DREYFUS GNMA FUND INC, 497, 1999-09-03

DREYFUS GNMA FUND INC
497, 1999-09-03

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Dreyfus GNMA Fund, Inc.

Investing in Ginnie Maes, and other mortgage-related securities, for current
income

PROSPECTUS September 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 FUND
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2 Goal/Approach

3 Main Risks

4 Past Performance

5 Expenses

6 Management

7 Financial Highlights

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

8 Account Policies

11 Distributions and Taxes

12 Services for Fund Investors

14 Instructions for Regular Accounts

16 Instructions for IRAs

FOR MORE INFORMATION
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Back Cover

What every investor should know about the fund

Information for managing your fund account

Where to learn more about this and other Dreyfus funds

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The Fund

Dreyfus GNMA Fund, Inc.
--------------------------------

Ticker Symbol: DRGMX

GOAL/APPROACH

The fund seeks as high a level of current income as is consistent with the
preservation of capital. To pursue this goal, the fund will invest at least 65%
of its net assets in GNMA certificates (popularly called "Ginnie Maes"), which
are guaranteed as to timely payment of principal and interest by the Government
National Mortgage Association.

The fund also may invest in other mortgage-related securities, including those
issued by government-related organizations such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, and collateralized
mortgage obligations (CMOs), including residential and commercial
mortgage-backed securities issued by governmental agencies or private entities.
The fund can invest in privately issued mortgage-backed securities with a "BBB"
or higher credit quality, but currently intends to invest in only those
securities with an "A" or higher credit quality.

The fund also may purchase other securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities, such as U.S. Treasury bills,
notes and bonds. It also may purchase asset-backed securities and enter into
repurchase agreements.

INFORMATION ON THE FUND'S RECENT STRATEGIES AND HOLDINGS CAN BE FOUND IN THE
CURRENT ANNUAL/SEMIANNUAL REPORT (SEE BACK COVER).

Concepts to understand

GINNIE MAES: securities backed by a pool of residential mortgages, which "pass
through" to investors the interest and principal payments of homeowners. The
Government National Mortgage Association guarantees that investors will receive
timely principal and interest payments even if homeowners do not make mortgage
payments on time.

CMOS: multi-class bonds backed by pools of mortgage pass-through securities or
mortgage loans; either residential or commercial. CMOs may be issued by U.S.
government agencies or private entities.

COMMERCIAL MORTGAGE-BACKED SECURITIES: a CMO backed by loans on apartment
buildings, office buildings or shopping centers.

MAIN RISKS

A security guaranteed by the U.S. government is guaranteed only as to principal
and interest. Neither the market value of such security nor the fund's share
price is guaranteed. The value of your investment in the fund could go up or
down, which means that you could lose money.

While prices of fixed-income securities tend to move inversely with interest
rate changes, mortgage-related securities may react differently to interest rate
changes than other bonds, because of prepayments and other factors. For example,
when interest rates fall, mortgage pass-through securities may be paid off
earlier than expected, and the fund may reinvest those assets at lower rates.
This factor lessens price-appreciation potential from interest rate declines.
When rates rise, prices may decline less, given their generally higher coupon.
Also, when rates rise it may effectively lengthen a mortgage-related security's
expected maturity and cause the value of the security to fluctuate more widely
in response to interest rate changes.

If the market for privately issued securities in which the fund invests becomes
"illiquid," typically when there are many more sellers than buyers for the
securities, the value of those securities, and the fund's share price, may fall
dramatically.

Privately issued mortgage-related securities also are subject to credit risks
associated with the underlying mortgage properties and, during difficult
economic conditions, may be more volatile and less liquid than more traditional,
government-backed debt securities.

Other potential risks

Most mortgage- and asset-backed securities are a form of derivative. The fund,
at times, may also invest in other derivative securities, such as options and
futures. Derivatives are used primarily to hedge the fund's portfolio, but may
be used to increase returns; however, such practices may lower returns or
increase volatility. Derivatives can be illiquid, and a small investment in
certain derivatives could have a potentially large impact on the fund's
performance.

The fund may buy securities on a forward-commitment basis, and enter into
reverse repurchase agreements, which are forms of borrowing that can increase
the fund's overall price volatility.

The Fund

PAST PERFORMANCE

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
GNMA Index, an unmanaged Ginnie Mae performance benchmark. Both tables assume
reinvestment of dividends. Of course, past performance is no guarantee of future
results.
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Year-by-year total return AS OF 12/31 EACH YEAR (%)

11.56 9.75 14.50 6.34 7.16 -2.77 15.11 4.41 8.83 4.16
89 90 91 92 93 94 95 96 97 98

BEST QUARTER: Q2 '89 +6.12%

WORST QUARTER: Q1 '94 -2.36%

THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/99 WAS 0.92%.

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Average annual total return AS OF 12/31/98

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

FUND 4.16% 5.78% 7.78%

LEHMAN

BROTHERS

GNMA INDEX 6.93% 7.34% 9.25%

What this fund is -- and isn't

This fund is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.

An investment in this fund 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 this fund, but you also have the
potential to make money.

EXPENSES

As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. 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).
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Fee table

ANNUAL FUND OPERATING EXPENSES

% OF AVERAGE DAILY NET ASSETS

Management fees 0.60%

Rule 12b-1 fee 0.20%

Other expenses:

Interest on borrowings 0.25%

Miscellaneous 0.14%
----------------------------------------------------

TOTAL 1.19%
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Expense example

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

$121 $378 $654 $1,443

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.

RULE 12B-1 FEE: a fee to reimburse (i) the fund's distributor for distributing
fund shares and (ii) 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.

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

The Fund

MANAGEMENT

The investment adviser for the 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, the fund
paid Dreyfus a management fee at the annual rate of 0.60% 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 $389 billion of assets under management and $1.9 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.

Michael Hoeh has managed the fund since March 1997 and has been employed by
Dreyfus since October 1996. Prior to joining Dreyfus, Mr. Hoeh was senior vice
president of the portfolio management division of ARM Capital Advisors, Inc.

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.

Concepts to understand

YEAR 2000 ISSUES: the fund could be adversely affected if the computer systems
used by Dreyfus and the fund's 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 the fund invests may be
adversely affected by year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.

FINANCIAL HIGHLIGHTS

This table describes the fund's performance for the fiscal periods indicated.
"Total return" shows how much your investment in the 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, along with the fund's financial statements, is included in
the annual report.

