DREYFUS CALIFORNIA TAX EXEMPT MONEY MARKET FUND, 497, 1999-07-23

DREYFUS CALIFORNIA TAX EXEMPT MONEY MARKET FUND
497, 1999-07-23

Previous: MEGABANK FINANCIAL CORP, 10QSB, 1999-07-23

Next: VOYAGEUR MUTUAL FUNDS III INC /MN/, 497, 1999-07-23

Dreyfus California Tax Exempt Money Market Fund

Investing in short-term, high quality municipal obligations for current income
exempt from federal and California state income taxes

PROSPECTUS August 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
- ----------------------------------------------------

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

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

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

<PAGE>

The Fund

Dreyfus California Tax Exempt Money Market Fund
- -------------------------------

Ticker Symbol: DCTXX

GOAL/APPROACH

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

To pursue this goal, the fund normally invests substantially all of its net
assets in municipal obligations that provide income exempt from federal and
California state personal income taxes. When the fund manager believes that
acceptable California municipal obligations are unavailable for investment, the
fund may invest temporarily in municipal obligations that may be subject to
California state income tax, but are free from federal income tax. Municipal
obligations are usually divided into two types:

* general obligation bonds, which are secured by the
full faith and credit of the issuer and its taxing power

* revenue bonds, which are payable from the revenues
derived from a specific revenue source, such as charges for water and sewer
service or highway tolls

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

MORE INFORMATION ON THE FUND CAN BE FOUND IN THE CURRENT ANNUAL/SEMIANNUAL
REPORT (SEE BACK COVER).

Concepts to understand

MONEY MARKET FUND: a specific type of fund that seeks to maintain a $1.00 price
per share. Money market funds are subject to strict federal requirements and
must:

* maintain an average dollar-weighted portfolio maturity of 90 days or
less

* buy individual securities that have remaining maturities of 13 months
or less

* invest only in high quality, dollar-denominated obligations

MAIN RISKS

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

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

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

* interest rates could rise sharply, causing the
fund's share price to drop

* California's economy and revenues underlying its
municipal obligations may decline

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

* any of the fund's holdings could have its credit
rating downgraded or could default

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

Concepts to understand

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

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

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

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 averages the fund's performance over time. Both tables assume reinvestment
of dividends. Of course, past performance is no guarantee of future results.
--------------------------------------------------------

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

5.76 5.24 3.97 2.59 1.95 2.31 3.15 2.80 2.94 2.69
89 90 91 92 93 94 95 96 97 98

BEST QUARTER: Q2 '89 +1.49%

WORST QUARTER: Q1 '94 +0.44%

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

Average annual total return AS OF 12/31/98

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

2.69% 2.78% 3.33%

The fund's 7-day yield on 12/31/98 was 3.04%. For the fund's current yield, call
toll-free 1-800-645-6561.

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) or Rule 12b-1 distribution fees.
--------------------------------------------------------

Fee table

ANNUAL FUND OPERATING EXPENSES

% OF AVERAGE DAILY NET ASSETS

Management fee 0.50%

Shareholder services fee 0.06%

Other expenses 0.10%
--------------------------------------------------------

TOTAL 0.66%
--------------------------------------------------------

Expense example

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

$67 $211 $368 $822

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 the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.

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

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

The 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 0.50% 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.

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.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,

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

PER-SHARE DATA ($)

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

Investment operations:

Investment income -- net .026 .029 .028 .030 .026

Distributions:

Dividends from investment
income -- net (.026) (.029) (.028) (.030) (.026)

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

Total return (%) 2.59 2.91 2.80 3.07 2.60
- ---------------------------------------------------------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA

Ratio of expenses
to average net assets (%) .66 .69 .66 .64 .64

Ratio of net investment income
to average net assets (%) 2.56 2.88 2.77 3.03 2.56
- ---------------------------------------------------------------------------------------------------------------------------------

Net assets, end of period ($ x 1,000) 194,220 194,213 226,548 252,985 281,764

</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
12:00 noon Eastern time on every day the New York Stock 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 portfolio
securities are valued at amortized cost, which does not take into account
unrealized gains or losses. As a result, portfolio securities are valued at
their acquisition cost and adjusted for discounts or premiums reflected in their
purchase price. This method of valuation is designed for the fund to be able to
price its shares at $1.00 per share. Because the fund seeks tax-exempt income,
it is not recommended for purchase in IRAs or other qualified retirement plans.
--------------------------------------------------------

Minimum investments

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

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

DREYFUS AUTOMATIC $100 $100
INVESTMENT PLANS

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

Concepts to understand

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

To help the fund maintain a $1 share price, investments are valued at cost, and
any discount or premium created by market movements is amortized to maturity.

Selling shares

You may sell (redeem) shares at any time. Your shares will be sold at the next
NAV calculated after your order is accepted by the fund's transfer agent or
other authorized entity. Any certificates representing fund shares being sold
must be returned with your redemption request. Your order will be processed
promptly and you will generally receive the proceeds within a week.

Before selling or writing a check for recently purchased shares, please note
that 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.
--------------------------------------------------------

Limitations on selling shares by phone

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

CHECK NO MINIMUM $150,000 PER DAY

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

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

Written sell orders

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

* 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

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

* 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).

Small account policies

To offset the relatively higher costs of servicing smaller accounts, the fund
charges regular accounts with balances below $2,000 an annual fee of $12. The
fee will be imposed during the fourth quarter of each calendar year.

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

If your account falls below $500, the fund may ask you to increase your balance.
If it is still below $500 after 30 days, the fund may close your account and
send you the proceeds.

DISTRIBUTIONS AND TAXES

The fund usually pays its shareholders dividends from its net investment income
once a month, and distributes any net securities 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.

The fund anticipates that virtually all of its income dividends will be exempt
from federal and California state income taxes, if they are derived from
California municipal obligations or obligations which California is prohibited
by federal law from taxing. 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.

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.

Concepts to understand

DIVIDENDS: income or interest paid by the investments in the fund's portfolio.

DISTRIBUTIONS: income, net of expenses, passed on to fund shareholders. These
are calculated on a per-share basis: each share earns the same rate of return,
so the more fund shares you own, the higher your distribution.

