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PROSPECTUS NOVEMBER 29, 1994
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
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GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND (THE "FUND") IS AN
OPEN-END, NON-DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MONEY
MARKET MUTUAL FUND. ITS GOAL IS TO MAXIMIZE CURRENT INCOME EXEMPT FROM
FEDERAL AND STATE OF CALIFORNIA INCOME TAXES TO THE EXTENT CONSISTENT WITH
THE PRESERVATION OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY.
YOU CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY. THE FUND PROVIDES FREE REDEMPTION CHECKS, WHICH YOU CAN USE IN
AMOUNTS OF $500 OR MORE FOR CASH OR TO PAY BILLS. YOU CONTINUE TO EARN INCOME
ON THE AMOUNT OF THE CHECK UNTIL IT CLEARS. YOU CAN PURCHASE OR REDEEM SHARES
BY TELEPHONE USING DREYFUS TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
PART B (ALSO KNOWN AS THE STATEMENT OF ADDITIONAL INFORMATION), DATED
NOVEMBER 29, 1994, WHICH MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER
DISCUSSION OF CERTAIN AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE
OF INTEREST TO SOME INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND IS INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY,
WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK
11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK FOR OPERATOR 666.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
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TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES.................... 3
CONDENSED FINANCIAL INFORMATION .................. 3
YIELD INFORMATION................................. 4
DESCRIPTION OF THE FUND........................... 4
MANAGEMENT OF THE FUND............................ 9
HOW TO BUY FUND SHARES............................ 10
SHAREHOLDER SERVICES.............................. 12
HOW TO REDEEM FUND SHARES......................... 14
SHAREHOLDER SERVICES PLAN......................... 17
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 17
GENERAL INFORMATION............................... 18
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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[This Page Intentionally Left Blank]
Page 2
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
<S> <C>
Management Fees.................................................................. .50%
Other Expenses................................................................... .11%
Total Fund Operating Expenses.................................................... .61%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at
the end of each time period: $6 $20 $34 $76
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding
the various costs and expenses borne by the Fund, and therefore indirectly by
investors, the payment of which will reduce investors' return on an annual
basis. The information in the foregoing table does not reflect any fee
waivers or expense reimbursement arrangements that may be in effect. You can
purchase Fund shares without charge directly from the Fund's distributor; you
may be charged a nominal fee if you effect transactions in Fund shares
through a securities dealer, bank or other financial institution. See
"Management of the Fund" and "Shareholder Services Plan."
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors, whose report thereon appears in
the Statement of Additional Information. Further financial data and related
notes are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data for each year indicated. This
information has been derived from the Fund's financial statements.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------------------------------
1987(1) 1988 1989 1990 1991 1992 1993 1994
------- ------- ------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year... $1.0000 $1.0000 $.9994 $.9992 $.9996 $1.0000 $1.0000 $1.0000
-------- ------- ------- ------ ------- ------- ------- -------
INVESTMENT OPERATIONS:
Investment income--net ......... .0163 .0452 .0533 .0578 .0517 .0359 .0243 .0225
Net realized and unrealized gain
(loss) on investments.......... -- (.0006) (.0002) .0004 .0004 -- -- (.0002)
-------- ------- ------- ------ ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS..... .0163 .0446 .0531 .0582 .0521 .0359 .0243 .0223
-------- ------- ------- ------ ------- ------- ------- -------
DISTRIBUTIONS:
Dividends from investment
income-net............. (.0163) (.0452) (.0533) (.0578) (.0517) (.0359) (.0243) (.0225)
Dividends from net realized
gain on investments...... -- -- -- -- -- -- -- --
-------- ------- ------- ------ ------- ------- ------- -------
TOTAL DISTRIBUTIONS............ (.0163) (.0452) (.0533) (.0578) (.0517) (.0359) (.0243) (.0225)
-------- ------- ------- ------ ------- ------- ------- -------
Net asset value, end of year... $1.0000 $.9994 $.9992 $.9996 $1.0000 $1.0000 $1.0000 $.9998
======= ====== ====== ====== ======= ======= ======= ======
TOTAL INVESTMENT RETURN 4.16%(2) 4.62% 5.46% 5.93% 5.29% 3.65% 2.46% 2.27%
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets......... -- .50% .76% .07% .02% .20% .33% .33%
Ratio of net investment income
to average net assets.... 4.06%(2) 4.48% 5.29% 5.78% 5.08% 3.59% 2.43% 2.24%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation (limited to the
expense limitation provision
of the Management Agreement).... 1.50%(2) .21% -- .65% .59% .41% .30% .28%
Net Assets, end of year
(000's Omitted)..... $32,328 $109,037 $77,372 $281,909 $538,978 $549,383 $608,534 $699,105
(1)From March 10, 1987 (commencement of operations) to July 31, 1987.
(2)Annualized.
</TABLE>
Page 3
YIELD INFORMATION
From time to time, the Fund advertises its yield and effective yield.
Both yield figures are based on historical earnings and are not intended to
indicate future performance. It can be expected that these yields will
fluctuate substantially. The yield of the Fund refers to the income generated
by an investment in the Fund over a seven-day period (which period will be
stated in the advertisement). This income is then annualized. That is, the
amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of
the investment. The effective yield is calculated similarly, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The Fund's
yield and effective yield may reflect absorbed expenses pursuant to any
undertaking that may be in effect. See "Management of the Fund."
Tax equivalent yield is calculated by determining the pre-tax yield
which, after being taxed at a stated rate, would be equivalent to a stated
yield or effective yield calculated as described above.
Yield information is useful in reviewing the Fund's performance, but
because yields will fluctuate, such information under certain conditions may
not provide a basis for comparison with domestic bank deposits, other
investments which pay a fixed yield for a stated period of time, or other
investment companies which may use a different method of computing yield.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Bank Rate Monitortrademark, N. Palm Beach, Fla.
33408, IBC/Donoghue's Money Fund Report, Morningstar, Inc. and other industry
publications.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE -- The Fund's goal is to maximize current income exempt
from Federal and State of California income taxes to the extent consistent
with the preservation of capital and the maintenance of liquidity. To
accomplish this goal, the Fund invests primarily in 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's investment
objective cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act of 1940) of the Fund's outstanding
voting shares. There can be no assurance that the Fund's investment objective
will be achieved. Securities in which the Fund will invest may not earn as
high a level of current income as long-term or lower quality securities which
generally have less liquidity, greater market risk and more fluctuation in
market value.
MUNICIPAL OBLIGATIONS -- Debt securities the interest from which is, in the
opinion of bond counsel to the issuer, 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 generally
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 simi-
Page 4
lar to installment purchase contracts for property or equipment issued by
municipalities. Municipal Obligations bear fixed, floating or variable rates
of interest.
MANAGEMENT POLICIES -- It is a fundamental policy of the Fund that it will
invest at least 80% of the value of its net assets (except when maintaining a
temporary defensive position) in Municipal Obligations. Under normal
circumstances, at least 65% of the value of the Fund's net assets will be
invested in California Municipal Obligations and the remainder may be
invested in securities that are not California Municipal Obligations and
therefore may be subject to California income taxes. See "Risk
Factors_Investing in California Municipal Obligations" below, and "Dividends,
Distributions and Taxes."
The Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Fund uses the amortized cost method
of valuing its securities pursuant to Rule 2a-7 under the Investment Company
Act of 1940, certain requirements of which are summarized as follows. In
accordance with Rule 2a-7, the Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 13 months or less and invest only in U.S. dollar
denominated securities determined in accordance with procedures established
by the Board of Trustees to present minimal credit risks and which 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 instrument was rated only by one such organization) or,
if unrated, are of comparable quality as determined in accordance with
procedures established by the Board of Trustees. The nationally recognized
statistical rating organizations currently rating investments of the type the
Fund may purchase are Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P") and Fitch Investors Service, Inc. ("Fitch") and
their rating criteria are described in Appendix B to the Fund's Statement of
Additional Information. For further information regarding the amortized cost
method of valuing securities, see "Determination of Net Asset Value" in the
Fund's Statement of Additional Information. There can be no assurance that
the Fund will be able to maintain a stable net asset value of $1.00 per
share.
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 for which the
interest 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.
From time to time, the Fund may invest more than 25% of the value of
its total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental users. Interest on Municipal Obligations
(including certain industrial development bonds) which are specified private
activity bonds, as defined in the Internal Revenue Code of 1986, as amended
(the "Code"), issued after August 7, 1986, while exempt from Federal income
tax, is a preference item for purposes of the alternative minimum tax. Where
a regulated investment company receives such interest, a proportionate share
of any exempt-interest dividend paid by the investment company may be treated
as such a preference item to shareholders. The Fund may invest without
limitation in such Municipal Obligations if The Dreyfus Corporation
determines that their purchase is consistent with the Fund's investment
objective.
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, which may change daily without penalty, pursuant
to direct arrangements between the Fund, as lender, and the borrower. The
interest rates on these obligations fluctuate from time to time. Frequently,
such obligations are secured by letters of credit or other credit support
arrangements provided by banks. Use of letters of credit or other credit
support arrangements will not adversely affect
Page 5
the tax exempt status of these obligations. Because these obligations are
direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Each obligation purchased by the Fund will
meet the quality criteria established for the purchase of Municipal
Obligations. The Dreyfus Corporation, on behalf of the Fund, will consider on
an ongoing basis the creditworthiness of the issuers of the floating and
variable rate demand obligations in the Fund's portfolio. The Fund will not
invest more than 10% of the value of its net assets in floating or variable
rate demand obligations as to which it cannot exercise the demand feature on
not more than seven days' notice if there is no secondary market available for
these obligations, and in other illiquid securities.
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
otherwise is permissible for purchase by the Fund, it will be backed by an
irrevocable letter of credit or guarantee of a bank that the Board of
Trustees has determined meets the prescribed quality standards for banks set
forth below, or the payment obligation otherwise will be collateralized by
U.S. Government securities. For certain participation interests, the 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. The Fund will not invest more than 10% of the value of its net
assets in participation interests that do not have this demand feature, and
in other 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
certain securities that are subject to legal or contractual restrictions on
resale and repurchase agreements providing for settlement in more than seven
days after notice. However, if a substantial market of qualified institutional
buyers develops pursuant to Rule 144A under the Securities Act of 1933, as
amended, for certain of these securities held by the Fund, the Fund intends
to treat such securities as liquid securities in accordance with procedures
approved by the Fund's Board of Trustees. Because it is not possible to
predict with assurance how the market for restricted securities will develop,
the Fund's Board of Trustees has directed The Dreyfus Corporation to monitor
carefully the Fund's investments in such securities with particular regard to
trading activity, availability of reliable price information and other
relevant information. To the extent that for a period of time qualified
institutional buyers cease purchasing restricted securities pursuant to Rule
144A, the Fund's investing in such securities may have the effect of
increasing the level of illiquidity in the Fund's portfolio during such
period.
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
Page 6
period, that would cause the securities, coupled with the tender option, to
trade at par on the date of such determination. Thus, after payment of this
fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term tax exempt rate. The Dreyfus
Corporation, on behalf of the Fund, will consider on an ongoing basis the
creditworthiness of the issuer of the underlying Municipal Obligation, of any
custodian and of the third party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be terminable
in the event of a default in payment of principal or interest on the
underlying Municipal Obligations and for other reasons. The Fund will not
invest more than 10% of the value of its net assets in securities that are
illiquid, which could include tender option bonds as to which it cannot
exercise the tender feature on not more than seven days' notice if there is
no secondary market available for these obligations.
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.
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-2
by Moody's, A-2 by S&P or F-2 by Fitch; certificates of deposit of U.S.
domestic banks, including foreign branches of domestic banks, with assets of
one billion dollars or more; time deposits; bankers' acceptances and other
short-term bank obligations; and repurchase agreements in respect of any of
the foregoing. Dividends paid by the Fund that are attributable to income
earned by the Fund from Taxable Investments will be taxable to investors. 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. 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. Taxable Investments are more fully described in the Statement of
Additional Information, to which reference hereby is made.
CERTAIN FUNDAMENTAL POLICIES -- The Fund may (i) borrow money from banks, but
only 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)
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; and (ii) invest up to 25% of its total assets in the securities
of issuers in any industry, provided that there is no such limitation on
investments in Municipal Obligations and, for temporary defensive purposes,
securities issued by domestic banks and obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. This paragraph
describes fundamental policies that cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940) of
the Fund's outstanding voting shares. See "Investment Objective and
Management Policies-Investment Restrictions" in the Statement of Additional
Information.
Page 7
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES -- The Fund may (i) pledge,
hypothecate, mortgage or otherwise encumber its assets, but only to the
extent necessary to secure permitted borrowings; and (ii) invest up to 10% of
the value of its net assets in repurchase agreements providing for settlement
in more than seven days after notice and in other illiquid securities. See
"Investment Objective and Management Policies--Investment Restrictions" in
the Statement of Additional Information.
