tax receipts to fund operating or capital
assistance to the MTA. For the 1997-98 State fiscal year, total State assistance
to the MTA is estimated at approximately $1.2 billion, an increase of $76
million over the 1996-97 fiscal year.

In 1981, the State Legislature authorized procedures for the adoption,
approval and amendment of a five-year plan for the capital program designed to
upgrade the performance of the MTA's transportation systems and to supplement,
replace and rehabilitate facilities and equipment, and also granted certain
additional bonding authorization therefor.

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 $2.17 billion MTA capital plan for the 1995 through 1999 calendar
years (the "1995-99 Capital Program"). In July 1997, the Capital Program Review
Board approved the 1995-99 Capital Program, which supersedes the overlapping
portion of the MTA's 1992-96 Capital Program. This 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 $5.1 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 such governmental actions will be taken,
that sources currently identified will not be decreased or eliminated, or that
the 1995-1999 Capital Program will not be delayed or reduced. If the MTA capital
program is delayed or reduced because of funding shortfalls or other factors,
ridership and fare revenues may decline, which could, among other things, impair
the MTA's ability to meet its operating expenses without additional State
assistance.

The cities, towns, villages and school districts of the State are
political subdivisions of the State with the powers granted by the State
Constitution and statutes. As the sovereign, the State retains broad powers and
responsibilities with respect to the government, finances and welfare of these
political subdivisions, especially in education and social services. In recent
years the State has been called upon to provide added financial assistance to
certain localities.

Other Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the last several State fiscal years. The potential impact on the State of such
actions by localities is not included in the projections of the State receipts
and disbursements in the State's 1997-98 fiscal year.

Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.

Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.

Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share the more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget.

Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1995, the total indebtedness of all localities in
the State, other than the City, was approximately $19 billion. A small portion
(approximately $102.3 million) of this indebtedness represented borrowing to
finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than the City authorized by State law to issue debt to finance deficits during
the period that such deficit financing is outstanding. Eighteen localities had
outstanding indebtedness for deficit financing at the close of their fiscal year
ending in 1995.

From time to time, Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities to
increase local revenues to sustain those expenditures. If the State, the City or
any of the Agencies were to suffer serious financial difficulties jeopardizing
their respective access to the public credit markets, the marketability of notes
and bonds issued by localities within the State could be adversely affected.
Localities also face anticipated and potential problems resulting from certain
pending litigation, judicial decisions and long-range economic trends.
Long-range, potential problems of declining urban population, increasing
expenditures and other economic trends could adversely affect localities and
require increasing State assistance in the future.

Certain litigation pending against the State or its officers or employees
could have a substantial or long-term adverse effect on State finances. Among
the more significant of these litigations are those that involve: (i) the
validity and fairness of agreements and treaties by which various Indian tribes
transferred title to the State of approximately six million acres of land in
central New York; (ii) certain aspects of the State's Medicaid rates and
regulations, including reimbursements to providers of mandatory and optional
Medicaid services; (iii) contamination in the Love Canal area of Niagara Falls;
(iv) a challenge to the State's practice of reimbursing certain Office of Mental
Health patient-care expenses with clients' Social Security benefits; (v) a
challenge to the methods by which the State reimburses localities for the
administrative costs of food stamp programs; (vi) a challenge to the State's
possession of certain funds taken pursuant to the State's Abandoned Property
law; (vii) alleged responsibility of State officials to assist in remedying
racial segregation in the City of Yonkers; (viii) an action, in which the State
is a third party defendant, for injunctive or other appropriate relief,
concerning liability for the maintenance of stone groins constructed along
certain areas of Long Island's shoreline; (ix) actions challenging the
constitutionality of legislation enacted during the 1990 legislative session
which changed the actuarial funding methods for determining contributions to
State employee retirement systems; (x) an action against State and City
officials alleging that the present level of shelter allowance for public
assistance recipients is inadequate under statutory standards to maintain proper
housing; (xi) an action challenging legislation enacted in 1990 which had the
effect of deferring certain employer contributions to the State Teachers'
Retirement System and reducing State aid to school districts by a like amount;
(xii) a challenge to the constitutionality of financing programs of the Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991 (described
below in this Part); (xiii) a challenge to the constitutionality of financing
programs of the Metropolitan Transportation Authority and the Thruway Authority
authorized by Chapter 56 of the Laws of 1993 (described below in this Part);
(xiv) challenges to the delay by the State Department of Social Services in
making two one-week Medicaid payments to the service providers; (xv) challenges
by commercial insurers, employee welfare benefit plans, and health maintenance
organizations to provisions of Section 2807-c of the Public Health Law which
impose 13%, 11% and 9% surcharges on inpatient hospital bills and a bad debt and
charity care allowance on all hospital bills paid by such entities; (xvi)
challenges to the promulgation of the State's proposed procedure to determine
the eligibility for and nature of home care services for Medicaid recipients;
(xvii) a challenge to State implementation of a program which reduces Medicaid
benefits to certain home-relief recipients; and (xviii) challenges to the
rationality and retroactive application of State regulations recelebrating
nursing home Medicaid rates.