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.
--------------------------------------------------------

For investing

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

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

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

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

For exchanging shares

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

For selling shares

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

Third-party investments

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

Checkwriting privilege

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

Exchange privilege

You can exchange $500 or more from one Dreyfus fund into another. 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.

Dreyfus Financial Centers

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

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

Your Investment

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# 8900052058

* 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# 8900052058

* 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

NOTES

<PAGE>

For More Information

Dreyfus California Tax Exempt Money Market Fund
-----------------------------

SEC file number: 811-4216

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

Annual/Semiannual Report

Describes the fund's performance and lists portfolio
holdings.

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>

DREYFUS CALIFORNIA TAX EXEMPT MONEY MARKET FUND

STATEMENT OF ADDITIONAL INFORMATION
AUGUST 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 California Tax Exempt Money Market Fund (the "Fund"), dated August
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 toll free 1-800-645-6561.

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-11
Management Arrangements B-16
How to Buy Shares B-18
Shareholder Services Plan B-21
How to Redeem Shares B-22
Shareholder Services B-24
Determination of Net Asset Value B-27
Dividends, Distributions and Taxes B-28
Portfolio Transactions B-30
Yield Information B-30
Information About the Fund B-32

Counsel and Independent Auditors B-33

Appendix A B-34
Appendix B B-52

DESCRIPTION OF THE FUND

The Fund is a Massachusetts business trust that commenced operations on
January 17, 1986. The Fund is an open-end, management investment company,
known as a money market mutual fund.

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.

The Fund is non-diversified, which means that the proportion of the
Fund's assets that may be invested in the securities of a single issuer is
not limited by the Investment Company Act of 1940, as amended.

Certain Portfolio Securities

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

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

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

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

Tax Exempt Participation Interests. The Fund may purchase from financial
institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation interest bears to
the total principal amount of the Municipal Obligation. These instruments
may have fixed, floating or variable rates of interest, with remaining
maturities of 13 months or less. If the participation interest is unrated,
or has been given a rating below that which is permissible for purchase by
the Fund, the participation interest will be backed by an irrevocable letter
of credit or guarantee of a bank that the Fund's Board has determined meets
prescribed quality standards for banks, or the payment obligation otherwise
will be collateralized by U.S. Government securities. For certain
participation interests, the Fund will have the right to demand payment, on
not more than seven days' notice, for all or any part of the Fund's
participation interest in the Municipal Obligation, plus accrued interest.
As to these instruments, the Fund intends to exercise its right to demand
payment only upon a default under the terms of the Municipal Obligation, as
needed to provide liquidity to meet redemptions, or to maintain or improve
the quality of its investment portfolio.

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

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

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

Stand-By Commitments. The Fund may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, the Fund obligates a broker, dealer or bank to repurchase, at
the Fund's option, specified securities at a specified price and, in this
respect, stand-by commitments are comparable to put options. The exercise
of a stand-by commitment therefore is subject to the ability of the seller
to make payment on demand. The Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. The Fund may pay for stand-by
commitments if such action is deemed necessary, thus increasing to a degree
the cost of the underlying Municipal Obligation and similarly decreasing
such security's yield to investors. Gains realized in connection with stand-
by commitments will be taxable.

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

The average distribution of investments (at value) in Municipal
Obligations by ratings for the fiscal year ended March 31, 1999, computed on
a monthly basis, was as follows:

Moody's Standard
Fitch Investors & Poor's Percentage
IBCA, or Service Inc. or Ratings Group ("Fitch")
Inc. ("Moody's") ("S&P") of Value

F-1+/F-1 VMIG 1/MIG 1,P- SP-1+/SP-1,A- 97.9%
F-2+/F-2 1 1+/A-1 2.1%
MIG 2 SP-2+/SP-2 100.0%

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

To the extent the ratings given by Moody's, S&P or Fitch for Municipal
Obligations may change as a result of changes in such organizations or their
rating systems, the Fund will attempt to use comparable ratings as standards
for its investments in accordance with the investment policies contained in
the Fund's Prospectus and this Statement of Additional Information. The
ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of the Municipal Obligations which they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings may be an initial
criterion for selection of portfolio investments, the Manager also will
evaluate these securities and the creditworthiness of the issuers of such
securities.

Taxable Investments. From time to time, on a temporary basis other
than for temporary defensive purposes (but not to exceed 20% of the value of
the Fund's net assets) or for temporary defensive purposes, the Fund may
invest in taxable short-term investments ("Taxable Investments") consisting
of: notes of issuers having, at the time of purchase, a quality rating
within the two highest grades of Moody's, S&P or Fitch; obligations of the
U.S. Government, its agencies or instrumentalities; commercial paper rated
not lower than P-1 by Moody's, A-1 by S&P or F-1 by Fitch; certificates of
deposit of U.S. domestic banks, including foreign branches of domestic
banks, with assets of one billion dollars or more; time deposits; bankers'
acceptances and other short-term bank obligations; and repurchase agreements
in respect of any of the foregoing. Dividends paid by the Fund that are
attributable to income earned by the Fund from Taxable Investments will be
taxable to investors. See "Dividends, Distributions and Taxes." Except for
temporary defensive purposes, at no time will more than 20% of the value of
the Fund's net assets be invested in Taxable Investments and Municipal
Obligations the interest from which gives rise to a preference item for the
purpose of the alternative minimum tax. If the Fund purchases Taxable
Investments, it will value them using the amortized cost method and comply
with the provisions of Rule 2a-7 relating to purchases of taxable
instruments. When the Fund has adopted a temporary defensive position,
including when acceptable California Municipal Obligations are unavailable
for investment by the Fund, in excess of 35% of the Fund's net assets may be
invested in securities that are not exempt from California income tax.
Under normal market conditions, the Fund anticipates that not more than 5%
of the value of its total assets will be invested in any one category of
Taxable Investments.

Illiquid Securities. The Fund may invest up to 10% of the value of its
net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as securities that are subject to legal or contractual
restrictions on resale, and repurchase agreements providing for settlement
in more than seven days after notice. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready
buyer is not available at a price the Fund deems representative of their
value, the value of the Fund's net assets could be adversely affected.