YEAR ENDED APRIL 30,

1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)

Net asset value, beginning of period 14.99 14.44 14.50 14.32 14.48

Investment operations:

Investment income -- net .92 .91 .92 .96 .98

Net realized and unrealized gain
(loss) on investments (.46) .55 (.05) .18 (.18)

Total from investment operations .46 1.46 .87 1.14 .80

Distributions:

Dividends from investment
income -- net (.91) (.91) (.93) (.96) (.96)

Net asset value, end of period 14.54 14.99 14.44 14.50 14.32

Total return (%) 3.17 10.38 6.17 8.11 5.81
- ------------------------------------------------------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA

Ratio of expenses
to average net assets (%) .94 .96 .96 .96 .97

Ratio of interest expense
and loan commitment fees
to average net assets (%) .25 -- -- -- --

Ratio of net investment income
to average net assets (%) 6.19 6.16 6.38 6.57 6.90

Portfolio turnover rate (%) 206.15 342.71 323.99 144.43 362.70
- ------------------------------------------------------------------------------------------------------------------------------------

Net assets, end of period
($ x 1,000) 1,068,347 1,172,792 1,240,459 1,373,618 1,435,873
</TABLE>

The Fund

Your Investment

ACCOUNT POLICIES

Buying shares

YOU PAY NO SALES CHARGES to invest in this fund. Your price for fund shares is
the fund's net asset value per share (NAV), which is generally calculated as of
the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern
time) 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 fund's investments are generally valued based on market
value or, where market quotations are not readily available, based on fair value
as determined in good faith by the fund's board.
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Minimum investments

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

TRADITIONAL IRAS $750 NO MINIMUM

SPOUSAL IRAS $750 NO MINIMUM

ROTH IRAS $750 NO MINIMUM

EDUCATION IRAS $500 NO MINIMUM
AFTER THE FIRST
YEAR

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.

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 RECENTLY PURCHASED SHARES, please note that if the 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.
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Limitations on selling shares by phone

Proceeds
sent by Minimum Maximum
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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:

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

* 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.

Your Investment

ACCOUNT POLICIES (CONTINUED)

General policies

IF YOUR ACCOUNT FALLS BELOW $500, THE 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.

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.

THE FUND RESERVES THE RIGHT TO:

* refuse any purchase or exchange request that
could adversely affect the fund or its operations,
including those from any individual or group who, in the
fund's view, is likely to engage in excessive trading
(usually defined as more than four exchanges out of the
fund within a calendar year)

* refuse any purchase or exchange request in excess of
1% of the fund's total assets

* change or discontinue its exchange privilege, or
temporarily suspend this privilege during unusual market conditions

* change its minimum investment amounts

* 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)

The 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 the fund's assets).

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,
401(k) plans, 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 plan or financial
institution if in doubt.

DISTRIBUTIONS AND TAXES

THE 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 distributions will be reinvested in the fund unless you instruct the fund
otherwise. There are no fees or sales charges on reinvestments.

FUND DIVIDENDS AND DISTRIBUTIONS ARE TAXABLE to most investors (unless your
investment is in an IRA or other tax-advantaged account). 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:
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Taxability of distributions

Type of Tax rate for Tax rate for
distribution 15% bracket 28% bracket or above
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INCOME ORDINARY ORDINARY
DIVIDENDS INCOME RATE INCOME RATE

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.

Your Investment

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.
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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).
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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.

Our 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.

Checkwriting privilege

YOU MAY WRITE REDEMPTION CHECKS against your account in amounts of $500 or more.
These checks are free; however, a fee may 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.

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.

Retirement plans

Dreyfus offers a variety of retirement plans, including traditional, Roth and
Education IRAs. Here's where you call for information:

* for traditional, rollover, Roth and Education IRAs, call 1-800-645-656

* for SEP-IRAs, Keogh
accounts, 401(k) and 403(b) accounts, call 1-800-358-0910

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

* DDA# 8900051973

* the fund name

* 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

* DDA# 8900051973

* the fund name

* 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.

WITHOUT ANY INITIAL INVESTMENT Check the Dreyfus Step Program option on your
application. Return your application, then complete the additional materials
when they are sent to you.

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

* 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

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.

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.

Your Investment

INSTRUCTIONS FOR IRAS

TO OPEN AN ACCOUNT

In Writing

Complete an IRA application, making sure to specify the fund name and to
indicate the year the contribution is for.

Mail your application and a check to:
The Dreyfus Trust Company, Custodian P.O. Box 6427, Providence, RI 02940-6427

TO ADD TO AN ACCOUNT

Fill out an investment slip, and write your account number on your check.
Indicate the year the contribution is for.

Mail in the slip and the check (see "To Open an Account" at left).

By Telephone

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

* ABA# 021000018

* DDA# 8900051973

* the fund name

* your account number

* name of investor

* the contribution year

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

TELEPHONE CONTRIBUTION Call to request us to move money from a regular Dreyfus
account to an IRA (both accounts must be held in the same shareholder name).

Automatically

WITHOUT ANY INITIAL INVESTMENT Call us
to request a Dreyfus Step Program form. Complete and return the form along with
your application.

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

All contributions will count as current year.

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 letter of instruction that includes:

* your name and signature

* your account number

* the fund name

* the dollar amount you want to sell

* how and where to send the proceeds

* whether the distribution is qualified or premature

* whether the 10% TEFRA should be withheld

Obtain a signature guarantee or other documentation, if required.

Mail in your request (see "To Open an Account" at left).

DREYFUS AUTOMATIC WITHDRAWAL PLAN Call us to request instructions to establish
the plan.

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 TRUST COMPANY, CUSTODIAN

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

Your Investment

For More Information

Dreyfus GNMA Fund, Inc.
-----------------------------

SEC file number: 811-4215

More information on this fund is available free upon
request, including the following:

Annual/Semiannual Report

Describes the fund's performance, lists portfolio
holdings 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 the 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>

B-1

DREYFUS GNMA FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 1999

This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus GNMA Fund, Inc. (the "Fund"), dated September 1, 1999, as it may be
revised from time to time. To obtain a copy of the Fund's Prospectus,
please write to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York
11556-0144, 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

The 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.

TABLE OF CONTENTS

Page

Description of the Fund B-2
Management of the Fund B-16
Management Arrangements B-21
How to Buy Shares B-23
Service Plan B-25
How to Redeem Shares B-27
Shareholder Services B-29
Determination of Net Asset Value B-33
Dividends, Distributions and Taxes B-33
Portfolio Transactions B-35
Performance Information B-36
Information About the Fund B-37
Counsel and Independent Auditors B-38
Appendix B-39

DESCRIPTION OF THE FUND

The Fund is a Maryland corporation that commenced operations on May 29,
1985. The Fund is an open-end management investment company, known as a
mutual fund. The Fund is a diversified fund, which means that, with respect
to 75% of its total assets, the Fund will not invest more than 5% of its
assets in the securities of any single issuer.

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

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

Certain Portfolio Securities

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

Ginnie Maes. It is fundamental policy of the Fund that it will invest
at least 65% of the value of its net assets (except when maintaining a
temporary defensive position) in GNMA Certificates. GNMA Certificates also
may include other securities that in the future are guaranteed by the
Government National Mortgage Association ("GNMA").

Ginnie Maes are created by an "issuer," which is a Federal Housing
Administration ("FHA") approved mortgagee that also meets criteria imposed
by the GNMA. The issuer assembles a pool of FHA, Farmers' Home
Administration or Veterans' Administration ("VA") insured or guaranteed
mortgages which are homogeneous as to interest rate, maturity and type of
dwelling. Upon application by the issuer, and after approval by the GNMA of
the pool, the GNMA provides its commitment to guarantee timely payment of
principal and interest on the Ginnie Maes backed by the mortgages included
in the pool. The Ginnie Maes, endorsed by the GNMA, then are sold by the
issuer through securities dealers. The Fund will invest in Ginnie Maes only
of the "fully modified pass-through" type which are guaranteed as to timely
payment of principal and interest by the GNMA, a U.S. Government
corporation.