(2) ..New York City. In the mid-1970s, the City had large accumulated past
deficits and until recently was not able to generate sufficient tax and other
ongoing revenues to cover expenses in each fiscal year. However, the City has
achieved balanced operating results for each of its fiscal years since 1981 as
reported in accordance with the then-applicable GAAP standards. The City's
ability to maintain balanced operating results in future years is subject to
numerous contingencies and future developments.

In 1975, the City became unable to market its securities and entered a
period of extraordinary financial difficulties. In response to this crisis, the
State created MAC to provide financing assistance to the City and also enacted
the New York State Financial Emergency Act for the City of New York (the
"Emergency Act") which, among other things, created the Financial Control Board
(the "Control Board") to oversee the City's financial affairs and facilitate its
return to the public credit markets. The State also established the Office of
the State Deputy Comptroller ("OSDC") to assist the Control Board in exercising
its powers and responsibilities. On June 30, 1986, the Control Board's powers of
approval over the City Financial Plan were suspended pursuant to the Emergency
Act. However, the Control Board, MAC and OSDC continue to exercise various
monitoring functions relating to the City's financial condition. The City
prepares and operates under a four-year financial plan which is submitted
annually to the Control Board for review and which the City periodically
updates.

The City's independently audited operating results for each of its fiscal
years from 1981 through 1995 show a General Fund surplus reported in accordance
with GAAP. The City has eliminated the cumulative deficit in its net General
Fund position.

During the 1990 and 1991 fiscal years, as a result of a slowing economy,
the City has experienced significant shortfalls in almost all of its major tax
sources and increases in social services costs, and was required to take actions
to close substantial budget gaps in order to maintain balanced budgets in
accordance with the Financial Plan.

According to a recent OSDC economic report, the City's economy was slow to
recover from the recession and was expected to have experienced a weak
employment situation, and moderate wage and income growth, during the 1995-96
period. Also, Financial Plan reports of OSDC, the Control Board, and the City
Comptroller have variously indicated that many of the City's balanced budgets
have been accomplished, in part, through the use of non-recurring resource, tax
and fee increases, personnel reductions and additional State assistance; that
the City has not yet brought its long-term expenditures in line with recurring
revenues; that the City's proposed gap-closing programs, if implemented, would
narrow future budget gaps; that these programs tend to rely heavily on actions
outside the direct control of the City; and that the City is therefore likely to
continue to face futures projected budget gaps requiring the City to reduce
expenditures and/or increase revenues. According to the most recent staff
reports of OSDC, the Control Board and the City Comptroller during the four-year
period covered by the current Financial Plan, the City is relying on obtaining
substantial resources from initiatives needing approval and cooperation of its
municipal labor unions, Covered Organizations, and City Council, as well as the
State and Federal governments, among others, and there can be no assurance that
such approval can be obtained.

The City requires certain amounts of financing for seasonal and capital
spending purposes. The City issued $1.75 billion of notes for seasonal financing
purposes during the 1994 fiscal year. The City's capital financing program
projects long-term financing requirements of approximately $17 billion for the
City's fiscal years 1995 through 1998 for the construction and rehabilitation of
the City's infrastructure and other fixed assets. The major capital requirement
include expenditures for the City's water supply system, and waste disposal
systems, roads, bridges, mass transit, schools and housing. In addition, the
City and the Municipal Water Finance Authority issued about $1.8 billion in
refunding bonds in the 1994 fiscal year.

State Economic and Demographic Trends. The State historically has been one
of the wealthiest states in the nation. For decades, however, the State has
grown more slowly than the nation as a whole, gradually eroding its relative
economic position. Statewide, urban centers have experienced significant changes
involving migration of the more affluent to the suburbs and an influx of
generally less affluent residents. Regionally, the older Northeast cities have
suffered because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.