Investment Techniques

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

Borrowing Money. The Fund may borrow money from banks, but only for
temporary or emergency (not leveraging) purposes, in an amount up to 15% of
the value of its total assets (including the amount borrowed) valued at the
lesser of cost or market, less liabilities (not including the amount
borrowed) at the time the borrowing is made. While borrowings exceed 5% of
the Fund's total assets, the Fund will not make any additional investments.

Forward Commitments. The Fund may purchase Municipal Obligations and
other securities on a forward commitment or when-issued basis, which means
that delivery and payment take place a number of days after the date of the
commitment to purchase. The payment obligation and the interest rate
receivable on a forward commitment or when-issued security are fixed when
the Fund enters into the commitment, but the Fund does not make payment
until it receives delivery from the counterparty. The Fund will commit to
purchase such securities only with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement
date if it is deemed advisable. The Fund will segregate permissible liquid
assets at least equal at all times to the amount of the Fund's purchase
commitments.

Municipal Obligations and other securities purchased on a forward
commitment or when-issued basis are subject to changes in value (generally
changing in the same way, i.e., appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception of
the creditworthiness of the issuer and changes, real or anticipated, in the
level of interest rates. Securities purchased on a forward commitment or
when-issued basis may expose the Fund to risks because they may experience
such fluctuations prior to their actual delivery. Purchasing securities on
a when-issued basis can involve the additional risk that the yield available
in the market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Fund is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Fund's net assets and its net asset value per share.

Investment Considerations and Risks

Investing in Municipal Obligations. The Fund may invest more than 25%
of the value of its total assets in Municipal Obligations which are related
in such a way that an economic, business or political development or change
affecting one such security also would affect the other securities; for
example, securities the interest upon which is paid from revenues of similar
types of projects. As a result, the Fund may be subject to greater risk as
compared to a fund that does not follow this practice.

Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although "non-
appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure
might prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, the Manager will consider, on an
ongoing basis, a number of factors including the likelihood that the issuing
municipality will discontinue appropriating funds for the leased property.

Certain provisions in the Internal Revenue Code of 1986, as amended
(the "Code"), relating to the issuance of Municipal Obligations may reduce
the volume of Municipal Obligations qualifying for Federal tax exemption.
One effect of these provisions could be to increase the cost of the
Municipal Obligations available for purchase by the Fund and thus reduce
available yield. Shareholders should consult their tax advisers concerning
the effect of these provisions on an investment in the Fund. Proposals that
may restrict or eliminate the income tax exemption for interest on Municipal
Obligations may be introduced in the future. If any such proposal were
enacted that would reduce the availability of Municipal Obligations for
investment by the Fund so as to adversely affect Fund shareholders, the Fund
would reevaluate its investment objective and policies and submit possible
changes in the Fund's structure to shareholders for their consideration. If
legislation were enacted that would treat a type of Municipal Obligation as
taxable, the Fund would treat such security as a permissible Taxable
Investment within the applicable limits set forth herein.

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

Simultaneous Investments. Investment decisions for the Fund are made
independently from those of the 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
Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund's
outstanding voting shares. In addition, the Fund has adopted investment
restrictions numbered 1 through 10 as fundamental policies. Investment
restrictions numbered 11 and 12 are not fundamental policies and may be
changed by a vote of a majority of the Fund's Board members at any time.
The Fund may not:

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

2. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) based on the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of the value of the Fund's
total assets, the Fund will not make any additional investments.

3. Sell securities short or purchase securities on margin.

4. Underwrite the securities of other issuers, except that the Fund
may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage
of the lower purchase price available.

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

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

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

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

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

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

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

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

For purposes of Investment Restriction No. 8, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together
as an "industry." If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a
change in values or assets will not constitute a violation of such
restriction.

MANAGEMENT OF THE 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
The Bank of New York 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,
Century Business Services, Inc., a provider of various outsourcing
functions for small and medium size companies, and Career Blazers Inc.
(formerly Staffing Resources Inc.), a temporary placement agency. For
more than five years prior to January 1995, he was President, a
director and, until August 1994, Chief Operating Officer of the Manager
and Executive Vice President and a director of Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager and, until August
24, 1994, the Fund's distributor. From August 1994 to December 31,
1994, he was a director of Mellon Bank Corporation. He is 55 years old
and his address is 200 Park Avenue, New York, New York 10166.

DAVID W. BURKE, Board Member. Retired. 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 63 years old and his address is Box 654,
Eastham, Massachusetts 02642.

HODDING CARTER, III, Board Member. President and Chief Executive Officer of
the John S. and James L. Knight Foundation. From 1985 to 1998 he was
President and Chairman of MainStreet TV. From 1995, to 1998, he was
Knight Professor in Journalism at the University of Maryland. From
1980 to 1991, he was "OpEd" columnist for The Wall Street Journal.
From 1985 to 1986, he was anchor and Chief Correspondent of "Capital
Journal," a weekly Public Broadcasting System ("PBS") series on
Congress. From 1981 to 1984, he was anchorman and chief correspondent
for PBS' "Inside Story", a regularly scheduled half-hour critique of
press performance. From 1977 to July 1, 1980, Mr. Carter served as
Assistant Secretary of State for Public Affairs and as Department of
State spokesman. He is 64 years old and his address is c/o Knight
Foundation, 2 South Biscayne Boulevard, Suite 3800, Miami, FL 33131.

EHUD HOUMINER, Board Member. Professor and Executive-in-Residence at the
Columbia Business School, Columbia University. Since January 1996,
Principal of Lear, Yavitz and Associates, a management consultant firm.
He also is a Director of Avnet Inc. and Super-Sol Limited. He is 58
years old and his address is c/o Columbia Business School, Columbia
University, Uris Hall, Room 526, New York, New York 10027.

RICHARD C. LEONE, Board Member. President of The Century Foundation,
formerly The Twentieth Century Fund, Inc., a tax exempt research
foundation engaged in the study of economic, foreign policy and
domestic issues. From April 1990 to March 1994, he was Chairman and,
from April 1988 to March 1994, a Commissioner of The Port Authority of
New York and New Jersey. A member in 1985, and from January 1986 to
January 1989, Managing Director, of Dillon, Read & Co. Inc. Mr. Leone
is also a director of Dynex, Inc. He is 59 years old and his address
is 41 East 70th Street, New York, New York 10021.