The GNMA is authorized under the National Housing Act to guarantee
timely payment of principal and interest on Ginnie Maes. This guarantee is
backed by the full faith and credit of the United States. The GNMA may
borrow U.S. Treasury funds to the extent needed to make payments under its
guarantee.

When mortgages in the pool underlying a Ginnie Mae are prepaid by
mortgagors or by result of foreclosure, such principal payments are passed
through to the certificate holders. Accordingly, the life of the Ginnie Mae
is likely to be substantially shorter than the stated maturity of the
mortgages in the underlying pool. Because of such variation in prepayment
rates, it is not possible to predict the life of a particular Ginnie Mae.

Ginnie Maes bear a stated "coupon rate" which represents the effective
FHA-VA mortgage rate at the time of issuance, less 0.5%, which constitutes
the GNMA's and issuer's fees. For providing its guarantee, the GNMA
receives an annual fee of 0.06% of the outstanding principal on certificates
backed by single family dwelling mortgages, and the issuer receives an
annual fee of 0.44% for assembling the pool and for passing through monthly
payments of interest and principal.

Payments to holders of Ginnie Maes consist of the monthly distributions
of interest and principal less the GNMA's and issuer's fees. The actual
yield to be earned by a holder of a Ginnie Mae is calculated by dividing
interest payments by the purchase price paid for the Ginnie Mae (which may
be at a premium or a discount from the face value of the certificate).
Monthly distributions of interest, as contrasted to semi-annual
distributions which are common for other fixed interest investments, have
the effect of compounding and thereby raising the effective annual yield
earned on Ginnie Maes. Because of the variation in the life of the pools of
mortgages which back various Ginnie Maes, and because it is impossible to
anticipate the rate of interest at which future principal payments may be
reinvested, the actual yield earned from a portfolio of Ginnie Maes will
differ significantly from the yield estimated by using an assumption of a
12-year life for each Ginnie Mae included in such a portfolio as described
above.

Additional Mortgage-Related Securities. The Fund also may invest in
other mortgage-related securities, including those issued by government-
related organizations such as the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"), private
mortgage pass-through securities and collateralized mortgage obligations,
including real estate mortgage investment conduits or REMICs. The mortgage-
related securities in which the Fund may invest include those with fixed,
floating or variable interest rates, those with interest rates that change
based on multiples of changes in a specified index of interest rates and
those with interest rates that change inversely to changes in interest
rates, as well as those that do not bear interest. The Fund also may invest
in stripped mortgage-backed securities.

Government-Related Securities--Mortgage-related securities issued by the
FNMA include FNMA Guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA and are not
backed by or entitled to the full faith and credit of the United States.
The FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of principal
and interest by the FNMA.

Mortgage-related securities issued by the FHLMC include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The
FHLMC is a corporate instrumentality of the United States, created pursuant
to an Act of Congress, which is owned entirely by Federal Home Loan Banks.
Freddie Macs are not guaranteed by the United States or by any Federal Home
Loan Bank and do not constitute a debt or obligation of the United States or
of any Federal Home Loan Bank. Freddie Macs entitle the holder to timely
payment of interest, which is guaranteed by the FHLMC. The FHLMC guarantees
either ultimate collection or timely payment of all principal payments on
the underlying mortgage loans. While the FHLMC does not guarantee timely
payment of principal, the FHLMC may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.

Private Entity Securities--These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers. There can
be no assurance that the private insurers or mortgage poolers can meet their
obligations under the policies, so that if the issuers default on their
obligations the holders of the security could sustain a loss. No insurance
or guarantee covers the Fund or the price of the Fund's shares. Mortgage-
related securities issued by non-governmental issuers generally offer a
higher rate of interest than government-agency and government-related
securities because there are no direct or indirect government guarantees of
payment.

Commercial Mortgage-Related Securities--The Fund may invest in commercial
mortgage-related securities, which generally are multi-class debt or pass-
through certificates secured by mortgage loans on commercial properties.
These mortgage-related securities generally are structured to provide
protection to the senior classes investors against potential losses on the
underlying mortgage loans. This protection generally is provided by having
the holders of subordinated classes of securities ("Subordinated
Securities") take the first loss if there are defaults on the underlying
commercial mortgage loans. Other protection, which may benefit all of the
classes or particular classes, may include issuer guarantees, reserve funds,
additional Subordinated Securities, cross-collateralization and over-
collateralization.

Residential Mortgage-Related Securities--The Fund may invest in mortgage-
related securities representing participation interests in pools of one-to
four-family residential mortgage loans issued or guaranteed by governmental
agencies or instrumentalities, such as GNMA, FNMA, and FHLMC, or issued by
private entities. Similar to commercial mortgage-related securities,
residential mortgage-related securities have been issued using a variety of
structures, including multi-class structures featuring senior and
subordinated classes.

Subordinated Securities--The Fund may invest in Subordinated Securities
issued or sponsored by commercial banks, savings and loan institutions,
mortgage bankers, private mortgage insurance companies and other non-
governmental issuers. Subordinated Securities have no governmental
guarantee, and are subordinated in some manner as to the payment of
principal and/or interest to the holders of more senior mortgage-related
securities arising out of the same pool of mortgages. The holders of
Subordinated Securities typically are compensated with a higher stated yield
than are the holders of more senior mortgage-related securities. On the
other hand, Subordinated Securities typically subject the holder to greater
risk than senior mortgage-related securities and tend to be rated in a lower
rating category, and frequently a substantially lower rating category, than
the senior mortgage-related securities issued in respect of the same pool of
mortgage. Subordinated Securities generally are likely to be more sensitive
to changes in prepayment and interest rates and the market for such
securities may be less liquid than is the case for traditional fixed-income
securities and senior mortgage-related securities.

Collateralized Mortgage Obligations ("CMOs") and Multi-Class Pass-Through
Securities--A CMO is a multiclass bond backed by a pool of mortgage pass-
through certificates or mortgage loans. CMOs may be collateralized by (a)
Ginnie Mae, Fannie Mae, or Freddie Mac pass-through certificates,
(b) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs,
(c) unsecuritized conventional mortgages, (d) other mortgage-related
securities, or (e) any combination thereof.

Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity or final distribution date.
Principal prepayments on collateral underlying a CMO may cause it to be
retired substantially earlier than the stated maturities or final
distribution dates. The principal and interest on the underlying mortgages
may be allocated among the several classes of a series of a CMO in many
ways. One or more tranches of a CMO may have coupon rates which reset
periodically at a specified increment over an index, such as the London
Interbank Offered Rate ("LIBOR") (or sometimes more than one index). These
floating rate CMOs typically are issued with lifetime caps on the coupon
rate thereon. The Fund also may invest in inverse floating rate CMOs.
Inverse floating rate CMOs constitute a tranche of a CMO with a coupon rate
that moves in the reverse direction to an applicable index such a LIBOR.
Accordingly, the coupon rate thereon will increase as interest rates
decrease. Inverse floating rate CMOs are typically more volatile than fixed
or floating rate tranches of CMOs.

Many inverse floating rate CMOs have coupons that move inversely to a
multiple of the applicable indexes. The effect of the coupon varying
inversely to a multiple of an applicable index creates a leverage factor.
Inverse floaters 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 loss of principal. The markets
for inverse floating rate CMOs with highly leveraged characteristics at
times may be very thin. The Fund's ability to dispose of its positions in
such securities will depend on the degree of liquidity in the markets for
such securities. It is impossible to predict the amount of trading interest
that may exist in such securities, and therefore the future degree of
liquidity.