RISK FACTORS -- 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 statutes that limit the taxing and
spending authority of California governmental entities, as well as from the
general financial condition of the State of California. Since the start of
the State's 1990-91 fiscal year, the State has experienced the worst
economic, fiscal and budget conditions since the 1930s. As a result, the
State has experienced recurring budget deficits for four of the last five
fiscal years ending with 1991-92. Revenues and expenditures were essentially
equal in 1992-93, but the original budget for that year projected revenues exc
eeding expenditures by $2.6 billion. The excess of revenues over expenditures
for the 1993-94 fiscal year is expected to be $500 million, after originally
being estimated to $2.0 billion. By June 30, 1994, according to California's
Department of Finance, the State's Reserve for Economic Uncertainties had an
accumulated deficit, on a budget basis, of approximately $2.0 billion. A
further consequence of the large budget imbalances has been that the State
depleted its available cash resources and has had to use a series of external
borrowings to meet its cash needs. To meet its cash flow needs in the 1994-95
fiscal year, the State issued, in July and August 1994, $4.0 billion of
revenue anticipation warrants and $3.0 billion of revenue anticipation notes.
As a result of the deterioration in the State's budget and cash situation,
between October 1991 and July 1994 the rating on the State's general
obligation bonds was reduced by S&P from AAA to A, by Moody's from Aaa to A1
and by Fitch from AAA to A. These and other factors may have the effect of
impairing the ability of the issuers of California Municipal Obligations to
pay interest on, or repay principal of, such California Municipal
Obligations. You should obtain and review a copy of the Statement of
Additional Information which more fully sets forth these and other risk
factors.
OTHER INVESTMENT CONSIDERATIONS -- Even though interest-bearing securities
are investments which promise a stable stream of income, the prices of such
securities are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The value of
fixed-income securities also may be affected by changes in the credit rating
or financial condition of the issuing entities.
New issues of Municipal Obligations usually are offered on a
when-issued basis, which means that delivery and payment for such Municipal
Obligations ordinarily take place within 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate that
will be received on the Municipal Obligations are fixed at the time the Fund
enters into the commitment. The Fund will make commitments to purchase such
Municipal Obligations only with the intention of actually acquiring the securi
ties, but the Fund may sell these securities before the settlement date if it
is deemed advisable, although any gain realized on such sale would be
taxable. The Fund will not accrue income in respect of a when-issued security
prior to its stated delivery date. No additional when-issued commitments will
be made if more than 20% of the value of the Fund's net assets would be so
committed.
Municipal Obligations purchased on a when-issued basis and the
securities held in the Fund's portfolio are subject to changes in value (both
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. Municipal Obligations purchased
on a when-issued basis may expose the Fund to risk because they may experience
such fluctuations prior to their actual delivery. Purchasing Municipal
Obligations 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. A segregated account of
the Fund consisting of cash, cash equivalents or U.S. Government securities
or other high quality liquid debt securities at least equal at all times to
the amount of the when-issued
Page 8
commitments will be established and maintained at the Fund's custodian bank.
Purchasing Municipal Obligations on a 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.
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 Dreyfus Corporation will
consider, on an ongoing basis, a number of factors including the likelihood
that the issuing municipality will discontinue appropriating funding for the
leased property.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase
the cost of the Municipal Obligations available for purchase by the Fund and
thus reduce 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.
The Fund's classification as a "non-diversified" investment company
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. A "diversified" investment company is required by the Investment
Company Act of 1940 generally to invest, with respect to 75% of its total
assets, not more than 5% of such assets in the securities of a single issuer.
However, the Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Code, which requires that,
at the end of each quarter of its taxable year, (i) at least 50% of the
market value of the Fund's total assets be invested in cash, U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets, and (ii) not more than 25% of the value of its total
assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Fund's assets may be inv
ested in the obligations of a limited number of issuers, the Fund's portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified
investment company.
Investment decisions for the Fund are made independently from those
of other investment companies advised by The Dreyfus Corporation. However, if
such other investment companies are prepared to invest in, or desire to
dispose of, Municipal Obligations or Taxable Investments at the same time as
the Fund, available investments or opportunities for sales will be allocated
equitably to each investment company. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by the
Fund or the price paid or received by the Fund.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New York, New
York 10166, was formed in 1947 and serves as the Fund's investment adviser.
The Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As
of October 31, 1994, The Dreyfus Corporation managed or administered
approximately $73 billion in assets for more than 1.9 million investor
accounts nationwide.
Page 9
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the Fund,
subject to the overall authority of the Fund's Trustees in accordance with
Massachusetts law.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, Mellon managed more than $201 billion in assets as of
September 30, 1994, including approximately $76 billion in mutual fund
assets. As of September 30, 1994, various subsidiaries of Mellon provided
non-investment services, such as custodial or administration services, for
approximately $659 billion in assets, including approximately $108 billion in
mutual fund assets.
Under the terms of the Management Agreement, the Fund has agreed to
pay The Dreyfus Corporation a monthly fee at the annual rate of .50 of 1% of
the value of the Fund's average daily net assets. From time to time, The
Dreyfus Corporation may waive receipt of its fees and/or voluntarily assume
certain expenses of the Fund, which would have the effect of lowering the
overall expense ratio of the Fund and increasing yield to investors at the
time such amounts are waived or assumed, as the case may be. The Fund will
not pay The Dreyfus Corporation at a later time for any amounts it may waive,
nor will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume. For the fiscal year ended July 31, 1994, the Fund paid The Dreyfus
Corporation a management fee at the effective annual rate of .22 of 1% of the
value of the Fund's average daily net assets pursuant to an undertaking in
effect.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay securities
dealers or others in respect of these services.
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor is a wholly-owned subsidiary of Institutional Administration
Services, Inc., a provider of mutual fund administration services, the parent
company of which is Boston Institutional Group, Inc.
The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the
Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). The
Bank of New York, 110 Washington Street, New York, New York 10286, is the
Fund's Custodian.
HOW TO BUY FUND SHARES
You can purchase Fund shares without a sales charge if you purchase
them directly from the Distributor; you may be charged a nominal 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 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 Fund's Account Application. For full-time or part-time
employees of The Dreyfus Corporation or any of its affiliates or
subsidiaries, directors of The Dreyfus Corporation, Board members of a fund
advised by The Dreyfus Corporation, including members of the Fund's Board, or
the spouse or minor child of any of the foregoing, the minimum initial
investment is $1,000. For full-time or part-time employees of The Dreyfus
Corporation or any
Page 10
of its affiliates or subsidiaries who elect to have a portion of their pay
directly deposited into their Fund account, the minimum initial investment
is $50. The Fund reserves the right to vary further the initial and subsequent
investment minimum requirements at any time.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds." Payments to open new accounts which are mailed
should be sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence,
Rhode Island 02940-9387, together with your Account Application. For
subsequent investments, your Fund account number should appear on the check
and an investment slip should be enclosed and sent to The Dreyfus Family of
Funds, P.O. Box 105, Newark, New Jersey 07101-0105. Neither initial nor subseq
uent investments should be made by third party check. Purchase orders may be
delivered in person only to a Dreyfus Financial Center. THESE ORDERS WILL BE
FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call the
telephone number listed under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA #8900052163/General
California Municipal Money Market Fund, for purchase of Fund shares in your
name. The wire must include your Fund account number (for new accounts, your
Taxpayer Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the Fund's Account Application and promptly mail the Account
Application to the Fund, as no redemptions will be permitted until the
Account Application is received. You may obtain further information about
remitting funds in this manner from your bank. All payments should be made in
U.S. dollars and, to avoid fees and delays, should be drawn only on U.S.
banks. A charge will be imposed if any check used for investment in your
account does not clear. The Fund makes available to certain large
institutions the ability to issue purchase instructions through compatible
computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
your Fund account number PRECEDED BY THE DIGITS "1111."
Fund 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. If you do not
remit Federal Funds, your payment must be converted into Federal Funds. This
usually occurs within one business day of receipt of a bank wire and within
two business days of receipt of a check drawn on a member bank of the Federal
Reserve System. Checks drawn on banks which are not members of the Federal
Reserve System may take considerably longer to convert into Federal Funds.
Prior to receipt of Federal Funds, your money will not be invested.
The Fund's net asset value per share is determined as of 12:00 Noon,
New York time, on each day that the New York Stock Exchange is open for
business. Net asset value per share is computed by dividing the value of the
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" in
the Fund's Statement of Additional Information.
If your payments are received in or converted into Federal Funds by
12:00 Noon, New York time, on a business day, you will receive the dividend
declared that day. If your payments are received in or converted into Federal
Funds after 12:00 Noon, New York time, you will begin to accrue dividends on
the following business day.
Page 11
Qualified institutions may telephone orders for purchase of the
Fund's 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.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject you
to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE -- You may purchase Fund shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Fund's Account Application
or have filed a Shareholder Services Form with the Transfer Agent. The
proceeds will be transferred between the bank account designated in one of
these documents and your Fund account. Only a bank account maintained in a
domestic financial institution which is an Automated Clearing House member
may be so designated. The Fund may modify or terminate this Privilege at any
time or charge a service fee upon notice to shareholders. No such fee
currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
FUND EXCHANGES -- You may purchase, in exchange for shares of the Fund,
shares of certain other funds managed or administered by The Dreyfus
Corporation, to the extent such shares are offered for sale in your state of
residence. These funds have different investment objectives which may be of
interest to you. If you desire to use this service, please call
1-800-645-6561 to determine if it is available and whether any conditions are
imposed on its use.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained by calling
1-800-645-6561. Except in the case of Personal Retirement Plans, the shares
being exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have
a current value of at least the minimum initial investment required for the
fund into which the exchange is being made. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless you check the relevant "No" box on the Account Application, indicating
that you specifically refuse this Privilege. The Telephone Exchange Privilege
may be established for an existing account by written request, signed by all
shareholders on the account, or by a separate signed Shareholder Services
Form, also available by calling 1-800-645-6561. If you have established the
Telephone Exchange Privilege, you may telephone exchange instructions by
calling 1-800-221-4060 or, if you are calling from overseas, call
1-401-455-3306. See "How to Redeem Fund Shares_Procedures." Upon an exchange
into a new account, the following shareholder services and privileges, as
applicable and where available, will be automatically carried over to the
fund into which the exchange is made: Telephone Exchange Privilege, Check
Redemption Privilege, Wire Redemption Privilege, Telephone Redemption
Privilege, Dreyfus TELETRANSFER Privilege, and the dividend/capital gain
distribution option (except for Dreyfus Dividend Sweep) selected by the
investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares of the fund from
which you are exchanging were: (a) purchased with a sales load, (b) acquired
by a previous exchange from shares purchased with a sales load, or (c)
acquired through reinvestment of dividends or distributions paid with respect
to the foregoing categories of shares. To qualify, at the time of your
exchange you must notify the Transfer Agent. Any such qualification is
subject to confirmation of your
Page 12
holdings through a check of appropriate records. See "Shareholder Services"
in the Statement of Additional Information. No fees currently are charged
shareholders directly in connection with exchanges, although the Fund reserves
the right, upon not less than 60 days' written notice, to charge shareholders
a nominal fee in accordance with rules promulgated by the Securities and
Exchange Commission. The Fund reserves the right to reject any exchange
request in whole or in part. The availability of Fund Exchanges may be
modified or terminated at any time upon notice to shareholders.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
DREYFUS AUTO-EXCHANGE PRIVILEGE -- Dreyfus Auto-Exchange Privilege enables
you to invest regularly (on a semi-monthly, monthly, quarterly or annual
basis), in exchange for shares of the Fund, in shares of other funds in the
Dreyfus Family of Funds of which you are currently an investor. The amount
you designate, which can be expressed either in terms of a specific dollar or
share amount ($100 minimum), will be exchanged automatically on the first
and/or fifteenth of the month according to the schedule you have selected.
Shares will be exchanged at the then-current net asset value; however, a
sales load may be charged with respect to exchanges into funds sold with a
sales load. See "Shareholder Services" in the Statement of Additional
Information. The right to exercise this Privilege may be modified or
cancelled by the Fund or the Transfer Agent. You may modify or cancel your
exercise of this Privilege at any time by writing to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. The Fund may
charge a service fee for the use of this Privilege. No such fee currently is
contemplated. The exchange of shares of one fund for shares of another is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss. For more information concerning this
Privilege and the funds in the Dreyfus Family of Funds eligible to
participate in this Privilege, or to obtain a Dreyfus Auto-Exchange
Authorization Form, please call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDER -- 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. At your
option, the bank account designated by you will be debited in the specified
amount, and Fund shares will be purchased, once a month, on either the first
or fifteenth day, or twice a month, on both days. Only an account maintained
at a domestic financial institution which is an Automated Clearing House
member may be so designated. To establish a Dreyfus-AUTOMATIC Asset Builder
account, you must file an authorization form with the Transfer Agent. You may
obtain the necessary authorization form by calling 1-800-645-6561. You may
cancel your participation in this Privilege or change the amount of purchase
at any time by mailing written notification to The Dreyfus Family of Funds,
P.O. Box 9671, Providence, Rhode Island 02940-9671, and the notification will
be effective three business days following receipt. The Fund may modify or
terminate this Privilege at any time or charge a service fee. No such fee
currently is contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE -- Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social
Security, or certain veterans', military or other payments from the Federal
government automatically deposited into your Fund account. You may deposit as
much of such payments as you elect. To enroll in Dreyfus Government Direct
Deposit, you must file with the Transfer Agent a completed Direct Deposit
Sign-Up Form for each type of payment that you desire to include in the
Privilege. The appropriate form may be obtained by calling 1-800-645-6561.