HANS C. MAUTNER, Board Member. Vice Chairman and a Director of Simon
Property, Inc., a real estate investment company, and a Trustee of
Cornerstone Properties. From 1977 to 1998, Chairman and Chief
Executive Officer of Corporate Property Investors, which merged into
Simon Property Group in September 1998. Since January 1986, a Director
of Julius Baer Investment Management, Inc., a wholly-owned subsidiary
of Julius Baer Securities, Inc. He is 61 years old and his address is
305 East 47th Street, New York, New York 10017.

ROBIN A. PRINGLE, Board Member. Vice President of The National Mentoring
Partnership and President of The Boisi Family Foundation, a private
family foundation devoted to youths and higher education located in New
York City. Since 1993, Vice President, and from March 1992 to October
1993, Executive Director, of One to One Partnership, Inc., a national
non-profit organization that seeks to promote mentoring and economic
empowerment for at-risk youths. From June 1986 to February 1992, she
was an investment banker with Goldman, Sachs & Co. She is 35 years old
and her address is 621 South Plymouth Court, Chicago, Illinois 60605.

JOHN E. ZUCCOTTI, Board Member. Since November 1996, Chairman of Brookfield
Financial Properties, Inc. From 1990 to November 1996, he was the
President and Chief Officer of Olympia & York Companies (U.S.A.) and a
member of its Board of Directors since the inception of a Board in
November, 1996. From 1986, a partner in the law firm of Tufo &
Zuccotti. He was first Deputy Mayor of the City New York from December
1975 to June 1977, and Chairman of the City Planning Commission for the
City of New York from 1973 to 1975.

Mr. Zuccotti has been a director or trustee of many boards, both
corporate and not-for-profit. He has recently been named Vice-Chairman
of Brookfield Properties Corporation headquartered in Toronto, Canada
(parent company of Brookfield Financial Properites). Mr. Zuccotti is
serving as a director of Applied Graphics Technologies, Inc. He is 61
years old and his address is 1 Liberty Plaza, 6th Floor, New York, New
York 10006.

For so long as the plan described in the section captioned "Shareholder
Services Plan" remains in effect, the Board members of the Fund who are not
"interested persons" (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 reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Fund for the fiscal year ended
March 31, 1999, and by all other funds in The Dreyfus Family of Funds for
which such person is a Board member (the number of which is set forth in
parenthesis next to each Board member's total compensation)* for the year
ended December 31, 1998, was as follows:

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

Joseph S. DiMartino $ 5,000 $ 619,660 (187)

David W. Burke $ 4,000 $ 233,550 (62)

Hodding Carter, III $ 3,750 $ 32,500 (7)

Ehud Houminer $ 4,000 $ 62,250 (21)

Richard C. Leone $ 4,000 $ 35,500 (7)

Hans C. Mautner $ 3,500 $ 29,500 (7)

Robin A. Pringle $ 3,750 $ 38,500 (7)

John E. Zuccotti $ 3,750 $ 32,500 (7)

_____________________
* 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 $ 4,622 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. From 1988
to August 1994, he was Manager of High Performance Fabrics Division of
Springs Industries, Inc., where he was responsible for sales and
marketing. 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.

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.

*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.

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 May 21, 1999.

The following entities are known by the Fund to own 5% or more of the
Fund's outstanding voting securities as of May 21, 1999: Sanwa Bank
California, Acting as Fiduciary, P.O. Box 60078, Los Angeles, California
90060-0078, was the record owner of 15.27% of the Fund's outstanding shares;
and Wells Fargo Bank, Fund Operations, MAC #0103-174, 525 Market Street, San
Francisco, California, 94105-2708, was the record owner of the Fund's 10.72%
of the Fund's outstanding shares.

MANAGEMENT ARRANGEMENTS

Investment Adviser. The Manager is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). Mellon is a publicly owned multibank holding company
incorporated under Pennsylvania law in 1971 and registered under the Federal
Bank Holding Company Act of 1956, as amended. Mellon provides a
comprehensive range of financial products and services in domestic and
selected international markets. Mellon is among the twenty-five largest
bank holding companies in the United States based on total assets.

The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 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 the continuance also is approved
by a majority of the Board members who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Manager, by vote cast in person
at a meeting called for the purpose of voting on such approval. The
Agreement was approved by shareholders on August 4, 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 October 26, 1998. 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, on 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; Thomas F. Eggers, Vice Chairman--Institutional and a
director; Lawrence S. Kash, Vice Chairman and a director; Ronald P.
O'Hanley III, Vice Chairman; J. David Officer, Vice Chairman and a director;
William T. Sandalls, Jr., Executive Vice President; Mark N. Jacobs, Vice
President, General Counsel and Secretary; Diane P. Durnin, Vice President--
Product Development; Patrice M. Kozlowski, Vice President--Corporate
Communications; Mary Beth Leibig, Vice President--Human Resources; Andrew S.
Wasser, Vice President--Information Systems; Theodore A. Schachar, Vice
President; Wendy Strutt, Vice President; Richard Terres, Vice President;
William H. Maresca, Controller; James Bitetto, Assistant Secretary; Steven
F. Newman, Assistant Secretary; and Mandell L. Berman, Burton C. Borgelt,
Steven G. Elliott, Martin C. McGuinn, Richard W. Sabo and Richard F. Syron,
directors.

The Manager manages 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 Joseph
A. Darcy, A. Paul Disdier, Douglas J. Gaylor, Karen M. Hand, Stephen C.
Kris, Richard J. Moynihan, W. Michael Petty, Jill C. Shaffro, Samuel J.
Weinstock and Monica S. Wieboldt. The Manager also maintains a research
department with a professional staff of portfolio managers and securities
analysts who provide research services for the Fund as well as for other
funds advised by the Manager.

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 securities dealers, banks or other financial
institutions 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 fees, state Blue Sky
qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of maintaining
the Fund's existence, costs of independent pricing services, costs
attributable to investor services (including, without limitation, telephone
and personnel expenses), costs of shareholders' reports and meetings, costs
of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, and any extraordinary expenses.

As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .50 of 1% of the
value of the Fund's average daily net assets. All fees and expenses are
accrued daily and deducted before declaration of dividends to investors.
For the fiscal years ended March 31, 1997, 1998 and 1999, the management
fees paid to the Manager amounted to $1,139,823, $1,060,632 and $976,918,
respectively.