Stripped Mortgage-Backed Securities--The Fund also may invest in stripped
mortgage-backed securities, which are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more
new securities, each with a specified percentage of the underlying
security's principal or interest payments. Mortgage securities may be
partially stripped so that each investor class receives some interest and
some principal. When securities are completely stripped, however, all of
the interest is distributed to holders of one type of security, known as an
interest-only security, or IO, and all of the principal is distributed to
holders of another type of security known as a principal-only security, or
PO. Strips can be created in a pass-through structure or as tranches of a
CMO. The yields to maturity on IOs and POs are very sensitive to the rate
of principal payments (including prepayments) on the related underlying
mortgage assets. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may not fully recoup its
initial investment in IOs. Conversely, if the underlying mortgage assets
experience less than anticipated prepayments of principal, the yield on POs
could be materially and adversely affected.

Adjustable-Rate Mortgage Loans ("ARMs")--ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest
rate for a specified period of time, generally for either the first three,
six, twelve, thirteen, thirty-six, or sixty scheduled monthly payments.
Thereafter, the interest rates are subject to periodic adjustment based on
changes in an index. ARMs typically have minimum and maximum rates beyond
which the mortgage interest rate may not vary over the lifetime of the
loans. Certain ARMs provide for additional limitations on the maximum
amount by which the mortgage interest rate may adjust for any single
adjustment period. Negatively amortizing ARMs may provide limitations on
changes in the required monthly payment. Limitations on monthly payments
can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.

Other Mortgage-Related Securities--Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans on real property, including CMO residuals. Other mortgage-related
securities may be equity or debt securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.

Variable and Floating Rate Securities. Variable and floating rate
securities provide for a periodic adjustment in the interest rate paid on
the obligations. The terms of such obligations must provide that interest
rates are adjusted periodically based upon an interest rate adjustment index
as provided in the respective obligations. The adjustment intervals may be
regular, and range from daily up to annually, or may be event based, such as
based on a change in the prime rate.

The Fund may invest in floating rate debt instruments ("floaters").
The interest rate on a floater is a variable rate which is tied to another
interest rate, such as a money-market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
Because of the interest rate reset feature, floaters provide the Fund with a
certain degree of protection against rises in interest rates, although the
Fund will participate in any declines in interest rates as well.

The Fund also may invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse
floater is indexed or inversely to a multiple of the applicable index. An
inverse floating rate security may exhibit greater price volatility than a
fixed rate obligation of similar credit quality.

Asset-Backed Securities. Asset-backed securities are a form of
derivative. The securitization techniques used for asset-backed securities
are similar to those used for mortgage-related securities. These securities
include debt securities and securities with debt-like characteristics. The
collateral for these securities has included home equity loans, automobile
and credit card receivables, boat loans, computer leases, airplane leases,
mobile home loans, recreational vehicle loans and hospital account
receivables. The Fund may invest in these and other types of asset-backed
securities that may be developed in the future.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may provide the
Fund with a less effective security interest in the related collateral than
do mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in come cases, be available
to support payments on these securities.

Illiquid Securities. The Fund may invest up to 15% of the value of its
net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. These securities may include securities that are not readily
marketable, such as securities that are subject to legal or contractual
restrictions on resale, repurchase agreements providing for settlement in
more than seven days after notice, and certain privately negotiated, non-
exchange traded options and securities used to cover such options. 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 that the Fund
deems representative of their value, the value of the Fund's net assets
could be adversely affected.

Repurchase Agreements. The Fund may enter into repurchase agreements.
In a repurchase agreement, the Fund buys, and the seller agrees to
repurchase, a security at a mutually agreed upon time and price (usually
within seven days). The repurchase agreement thereby determines the yield
during the purchaser's holding period, while the seller's obligation to
repurchase is secured by the value of the underlying security. The Fund's
custodian or sub-custodian will have custody of, and will hold in a
segregated account, securities acquired by the Fund under a repurchase
agreement. Repurchase agreements are considered by the staff of the
Securities and Exchange Commission to be loans by the Fund. Repurchase
agreements could involve risks in the event of a default or insolvency of
the other party to the agreement, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. In an
attempt to reduce the risk of incurring a loss on a repurchase agreement,
the Fund will enter into repurchase agreements only with domestic banks with
total assets in excess of $1 billion, or primary government securities
dealers reporting to the Federal Reserve Bank of New York, with respect to
securities of the type in which the Fund may invest, and will require that
additional securities be deposited with it if the value of the securities
purchased should decrease below resale price.

Ratings. The rating assigned by a rating agency to a mortgage-related
security issued by non-governmental entities is based on many factors,
including the structure of the security, the level of subordination, the
quality and adequacy of the collateral, and the past performance of the
originators and servicing companies. The rating of any commercial mortgage-
related security is determined to a substantial degree by the debt service
coverage ratio (i.e., the ratio of the current net operating income from the
commercial properties, in the aggregate, to the current debt service
obligations on the properties) and the loan-to-value ratio of the pooled
properties. Loan-to-value ratios may be particularly important in the case
of commercial mortgages because most commercial mortgage loans provide that
the lender's sole remedy in the event of a default is against the mortgaged
property, and the lender is not permitted to pursue remedies with respect to
other assets of the borrower. Accordingly, loan-to-value ratios, in certain
circumstances, may determine the amount realized by the holder of the
commercial mortgage-related security in the event of a default. See the
Appendix for a general description of securities ratings.

The ratings of the rating agencies represent their opinions as to the
quality of the obligations which they undertake to rate. Ratings are
relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, the Manager also
will evaluate these securities and the ability of the issuers of such
securities to pay interest and principal.

Investment Techniques

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

Leverage. Leveraging (that is, buying securities using borrowed money)
exaggerates the effect on net asset value of any increase or decrease in the
market value of the Fund's portfolio. These borrowings will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased. For borrowings for investment
purposes, the Investment Company Act of 1940, as amended (the "1940 Act"),
requires the Fund to maintain continuous asset coverage (that is, total
assets including borrowings, less liabilities exclusive of borrowings) of
300% of the amount borrowed. If the required coverage should decline as a
result of market fluctuations or other reasons, the Fund may be required to
sell some of its portfolio holdings within three days to reduce the amount
of its borrowings and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that
time. The Fund also may be required to maintain minimum average balances in
connection with such borrowing or pay a commitment or other fee to maintain
a line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate.

The Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the
Fund of an underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Fund repurchases the security at principal plus accrued
interest. To the extent the Fund enters into a reverse repurchase agreement,
the Fund will segregate permissible liquid assets at least equal to the
aggregate amount of its reverse repurchase obligations, plus accrued
interest, in certain cases, in accordance with releases promulgated by the
Securities and Exchange Commission. The Securities and Exchange Commission
views reverse repurchase transactions as collateralized borrowings by the
Fund. Except for these transactions, the Fund's borrowings generally will
be unsecured. Reverse repurchase agreements may be preferable to a regular
sale and later repurchase of the securities because they avoid certain
market risks and transaction costs. Such transactions, however, may
increase the risk of potential fluctuations in the market value of the
Fund's assets. In addition, interest costs on the cash received may exceed
the return on the securities purchased.