Death or legal incapacity will terminate your participation in the Privilege.
You may elect at any time to terminate your participation by notifying in
writing the appropriate Federal agency. Further, the Fund may terminate your
participation upon 30 days' notice to you.
DREYFUS DIVIDEND OPTIONS -- Dreyfus Dividend Sweep enables you to invest
automatically dividends or dividends and capital gain distributions, if any,
paid by the Fund in shares of another fund in the Dreyfus
Page 13
Family of Funds of which you are a shareholder. Shares of the other fund
will be purchased at the then-current net asset value; however, a sales
load may be charged with respect to investments in shares of a fund sold with
a sales load. If you are investing in a fund that charges a sales load, you
may qualify for share prices which do not include the sales load or which
reflect a reduced sales load. See "Shareholder Services" in the Statement of
Additional Information. Dreyfus Dividend ACH permits you to transfer
electronically on the payment date dividends and capital gain distributions,
if any, from the Fund to a designated bank account. Only an account maintained
at a domestic financial institution which is an Automated Clearing House
member may be so designated. Banks may charge a fee for this service.
For more information concerning these privileges, or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. To select a new
fund after cancellation, you must submit a new Dividend Options Form.
Enrollment in or cancellation of these privileges is effective three business
days following receipt. These privileges are available only for existing
accounts and may not be used to open new accounts. Minimum subsequent
investments do not apply for Dreyfus Dividend Sweep. The Fund may modify or
terminate these privileges at any time or charge a service fee. No such fee
currently is contemplated.
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 Automated Clearing House 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. Your
employer must complete the reverse side of the form and return it to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
You may obtain the necessary authorization form by calling 1-800-645-6561.
You may change the amount of purchase or cancel the authorization only by
written notification to your employer. It is the sole responsibility of your
employer, not the Distributor, The Dreyfus Corporation, the Fund, the
Transfer Agent or any other person, to arrange for transactions under the
Dreyfus Payroll Savings Plan. The Fund may modify or terminate this Privilege
at any time or charge a service fee. No such fee currently is contemplated.
QUARTERLY DISTRIBUTION PLAN -- The Quarterly Distribution Plan permits you to
receive quarterly payments from the Fund consisting of proceeds from the
redemption of shares purchased for your account through the automatic
reinvestment of dividends declared on your account during the preceding
calendar quarter. You may open a Quarterly Distribution Plan by submitting a
request to the Transfer Agent. The Plan may be ended at any time by you, the
Fund or the Transfer Agent. Shares for which certificates have been issued
must be presented before redemption under the Plan.
AUTOMATIC WITHDRAWAL PLAN -- The Automatic Withdrawal Plan permits you to
request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. An
application for the Automatic Withdrawal Plan can be obtained by calling
1-800-645-6561. There is a service charge of 50cents for each withdrawal
check. The Automatic Withdrawal Plan may be ended at any time by you, the
Fund or the Transfer Agent. Shares for which share certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
HOW TO REDEEM FUND SHARES
GENERAL -- You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined net asset value.
The Fund imposes no charges when shares are redeemed directly through
the Distributor. Securities dealers, banks and other financial institutions
may charge a nominal fee for effecting redemptions of Fund shares. Any
certificates representing Fund shares being redeemed must be submitted with
the redemption request.
Page 14
The value of the shares redeemed may be more or less than their original cost,
depending upon the Fund's then-current net asset value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, YOUR
REDEMPTION WILL BE EFFECTIVE AND THE REDEMPTION PROCEEDS WILL BE TRANSMITTED
TO YOU PROMPTLY UPON BANK CLEARANCE OF YOUR PURCHASE CHECK, DREYFUS
TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC ASSET BUILDER ORDER, WHICH MAY
TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN ADDITION, THE FUND WILL NOT HONOR
REDEMPTION CHECKS UNDER THE CHECK REDEMPTION PRIVILEGE, AND WILL REJECT
REQUESTS TO REDEEM SHARES BY WIRE OR TELEPHONE OR PURSUANT TO THE DREYFUS
TELETRANSFER PRIVILEGE, FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER RECEIPT BY
THE TRANSFER AGENT OF THE PURCHASE CHECK, THE DREYFUS TELETRANSFER PURCHASE
OR THE DREYFUS-AUTOMATIC ASSET BUILDER ORDER AGAINST WHICH SUCH REDEMPTION IS
REQUESTED. THESE PROCEDURES WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY
WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR
ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS
EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL
BE ENTITLED TO EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares
will not be redeemed until the Transfer Agent has received your Account
Application.
The Fund reserves the right to redeem your account at its option upon
not less than 30 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES -- You may redeem shares by using the regular redemption procedure
through the Transfer Agent, the Check Redemption Privilege, the Wire
Redemption Privilege, the Telephone Redemption Privilege or the Dreyfus
TELETRANSFER Privilege. The Fund makes available to certain large institutions
the ability to issue redemption instructions through compatible computer
facilities.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select a telephone redemption
privilege or telephone exchange privilege (which is granted automatically
unless you refuse it), you authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be you, and
reasonably believed by the Transfer Agent to be genuine. The Fund will
require the Transfer Agent to employ reasonable procedures, such as requiring
a form of personal identification, to confirm that instructions are genuine
and, if it does not follow such procedures, the Fund or the Transfer Agent
may be liable for any losses due to unauthorized or fraudulent instructions.
Neither the Fund nor the Transfer Agent will be liable for following
telephone instructions reasonably believed to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used.
REGULAR REDEMPTION -- Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671. Redemption requests may be
delivered in person only to a Dreyfus Financial Center. THESE REQUESTS WILL
BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call the
telephone number listed under "General Information." Redemption requests must
be signed by each shareholder, including each owner of a joint account, and
each signature must be guaranteed. The Transfer Agent has adopted standards
and procedures pursuant to
Page 15
which signature-guarantees in proper form generally will be accepted from
domestic banks, brokers, dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations, as well as from participants in the New York Stock Exchange
Medallion Signature Program, the Securities Transfer Agents Medallion Program
("STAMP"), and the Stock Exchanges Medallion Program. If you have any
questions with respect to signature-guarantees, please call the telephone
number listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE -- You may request on the Account Application,
Shareholder Services Form or by later written request that the Fund provide
Redemption Checks drawn on the Fund's account. Redemption Checks may be made
payable to the order of any person in the amount of $500 or more. Redemption
Checks should not be used to close your account. Redemption Checks are free,
but the Transfer Agent will impose a fee for stopping payment of a Redemption
Check upon your request or if the Transfer Agent cannot honor the Redemption
Check because of insufficient funds or other valid reason. You should date
your Redemption Checks with the current date when you write them. Please do
not postdate your Redemption Checks. If you do, the Transfer Agent will
honor, upon presentment, even if presented before the date of the check, all
postdated Redemption Checks which are dated within six months of presentment
for payment, if they are otherwise in good order. Shares for which
certificates have been issued may not be redeemed by Redemption Check. This
Privilege may be modified or terminated at any time by the Fund or the
Transfer Agent upon notice to shareholders.
WIRE REDEMPTION PRIVILEGE -- You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. You may direct that redemption proceeds be paid by
check (maximum $150,000 per day)made out to the owners of record and mailed
to your address. Redemption proceeds of less than $1,000 will be paid
automatically by check. Holders of jointly registered Fund or bank accounts
may have redemption proceeds of only up to $250,000 wired within any 30-day
period. You may telephone redemption requests by calling 1-800-221-4060 or,
if you are calling from overseas, call 1-401-455-3306. The Fund reserves the
right to refuse any redemption request, including requests made shortly after
a change of address, and may limit the amount involved or the number of such
requests. This Privilege may be modified or terminated at any time by the
Transfer Agent or the Fund. The Fund's Statement of Additional Information
sets forth instructions for transmitting redemption requests by wire. Shares
for which certificates have been issued are not eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE -- You may redeem Fund shares (maximum
$150,000 per day) by telephone if you have checked the appropriate box on the
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306. The
Fund reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of telephone redemption requests. This Privilege may
be modified or terminated at any time by the Transfer Agent or the Fund.
Shares for which certificates have been issued are not eligible for this
Privilege.
DREYFUS TELETRANSFER PRIVILEGE -- You may redeem Fund shares (minimum $500
per day) by telephone if you have checked the appropriate box and supplied
the necessary information on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between your Fund account and the bank account designated in one
of these documents. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request, or at your request, paid by check
Page 16
(maximum $150,000 per day) and mailed to your address. Holders of jointly
registered Fund or bank accounts may redeem through the Dreyfus TELETRANSFER
Privilege for transfer to their bank account only up to $250,000 within any
30-day period. The Fund reserves the right to refuse any request made by
telephone, including requests made shortly after a change of address, and may
limit the amount involved or the number of such requests. The Fund may modify
or terminate this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
Shares issued in certificate form are not eligible for this Privilege.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan pursuant to which
the Fund reimburses Dreyfus Service Corporation, a wholly-owned subsidiary of
The Dreyfus Corporation, an amount not to exceed an annual rate of .25 of 1%
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily declares dividends from net investment income on
each day the New York Stock Exchange is open for business. 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. The Fund's earnings for Saturdays, Sundays and holidays are
declared as dividends on the preceding business day. If you redeem all shares
in your account at any time during the month, all dividends to which you are
entitled will be paid to you along with the proceeds of the redemption.
Distributions from net realized securities gains, if any, generally are
declared and paid once a year, but the Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Code, in
all events in a manner consistent with the provisions of the Investment
Company Act of 1940. The Fund will not make distributions from net realized
securities gains unless capital loss carryovers, if any, have been utilized
or have expired. You may choose whether to receive distributions in cash or
to reinvest in additional Fund shares at net asset value. All expenses are
accrued daily and deducted before declaration of dividends to investors.
Except for dividends from Taxable Investments, the Fund anticipates
that substantially all dividends paid by the Fund will not be subject to
Federal or California personal income taxes. To the extent that you are
obligated to pay state or local taxes outside of the State of California,
dividends earned by an investment in the Fund may represent taxable income.
Dividends derived from Taxable Investments, together with distributions from
any net realized short-term securities gains and all or a portion of any
gains realized from the sale or other disposition of certain market discount
bonds, are subject to Federal income tax as ordinary income whether or not
reinvested. Distributions from net realized long-term securities gains of the
Fund generally are taxable as long-term capital gains for Federal income tax
purposes if you are a citizen or resident of the United States. The Code
provides that the net capital gain of an individual generally will not be
subject to Federal income tax at a rate in excess of 28%. Under the Code,
interest on indebtedness incurred or continued to purchase or carry Fund
shares which is deemed to relate to exempt-interest dividends is not
deductible. No dividend paid by the Fund will qualify for the dividends
received deduction allowable to certain U.S. corporations.
Although all or a substantial portion of the dividends paid by the
Fund may be excluded by Fund shareholders from their gross income for Federal
income tax purposes, the Fund may purchase specified private activity bonds,
the interest from which may be (i) a preference item for purposes of the
alternative minimum tax, (ii) a component of the "adjusted current earnings"
preference item for purposes of the corporate alternative minimum tax as well
as a component in computing the corporate environmental tax or (iii) a factor
in
Page 17
determining the extent to which a shareholder's Social Security benefits
are taxable. If the Fund purchases such securities, the portion of the Fund's
dividends related thereto will not necessarily be tax exempt to an investor
who is subject to the alternative minimum tax and/or tax on Social Security
benefits and may cause an investor to be subject to such taxes.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year. These statements set forth
the dollar amount of income exempt from Federal tax and the dollar amount, if
any, subject to Federal tax. These dollar amounts will vary depending on the
size and length of time of your investment in the Fund. If the Fund pays
dividends derived from taxable income, it intends to designate as taxable the
same percentage of the day's dividend as the actual taxable income earned on
that day bears to total income earned on that day. Thus, the percentage of
the dividend designated as taxable, if any, may vary from day to day.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of taxable dividends and
distributions from net realized securities gains of the Fund paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct, or that such
shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or in
terest income on a Federal income tax return. Furthermore, the IRS may notify
the Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
Management of the Fund believes that the Fund has qualified for the
fiscal year ended July 31, 1994 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. The Fund is
subject to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated September l9, 1986, and
commenced operations on March l0, 1987. On March 19, 1990, the Fund's name
was changed from General California Tax Exempt Money Market Fund to General
California Municipal Money Market Fund. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote.
On August 3, 1994, the Fund's shareholders approved a proposal to
change, among other things, certain of the Fund's fundamental policies and
investment restrictions to (i) increase the amount the Fund may borrow from
banks for temporary or emergency purposes, (ii) increase the amount of the
Fund's assets that it may pledge to secure such borrowings and make such
policy non-fundamental and (iii) make the Fund's policy regarding investments
in illiquid securities non-fundamental.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instru-
Page 18
ment entered into or executed by the Fund or a Trustee. The Trust Agreement
provides for indemnification from the Fund's property for all losses and
expenses of any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself
would be unable to meet its obligations, a possibility which management
believes is remote. Upon payment of any liability incurred by the Fund, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of the Fund. The Trustees intend to conduct the operations of
the Fund in such a way so as to avoid, as far as possible, ultimate liability
of the shareholders for liabilities of the Fund. As discussed under
"Management of the Fund" in the Statement of Additional Information, the
Fund ordinarily will not hold shareholder meetings; however, shareholders
under certain circumstances may have the right to call a meeting of
shareholders for the purpose of voting to remove Trustees.