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

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.

The Bank of New York (the "Custodian"), 90 Washington Street, New York,
New York 10286, is the Fund's custodian. The Custodian has no part in
determining the investment policies of the Fund or which securities are to
be purchased or sold by the Fund. Under a 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. Fund shares are sold without a sales charge. You may be
charged a fee if you effect transactions in Fund shares through a securities
dealer, bank or other financial institution. Share certificates are issued
only upon your written request. No certificates are issued for fractional
shares. It is not recommended that the Fund be used as a vehicle for Keogh,
IRA or other qualified plans. 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 securities dealer, bank or other financial institution which maintains
an omnibus account in the Fund and has made an aggregate minimum initial
purchase for its customers of $2,500. Subsequent investments must be at
least $100. The initial investment must be accompanied by the Account
Application. For full-time or part-time employees of the Manager or any of
its affiliates or subsidiaries, directors of the Manager, Board members of a
fund advised by the Manager, including members of 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 vary the initial and
subsequent investment minimum requirements at any time.

Fund shares also are offered without regard to the minimum initial
investment requirements through Dreyfus-Automatic Asset 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 and Federal Funds (monies of
member banks within the Federal Reserve System which are held on deposit at
a Federal Reserve Bank) are received by the Transfer Agent or other
authorized entity. If you do not remit Federal Funds, your payment must be
converted into Federal Funds. This usually occurs within one business day
of receipt of a bank wire or within two business days of receipt of a check
drawn on a member bank of the Federal Reserve System. Checks drawn on banks
which are not members of the Federal Reserve System may take considerably
longer to convert into Federal Funds. Prior to receipt of Federal Funds,
your money will not be invested. Net asset value per share is determined as
of 12:00 Noon, New York time, on each day the New York Stock Exchange is
open for business. 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. See "Determination
of Net Asset Value."

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

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

Using Federal Funds. The Transfer Agent or the Fund may attempt to
notify you upon receipt of checks drawn on banks that are not members of the
Federal Reserve System as to the possible delay in conversion into Federal
Funds and may attempt to arrange for a better means of transmitting the
money. If you are a customer of a securities dealer ("Selected Dealer") and
your order to purchase Fund shares is paid for other than in Federal Funds,
the Selected Dealer, acting on your behalf, will complete the conversion
into, or itself advance, Federal Funds, generally on the business day
following receipt of your order. The order is effective only when so
converted and received by the Transfer Agent. If you have sufficient
Federal Funds or a cash balance in your brokerage account with a Selected
Dealer, your order to purchase Fund shares will become effective on the day
that the order, including Federal Funds, is received by the Transfer Agent.

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

Dreyfus TeleTransfer purchase orders may be made at any time. Purchase
orders received by 4:00 p.m., New York time, on any day that the Transfer
Agent and the New York Stock Exchange are open for business will be credited
to the shareholder's Fund account on the next bank business day following
such purchase order. Purchase orders made after 4:00 p.m., New York time,
on any day the Transfer Agent and the New York Stock Exchange are open for
business, or orders made on Saturday, Sunday or any Fund holiday (e.g., when
the New York Stock Exchange is not open for business), will be credited to
the shareholder's Fund account on the second bank business day following
such purchase order. To qualify to use Dreyfus TeleTransfer Privilege, the
initial payment for purchase of Fund shares must be drawn on, and redemption
proceeds paid to, the same bank and account as are designated on the Account
Application or Shareholder Services Form on file. If the proceeds of a
particular redemption are to be wired to an account at any other bank, the
request must be in writing and signature-guaranteed. See "How to Redeem
Shares--Dreyfus TeleTransfer Privilege."

Procedures for Multiple Accounts. Special procedures have been
designed for banks and other institutions that wish to open multiple
accounts. The institution may open a single master account by filing one
application with the Transfer Agent, and may open individual sub-accounts at
the same time or at some later date. The Transfer Agent will provide each
institution with a written confirmation for each transaction in a
sub-account at no additional charge. Upon receipt of funds for investment
by interbank wire, the Transfer Agent promptly will confirm the receipt of
the investment by telephone or return wire to the transmitting bank, if the
investor so requests.

The Transfer Agent also will provide each institution with a monthly
statement setting forth, for each sub-account, the share balance, income
earned for the month, income earned for the year to date and the total
current value of the account.

Service Charges. There are no sales or service charges by the Fund or
the Distributor, although investment dealers, banks and other financial
institutions may make reasonable charges to investors for their services.
The services provided and fees therefor are established by each institution
acting independently of the Fund. The Fund has been given to understand
that fees may be charged for customer services including, but not limited
to, same-day investment of client funds; same-day access to client funds;
advice to customers about the status of their accounts, yield currently
being paid, or income earned to date; provision of periodic account
statements showing security positions; other services available from the
dealer, bank or financial institution; and assistance with inquiries related
to their investment. Any such fees will be deducted monthly from dividends,
which on smaller accounts could constitute a substantial portion of
distributions. Small, inactive, long-term accounts involving monthly
service charges may not be in the best interest of an investor. In
addition, some securities dealers also may require an investor to invest
more than the minimum stated investment; not take physical delivery of share
certificates; not require that redemption checks be issued in his name; not
purchase fractional shares; take monthly income distributions in cash; or
other conditions. Investors should be aware that they may purchase Fund
shares directly from the Fund without imposition of any maintenance or
service charges other than those already described herein.

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.

SHAREHOLDER SERVICES PLAN

The Fund has adopted a Shareholder Services Plan (the "Plan") pursuant
to which the Fund reimburses Dreyfus Service Corporation an amount not to
exceed an annual rate of .25% of the value of the Fund's average daily net
assets for certain allocated expenses of providing personal services and/or
maintaining shareholder accounts. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder
accounts.

A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the
Board for its review. In addition, the Plan provides that material
amendments 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 or
the Manager and have no direct or indirect financial interest in the
operation of the Plan, by vote cast in person at a meeting called for the
purpose of considering such amendments. The Plan is subject to annual
approval by such vote of the Board members cast in person at a meeting
called for the purpose of voting on the Plan. The Plan was last so approved
on July 26, 1998. 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.