Short-Selling. In these transactions, the Fund sells a security it
does not own in anticipation of a decline in the market value of the
security. To complete the transaction, the Fund must borrow the security to
make delivery to the buyer. The Fund is obligated to replace the security
borrowed by purchasing it subsequently at the market price at the time of
replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund, which would result in a loss or
gain, respectively.

Securities will not be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed
25% of the value of the Fund's net assets. The Fund may not make a short
sale which results in the Fund having sold short in the aggregate more than
5% of the outstanding securities of any class of an issuer.

The Fund also may make short sales "against the box," in which the Fund
enters into a short sale of a security it owns. At no time will more than
15% of the value of the Fund's net assets be in deposits on short sales
against the box.

Until the Fund closes its short position or replaces the borrowed
security, the Fund will: (a) segregate permissible liquid assets in an
amount that, together with the amount deposited with the broker as
collateral, always equals the current value of the security sold short, or
(b) otherwise cover its short position.

Forward Roll Transactions. To enhance current income, the Fund may
enter into forward roll transactions with respect to Ginnie Maes and other
mortgage-related securities. In a forward roll transaction, the Fund sells
a mortgage-related security to a financial institution, such as a bank or
broker-dealer, and simultaneously agrees to repurchase a similar security
from the institution at a later date at an agreed upon price. The
securities that are repurchased will bear the same interest rate as those
sold, but generally will be collateralized by different pools of mortgages
with different prepayment histories than those sold. During the period
between the sale and repurchase, the Fund will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the
sale will be invested in short-term instruments, particularly repurchase
agreements, and the income from these investments, together with any
additional fee income received on the sale, will generate income for the
Fund exceeding the yield on the securities sold. Forward roll transactions
involve the risk that the market value of the securities sold by the Fund
may decline below the purchase price of those securities. The Fund will
segregate permissible liquid assets at least equal to the amount of the
repurchase price (including accrued interest).

Forward Commitments. The Fund may purchase or sell Ginnie Maes and
other mortgage-related securities on a forward commitment, when-issued or
delayed delivery basis, which means delivery and payment take place a number
of days after the date of the commitment to purchase or sell the securities
at a predetermined price and/or yield. Typically, no interest accrues to
the purchaser until the security is delivered. When purchasing a security
on a forward commitment basis, the Fund assumes the rights and risks of
ownership of the security, including the risk of price and yield
fluctuations, and takes such fluctuations into account when determining its
net asset value. Because the Fund is not required to pay for these
securities until the delivery date, these risks are in addition to the risks
associated with the Fund's other investments. If the Fund is fully or
almost fully invested when forward commitment purchases are outstanding,
such purchases may result in a form of leverage. The Fund intends to engage
in forward commitments to increase its portfolio's financial exposure to the
types of securities in which it invests. Leveraging the portfolio in this
manner will increase the Fund's exposure to changes in interest rates and
will increase the volatility of its returns. The Fund will segregate
permissible liquid assets at least equal at all times to the amount of the
Fund's purchase commitments. At no time will the Fund have more than 33-
l/3% of its assets committed to purchase securities on a forward commitment
basis.

Ginnie Maes and other mortgage-related securities purchased on a
forward commitment 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 basis
may expose the Fund to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a forward
commitment 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 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.

Lending Portfolio Securities. The 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. The
Fund might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Fund. In connection with its securities lending transactions, the 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. In addition to mortgage-related securities and asset-
backed securities, the Fund may invest in, or enter into, other derivatives,
such as options and futures, for a variety of reasons, including to hedge
certain market risks, to manage the interest rate sensitivity (sometimes
called duration) of fixed-income securities, 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 the 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 the 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. The 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 the Fund will not be a commodity pool, certain derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission
which limit the extent to which the Fund can invest in such derivatives.
The Fund may invest in futures contracts and options with respect thereto
for hedging purposes without limit. However, the Fund may not 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. The Fund 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 Fund intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be
given that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond 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 the Fund 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 the 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, the 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. The 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. The Fund may invest up to 5% of its assets,
represented by the premium paid, in the purchase of call and put options
with respect to specific securities or futures contracts. 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.

Specific Options Transactions. The Fund may purchase cash-settled options
on interest rate swaps in pursuit of its investment objective. A cash-
settled option on a swap gives the purchaser the right, but not the
obligation, in return for the premium paid, to receive an amount of cash
equal to the value of the underlying swap as of the exercise date. These
options typically are purchased in privately negotiated transactions from
financial institutions, including securities brokerage firms.

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

Future Developments. The 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 Fund 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, the Fund will provide
appropriate disclosure in its Prospectus or Statement of Additional
Information.

Investment Considerations and Risks

Fixed-Income Securities. Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates
and, therefore, are subject to the risk of market price fluctuations.
Certain securities that may be purchased by the 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
issuer. Mortgage-related securities issued by non-governmental entities
will be purchased only if rated investment grade by a rating agency or, if
unrated, deemed to be of comparable quality by the Manager. The Fund
currently intends, however, to purchase such securities only if rated "A" or
better, without reference to rating subcategories, or, if unrated,
determined by the Manager to be of comparable quality. Once the rating of a
portfolio security has been changed, the Fund will consider all
circumstances deemed relevant in determining whether to continue to hold the
security.

Mortgage-Related Securities. Mortgage-related securities are complex
derivative instruments, subject to both credit and prepayment risk, and may
be more volatile and less liquid than more traditional debt securities.
Although certain mortgage-related securities are guaranteed by a third party
(such as a U.S. Government agency or instrumentality with respect to
government-related mortgage-backed securities) or otherwise similarly
secured, the market value of these securities, which may fluctuate, is not
secured. If a mortgage-related security is purchased at a premium, all or
part of the premium may be lost if there is a decline in the market value of
the security, whether resulting from changes in interest rates or
prepayments on the underlying mortgage collateral. Mortgage-related
securities are subject to credit risks associated with the performance of
the underlying mortgage properties. Adverse changes in economic conditions
and circumstances are more likely to have an adverse impact on mortgage-
related securities secured by loans on certain types of commercial
properties than those secured by loans on residential properties. In
addition, these securities are subject to prepayment risk, although
commercial mortgages typically have shorter maturities than residential
mortgages and prepayment protection features. Some mortgages-related
securities have structures that make their reactions to interest rate
changes and other factors difficult to predict, making their value highly
volatile.

Simultaneous Investments. Investment decisions for the 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 the Fund, available investments or
opportunities for sales will be allocated equitably to each investment
company. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by the Fund or the price paid or
received by the Fund.

Investment Restrictions

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 7 as fundamental
policies. Investment restrictions numbered 8 through 11 are not fundamental
policies and may be changed by a vote of a majority of the Fund's Board
members at any time. The Fund may not:

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

2. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indexes, and options on
futures contracts or indexes.

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

4. Purchase or sell real estate, real estate investment trust
securities, commodities, or oil and gas interests, provided that the Fund
may purchase and sell securities that are secured by real estate or issued
by companies that invest or deal in real estate or acquire real estate as a
result of ownership of such securities or instruments, and provided further
that the Fund may purchase and sell options, forward contracts, futures
contracts, including those relating to indexes, and options on futures
contracts or indexes.