The Transfer Agent maintains a record of your ownership and sends
confirmations and statements of account.
Shareholder inquiries may be made to your Service Agent or by writing
to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144,
or by calling toll free 1-800-645-6561.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 19
General California
Municipal Money Market Fund
(Lion Logo)
Prospectus
Registration Mark
Copy Rights Dreyfus Sevice Corporation, 1994
573P13112994
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
NOVEMBER 29, 1994
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
General California Municipal Money Market Fund (the "Fund"), dated November
29, 1994, 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 1-800-645-6561.
The Dreyfus Corporation (the "Manager") serves as the Fund's investment
adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies. . . . . . . . B-2
Management of the Fund. . . . . . . . . . . . . . . . . . . B-7
Management Agreement. . . . . . . . . . . . . . . . . . . . B-10
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . B-12
Shareholder Services Plan . . . . . . . . . . . . . . . . . B-13
Redemption of Fund Shares . . . . . . . . . . . . . . . . . B-14
Shareholder Services. . . . . . . . . . . . . . . . . . . . B-16
Determination of Net Asset Value. . . . . . . . . . . . . . B-18
Yield Information . . . . . . . . . . . . . . . . . . . . . B-19
Portfolio Transactions. . . . . . . . . . . . . . . . . . . B-20
Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . B-21
Information About the Fund. . . . . . . . . . . . . . . . . B-22
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . . B-22
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . B-24
Appendix B. . . . . . . . . . . . . . . . . . . . . . . . . B-37
Financial Statements. . . . . . . . . . . . . . . . . . . . B-41
Report of Independent Auditors. . . . . . . . . . . . . . . B-50
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Description of the
Fund."
Portfolio Securities. The average distribution of investments (at
value) in Municipal Obligations by ratings for the fiscal year ended July
31, 1994*, computed on a monthly basis, was as follows:
Moody's Investors Standard & Poor's
Service, Inc. Corporation Percentage
("Moody's") or ("S&P") of Value
________________ ________________ ________
MIG 1/VMIG 1, P-1 SP-1+/SP-1, A-1+/A-1 91.2%
VMIG 2/MIG 2, P-2 SP-2, A-2 3.4%
Aaa/Aa AAA/AA 4.0%
Not Rated Not Rated 1.4%
______
100.0%
======
* The Fund also uses Fitch Investors Service, Inc. ("Fitch") as an
additional nationally recognized statistical rating organization.
As of July 31, 1994, none of the Fund's investments were rated
by Fitch.
Municipal Obligations. The term "Municipal Obligations" generally
includes debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, industrial, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal; the interest paid on such
obligations may be exempt from Federal income tax, although current tax laws
place substantial limitations on the size of such issues. Such obligations
are considered to be Municipal Obligations if the interest paid thereon
qualifies as exempt from Federal income tax in the opinion of bond counsel
to the issuer. There are, of course, variations in the security of
Municipal Obligations, both within a particular classification and between
classifications.
Floating and variable rate demand obligations are tax exempt
obligations ordinarily having stated maturities in excess of 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. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders thereof. The interest rate
on a floating rate demand obligation is based on a known lending rate, such
as a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand obligation is
adjusted automatically at specified intervals.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a
particular offering, maturity of the obligation and rating of the issue.
The imposition of the Fund's management fee, as well as other operating
expenses, will have the effect of reducing the yield to investors.
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 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. See
"Investment Restriction No. 6" below.
The Fund will not purchase tender option bonds unless (a) the demand
feature applicable thereto is exercisable by the Fund within 13 months of
the date of such purchase upon no more than 30 days' notice and thereafter
is exercisable by the Fund no less frequently than annually upon no more
than 30 days' notice and (b) at the time of such purchase, the Manager
reasonably expects (i) based upon its assessment of current and historical
interest rate trends, that prevailing short-term tax exempt rates will not
exceed the stated interest rate on the underlying Municipal Obligations at
the time of the next tender fee adjustment and (ii) that the circumstances
which might entitle the grantor of a tender option to terminate the tender
option would not occur prior to the time of the next tender opportunity. At
the time of each tender opportunity, the Fund will exercise the tender
option with respect to any tender option bonds unless the Manager reasonably
expects, (x) based upon its assessment of current and historical interest
rate trends, that 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
Board of Trustees 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 thirteen 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.
Ratings of Municipal Obligations. 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 that the ratings given by Moody's, S&P or Fitch for
Municipal Obligations may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for 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 may be
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. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Treasury Bills have initial maturities of one year or less;
Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of greater than ten years. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the
agency or instrumentality; and others, such as those issued by the Student
Loan Marketing Association, only by the credit of the agency or
instrumentality. These securities bear fixed, floating or variable rates of
interest. Interest may fluctuate based on generally recognized reference
rates or the relationship of rates. While the U.S. Government provides
financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so,
since it is not so obligated by law. The Fund will invest in such
securities only when it is satisfied that the credit risk with respect to
the issuer is minimal.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs.
Certificates of deposit are negotiable certificates representing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate. Investments in time deposits generally are
limited to London branches of domestic banks that have total assets in
excess of one billion dollars. Time deposits which may be held by the Fund
will not benefit from insurance from the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the Federal Deposit Insurance
Corporation.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face
amount of the instrument upon maturity. Other short-term bank obligations
may include uninsured, direct obligations bearing fixed, floating or
variable interest rates.
Repurchase agreements involve the acquisition by the Fund of an
underlying debt instrument, subject to an obligation of the seller to
repurchase, and the Fund to resell, the instrument at a fixed price, usually
not more than one week after its purchase. The Fund's custodian or sub-
custodian will have custody of, and will hold in a segregated account,
securities acquired by the Fund under a repurchase agreement. Repurchase
agreements are considered by the staff of the Securities and Exchange
Commission to be loans by the Fund. In an attempt to reduce the risk of
incurring a loss on a repurchase agreement, the Fund will enter into
repurchase agreements only with domestic banks with total assets in excess
of one billion dollars or primary government securities dealers reporting to
the Federal Reserve Bank of New York, with respect to securities of the type
in which the Fund may invest, and will require that additional securities be
deposited with it if the value of the securities purchased should decrease
below resale price. The Manager will monitor on an ongoing basis the value
of the collateral to assure that it always equals or exceeds the repurchase
price. Certain costs may be incurred by the Fund in connection with the
sale of the securities if the seller does not repurchase them in accordance
with the repurchase agreement. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the securities, realization on the
securities by the Fund may be delayed or limited. The Fund will consider on
an ongoing basis the creditworthiness of the institutions with which it
enters into repurchase agreements.
Risk Factors--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.
Since the start of the State's 1990-91 fiscal year, the State has
experienced the worst economic, fiscal and budget conditions since the
1930's. As a result, the State has experienced recurring budget deficits
for four of the last five fiscal years ending with 1991-92. Revenues and
expenditures were essentially equal in 1992-93, but the original budget for
that year projected revenues exceeding expenditures by $2.6 billion. The
excess of revenues and expenditures for the 1993-94 fiscal year is expected
to be $500 million, after originally being estimated to $2.0 billion. By
June 30, 1994, according to California's Department of Finance, the State's
Reserve for Economic Uncertainties had an accumulated deficit, on a budget
basis, of approximately $2.0 billion. A further consequence of the large
budget imbalances has been that the State depleted its available cash
resources and has had to use a series of external borrowings to meet its
cash needs. To meet its cash flow needs in the 1994-94 fiscal year, the
State issued, in July and August 1994, $4.0 billion of revenue anticipation
warrants and $3.0 billion of revenue anticipation notes. As a result of the
deterioration in the State's budget and cash situation, between October 1991
and July 1994 the rating of the State's general obligation bonds was reduced
by S&P from AAA to A, by Moody's from Aaa to A1 and by Fitch from AAA to A.
These and other factors may have the effect of impairing the ability of the
issuers of California Municipal Obligations to pay interest on, or repay
principal of, such California Municipal Obligations. Investors should
review Appendix A which sets forth additional information relating to
investing in California Municipal Obligations.
Investment Restrictions. The Fund has adopted investment restrictions
numbered 1, 2, 4 and 5 and 7 through 11 as fundamental policies. These
restrictions cannot be changed without approval by the holders of a majority
(as defined in the Investment Company Act of 1940, as amended (the "Act"))
of the Fund's outstanding voting shares. Investment restrictions numbered 3
and 6 are not fundamental policies and may be changed by vote of a majority
of the Trustees at any time. The Fund may not:
1. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Prospectus.
2. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) based on the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of the value of the Fund's
total assets, the Fund will not make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings.
4. Sell securities short or purchase securities on margin.
5. 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.
6. 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.
7. 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.
8. 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.
9. Invest more than 25% of its total assets in the securities of
issuers in any single industry; provided that there shall be no such
limitation on the purchase of Municipal Obligations and, for temporary
defensive purposes, securities issued by domestic banks and obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
For purposes of Investment Restriction No. 9, 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.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best
interests of the Fund and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of Fund shares in the state
involved.
MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with information as to
their principal business occupations during at least the last five years,
are shown below.
Trustees of the Fund
CLIFFORD L. ALEXANDER, JR., Trustee. President of Alexander & Associates,
Inc., a management consulting firm. From 1977 to 1981, Mr. Alexander
served as Secretary of the Army and Chairman of the Board of the Panama
Canal Company, and from 1975 to 1977, he was a member of the
Washington, D.C. law firm of Verner, Liipfert, Bernhard, McPherson and
Alexander. He is a director of American Home Products Corp., The Dun &
Bradstreet Corporation, MCI Communications Corporation, Mutual of
America Life Insurance Company and Equitable Resources, Inc., a
producer and distributor of natural gas and crude petroleum. His
address is 400 C Street, N.E., Washington, D.C. 20002.
PEGGY C. DAVIS, Trustee. Professor of Law, New York University School of
Law. Professor Davis has been a member of the New York University law
faculty since 1983. Prior to that time, she served for three years as
a judge in the courts of New York State; was engaged for eight years in
the practice of law, working in both corporate and non-profit sectors;
and served for two years as a criminal justice administrator in the
government of the City of New York. She writes and teaches in the
fields of evidence, constitutional theory, family law, social sciences
and the law, legal process and professional methodology and training.
Her address is c/o New York University School of Law, 249 Sullivan
Street, New York, New York 10011.
ERNEST KAFKA, Trustee. A physician engaged in private practice specializing
in the psychoanalysis of adults and adolescents. Since 1981, he has
served as an Instructor at the New York Psychoanalytic Institute and,
prior thereto, held other teaching positions. For more than the past
five years, Dr. Kafka has held numerous administrative positions and
has published many articles on subjects in the field of psychoanalysis.
His address is 23 East 92nd Street, New York, New York 10028.
SAUL B. KLAMAN, Trustee. Chairman and Chief Executive Officer of SBK
Associates, which provides research and consulting services to
financial institutions. Dr. Klaman was President of the National
Association of Mutual Savings Banks until November 1983, President of
the National Council of Savings Institutions until June 1985, Vice
Chairman of Golembe Associates and BEI Golembe, Inc. until 1989 and
Chairman Emeritus of BEI Golembe, Inc. until November 1992. He also
served as an Economist to the Board of Governors of the Federal Reserve
System and on several Presidential Commissions, and has held numerous
consulting and advisory positions in the fields of economics and
housing finance. His address is 431-B Dedham Street, The Gables,
Newton Center, Massachusetts 02159.
NATHAN LEVENTHAL, Trustee. President of Lincoln Center for the Performing
Arts, Inc. Mr. Leventhal was Deputy Mayor for Operations of New York
City from September 1979 until March 1984 and Commissioner of the
Department of Housing Preservation and Development of New York City
from February 1978 to September 1979. Mr. Leventhal was an associate
and then a member of the New York law firm of Poletti Freidin Prashker
Feldman and Gartner from 1974 to 1978. He was Commissioner of Rent and
Housing Maintenance for New York City from 1972 to 1973. Mr. Leventhal
serves as Chairman of Citizens Union, an organization which strives
to reform and modernize City and State government. His address is 70
Lincoln Center Plaza, New York, New York 10023-6583.
For so long as the Fund's plan described in the section captioned
"Shareholder Services Plan" remains in effect, the Trustees of the Fund who
are not "interested persons" of the Fund, as defined in the Act, will be
selected and nominated by the Trustees who are not "interested persons" of
the Fund.