For the fiscal year ended March 31, 1999, $111,760 was chargeable to
the Fund under the Shareholder Services 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. Checks will be sent only to the registered
owner(s) of the account and only to the address of record. The Check
Redemption Privilege may be established for an existing account by a
separate signed Shareholder Services Form. 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 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.

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, 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 same
business day if the Transfer Agent receives a redemption request in proper
form prior to 12:00 Noon, New York time, on such day; otherwise, the Fund
will initiate payment on the next business day. Redemption proceeds ($1,000
minimum) will be transferred by Federal Reserve wire only to the commercial
bank account specified by you on the Account Application or 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 wire
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Share Certificates; Signatures."

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

Share Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each 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 Fund's Board reserves the right to make payments
in whole or in part in securities or other assets of the Fund in case of an
emergency or any time a cash distribution would impair the liquidity of the
Fund to the detriment of the existing shareholders. In such event, the
securities would be valued in the same manner as the portfolio of the Fund
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 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 Touchr automated
telephone system) from any person representing himself or herself to be you,
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 you.
You will be notified if your account falls below the amount designated to be
exchanged under this Privilege. In this case, your account will fall to
zero unless additional investments are made in excess of the designated
amount prior to the next Auto-Exchange transaction. Shares held under IRA
and other retirement plans are eligible for this Privilege. Exchanges of
IRA shares may be made between IRA accounts and from regular accounts to IRA
accounts, but not from IRA accounts to regular accounts. With respect to
all other retirement accounts, exchanges may be made only among those
accounts.

Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available to
shareholders residing in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between accounts
having identical names and other identifying designations.

Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchanges service or
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 which 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.
The Automatic Withdrawal Plan may be terminated at any time by you, the Fund
or the Transfer Agent. Shares for which share certificates have been issued
may not be redeemed through the Automatic Withdrawal Plan.

DETERMINATION OF NET ASSET VALUE

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

The Fund's Board has established, as a particular responsibility within
the overall duty of care owed to the Fund's investors, procedures reasonably
designed to stabilize the Fund's price per share as computed for the purpose
of purchases and redemptions at $1.00. Such procedures include review of
the Fund's portfolio holdings by the Board, at such intervals as it deems
appropriate, to determine whether the Fund's net asset value calculated by
using available market quotations or market equivalents deviates from $1.00
per share based on amortized cost. Market quotations and market equivalents
used in such review are obtained from an independent pricing service (the
"Service") approved by the Board. The service values the Fund's investments
based on methods which include consideration of: yields or prices of
municipal bonds of comparable quality, coupon, maturity and type;
indications of values from dealers; and general market conditions. The
Service also may employ electronic data processing techniques and/or a
matrix system to determine valuations.

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

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 has qualified for the fiscal year
ended March 31, 1999 as a "regulated investment company" under the Code.
The Fund intends to continue to so qualify if such qualification is in the
best interests of its shareholders. Such qualification relieves the Fund of
any liability for Federal income tax to the extent its earnings are
distributed in accordance with applicable provisions of the Code. If the
Fund did not qualify as a regulated investment company, it would be treated
for tax purposes as an ordinary corporation subject to Federal income tax.

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

If you elect to receive dividends and distributions in cash, and your
dividend or distribution check is returned to the Fund as undeliverable or
remains uncashed for six months, the Fund reserves the right to reinvest
such 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. All expenses are accrued daily and deducted before declaration of
dividends to investors.

Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of any gains
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income under Section 1276 of the Code.

If, at the close of each quarter of its taxable year, at least 50% of
the value of the Fund's total assets consists of Federal tax exempt
obligations, then the Fund may designate and pay Federal exempt-interest
dividends from interest earned on all such tax exempt obligations. Such
exempt-interest dividends may be excluded by shareholders of the Fund from
their gross income for Federal income tax purposes. Dividends derived from
Taxable Investments, together with distributions from any net realized short-
term securities gains, generally are taxable as ordinary income for Federal
income tax purposes whether or not reinvested. Distributions from net
realized long-term securities gains generally are taxable as long-term
capital gains to a shareholder who is a citizen or resident of the United
States, whether or not reinvested and regardless of the length of time the
shareholder has held his shares.

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

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

The foregoing discussion of California personal income tax consequences
applies only to investors who are individuals residing in California. To
the extent that investors are obligated to pay state or local taxes outside
of California, dividends and distributions paid by the Fund may represent
taxable income.

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,
although the price paid usually includes an undisclosed compensation to the
dealer acting as agent. The prices paid to underwriters of newly-issued
securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers
ordinarily are executed at a price between the bid and asked price. No
brokerage commissions have been paid by the Fund to date.

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

YIELD INFORMATION

For the seven-day period ended March 31, 1999, the Fund's yield was
2.21% and effective yield was 2.23%. Yield is computed in accordance with a
standardized method which involves determining the net change in the value
of a hypothetical pre-existing Fund account having a balance of one share at
the beginning of a seven calendar day period for which yield is to be
quoted, dividing the net change by the value of the account at the beginning
of the period to obtain the base period return, and annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the
value of the account reflects the value of additional shares purchased with
dividends declared on the original share and any such additional shares and
fees that may be charged to shareholder accounts, in proportion to the
length of the base period and the Fund's average account size, but does not
include realized gains and losses or unrealized appreciation and
depreciation. Effective yield is computed by adding 1 to the base period
return (calculated as described above), raising that sum to a power equal to
365 divided by 7, and subtracting 1 from the result.

Based upon a combined 1999 Federal and California effective tax rate of
45.22%, which reflects the Federal deduction for the California tax, the
Fund's tax equivalent yield for the seven-day period ended March 31, 1999
was 4.03%. Tax equivalent yield is computed by dividing that portion of the
yield or effective yield (calculated as described above) which is tax exempt
by 1 minus a stated tax rate and adding the quotient to that portion, if
any, of the yield of the Fund that is not tax exempt.

The tax equivalent yield noted above represents the application of the
highest Federal and State of California marginal personal income tax rates
presently in effect. For Federal income tax purposes, a 39.6% tax rate has
been used. For California income tax purposes, an 11.0% tax rate for
individuals, trust and estates has been used. The tax equivalent figure,
however, does not include the potential effect of any local (including, but
not limited to, county, district or city) taxes, including applicable
surcharges. In addition, there may be pending legislation which could
affect such stated tax rates or yields. Each investor should consult its
tax adviser, and consider its own factual circumstances and applicable tax
laws, in order to ascertain the relevant tax equivalent yield.