5. Make loans to others, except through the purchase of debt
obligations referred to in the Prospectus or 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. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be
no limitation on the purchase of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. For purposes of this
Investment Restriction, securities and instruments backed directly or
indirectly by real estate and real estate mortgages and securities of
companies engaged in the real estate business are not considered an
industry.

7. 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 Restriction Nos. 1, 2, 4 and 9 may be deemed to give rise to a
senior security.

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

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

10. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid if,
in the aggregate, more than 15% of the value of the Fund's net assets would
be so invested.

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

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

MANAGEMENT OF THE FUND

The 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
Mellon Bank, N.A. Custodian

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

Board Members of the Fund

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 sized
companies. For more than five years prior to January 1995, he was
President, a director and, until August 1994, Chief Operating Officer
of the Manager and Executive Vice President and a director of Dreyfus
Service Corporation, a wholly-owned subsidiary of the Manager and,
until August 24, 1994, the Fund's distributor. From August 1994 until
December 31, 1994, he was a director of Mellon Bank Corporation. He is
55 years old and his address is 200 Park Avenue, New York, New York
10166.

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 through 1996, Mr. Chase has
been President of Samuel Chase & Company, Ltd., an economic consulting
firm. He is 65 years old and his address is 10380 Springhill Road,
Belgrade, Montana 59714.

GORDON J. DAVIS, Board Member. A Senior partner with the firm of LeBoeuf,
Lamb, Greene & MacRae, since October 1994. From 1983 to September
1994, Mr. Davis was a senior partner with the law firm of Lord Day &
Lord, Barrett Smith. He was Commissioner of Parks and Recreation for
the City of New York from 1978 to 1983. 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 56 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.; 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 September 1985 to September 1987, President of Simon and
Schuster-Trade Division. She is 55 years old and her address is 1325
Avenue of the Americas, 33rd floor, New York, New York 10019.

ARNOLD S. HIATT, Board Member. Chairman of The Stride Rite Foundation.
From 1969 to June 1992, Mr. Hiatt was Chairman of the Board, President
or Chief Executive Officer of The Stride Rite Corporation, a
multi-divisional footwear manufacturing and retailing company. Mr.
Hiatt is also a director of the Cabot Corporation. He is 69 years old
and his address is 5 Cambridge Center, Cambridge, Massachusetts 02142.

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 47 years old and his address
is 18 East 64th Street, New York, New York 10021.

For so long as the Fund's plan described in the section captioned
"Service Plan" remains in effect, the Board members of the Fund who are not
"interested persons" of the Fund, as defined in the 1940 Act, will be
selected and nominated by the Board members who are not "interested persons"
of the Fund.

The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimbursement for their expenses. The Chairman of the Board
receives an additional 25% of such compensation. Emeritus Board members are
entitled to receive an annual retainer and a per meeting fee of one-half the
amount paid to them as Board members. The aggregate amount of compensation
payable to each Board member by the Fund for the fiscal year ended April 30,
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)* during the year ended December 31,
1998, was as follows:

Total Compensation
Aggregate From Fund and
Name of Board Compensation From Fund Complex
Member Fund** Paid to
Board Member

Joseph S. DiMartino $9,375 $619,660 (187)

David W. Burke $7,500 $233,500 (62)

Samuel Chase $7,000 $45,000 (12)

Gordon J. Davis $7,500 $83,500 (29)

Joni Evans $7,000 $45,000 (12)

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

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

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

**Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $8,655 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 and 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. Prior to June 1994, she
was a senior paralegal at The Boston Company Advisors, 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.

The Fund's Board members and officers, as a group, owned less than 1%
of the Fund's voting securities outstanding on June 25, 1999.

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 the Management
Agreement (the "Agreement") dated April 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities
of the Fund, provided that in either event its continuance also is approved
by a majority of the Board members who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Manager, by vote cast in person
at a meeting called for the purpose of voting on such approval. The
Agreement was approved by shareholders on August 2, 1994, and was last
approved by the Fund's Board, including a majority of the Board members who
are not "interested persons" of any party to the Agreement, at a meeting
held on April 21, 1999. The Agreement is terminable without penalty, on not
more than 60 days' notice, by the Fund's Board or by vote of the holders of
a majority of the Fund's shares, or, upon not less than 90 days' notice, by
the Manager. The Agreement will terminate automatically 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 the 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 the
Fund with portfolio managers who are authorized by the Board to execute
purchases and sales of securities. The Fund's portfolio managers are Roger
King, John Koerber, Michael Hoeh, and Gerald E. Thunelius. The Manager also
maintains a research department with a professional staff of portfolio
managers and securities analysts who provide research services for the Fund
and for other funds advised by the Manager.

The Manager 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 the Manager's
employees does not disadvantage any fund managed by the Manager. Under the
Policy, the Manager's employees must preclear personal transactions in
securities not exempt under the Policy. In addition, the Manager's
employees must report their personal securities transactions and holdings,
which are reviewed for compliance with the Policy. In that regard, the
Manager's portfolio managers and other investment personnel also are subject
to the oversight of Mellon's Investment Ethics Committee. Portfolio
managers and other investment personnel of the Manager who comply with the
Policy's preclearance and disclosure procedures and the requirements of the
Committee may be permitted to purchase, sell or hold securities which also
may be or are held in fund(s) they manage or for which they otherwise
provide investment advice.

The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager 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.

All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The
expenses borne by the Fund include: 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 and state Blue Sky
qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of independent
pricing services, costs of maintaining corporate existence, costs
attributable to investor services (including, without limitation, telephone
and personnel expenses), costs of shareholders' reports and corporate
meetings, and any extraordinary expenses. The Fund bears certain servicing
expenses in accordance with a written plan and also bears certain costs
associated with implementing and operating such plan and costs of preparing
and printing prospectuses and statements of additional information. See
"Service Plan."

As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .60% of the value
of the Fund's average daily net assets. The management fees for the fiscal
years ended April 30, 1997, 1998 and 1999 amounted to $7,906,732, $7,273,135
and $6,741,733, respectively.

The Manager has agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of taxes, brokerage fees, interest on
borrowings and (with the prior written consent of the necessary state
securities commissions) extraordinary expenses, but including the management
fee, exceed 1 1/2% of the average value of the net assets of the Fund 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, such excess expense. Such
deduction or payment, if any, will be estimated, reconciled and effected or
paid, as the case may be, on a monthly basis.

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

Distributor. The Distributor, located at 60 State Street, Boston,
Massachusetts 02109, serves as the 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 the Fund's
transfer and dividend disbursing agent. Under a transfer agency agreement
with the Fund, the Transfer Agent arranges for the maintenance of
shareholder account records for the Fund, the handling of certain
communications between shareholders and the Fund and the payment of
dividends and distributions payable by the Fund. For these services, the
Transfer Agent receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Fund during the month, and is
reimbursed for certain out-of-pocket expenses.

Mellon Bank, N.A. (the "Custodian"), One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258, is the Fund's custodian. Under a custody
agreement with the 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. You can purchase Fund shares directly from the Distributor or
certain financial institutions (which may include banks), securities dealers
and other industry professionals (collectively, "Service Agents"), that have
entered into service agreements with the Distributor. Stock certificates
are issued only upon your written request. No certificates are issued for
fractional shares. The Fund reserves the right to reject any purchase
order.