Each Trustee is also a trustee of General New York Municipal Money
Market Fund, Premier California Municipal Bond Fund, Premier GNMA Fund,
Premier Insured Municipal Bond Fund, Premier Limited Term Municipal Bond
Fund, Premier Municipal Bond Fund, Premier New York Municipal Bond Fund and
Premier State Municipal Bond Fund and a director of Dreyfus Appreciation
Fund, Inc., General California Municipal Bond Fund, Inc., General Government
Securities Money Market Fund, Inc., General Money Market Fund, Inc., General
Municipal Bond Fund, Inc., General Municipal Money Market Fund, Inc.,
General New York Municipal Bond Fund, Inc., and Premier Growth Fund, Inc.
Mr. Alexander also is a director of The Dreyfus Socially Responsible Growth
Fund, Inc. and The Dreyfus Third Century Fund, Inc.
The Trustees were elected at a meeting of shareholders held on August
3, 1994. Ordinarily, no further meetings of shareholders will be held for
the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders at
which time the Trustees then in office will call a shareholders' meeting for
the election of Trustees. Under the Act, shareholders of record of not less
than two-thirds of the outstanding shares of the Fund may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. Under the Fund's Agreement and Declaration
of Trust, the Trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any such Trustee when
requested in writing to do so by the shareholders of record of not less than
10% of the Fund's outstanding shares.
The Fund does not pay any remuneration to its officers and Trustees
other than fees and expenses to Trustees who are not "interested persons"
(as defined in the Act) of the Fund, which totalled $18,932 for the fiscal
year ended July 31, 1994 for such Trustees as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Officer of the Distributor and an officer of other investment companies
advised or administered by the Manager. From December 1991 to July
1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., a wholly-owned subsidiary of The Boston Company,
Inc. Prior to December 1991, she served as Vice President and
Controller, and later as Senior Vice President, of The Boston Company
Advisors, Inc.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President and
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From February 1992
to July 1994, he served as Counsel for The Boston Company Advisors,
Inc. From August 1990 to February 1992, he was employed as an
Associate at Ropes & Gray, and prior thereto he was employed as an
Associate at Sidley & Austin.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. From 1988 to August
1994, he was Manager of the High Performance Fabric Division of Springs
Industries Inc.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate General
Counsel of the Distributor and an officer of other investment companies
advised or administered by the Manager. From September 1992 to August
1994, he was an attorney with the Board of Governors of the Federal
Reserve System.
JOSEPH S. TOWER, III, Assistant Treasurer. Senior Vice President, Treasurer
and Chief Financial Officer of the Distributor and an officer of other
investment companies advised or administered by the Manager. From July
1988 to August 1994, he was employed by The Boston Company, Inc. where
he held various management positions in the Corporate Finance and
Treasury areas.
JOHN J. PYBURN, Assistant Treasurer. Vice President of the Distributor and
an officer of other investment companies advised or administered by
the Manager. From 1984 to July 1994, he was Assistant Vice President
in the Mutual Fund Accounting Department of the Manager.
PAUL FURCINITO, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From January 1992 to July 1994, he was a
Senior Legal Product Manager for The Boston Company Advisors, Inc.
Prior thereto, he was employed as a liscensed realtor at Furcinito Real
Estate, Inc.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From March 1992 to July 1994, she was a
Compliance Officer for The Managers Funds, a registered investment
company. From March 1990 until September 1991, she was Development
Director of The Rockland Center for the Arts and, prior thereto, was
employed as a Research Assistant for the Bureau of National Affairs.
Trustees and officers of the Fund, as a group, owned less than 1% of
the Fund's shares of beneficial interest outstanding on November 1, 1994.
MANAGEMENT AGREEMENT
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Management of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board of Trustees or (ii) vote
of a majority (as defined in the Act) of the outstanding voting securities
of the Fund, provided that in either event the continuance also is approved
by a majority of the Trustees who are not "interested persons" (as defined
in the 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 at a meeting held on August 3, 1994, and was last
approved by the Board of Trustees, including a majority of the Trustees who
are not "interested persons" of any party to the Agreement, at a meeting
held on September 28, 1994. The Agreement is terminable without penalty, on
60 days' notice, by the Fund's Board of Trustees 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 Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; Julian M.
Smerling, Vice Chairman of the Board; Joseph S. DiMartino, President and
director; Lawrence S. Kash, Vice Chairman-Distribution; W. Keith Smith,
Chief Operating Officer and director; Philip L. Toia, Vice Chairman-
Operations and Administration; Paul H. Snyder, Vice President-Finance and
Chief Financial Officer; Barbara E. Casey, Vice President-Dreyfus Retirement
Services; Diane M. Coffey, Vice President-Corporate Communications; Jay R.
DeMartine, Vice President-Retail Marketing; Elie M. Genadry, Vice President-
Institutional Sales; Henry D. Gottmann, Vice President-Retail Sales and
Service; Mark N. Jacobs, Vice President-Legal and Secretary; Daniel C.
Maclean, Vice President and General Counsel; Jeffrey N. Nachman, Vice
President-Mutual Fund Accounting; Peter A. Santoriello, Vice President;
Katherine C. Wickham, Vice President-Human Resources; Maurice Bendrihem,
Controller; Christine Pavalos, Assistant Secretary; and Mandell L. Berman,
Frank V. Cahouet, Alvin E. Friedman, Lawrence M. Greene, and David B.
Truman, 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 of Trustees. The Manager is responsible for investment decisions, and
provides the Fund with Portfolio Managers who are authorized by the Board of
Trustees to execute purchases and sales of securities. The Fund's Portfolio
Managers are: Joseph P. Darcy, A. Paul Disdier, Karen M. Hand, Stephen C.
Kris, Richard J. Moynihan, Jill C. Shaffro, L. Lawrence Troutman, Samuel J.
Weinstock and Monica S. Wieboldt. The Manager also maintains a research
department with a professional staff of portfolio managers and securities
analysts who provide research services for the Fund as well as for other
funds advised by the Manager. All purchases and sales are reported for the
Trustees' review at the meeting subsequent to such transactions.
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by the Manager. The
expenses borne by the Fund include, without limitation: taxes, interest,
loan commitment fees, interest and distributions paid on securities sold
short, brokerage fees and commissions, if any, fees of Trustees 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
independent pricing services, costs of maintaining the Fund's existence,
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.
In addition, under a service plan adopted by the Fund pursuant to Rule
12b-1 under the Act, which was terminated effective June 1, 1994, the Fund
bore the costs of preparing, printing and distributing prospectuses for
other than regulatory purposes or distribution to existing shareholders.
For the period August 1, 1993 through May 31, 1994, $11,231 was charged to
the Fund under such plan.
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. The Manager also may make such advertising and promotional
expenditures, using its own resources, as it from time to time deems
appropriate.
As compensation for the Manager's services, the 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. For the fiscal years ended
July 31, 1992, 1993 and 1994, the management fees payable amounted to
$2,845,337, $3,057,145 and $3,474,588, respectively, which amounts were
reduced by $2,342,806, $1,834,287 and $1,968,729, respectively, pursuant to
undertakings in effect, resulting in net fees paid to the Manager of
$502,531 in fiscal 1992, $1,222,858 in fiscal 1993 and $1,505,859 in fiscal
1994.
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.
PURCHASE OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement dated August 24, 1994. The Distributor also acts
as distributor for the other funds in the Dreyfus Family of Funds and for
certain other investment companies.
Using Federal Funds. The Shareholder Services Group, Inc., the Fund's
transfer and dividend disbursing agent (the "Transfer Agent"), or the Fund
may attempt to notify the investor upon receipt of checks drawn on banks
that are not members of the Federal Reserve System as to the possible delay
in conversion into Federal Funds and may attempt to arrange for a better
means of transmitting the money. If the investor is a customer of a
securities dealer ("Selected Dealer") and his order to purchase Fund shares
is paid for other than in Federal Funds, the Selected Dealer, acting on
behalf of its customer, will complete the conversion into, or itself
advance, Federal Funds generally on the business day following receipt of
the customer order. The order is effective only when so converted and
received by the Transfer Agent. An order for the purchase of Fund shares
placed by an investor with sufficient Federal Funds or a cash balance in his
brokerage account with a Selected Dealer will become effective on the day
that the order, including Federal Funds, is received by the Transfer Agent.
In some states, certain financial institutions effecting transactions in
Fund Shares may be required to register as dealers pursuant to state law.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made between the hours of 8:00 A.M. and 4:00 P.M., New York time, on
any business day that the Transfer Agent and the New York Stock Exchange are
open. Such purchases will be credited to the shareholder's Fund account on
the next bank business day. To qualify to use the Dreyfus TeleTransfer
Privilege, the initial payment for purchase of Fund shares must be drawn on,
and redemption proceeds paid to, the same bank and account as are designated
on the Account Application or Shareholder Services Form on file. If the
proceeds of a particular redemption are to be wired to an account at any
other bank, the request must be in writing and signature-guaranteed. See
"Redemption of Fund Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the
calendar year the account is closed or during the following calendar year,
provided the information on the old Account Application is still applicable.
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services
Plan."
The Fund has adopted a Shareholder Services Plan pursuant to which the
Fund reimburses Dreyfus Service Corporation, a wholly-owned subsidiary of
the Manager, 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 Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Trustees for their review. In addition, the Shareholder
Services Plan provides that material amendments of the Shareholder Services
Plan must be approved by the Board of Trustees, and by the Trustees who are
not "interested persons" (as defined in the Act) of the Fund and have no
direct or indirect financial interest in the operation of the Shareholder
Services Plan by vote cast in person at a meeting called for the purpose of
considering such amendments. The Shareholder Services Plan is subject to
annual approval by such vote of the Trustees cast in person at a meeting
called for the purpose of voting on the Shareholder Services Plan. The
Shareholder Services Plan is terminable at any time by vote of a majority of
the Trustees who are not "interested persons" and have no direct or indirect
financial interest in the operation of the Shareholder Services Plan.
During the fiscal year ended July 31, 1994, the Fund was charged
$226,917 pursuant to the Shareholder Services Plan.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Redeem Fund
Shares."
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Fund provide Redemption
Checks ("Checks") drawn on the Fund's account. Checks will be sent only to
the registered owner(s) of the account and only to the address of record.
The Account Application or later written request must be manually signed by
the registered owner(s). Checks may be made payable to the order of any
person in an amount of $500 or more. When a Check is presented to the
Transfer Agent for payment, the Transfer Agent, as the investor's agent,
will cause the Fund to redeem a sufficient number of shares in the
investor's account to cover the amount of the Check. Dividends are earned
until the Check clears. After clearance, a copy of the Check will be
returned to the investor. Investors generally will be subject to the same
rules and regulations that apply to checking accounts, although election of
this Privilege creates only a shareholder-transfer agent relationship with
the Transfer Agent.
If the amount of the Check is greater than the value of the shares in
an investor's account, the Check will be returned marked insufficient funds.
Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor 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 the
redemption request in proper form prior to Noon on such day; otherwise, the
Fund will initiate payment on the next business day. Redemption proceeds
will be transferred by Federal Reserve wire only to the commercial bank
account specified by the investor on the Account Application or Shareholder
Services Form. Redemption proceeds, if wired, must be in the amount of
$1,000 or more and will be wired to the investor's account at the bank of
record designated in the investor's file at the Transfer Agent, if the
investor's bank is a member of the Federal Reserve System, or to a
correspondent bank if the investor's bank is not a member. Fees ordinarily
are imposed by such bank and are borne by the investor. Immediate
notification by the correspondent bank to the investor's bank is necessary
to avoid a delay in crediting the funds to the investor's bank account.
Investors with access to telegraphic equipment 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
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at
1-800-654-7171, toll free. Investors should advise the operator that the
above transmittal code must be used and should also inform the operator of
the Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Share Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if they
have selected the Dreyfus TeleTransfer Privilege, any request for a Dreyfus
TeleTransfer transaction will be effected through the Automated Clearing
House ("ACH") system unless more prompt transmittal specifically is
requested. Redemption proceeds will be on deposit in the investor's account
at an ACH member bank ordinarily two business days after receipt of the
redemption request. See "Purchase of Fund Shares--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 the telephone number 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. In the case of requests for redemption in excess of such
amount, the Board of Trustees reserves the right to make payments in whole
or in part in securities or other assets in case of an emergency or any time
a cash distribution would impair the liquidity of the Fund to the detriment
of the existing shareholders. In such event, the securities would be valued
in the same manner as the Fund's portfolio is valued. If the recipient sold
such securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the Fund ordinarily utilizes is restricted, or
when an emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Fund's investments or determination of
its net asset value is not reasonably practicable, or (c) for such other
periods as the Securities and Exchange Commission by order may permit to
protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services."
Fund Exchanges. Shares of other funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
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"), provided that, if the sales load applicable
to the Offered Shares exceeds the maximum sales load that could
have been imposed in connection with the Purchased Shares (at the
time the Purchased Shares were acquired), without giving effect to
any reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their account
number.
To request an exchange, an investor or an investor's Service Agent
acting on the investor's behalf, must give exchange instructions to the
Transfer Agent in writing or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders automatically,
unless the investor checks the relevant "NO" box on the Account Application,
indicating that the investor specifically refuses this privilege. By using
the Telephone Exchange Privilege, the investor authorizes the Transfer Agent
to act on telephonic instructions from any person representing himself or
herself to be the investor, 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 exchanges.