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

The Fund may use hypothetical tax equivalent yields or charts in its
advertising. These hypothetical yields or charts will be used for
illustrative purposes only and are not indicative of the Fund's past or
future performance.

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

From time to time, advertising material for the Fund may include
biographical information relating to its portfolio managers and may refer
to, or include commentary by a portfolio manager relating to investment
strategy, asset growth, current or past business, political, economic or
financial conditions and other matters of general interest to investors.
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.

Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., Bank Rate MonitorT, N. Palm Beach, FL 33408, IBC's Money
Fund ReportT, and other industry publications.

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 non-assessable.
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.

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

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 two-thirds 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.

To offset the relatively higher costs of servicing smaller accounts,
the Fund will charge regular accounts with balances below $2,000 an annual
fee of $12. The valuation of accounts and the deductions are expected to
take place during the last four months of each year. The fee will be waived
for any investor whose aggregate Dreyfus mutual fund investments total at
least $25,000, and will not apply to IRA accounts or to accounts
participating in automatic investment programs or opened through a
securities dealer, bank or other financial institution, or to other
fiduciary accounts.

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 A

INVESTING IN CALIFORNIA MUNICIPAL OBLIGATIONS

RISK FACTORS--INVESTING IN CALIFORNIA MUNICIPAL OBLIGATIONS

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

State Finances

The Budget Process

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

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

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

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

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

The General Fund

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

The Special Fund for Economic Uncertainties

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

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

For budgeting and accounting purposes, any appropriation made from the
SFEU is deemed an appropriation from the General Fund. For year-end
reporting purposes, the State Controller is required to add the balance in
the SFEU to the balance in the General Fund so as to show the total moneys
then available for General Fund purposes.

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

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

Prior Fiscal Years' Financial Results

Fiscal Years Prior to 1995-96

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

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

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

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

1995-96 and 1996-97 Fiscal Years

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

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

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

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

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

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

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

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

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

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

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

Current State Budget

1998-99 Fiscal Year Budget

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Local Governments

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

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

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

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

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

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

State Appropriations Limit

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

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

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

The State's Appropriations Limit in each year is based on the limit for
the prior year, adjusted annually for changes in State per capita personal
income and changes in population, and adjusted, when applicable, for any
transfer of financial responsibility of providing services to or from
another unit of government. The measurement of change in population is a
blended average of statewide overall population growth, and change in
attendance at local school and community college ("K-14") districts. The
Appropriations Limit is tested over consecutive two-year periods. Any
excess of the aggregate "proceeds of taxes" received over such two-year
transfers to K-14 districts and refunds to taxpayers.

The Legislature has enacted legislation to implement Article XIII B
which defines certain terms used in Article XIII B and sets forth the
methods for determining the Appropriations Limit. California Government
Code Section 7912 requires an estimate of the Appropriations Limit to be
included in the Governor's Budget, and thereafter to be subject to the
budget process and established in the Budget Act.

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

Proposition 98

On November 8, 1988, voters of the State approved Proposition 98, a
combined initiative constitutional amendment and statute called the
"Classroom Instructional Improvement and Accountability Act." Proposition 98
changed State funding of public education below the university level and the
operation of the State Appropriations Limit, primarily by guaranteeing K-14
schools a minimum share of General Fund revenues. Under Proposition 98 (as
modified by Proposition 111, which was enacted on June 5, 1990), K-14
schools are guaranteed the greater of (a) in general, a fixed percent of
General Fund revenues ("Test 1"), (b) the amount appropriated to K-14
schools in the prior year, adjusted for changes in the cost of living
(measured as in Article XIII B by reference to State per capita personal
income) and enrollment ("Test 2"), or (c) a third test, which would replace
Test 2 in any year when the percentage growth in per capita General Fund
revenues from the prior year plus one half of one percent is less than the
percentage growth in State per capita personal income ("Test 3"). Under
Test 3, schools would receive the amount appropriated in the prior year
adjusted for changes in enrollment and per capita General Fund revenues,
plus an additional small adjustment factor. If Test 3 is used in any year,
the difference between Test 3 and Test 2 would become a "credit" to schools
which would be the basis of payments in future years when per capita General
Fund revenue growth exceeds per capita personal income growth. Legislation
adopted prior to the end of the 1988-89 Fiscal Year, implementing
Proposition 98, determined the K-14 schools' funding guarantee under Test 1
to be 40.3 percent of the General Fund tax revenues, based on 1986-87
appropriations. However, that percent has been adjusted to approximately 35
percent to account for a subsequent redirection of local property taxes,
since such redirection directly affects the share of General Fund revenues
to schools.

Proposition 98 permits the Legislature by two-thirds vote of both
houses, with the Governor's concurrence, to suspend the K-14 schools'
minimum funding formula for a one-year period. Proposition 98 also contains
provisions transferring certain State tax revenues in excess of the Article
XIII B limit to K-14 schools.

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

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

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

ECONOMY AND POPULATION

Introduction

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

Population and Labor Force

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

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

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

Population 1992-97

% %
Increase Increase California
California Over United Over as % of
Year Population(a) Preceding States Preceding United
Year Population(a) Year States

<S> <C> <C> <C> <C> <C>
1992 31,188,000 2.0 255,011,000 1.2 12.2

1993 31,517,000 1.1 257,795,000 1.1 12.2

1994 31,790,000 0.9 260,372,000 1.0 12.2

1995 32,063,000 0.9 262,890,000 1.0 12.2

1996 32,383,000 1.0 265,284,000 0.9 12.2

1997 32,957,000 1.8 267,575,000 0.9 12.3

</TABLE>
________________________
(a)Population as of July 1.

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

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

Labor Force
1992-97

Labor Force Trends (Thousands) Unemployment Rate(%)

Year Labor Employment California United States
Force

1992 15,404 13,973 9.3 7.5
1993 15,359 13,918 9.4 6.9
1994 15,450 14,122 8.6 6.1
1995 15,412 14,203 7.8 5.6
1996 15,568 14,444 7.2 5.4
1997 15,971 14,965 6.3 4.9

____________________

SOURCE: State of California, Employment Development Department.