During the 1982-83 recession, overall economic activity in the State
declined less than that of the nation as a whole. However, in the calendar years
1984 through 1991, the State's rate of economic expansion was somewhat slower
than that of the nation. In the 1990-91 recession, the economy of the State, and
that of the rest of the Northeast, was more heavily damaged than that of the
nation as a whole and has been slower to recover. The total employment growth
rate in the State has been below the national average since 1984. The
unemployment rate in the State dipped below the national rate in the second half
of 1981 and remained lower until 1991; since then, it has been higher. According
to data published by the U.S. Bureau of Economic Analysis, during the past ten
years, total personal income in the State rose slightly faster than the national
average only from 1986 through 1988.

At the state level, moderate growth is projected to continue in 1998 and
1999 for employment, wages, and personal income, although the growth rates will
lessen gradually during the course of the two years. Personal income is
estimated to grow by 5.4% in 1997, fueled in part by a continued large increase
in financial sector bonus payment, and is projected to grow 4.7% in 1998 and
4.4% in 1998. Increase in bonus payments at year-end 1998 are projected to be
modest, a substantial change from the rate of increase of the law few years.
Overall employment growth is expected to continue at a modest reflecting the
slowing growth in the national economy, continued spending restraint in
government, and restructuring in the health care, social service, and banking
sectors.

<PAGE>

APPENDIX B

Description of S&P, Moody's & Fitch ratings:

S&P

Municipal Bond Ratings

An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature and provisions of the obligation; and (3) protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.

AAA

Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

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.

Principal and interest payments on bonds in this category are regarded as
safe. This rating describes the third strongest capacity for payment of debt
service. It differs from the two higher ratings because:

General Obligation Bonds -- There is some weakness in the local economic
base, in debt burden, in the balance between revenues and expenditures, or in
quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.

Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.

BBB

Of the investment grade, this is the lowest.

General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of debt
service. The difference between "A" and "BBB" rating is that the latter shows
more than one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the factors
considered.

Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.

BB, B, CCC, CC, C

Debt rated BB, B, CCC, CC or C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.

Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal.

CCC

Debt rated CCC has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.

The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.

The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.

Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.

Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus designation to show relative standing within the
major ratings categories.

Municipal Note Ratings

SP-1

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

SP-2

The issuers of these municipal notes exhibit satisfactory capacity to pay
principal and interest.

SP-3

The issuers of these municipal notes exhibit speculative capacity to pay
principal and interest.

Commercial Paper Ratings

An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
Issues assigned an A rating are regarded as having the greatest capacity for
timely payment. Issues in this category are delineated with the numbers 1, 2 and
3 to indicate the relative degree of safety.

A-1

This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation.

A-2

Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.

A-3

Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

Moody's

Municipal Bond Ratings

Aaa

Bonds 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 which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa

Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and therefore not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa

Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

For bond issues in the health care, higher education and other
not-for-profit sectors, Moody's provides numerical modifiers 1, 2 and 3 to the
generic rating categories Aa through B; the modifier 1 indicates that the issue
ranks in the higher end of the generic rating category; the modifier 2 indicates
that the issue is in the mid-range of the generic rating category; and the
modifier 3 indicates that the issue is in the low end of the generic rating
category. For all other municipal bonds, Moody's provides either a generic
rating or a rating with the numerical modifier 1 for the rating categories Aa
through B, with the latter indicating that the issue ranks in the higher end of
the rating category.

Municipal Note Ratings

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

A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.

Moody's short-term ratings are designated Moody's Investment Grade as MIG
1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's assigns a
MIG or VMIG rating, all categories define an investment grade situation.

MIG 1/VMIG 1

This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

MIG 2/VMIG 2

This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.

MIG 3/VMIG 3

This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

MIG 4/VMIG 4

This designation denotes adequate quality. Protection commonly regarded as
required of an investment security is present and, although not distinctly or
predominantly speculative, there is specific risk.

Commercial Paper Ratings

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

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

Issuers (or related supporting institutions) rated Prime-3 (P-3) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirements for relatively
high financial leverage. Adequate alternate liquidity is maintained.

Fitch

Municipal Bond Ratings

The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.

AAA

Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by 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+.

Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

BBB

Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.

Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.

Bonds rated B are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.

CCC

Bonds rated CCC have certain identifiable characteristics, which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

Bonds rated CC are minimally protected. Default payment of interest and/or
principal seems probable over time.

Bonds rated C are in imminent default in payment of interest or principal.

DDD, DD and D

Bonds rated DDD, DD and D are in actual or imminent default of interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for recovery
on these bonds and D represents the lowest potential for recovery.

Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA category covering 12-36 months or the DDD, DD
or D categories.

Short-Term Ratings

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.

F-1+

Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1

Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.

F-2

Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.