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. For
Dreyfus-sponsored Keogh Plans, IRAs and IRAs set up under a Simplified
Employee Pension Plan ("SEP-IRAs") with only one participant, the minimum
initial investment is $750. To exchange shares held in corporate plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, the minimum
initial investment is $100 if the plan has at least $2,500 invested among
the funds in the Dreyfus Family of Funds. To exchange shares held in
Personal Retirement Plans, the shares exchanged must have a current value of
at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of the Fund, shares
of another fund in the Dreyfus Family of Funds. This Privilege is available
only for existing accounts. Shares will be exchanged on the basis of
relative net asset value as described above under "Fund Exchanges."
Enrollment in or modification or cancellation of this Privilege is effective
three business days following notification by the investor. An investor
will be notified if his account falls below the amount designated to be
exchanged under this Privilege. In this case, an investor's account will
fall to zero unless additional investments are made in excess of the
designated amount prior to the next Auto-Exchange Transaction. Shares held
under IRA and other retirement plans are eligible for this Privilege.
Exchanges of IRA shares may be made between IRA accounts and from regular
accounts to IRA accounts, but not from IRA accounts to regular accounts.
With respect to all other retirement accounts, exchanges may be made only
among those accounts.
Fund Exchanges and Dreyfus Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between accounts
having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained from the Distributor, 144 Glenn Curtiss Boulevard, Uniondale, New
York 11556-0144. The Fund reserves the right to reject any exchange request
in whole or in part. The Fund Exchanges services or Dreyfus Auto-Exchange
Privilege may be modified or terminated at any time upon notice to
shareholders.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, from the Fund in shares of another fund in the
Dreyfus Family of Funds of which the investor is 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 that are
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"), provided that, if
the sales load applicable to the Offered Shares exceeds the
maximum sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any
reduced loads, the difference will be deducted.
D. Dividends and distributions paid 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.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, not the
yield on the shares. If withdrawal payments exceed reinvested dividends and
distributions, the investor's shares will be reduced and eventually may be
depleted. There is a service charge of $.50 for each withdrawal check.
Automatic Withdrawal may be terminated at any time by the investor, the Fund
or the Transfer Agent. Shares for which certificates have been issued may
not be redeemed through the Automatic Withdrawal Plan.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Fund Shares."
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 Board of Trustees 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 of Trustees, 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 of Trustees. 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 of Trustees. If such
deviation exceeds 1/2 of 1%, the Board of Trustees promptly will consider
what action, if any, will be initiated. In the event the Board of Trustees
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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
YIELD INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Yield Information."
For the seven-day period ended July 31, 1994, the Fund's yield was
2.64% and its effective yield was 2.68%. These yields reflect the waiver of
a portion of the management fee without which the Fund's seven-day yield and
the effective yield for the period ended July 31, 1994 would have been 2.39%
and 2.42%, respectively. See "Management of the Fund" in the Prospectus.
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 1994 Federal and California effective tax rate of
46.24%, and a yield of 2.64% for the seven-day period ended July 31, 1994,
the Fund's tax equivalent yield for this period was 4.91%. Without the
waiver of a portion of management fee then in effect, the Fund's seven-day
tax equivalent yield for the period ended July 31, 1994 would have been
4.45%. 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 personal income tax purposes, a 39.60% tax
rate has been used. For California personal income tax purposes an 11.00%
tax rate has been used. The tax equivalent figure, however, does not
include the potential effect of local (including, but not limited to,
county, district or city) taxes, if any, 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.
From time to time, the Fund may use hypothetical tax equivalent yields
or charts in its advertising. These hypothetical yields or charts will be
used for illustrative purposes only and are not indicative of the Fund's
past or future performance.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic conditions, developments and/or
events, including those relating to or arising from 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.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases
and sales usually are placed with those dealers from which it appears that
the best price or execution will be obtained. Usually no brokerage
commissions, as such, are paid by the Fund for such purchases and sales, al-
though the price paid usually includes an undisclosed compensation to the
dealer acting as agent. The prices paid to underwriters of newly-issued
securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers
ordinarily are executed at a price between the bid and asked price. No
brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's Portfolio
Managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and
analysis with the views and information of other securities firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds
it advises and, conversely, research services furnished to the Manager by
brokers in connection with other funds the Manager advises may be used by
the Manager in advising the Fund. Although it is not possible to place a
dollar value on these services, it is the opinion of the Manager that the
receipt and study of such services should not reduce the overall expenses of
its research department.
TAX MATTERS
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Dividends, Distributions
and Taxes."
Management believes that the Fund has qualified as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), for the fiscal year ended July 31, 1994 and the Fund intends to
continue to so qualify, if such qualification is in the best interests of
its shareholders. To qualify as a regulated investment company, the Fund
must distribute at least 90% of its net income (consisting of net investment
income from tax exempt obligations and net short-term capital gains), derive
less than 30% of its annual gross income from gain on the sale of securities
held for less than three months, and meet certain asset diversification and
other requirements. Accordingly, the Fund may be restricted in the selling
of securities held for less than three months. The term "regulated
investment company" does not imply the supervision of management or
investment practices or policies by any government agency.
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.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of any gain
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income under Section 1276 of the Code.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "General Information."
Each 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 sends annual and semi-annual statements to all its
shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND INDEPENDENT AUDITORS
The Bank of New York, 110 Washington Street, New York, New York 10286,
is the Fund's custodian. The Shareholder Services Group, Inc., a subsidiary
of First Data Corporation, P.O. Box 9671, Providence, Rhode Island
02940-9671, is the Fund's transfer and dividend disbursing agent. Neither
The Bank of New York nor The Shareholder Services Group, Inc. has any part
in determining the investment policies of the Fund or which securities are
to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares of beneficial interest being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX A
RISK FACTORS - INVESTING
IN CALIFORNIA MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information drawn
from official statements relating to securities offerings of the State of
California (the "State") and various local agencies, available as of the
date of this Statement of Additional Information. While the Fund has not
independently verified such information, it has no reason to believe that
such information is not correct in all material respects.
Recent Developments. Since the start of the State's 1990-91 fiscal
year, the State has faced the worst economic, fiscal and budget conditions
since the 1930s. Construction, manufacturing (especially aerospace),
exports and financial services, among others, have all been severely
affected. Job losses have been the worst of any post-war recession.
Unemployment reached 9.2% for 1993 and is expected to remain well above the
national average through 1994. According to the State's Department of
Finance, recovery from the recession in California is not expected in
meaningful terms until late 1994, notwithstanding signs of recovery
elsewhere in the nation.
The recession has seriously affected State tax revenues, which
basically mirror economic conditions. It has also caused increased
expenditures for health and welfare programs. The State also has been
facing a structural imbalance in its budget with the largest programs
supported by the General Fund (K-12 schools and community colleges, health
and welfare, and corrections) growing at rates higher than the growth rates
for the principal revenue sources of the General Fund. As a result, the
State has experienced recurring budget deficits. The Controller reported
that expenditures exceeded revenues for four of the five fiscal years
ending with 1991-92. Revenues and expenditures were essentially equal in
the 1992-93 fiscal year, but the original budget for that fiscal year
projected revenues exceeding expenditures by $2.6 billion. By June 30,
1993, according to the Department of Finance, the State's Special Fund for
Economic Uncertainties (the "SFEU") had a deficit, on a budget basis, of
approximately $2.8 billion. The 1993-94 Budget Act incorporated a Deficit
Retirement Plan to repay this deficit over two fiscal years. The original
budget for 1993-94 reflected revenues which exceeded expenditures by
approximately $2.0 billion. As a result of the continuing recession, the
excess of revenues over expenditures for the fiscal year is expected to be
only about $500 million. Thus, the accumulated budget deficit at June 30,
1994 is estimated by the Department of Finance to have been approximately
$2.0 billion, and the deficit will not be retired by June 30, 1995 as
planned.
A further consequence of the large budget imbalances over the last
three fiscal years has been that the State depleted its available cash
resources and has had to use a series of external borrowings to meet its
cash needs. To meet its cash flow needs in the 1994-95 fiscal year, the
State issued, in July and August 1994, $4.0 billion of revenue anticipation
warrants which mature on April 25, 1996, and $3.0 billion of revenue
anticipation notes which mature on June 28, 1995.
The 1994-95 Budget Act is projected to have $41.9 billion of General
Fund revenues and transfers and $40.9 billion of budgeted expenditures. In
addition, the 1994-95 Budget Act anticipates deferring retirement of about
$1 billion of the accumulated budget deficit to the 1995-96 fiscal year
when it is intended to be fully retired by June 30, 1996.
As a result of the deterioration in the State's budget and cash
situation, the rating agencies reduced the State's credit ratings. Between
October 1991 and July 1994, the rating on the State's general obligation
bonds was reduced by S&P from "AAA" to "A," by Moody's from "Aaa" to "A1"
and by Fitch from "AAA" to "A."
On January 17, 1994, an earthquake of the magnitude of an estimated
6.8 on the Richter Scale struck Los Angeles causing significant damage to
public and private structures and facilities. Although some individuals
and businesses suffered losses totaling in the billions of dollars, the
overall effect of the earthquake on the regional and State economy is not
expected to be serious.
State Finances. State moneys are segregated into the General Fund and
approximately 600 Special Funds. The General Fund consists of the revenues
received into the State Treasury and earnings from State investments, which
are not required by law to be credited to any other fund. The General Fund
is the principal operating fund for the majority of governmental activities
and is the depository of most major State revenue sources.
The SFEU is funded with General Fund revenues and was established to
protect the State from unforeseen reduced levels of revenues and/or
unanticipated expenditure increases. Amounts in the SFEU may be
transferred by the Controller as necessary to meet cash needs of the
General Fund. The Controller is required to return moneys so transferred
without payment of interest as soon as there are sufficient moneys in the
General Fund. For budgeting and accounting purposes, any appropriation
made from the SFEU is deemed an appropriation from the General Fund. For
year-end reporting purposes, the Controller is required to add the balance
in the SFEU to the balance in the General Fund so as to show the total
monies then available for General Fund purposes.
Inter-fund borrowing has been used for many years to meet temporary
imbalances of receipts and disbursements in the General Fund. As of June
30, 1994, the General Fund had outstanding loans in the aggregate principal
amount of $5.2 billion, which consisted of $4.0 billion of internal loans
to the General Fund from the SFEU and other Special Funds and $1.2 billion
of external loans represented by the 1994 revenue anticipation warrants.
Articles XIIIA and XIIIB to the State Constitution and Other Revenue
Law Changes. Prior to 1977, revenues of the State government experienced
significant growth primarily as a result of inflation and continuous
expansion of the tax base of the State. In 1978, State voters approved an
amendment to the State Constitution known as Proposition 13, which added
Article XIIIA to the State Constitution, reducing ad valorem local property
taxes by more than 50%. In addition, Article XIIIA provides that
additional taxes may be levied by cities, counties and special districts
only upon approval of not less than a two-thirds vote of the "qualified
electors" of such district, and requires not less than a two-thirds vote of
each of the two houses of the State Legislature to enact any changes in
State taxes for the purpose of increasing revenues, whether by increased
rate or changes in methods of computation.
Primarily as a result of the reductions in local property tax revenues
received by local governments following the passage of Proposition 13, the
Legislature undertook to provide assistance to such governments by
substantially increasing expenditures from the General Fund for that
purpose beginning in the 1978-79 fiscal year. In recent years, in addition
to such increased expenditures, the indexing of personal income tax rates
(to adjust such rates for the effects of inflation), the elimination of
certain inheritance and gift taxes and the increase of exemption levels for
certain other such taxes had a moderating impact on the growth in State
revenues. In addition, the State has increased expenditures by providing a
variety of tax credits, including renters' and senior citizens' credits and
energy credits.
The State is subject to an annual "appropriations limit" imposed by
Article XIIIB of the State Constitution adopted in 1979. Article XIIIB
prohibits the State from spending "appropriations subject to limitation" in
excess of the appropriations limit imposed. "Appropriations subject to
limitations" are authorizations to spend "proceeds of taxes," which consist
of tax revenues, and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such
proceeds exceed "the cost reasonably borne by such entity in providing the
regulation, product or service." One of the exclusions from these
limitations is "debt service" (defined as "appropriations required to pay
the cost of interest and redemption charges, including the funding of any
reserve or sinking fund required in connection therewith, on indebtedness
existing or legally authorized as of January 1, 1979 or on bonded
indebtedness thereafter approved" by the voters). In addition,
appropriations required to comply with mandates of courts or the Federal
government and, pursuant to Proposition 111 enacted in June 1990,
appropriations for qualified capital outlay projects and appropriations of
revenues derived from any increase in gasoline taxes and motor vehicle
weight fees above January 1, 1990 levels are not included as appropriations
subject to limitation. In addition, a number of recent initiatives were
structured or proposed to create new tax revenues dedicated to certain
specific uses, with such new taxes expressly exempted from the Article
XIIIB limits (e.g., increased cigarette and tobacco taxes enacted by
Proposition 99 in 1988). The appropriations limit also may be exceeded in
cases of emergency. However, unless the emergency arises from civil
disturbance or natural disaster declared by the Governor, and the
appropriations are approved by two-thirds of the Legislature, the
appropriations limit for the next three years must be reduced by the amount
of the excess.