Employment, Income, Construction and Retail Sales

The following table shows California's nonagricultural employment
distribution and growth for 1990 and 1997.

Payroll Employment By Major Sector
1990 and 1997

Employment % Distribution
(Thousands) of Employment
Industry Sector 1990 1997 1990 1997

Mining 39 29 0.3 0.2
Construction 605 554 4.8 4.2
Manufacturing
Nondurable goods 721 728 5.7 5.5
High Technology 686 517 5.4 3.9
Other Durable goods 690 669 5.4 5.1
Transportation and 624 663 4.9 5.1
Utilities
Wholesale and Retail 3,002 3,057 23.7 23.2
Trade
Finance, Insurance
and Real Estate 825 756 6.5 5.7
Services 3,395 4,051 26.8 30.8
Government
Federal 362 285 2.9 2.2
State and Local 1,713 1,858 13.5 14.1
TOTAL
AGRICULTURAL 12,66 13,167 100 100
2

___________________
SOURCE: State of California, Employment Development Department and State of
California, Department of Finance.

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

Total Personal Income 1992-97

California

Year Millions %Change California % of
U.S.
1992 684,674 4.8(*) 13.1
1993 698,130 2.0 12.8
1994(a) 718,321 2.9 12.5
1995 754,269 5.0 12.4
1996 798,020 5.8 12.5
1997 846,017 6.0 12.5
_____________________
(*)Change from prior year.
(a)Reflects Northridge earthquake, which caused an estimated $15 billion
drop in personal income.
Note: Omits income for government employees overseas.

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

Per Capita Personal Income 1992-97

California
Year Californ % United % Change % of U.S.
ia Change States

1992 22,163 3.2(*) 20,546 4.7(*) 107.9
1993 22,388 1.0 21,220 3.3 105.5
1994(a) 23,899 2.3 22,056 3.9 103.8
1995 23,901 4.4 23,063 4.6 103.6
1996 25,050 4.8 24,169 4.8 103.6
1997 26,218 4.7 25,298 4.7 103.6

________________________
(*)Change from prior year.
(a)Reflects Northridge earthquake, which caused an estimated $15 billion
drop in personal income.

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

LITIGATION

In the case of Board of Administration, California Public Employees'
Retirement System, et al. v. Pete Wilson, Governor, et al., plaintiffs
challenged the constitutionality of legislation which deferred payment of
the State's employer contribution to the Public Employees' Retirement System
beginning in Fiscal Year 1992-93. On January 11, 1995, the Sacramento County
Superior Court entered a judgment finding that the legislation
unconstitutionally impaired the vested contract rights of PERS members. The
judgment provides for issuance of a writ of mandate directing State
defendants to disregard the provisions of the legislation, to implement the
statute governing employer contributions that existed before the changes in
the legislation found to be unconstitutional, and to transfer to PERS the
contributions that were unpaid to date. On February 19, 1997, the State
Court of Appeal affirmed the decision of the Superior Court, and the Supreme
Court subsequently refused to hear the case, making the Court of Appeals'
ruling final.

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

On June 24, 1998, plaintiffs in Howard Jarvis Taxpayers Association et
al. v. Kathleen Connell filed a complaint for certain declaratory and
injunctive relief challenging the authority of the State Controller to make
payments from the State Treasury in the absence of a state budget. On July
21, 1998, the trial court issued a preliminary injunction prohibiting the
State Controller from paying moneys from the State Treasury for fiscal year
1998-99, with certain limited exceptions, in the absence of a state budget.
The preliminary injunction, among other things, prohibited the State
Controller from making any payments pursuant to any continuing
appropriation.

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

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

A judgment was entered for plaintiffs in California Ambulance
Association v. Shalala et al., described at page 63 of Exhibit I to this
Appendix. The Ninth Circuit Court of Appeals, however, reversed the trial
court's decision. Plaintiffs filed a petition for certiorari at the United
States Supreme Court, which the State opposed. The petition is currently
pending at the Supreme Court.

A judgment was entered for plaintiff in August 1998 in the case of
Ceridian Corporation v. Franchise Tax Board, described at pages 63-64 of
Exhibit 1. The State will appeal.

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

In Thomas Hayes v. Commission on State Mandates, described at page 64
of Exhibit 1, the Commission on State Mandates is now expected to issue a
final consolidated decision in late 1998.

In February 1998, the Court of Appeal in California State Employees
Association v. Wilson, described at page 64 of Exhibit 1, modified, then
affirmed, a judgment in favor of the plaintiffs invalidating the transfer of
$12,290,000 from the State Highway Account to the General Fund.

In July 1998, the parties in Beno v. Sullivan and Welch v. Anderson,
described at page 65 of Exhibit 1, entered into a settlement agreement in
which the State agreed to pay $42 million in return for plaintiffs'
agreement to dismiss both actions.

Information Technology

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

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

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

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

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

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

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

APPENDIX B

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

S&P

Municipal Bond Ratings

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

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

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

Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
The AA rating may be modified by the addition of a plus or minus sign to
show relative standing within the category.

Municipal Note Ratings
SP-1

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

Commercial Paper Ratings

The rating A is the highest rating and is assigned by S&P to issues
that are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and 3 to
indicate the relative degree of safety. Paper rated A-1 indicates that the
degree of safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.
Moody's

Municipal Bond Ratings

Aaa

Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.

Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities. Generally, Moody's provides either a generic
rating or a rating with a numerical modifier of 1 for bonds in the generic
rating category Aa. Moody's also provides numerical modifiers of 2 and 3 in
this category for bond issues in the health care, higher education and other
not-for-profit sectors; the modifier 1 indicates that the issue ranks in the
higher end of that generic rating category; the modifier 2 indicates that
the issue is in the mid-range of that generic category; and the modifier 3
indicates that the issue is in the low end of that generic category.

Municipal Note Ratings

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

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

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

MIG 1/VMIG 1

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

MIG 2/VMIG 2

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

Commercial Paper Rating

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

Fitch

Municipal Bond Ratings

The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issuer, 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 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.

Short-Term Ratings

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

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

F-1+

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

F-1

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

F-2

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