The minimum initial investment 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. However, the minimum initial
investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including
regular IRAs, spousal IRAs for a non-working spouse, Roth IRAs, IRAs set up
under a Simplified Employee Pension Plan ("SEP-IRAs") and rollover IRAs) and
403(b)(7) Plans with only one participant and $500 for Dreyfus-sponsored
Education IRAs, with no minimum for subsequent purchases. 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 the Fund's Board, or the spouse or minor child of any
of the foregoing, the minimum initial investment is $1,000. For full-time
or part-time employees of the Manager or any of its affiliates or
subsidiaries who elect to have a portion of their pay directly deposited
into their Fund accounts, the minimum initial investment is $50. The Fund
reserves the right to offer Fund shares without regard to minimum purchase
requirements to employees participating in certain qualified or non-
qualified employee benefit plans or other programs where contributions or
account information can be transmitted in a manner and form acceptable to
the Fund. The Fund reserves the right to vary further 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 Builderr, 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 you against loss in a declining market.

Shares 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.
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 determining net asset value per share, 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 Fund's investments are valued
generally by using available market quotations or at fair value which may be
determined by one or more independent pricing services approved by the
Fund's Board. Each pricing service's procedures are reviewed under the
general supervision of the Board. For further information regarding the
methods employed in valuing Fund investments, see "Determination of Net
Asset Value."

For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution
could be held liable for resulting fees and/or losses.

Dreyfus TeleTransfer Privilege. 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 Fund holiday (e.g., when
the New York Stock Exchange is not open for business), will be credited to
the shareholder's Fund account on the second bank business day following
such purchase order. To qualify to use the Dreyfus TeleTransfer Privilege,
the initial payment for purchase of 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

Rule 12b-1 (the "Rule"), adopted by the Securities and Exchange
Commission under the 1940 Act, provides, among other things, that an
investment company may bear expenses of distributing its shares only
pursuant to a plan adopted in accordance with the Rule. The Fund's Board
has adopted such a plan (the "Plan"), pursuant to which the Fund reimburses
(i) the Distributor for payments to certain Service Agents for distributing
Fund shares, and servicing shareholder accounts ("Servicing") and (ii) the
Manager, Dreyfus Service Corporation and any affiliates of either of them
(collectively, "Dreyfus") for costs incurred related to advertising and
marketing the Fund, and for Servicing, at a maximum aggregate annual rate of
up to .20% of the value of the Fund's average daily net assets. The Fund's
Board believes that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. At a meeting of the Fund's Board on
April 21, 1999, the Board approved amendments to the Fund's Plan to convert
it from a form of "compensation" plan to its current form as a
"reimbursement" plan. The plan amendments were effective on May 1, 1999.
Prior thereto, the Plan provided for Dreyfus to be compensated at the annual
rate of .20 of 1% of the Fund's average daily net assets, for providing
advertising and marketing services, and for Servicing.

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. Each of the Distributor and Dreyfus determines
the amounts, if any, to be paid to Service Agents under the Plan and the
basis on which such payments are made. The fees payable under the 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 Plan, the Fund bears
(i) the costs of preparing, printing and distributing prospectuses and
statements of additional information used for other purposes, and (ii) the
costs associated with implementing and operating the 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
the value of the Fund's average daily net assets for such fiscal year.

A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the
Fund's Board for its review. In addition, the Plan provides that it may not
be amended to increase materially the costs which the Fund may bear for
distribution pursuant to the Plan without shareholder approval and that
other material amendments of the Plan must be approved by the Fund's Board,
and by the Board members who are not "interested persons" (as defined in the
1940 Act) of the Fund and have no direct or indirect financial interest in
the operation of the Plan or in the related service agreements, by vote cast
in person at a meeting called for the purpose of considering such
amendments. The Plan and the related service agreements are subject to
annual approval by such vote cast in person at a meeting called for the
purpose of voting on the Plan. The Plan was approved by shareholders on
August 2, 1994, and was last amended and approved for continuance by Board
members at a meeting held on April 21, 1999. The Plan is terminable at any
time by vote of a majority of the Board members who are not "interested
persons" and have no direct or indirect financial interest in the operation
of the Plan or in any of the related service agreements or by vote of a
majority of the 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 the Fund's shares, or, upon 15 days' notice, by the
Distributor. Each service agreement will terminate automatically in the
event of its assignment (as defined in the 1940 Act).

For the fiscal year ended April 30, 1999, the total amount payable by
the Fund was $2,266,986, of which $2,000,822 was payable to Dreyfus for
advertising and marketing, and for shareholder servicing, $246,422 was
reimbursed to the Distributor for payments made to Service Agents and
$19,742 was payable by the Fund for preparing, printing and distributing
prospectuses and statements of additional information and for costs
associated with implementing and operating the Plan.

HOW TO REDEEM SHARES

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

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

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 account which is, or becomes, subject to backup withholding
on redemptions. Any Check written on an account which has become subject to
backup withholding on redemptions will not be honored by the Transfer Agent.

Wire Redemption Privilege. By using this Privilege, you authorize the
Transfer Agent to act on wire, telephone or letter redemption instructions
from any person representing himself or herself to be you or a
representative of your Service Agent and reasonably believed by the Transfer
Agent to be genuine. Ordinarily, the Fund 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 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 "Stock Certificates; Signatures."

Dreyfus TeleTransfer Privilege. 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. 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. Redemption proceeds will be
on deposit in the your account at an ACH member bank ordinarily two business
days after receipt of the redemption request. See "How to Buy Shares--
Dreyfus TeleTransfer Privilege."

Stock Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP") and the Stock Exchanges Medallion Program.
Guarantees must be signed by an authorized signatory of the guarantor, and
"Signature-Guaranteed" must appear with the signature. The Transfer Agent
may request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular
verification. For more information with respect to signature-guarantees,
please call one of the telephone numbers listed on the cover.

Redemption Commitment. The 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, the Board reserves the right to make payments in
whole or in part in securities or other assets of the Fund in case of an
emergency or any time a cash distribution would impair the liquidity of the
Fund to the detriment of the existing shareholders. In such event, the
securities would be valued in the same manner as the Fund's portfolio is
valued. If the recipient sells such securities, brokerage charges might be
incurred.

Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the Fund ordinarily utilizes is restricted, or
when an emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Fund's investments or determination of
its net asset value is not reasonably practicable, or (c) for such other
periods as the Securities and Exchange Commission by order may permit to
protect the Fund's shareholders.

SHAREHOLDER SERVICES

Fund Exchanges. You may purchase, in exchange for shares of the 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. 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 automated telephone system)
from any person representing himself or herself to be you, or a represen
tative of your Service Agent, and reasonably believed by the Transfer Agent
to be genuine. Telephone exchanges may be subject to limitations as to the
amount involved or the number of telephone exchanges permitted. Shares
issued in certificate form are not eligible for telephone exchange. No fees
currently are charged shareholders directly in connection with exchanges,
although the 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. Dreyfus Auto-Exchange Privilege
permits you to purchase, in exchange for shares of the 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 the
investor. 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.

Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. Shares may be exchanged only
between accounts having identical names and other identifying designations.
The Fund Exchanges service or the Dreyfus Auto-Exchange Privilege may be
modified or terminated at any time upon notice to shareholders.

Dreyfus-Automatic Asset Builderr. Dreyfus-Automatic Asset Builder
permits you to purchase Fund shares (minimum of $100 and maximum of $150,000
per transaction) at regular intervals selected by you. Fund shares are
purchased by transferring funds from the bank account designated by you.

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

Dreyfus Payroll Savings Plan. 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. The Dreyfus Step Program enables you to purchase
Fund shares without regard to the Fund's minimum initial investment
requirements through Dreyfus-Automatic Asset Builderr, 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). The Fund may
modify or terminate this Program at any time.

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

Corporate Pension/Profit-Sharing and Retirement Plans. The Fund makes
available to corporations a variety of prototype pension and profit-sharing
plans, including a 401(k) Salary Reduction Plan. In addition, the Fund
makes available Keogh Plans, IRAs (including regular IRAs, spousal IRAs for
a non-working spouse, Roth IRAs, SEP-IRAs, Education IRAs and rollover IRAs)
and 403(b)(7) Plans. Plan support services also are available.

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

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

Shares may be purchased in connection with these plans only by direct
remittance to the entity acting as custodian. Purchases for these plans may
not be made in advance of receipt of funds.

You should read the prototype retirement plan and the appropriate form
of custodial agreement for further details on eligibility, service fees and
tax implications, and should consult a tax adviser.

DETERMINATION OF NET ASSET VALUE

Valuation of Portfolio Securities. The Fund's investments are valued
each business day using available market quotations or at fair value as
determined by one or more independent pricing services (collectively, the
"Service") approved by the Fund's Board. The Service may use available
market quotations, 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 Fund's
Board. Expenses and fees, including the management fee (reduced by the
expense limitation, if any) and the fees under the Service Plan, are accrued
daily and are taken into account for the purpose of determining the net
asset value of Fund 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.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Management believes that the Fund qualified as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"),
for the fiscal year ended April 30, 1999. The Fund intends to continue to
so qualify if such qualification is in the best interests of its
shareholders. To qualify as a regulated investment company, the Fund must
distribute at least 90% of its net income (consisting of net investment
income from taxable obligations and net short-term capital gains) to its
shareholders, and must meet certain asset diversification and other
requirements. 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. The term "regulated investment company" does
not imply the supervision of management or investment practices or policies
by any government agency.

If you elect to receive dividends and distributions in cash, and your
dividend and distribution check is returned to the Fund as undeliverable or
remains uncashed for six months, the Fund reserves the right to reinvest
such dividend or distribution 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.

Any dividend or distribution paid shortly after a shareholder's
purchase may have the effect of reducing the aggregate 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 in the
Prospectus. In addition, the Code provides that if a shareholder has not
held his shares for more than six months (or shorter period as the Internal
Revenue Service may prescribe by regulator) and has received a capital gain
distribution with respect to such shares, any loss incurred on the sale of
such shares will be treated as long-term capital loss to the extent of the
capital gain distribution.

Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of any gain
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income under Section 1276 of the Code. In
addition, all or a portion of the gain realized from engaging in "conversion
transaction" 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, any gain or loss the Fund realizes from
certain 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 contracts and options as
well as from closing purchase transactions. In addition, any such futures
contracts and 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 futures
contracts or options may 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
Section 1256 of the Code.

If the Fund were treated as entering into "straddles" by reason of its
futures or options transactions, such "straddles" would be characterized as
"mixed straddles" if the futures or options transactions comprising a part
of such "straddles" were governed by Section 1256 of the Code. 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" 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 conversion transaction rules, short-term capital loss
on "straddle" positions may be recharacterized as long-term capital loss,
and long-term capital gain on "straddle" positions may be recharacterized as
short-term capital gain 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 and 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 hedging or straddle transactions under other provisions of the
Code can be subject to the constructive sale provisions.

Investment by the Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could cause the Fund to recognize income prior to the receipt of
cash payments. For example, the Fund could be required to accrue as income
each year a portion of the discount (or deemed discount) at which such
securities were issued. A portion of such income would be allocable to an
investor even though no corresponding distribution were made to the
investor, thus causing the investor's income to exceed distributions to him.

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 whom it appears that
the best price or execution will be obtained. Usually no brokerage
commissions, as such, are paid by the Fund for such purchases and sales, al
though 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 normally
are executed at a price between the bid and asked price. No brokerage
commissions have been paid by the Fund to date.

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

Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds
it advises and, conversely, research services furnished to the Manager by
brokers in connection with other funds the Manager advises may be used by
the Manager in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the overall expenses of
its research department.

PERFORMANCE INFORMATION

The Fund's current yield for the 30-day period ended April 30, 1999,
was 6.16%. Current yield is computed pursuant to a formula which operates
as follows: The amount of the Fund's expenses accrued for the 30-day period
(net of reimbursements) is subtracted from the amount of the dividends and
interest earned (computed in accordance with regulatory requirements) by the
Fund during the period. That result is then divided by the product of: (a)
the average daily number of shares outstanding during the period that were
entitled to receive dividends and (b) the net asset value 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.

The Fund's average annual total return for the 1-, 5- and 10-year
periods ended April 30, 1999, was 3.17%, 6.70% and 7.71%, 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 Fund's total return for the period May 29, 1985 (commencement of
operations) through April 30, 1999, was 193.25%. 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.

Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from broad-based
securities market indexes and industry reporting services and publications.
From time to time, advertising materials for the Fund may refer to or
discuss then- current or past economic conditions, developments and/or
events, and actual or proposed tax legislation. From time to time,
advertising materials for the Fund also may refer to statistical or other
information concerning trends relating to investment companies, as compiled
by industry associations such as the Investment Company Institute. From
time to time, advertising materials for the Fund also may refer to Lipper
rankings, or to Morningstar ratings and related analyses supporting the
rating. From time to time, advertising materials may refer to studies
performed by The Dreyfus Corporation or its affiliates, such as "The Dreyfus
Tax Informed Investing Study" or "The Dreyfus Gender Investment Comparison
Study (1996 & 1997)" or other such studies.

INFORMATION ABOUT THE FUND

Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and nonassessable.
Fund shares are of one class and have 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 the 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 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 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. The 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 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.

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

COUNSEL AND INDEPENDENT AUDITORS

Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the 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 Fund's Prospectus.

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

APPENDIX

Description of certain Standard & Poor's Ratings Group ("S&P"), Moody's
Investors Services, Inc. ("Moody's"), Fitch IBCA, Inc. ("Fitch") and Duff &
Phelps Credit Rating Co. ("Duff") ratings:

S&P

Bond Ratings

AAA

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

Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher rated categories.

BBB

Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.

S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing within
the major rating categories, except in the AAA (Prime Grade) category.

Moody's

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 generally are 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 sometime in the
future.

Baa

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

Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category.
The modifier 1 indicates a ranking for the security in the higher end of a
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of a rating category.

Fitch

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.

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.

Duff

Bond Ratings

AAA

Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.

Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.

BBB

Bonds rated BBB are considered to have below average protection factors
but still considered sufficient for prudent investment. There may be
considerable variability in risk for bonds in this category during economic
cycles.

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