The State's appropriations limit in each year is based on the limit
for the prior year, adjusted annually for changes in California per capita
personal income and changes in population, and adjusted, when applicable,
for any transfer of financial responsibility of providing services to or
from another unit of government. The measurement of change in population
is a blended average of statewide overall population growth, and change in
attendance at local school and community college ("K-14") districts. As
amended by Proposition 111, the appropriations limit is tested over
consecutive two-year periods. Any excess of the aggregate "proceeds of
taxes" received over such two-year periods above the combined
appropriations limits for those two years is divided equally between
transfers to K-14 districts and refunds to taxpayers.
As originally enacted in 1979, the State's appropriations limit was
based on its 1978-79 fiscal year authorizations to expend proceeds of taxes
and was adjusted annually to reflect changes in cost of living and
population (using different definitions, which were modified by Proposition
111). Commencing with the 1991-92 fiscal year, the State's appropriations
limit is adjusted annually based on the actual 1986-87 limit, and as if
Proposition 111 had been in effect. The State Legislature has enacted
legislation to implement Article XIIIB which defines certain terms used in
Article XIIIB and sets forth the methods for determining the State's
appropriations limit. Government Code Section 7912 requires an estimate of
the State's appropriations limit to be included in the Governor's Budget,
and thereafter to be subject to the budget process and established in the
Budget Act.
For the 1990-91 fiscal year, the State appropriations limit was $32.7
billion, and appropriations subject to limitation were $7.51 billion under
the limit. The limit for the 1991-92 fiscal year was $34.2 billion, and
appropriations subject to limitations were $3.8 billion under the limit.
The limit for the 1992-93 fiscal year was $35.01 billion, and the
appropriations subject to limitation were $4.2 billion under the limit.
The estimated limits for the 1993-94 and 1994-95 fiscal years are $36.60
billion and $36.61 billion, respectively, and the estimated appropriations
subject to limitation are $3.77 billion and $5.49 billion, respectively,
under the limit.
In November 1988, State voters approved Proposition 98, which changed
State funding of public education below the university level and the
operation of the State's appropriations limit, primarily by guaranteeing K-
14 schools a minimum share of General Fund revenues. Under Proposition 98
(as modified by Proposition 111, which was enacted in June 1990), K-14
schools are guaranteed the greater of (a) 40.3% of General Fund revenues
("Test 1"), (b) the amount appropriated to K-14 schools in the prior year,
adjusted for changes in the cost of living (measured as in Article XIIIB by
reference to California per capita personal income) and enrollment ("Test
2"), or (c) a third test, which would replace the second test in any year
when the percentage growth in per capita General Fund revenues from the
prior year plus .5% is less than the percentage growth in California per
capita personal income ("Test 3"). Under "Test 3," schools would receive
the amount appropriated in the prior year adjusted for changes in
enrollment and per capita General Fund revenues, plus an additional small
adjustment factor. If "Test 3" is used in any year, the difference between
"Test 3" and "Test 2" would become a "credit" to schools which would be the
basis of payments in future years when per capita General Fund revenue
growth exceeds per capita personal income growth.
Proposition 98 permits the Legislature by two-thirds vote of both
houses, with the Governor's concurrence, to suspend the K-14 schools'
minimum funding formula for a one-year period. In the fall of 1989, the
Legislature and the Governor utilized this provision to avoid having 40.3%
of revenues generated by a special supplemental sales tax enacted for
earthquake relief go to K-14 schools. Proposition 98 also contains
provisions transferring certain State tax revenues in excess of the Article
XIIIB limit to K-14 schools.
The 1991-92 Budget Act, applying "Test 2" of Proposition 98,
appropriated approximately $18.4 billion for K-14 schools pursuant to
Proposition 98. During the course of the fiscal year, revenues proved to
be substantially below expectations. By the time the Governor's Budget was
introduced in January 1992, it became clear that per capita growth in
General Fund revenues for 1991-92 would be far smaller than the growth in
California per capita personal income and the Governor's Budget therefore
reflected a reduction in Proposition 98 funding in 1991-92 by applying
"Test 3" rather than "Test 2."
In response to the changing revenue situation and to fully fund the
Proposition 98 guarantee in both the 1991-92 and 1992-93 fiscal years
without exceeding it, the Legislature enacted several bills as part of the
1992-93 budget package which responded to the fiscal crisis in education
funding. Fiscal year 1991-92 Proposition 98 appropriations for K-14
schools were reduced by $1.083 billion. In order to not adversely impact
cash received by school districts, however, a short-term loan was
appropriated from the non-Proposition 98 State General Fund. The
Legislature then appropriated $16.6 billion to K-14 schools for 1992-93
(the minimum guaranteed by Proposition 98), but designated $1.083 billion
of this amount to "repay" the prior year loan, thereby reducing cash
outlays in 1992-93 by that amount.
In addition to reducing the 1991-92 fiscal year appropriations for K-
14 schools by $1.083 billion and converting the amount to a loan (the
"inter-year adjustment"), Chapter 703, Statutes of 1992 also made an
adjustment to "Test 1," based on the additional $1.2 billion of local
property taxes that were shifted to schools and community colleges. The
"Test 1" percentage changed from 40% to 37%. Additionally, Chapter 703
contained a provision that if an appellate court should determine that the
"Test 1" recalculation or the inter-year adjustment is unconstitutional,
unenforceable or invalid, Proposition 98 would be suspended for the 1992-93
fiscal year, with the result that K-14 schools would receive the amount
intended by the 1992-93 Budget Act compromise.
The State Controller stated in October 1992 that, because of a
drafting error in Chapter 703, he could not implement the $1.083 billion
reduction of the 1991-92 school funding appropriation, which was part of
the inter-year adjustment. The Legislature untimely enacted corrective
legislation as part of the 1993-94 Budget package to implement the $1.083
billion inter-year adjustment as originally intended.
In the 1992-93 Budget Act, a new loan of $732 million was made to K-12
schools in order to maintain per-average daily attendance ("ADA") funding
at the same level as 1991-92, at $4,187. An additional loan of $241
million was made to community college districts. These loans are to be
repaid from future Proposition 98 entitlements. (The teachers'
organization lawsuit discussed above also seeks to declare invalid the
provision making $732 million a loan "repayable" from future years'
Proposition 98 funds.) Including both State and local funds, and adjusting
for the loans and repayments, on a cash basis, total Proposition 98 K-12
funding in 1992-93 increased to $21.5 billion, 2.4% more than the amount in
1992-93 ($21.0 billion).
Based on revised State tax revenues and estimated decreased reported
pupil enrollment, the 1993-94 Budget Act projected that the 1992-93
Proposition 98 Budget Act appropriations of $16.6 billion exceeded a
revised minimum guarantee by $313 million. As a result, the 1993-94 Budget
Act reverted $25 million in 1992-93 appropriations to the General Fund.
Limiting the reversion to this amount ensures that per ADA funding for
general purposes will remain at the prior year level of $4,217 per pupil.
The 1994-95 Governor's Budget subsequently proposed deficiency funding of
$121 million for school apportionments and special education, increasing
funding per pupil in 1992-93 to $4,244. The 1993-94 Budget Act also
designated $98 million in 1992-93 appropriations toward satisfying prior
years' guarantee levels, an obligation that resulted primarily from
updating State tax revenues for 1991-92, and designates $190 million as a
loan repayable from 1993-94 funding.
The 1993-94 Budget Act projected the Proposition 98 minimum funding
level at $13.5 billion based on the "Test 3" calculation where the
guarantee is determined by the change in per capita growth in General Fund
revenues, which are projected to decrease on a year-over-year basis. This
amount also takes into account increased property taxes transferred to
school districts from other local governments.
Legislation accompanying the 1993-94 Budget Act (Chapter 66/93)
provided a new loan of $609 million to K-12 schools in order to maintain
per ADA funding at $4,217 and a loan of $178 million to community colleges.
These loans have been combined with the K-14 1992-93 loans into one loan
totalling $1.760 billion. Repayment of this loan would be from future
years' Proposition 98 entitlements, and would be conditioned on maintaining
current funding levels per pupil for K-12 schools. Chapter 66 also reduced
the "Test 1" percentage to 34% to reflect the property tax shift among
local government agencies.
The 1994-95 Budget Act has appropriated $14.4 billion of Proposition
98 funds for K-14 schools based on Test 12. This exceeds the minimum
Proposition 98 guarantee by $8 million to maintain K-12 funding per pupil
at $4,217. Based upon updated State revenues, growth rates and inflation
factors, the 1994-95 Budget Act appropriates an additional $286 million
within Proposition 98 for the 1993-94 fiscal year, to reflect a need in
appropriations for school districts and county offices of education, as
well as an anticipated deficiency in special education funding. These
appropriations increase the 1993-94 Proposition 98 guarantee to $13.8
billion, which exceeds the minimum guarantee in that year by $272 million
and provides per pupil funding of $4,225.
Sources of Tax Revenue. The California personal income tax, which in
1992-93 contributed about 44% of General Fund revenues, is closely modeled
after the Federal income tax law. It is imposed on net taxable income
(gross income less exclusions and deductions). The tax is progressive with
rates ranging from 1% to 11%. Personal, dependent, and other credits are
allowed against the gross tax liability. In addition, taxpayers may be
subject to an alternative minimum tax ("AMT") which is much like the
Federal AMT. This is designed to ensure that excessive use of tax
preferences does not reduce taxpayers' liabilities below some minimum
level. Legislation enacted in July 1991 added two new marginal tax rates,
at 10% and 11%, effective for tax years 1991 through 1995. After 1995, the
maximum personal income tax rate is scheduled to return to 9.3%, and the
AMT rate is scheduled to drop from 8.5% to 7%.
The personal income tax is adjusted annually by the change in the
consumer price index to prevent taxpayers from being pushed into higher tax
brackets without a real increase in income.
The sales tax is imposed upon retailers for the privilege of selling
tangible personal property in California. Most retail sales and leases are
subject to the tax. However, exemptions have been provided for certain
essentials such as food for home consumption, prescription drugs, gas,
electricity and water. Sales tax accounted for about 38% of General Fund
revenue in 1992-93. Bank and corporation tax revenues comprised about 12%
of General Fund revenue in 1992-93. In 1989, Proposition 99 added a 25
cents per pack excise tax on cigarettes, and a new equivalent excise tax on
other tobacco products. Legislation enacted in 1993 added an additional 2
cents per pack for the purpose of funding breast cancer research.
General Financial Condition of the State. Revenues in the most recent
fiscal years have been unusually difficult to forecast with a high degree
of accuracy due in major part to the volatility in the personal income tax.
The 1986-87 through 1989-90 fiscal years were affected by both the Federal
Tax Reform Act of 1986 and subsequent conforming State legislation. The
difficulty with recent forecasts has occurred because taxpayers have
changed their behavior as a result of these events. Capital gains are now
fully taxed. This revenue component is subject to taxpayer discretion and
is very sensitive to change in tax law, market conditions and individual
circumstances. Capital gains have always been a volatile item and, since
it is contributing a greater percentage of total revenue, it makes these
collections subject to greater variance.
The State entered the 1988-89 fiscal year with essentially no budget
reserve. The 1988-89 Budget Act called for significant spending cuts to
balance expected revenues and expenditures and to provide an estimated
balance of approximately $600 million in the SFEU at year-end.
Revenues for the 1989-90 fiscal year were approximately $517.7 million
less than presented in the Governor's Budget in January 1990 and $1.021
billion less than estimated in July 1989, primarily owing to lower than
estimated receipts from individual and corporate taxes. The shortfall in
revenues was made up through the transfer of moneys from the SFEU and a
variety of expenditure reduction actions initiated by the Administration.
As a result, the SFEU was fully depleted by June 30, 1990.
The California State Controller reported that the State's General Fund
ended the 1990-91 fiscal year with a negative budgetary basis balance of
$1.316 billion. In order to pay necessary cash expenses through June 1991,
including payment of $4.1 billion of 1990 Revenue Anticipation Notes which
were due June 28, 1991, the General Fund borrowed $1.390 billion from the
SFEU and $3.266 billion from other Special Funds as of the end of the
fiscal year. Data on General Fund revenues for the 1990-91 fiscal year
show that revenues in all major categories (except insurance taxes) were
lower than receipts in 1989-90, the first time this has happened on a year-
over-year basis since the 1930s.
The 1991-92 Budget Act projected General Fund expenditures of $43.4
billion and Special Fund expenditures of $10.6 billion. The Department of
Finance estimated that there would be a balance in the SFEU on June 30,
1992 of $1.2 billion. An estimated $14.3 billion "budget gap" was closed
through a combination of temporary and permanent changes in laws and one-
time budget adjustments. The major features of the budget compromise were:
program funding reductions totaling $5.1 billion; a total of $5.1 billion
of increased State tax revenues; savings of $2.1 billion by returning
certain health and welfare programs to counties; and additional
miscellaneous savings or revenue gains and one-time accounting charges
totaling $2.0 billion.
The 1991-92 Budget Act was based on economic forecasts showing
recovery from the recession would begin in summer or fall of 1991, but
revenues lagged behind projections from the start of the 1991-92 fiscal
year. By the time the Governor's Budget for 1992-93 was prepared in late
1991, it was evident that the recession had been much more severe in the
State than was thought earlier, and that it was continuing longer than
anticipated. As a result, revenues for the 1991-92 fiscal year were much
lower than originally estimated and expenditures were higher, particularly
in health and welfare programs.
As a result of the revenue shortfalls accumulating for the previous
two fiscal years, the Controller in April 1992 indicated that cash
resources (including borrowing from Special Funds) would not be sufficient
to meet all General Fund obligations due on June 30 and July 1, 1992. On
June 25, 1992, the Controller issued $475 million of 1992 Revenue
Anticipation Warrants (the "1992 Warrants") in order to provide funds to
cover all necessary payments from the General Fund at the end of the 1991-
92 fiscal year and on July 1, 1992. The 1992 Warrants were paid on July
24, 1992. In addition to the 1992 Warrants the Controller reported that as
of June 30, 1992, the General Fund had borrowed $1.336 billion from the
SFEU and $4.699 billion from other Special Funds, using all but about $183
million of borrowable cash resources.
To balance the 1992-93 Governor's Budget, program reductions totalling
$4.365 billion and revenue and transfer increase of $872 million were
proposed for the 1991-92 and 1992-93 fiscal years. Economic performance in
the State continued to be sluggish after the 1992-93 Governor's Budget was
prepared. By the time of the "May Revision," issued on May 20, 1992, the
Administration estimated that the 1992-93 Budget needed to address a gap of
about $7.9 billion, much of which was needed to repay the accumulated
budget deficits of the previous two years.
In early 1992, the Director of Finance acknowledged that actual
economic conditions were worse than the projections in the Governor's
Budget. Because the State had accumulated a significant budget deficit
over two consecutive years, and the continuing recession depressed revenue
estimates for the coming year, the State faced a major challenge to enact a
balanced budget. The State also began the 1992-93 fiscal year with
essentially no cash reserves. By June 1992, it was estimated that
approximately $7.9 billion of budget actions would be required to end the
1992-93 fiscal year without a budget deficit. The severity of the budget
actions needed led to a long delay in adopting the budget.
With the failure to enact a budget by July 1, 1992, the State had no
legal authority to pay many of its vendors until the budget was passed.
Starting on July 1, 1992, the Controller was required to issue "registered
warrants" in lieu of normal warrants backed by cash to pay many State
obligations. Available cash was used to pay constitutionally mandated and
priority obligations, such as debt service on bonds and revenue
anticipation warrants. Between July 1 and September 4, 1992, the
Controller issued an aggregate of approximately $3.8 billion of registered
warrants payable from the General Fund, all of which were called for
redemption by September 4, 1992 following enactment of the 1992-93 Budget
Act and issuance by the State of $3.3 billion of interim notes.
The Legislature enacted the 1992-93 Budget Bill on August 29, 1992,
and it was signed by the Governor on September 2, 1992. The 1992-93 Budget
Act provided for expenditures of $57.4 billion and consisted of General
Fund expenditures of $40.8 billion and Special Fund and Bond Fund
expenditures of $16.6 billion. The Department of Finance estimated there
would be a balance in the SFEU of $28 million on June 30, 1993.
The $7.9 billion budget gap was closed through a combination of
increased revenues and transfers and expenditure cuts such as:
1. General Fund savings in health and welfare programs totaling
$1.6 billion.
2. General Fund reductions of $1.9 billion for K-12 schools and
community colleges. This was accomplished by requiring
schools to repay $1.1 billion in excess appropriations from
1991-92.
3. Redirecting property taxes from cities ($200 million) and
counties ($525 million) to schools. These shifts are
permanent and will reduce the State General Funds obligation
for schools. The State will also redirect property taxes
from special districts ($375 million) and redevelopment
agencies ($200 million) to schools. The shift from
redevelopment agencies is a one-time shift.
4. Program cuts for higher education totaling $415 million
($246 million for The University of California, $143 million
for California State University, and $26 million for the
Student Aid Commission). These reductions are partially
offset by $141 million in increased student fees.
5. A total of $1.6 billion of transfers and accelerated
collections of State revenues by conforming State schedules
for estimated payments for personal income and bank and
corporate taxes with federal schedules ($105 million),
accelerating settlement of outstanding tax disputes ($300
million), reaching an agreement with the Federal government
to repay federal contractors over a ten-year period
beginning in 1992-93, rather than making a lump sum payment
in 1992-93 ($580 million), accelerating liquidation of
unclaimed properties through the sale of all unclaimed
securities received prior to July 1, 1992, rather than
maintaining them for three years ($70 million), transfers
from Special Funds ($423 million), and other miscellaneous
actions ($122 million).
6. Approximately $1.0 billion from various additional program
reductions.
In May 1993, the Department of Finance projected that the General Fund
would end the fiscal year on June 30, 1993 with an accumulated budget
deficit of about $2.8 billion, and a negative fund balance of about $2.2
billion (the difference being certain reserves for encumbrances and school
funding costs). As a result, the State issued $5 billion of revenue
anticipation notes and warrants.
The Governor's 1993-94 Budget, introduced on January 8, 1993, proposed
General Fund expenditures of $37.3 billion, with projected revenues of
$39.9 billion. It also proposed Special Fund expenditures of $12.4 billion
and Special Fund revenues of $12.1 billion. To balance the budget in the
face of declining revenues, the Governor proposed a series of revenue
shifts from local government, reliance on increased Federal aid and
reductions in state spending.
The "May Revision" of the Governor's Budget, released on May 20, 1993,
indicated that the revenue projections of the January Budget Proposal were
tracking well, with the full year 1992-93 about $80 million higher than the
January projection. Personal income tax revenue was higher than projected,
sales tax was close to target, and bank and corporation taxes were lagging
behind projections. The May Revision projected the State would have an
accumulated deficit of about $2.75 billion by June 30, 1993. The Governor
proposed to eliminate this deficit over an 18-month period. He also agreed
to retain the 0.5% sales tax scheduled to expire June 30 for a six-month
period, dedicated to local public safety purposes, with a November election
to determine a permanent extension. Unlike previous years, the Governor's
Budget and May Revision did not calculate a "gap" to be closed, but rather
set forth revenue and expenditure forecasts and proposals designed to
produce a balanced budget.
The 1993-94 Budget Act was signed by the Governor on June 30, 1993,
along with implementing legislation. The Governor vetoed about $71 million
in spending. With enactment of the Budget Act, the State carried out its
regular cash flow borrowing program for the fiscal year, which included the
issuance of approximately $2 billion of revenue anticipation notes maturing
on June 28, 1994.
The 1993-94 Budget Act was predicated on General Fund revenues and
transfers estimated at $40.6 billion, about $700 million higher than the
January Governor's Budget, but still about $400 million below 1992-93 (and
the second consecutive year of actual decline). The principal reasons for
declining revenues were the continued weak economy and the expiration (or
repeal) of three fiscal steps taken in 1991 -- a half cent temporary sales
tax, a deferral of operating loss carry forwards, and repeal by initiative
of a sales tax on candy and snack foods.
The 1993-94 Budget Act also assumed Special Fund revenues of $11.9
billion, an increase of 2.9% over 1992-93.
The 1993-94 Budget Act included General Fund expenditures of $38.5
billion (a 6.3% reduction from projected 1992-93 expenditures of $41.1
billion), in order to keep a balanced budget within the available revenues.
The Budget also included Special Fund expenditures of $12.1 billion, a 4.2%
increase.
The 1993-94 Budget Act contained no General Fund tax/revenue increases
other than a two year suspension of the renters' tax credit.
Administration reports during the course of the 1993-94 fiscal year
indicated that while economic recovery appeared to have started in the
second half of the fiscal year, recessionary conditions continued longer
than had been anticipated when the 1993-94 Budget Act was adopted.
Overall, revenues to the 1993-1994 fiscal year were about $800 million
lower than original projections, and expenditures were about $780 million
higher, primarily because of higher health and welfare caseloads, lower
property taxes which require greater State support for K-14 education to
make up the shortfall, and lower than anticipated Federal government
payments for immigration-related costs. The reports in May and June 1994,
indicated that revenues in the second half of the 1993-94 fiscal year have
been very close to the projections made in the Governor's Budget of January
10, 1994, which is consistent with a slow turn around in the economy.
The Department of Finance's July 1994 Bulletin, including the final
June receipts, reported that June revenues were $114 million (2.5%) above
projection, with final end-of-year results at $377 million (about 1%) above
the May Revision projections. Part of this result was due to end-of-year
adjustments and reconciliations. Personal income tax and sales tax
continued to track projections very well. The largest factor in the higher
anticipated revenues was from bank and corporation taxes, which were $140
million (18.4%) above projection in June.
During the 1993-94 fiscal year, the State implemented the Deficit
Retirement Plan, which was part of the 1993-94 Budget Act, by issuing $1.2
billion of revenue anticipation warrants in February 1994 maturing December
21, 1994. This borrowing reduced the cash deficit at the end of the 1993-
94 fiscal year. Nevertheless, because of the $1.5 billion variance from
the original 1993-94 Budget Act assumptions, the General Fund ended the
fiscal year at June 30, 1994 carrying forward an accumulated deficit of
approximately $2 billion.
Because of the revenue shortfall and the State's reduced internal
borrowable cash resources, in addition to the $1.2 billion of revenue
anticipation warrants issued as part of the Deficit Retirement Plan, the
State issued an additional $2.0 billion of revenue anticipation warrants,
maturing July 26, 1994, which were needed to fund the State's obligations
and expenses through the end of the 1993-94 fiscal year.
The 1994-95 fiscal year represents the fourth consecutive year the
Governor and Legislature were faced with a very difficult budget
environment to produce a balanced budget. Many program cost and budgetary
adjustments have already been made in the last three years. The Governor's
Budget Proposal, as updated in May and June 1994, recognized that the
accumulated deficit could not be repaid in one year, and proposed a two-
year solution. The budget proposal sets forth revenue and expenditure
forecasts and revenue and expenditure proposals which result in operating
surpluses for the budget for both 1994-95 and 1995-96, and lead to the
elimination of the accumulated budget deficit, estimated at about $2.0
billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994,
projects revenues and transfers of $41.9 billion, $2.1 billion higher than
revenues in 1993-94. This reflects the Administration's forecast of an
improving economy. The 1994-95 Budget Act projects Special Fund revenues
of $12.1 billion, a decrease of 2.4% from 1993-94 estimated revenues. The
1994-95 Budget Act projects General Fund expenditures of $40.9 billion, an
increase of $1.6 billion over the 1993-94 fiscal year. The 1994-95 Budget
Act also projects Special Fund expenditures of $13.7 billion, a 5.4%
increase over 1993-94 fiscal year estimated expenditures.
The 1994-95 Budget Act contains no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended
for two years (1993 and 1994). A ballot proposition to permanently restore
the renters' tax credit after this year failed at the June 1994 election.
The Legislature enacted a further one-year suspension of the renters' tax
credit, for 1995, saving about $390 million in the 1995-96 fiscal year.
The 1994-95 Budget Act assumes that the State will use a cash flow
borrowing program in 1994-95 which combines one-year notes and two-year
warrants, which have now been issued. Issuance of the warrants allows the
State to defer repayment of approximately $1.0 billion of its accumulated
budget deficit into the 1995-96 fiscal year. The Budget Adjustment Law,
described above, enacted along with the 1994-95 Budget Act is designed to
ensure that the warrants will be repaid in the 1995-96 fiscal year.
Recent Economic Trends. The State's tax revenue experience clearly
reflects sharp declines in employment, income and retail sales on a scale
not seen in over 50 years. The May 1994 Revision to the 1994-95 Governor's
Budget, released May 20, 1994 (the "May 1994 Revision"), assumes the State
will start to recover from recessionary conditions in 1994, with a modest
upturn beginning in 1994 and continuing in 1995, a year later than
predicted in the May 1993 Department of Finance economic projection. Pre-
recession job levels are not expected to be reached until 1997. The
following are excerpts from the May 1994 Revision discussion of economic
conditions.
There is growing evidence that California is showing signs of an
economic turn around, and the May 1994 Revision forecast is revised up from
the 1994-95 Governor's Budget forecast. Since the 1994-95 Governor's
Budget forecast, 1993 non-farm employment has been revised upward by
31,000. Employment in the early months of 1994 has shown encouraging signs
of growth, several months sooner than was contemplated in the 1994-95
Governor's Budget forecast. Between December and April, payrolls are up by
50,000 jobs. The Northridge Earthquake may have dampened economic activity
briefly during late January and February, but the rebuilding effects are
now adding a small measure of stimulus.
Sectors which are contributing to California's recovery include
construction and related manufacturing, wholesale and retail trade,
transportation and several service industries such as amusements and
recreation, business services and management consulting. Electronics is
showing modest growth and the rate of decline in aerospace manufacturing is
slowly diminishing. These trends are expected to continue, and by next
year, much of the restructuring in the finance and utilities industries
should be nearly completed. Thus, the State's recovery should gain
momentum over the next two years.
As a result of these factors, average 1994 nonfarm employment is now
forecast to maintain 1993 levels compared to a projected 0.6% decline in
the 1994-95 Governor's Budget. 1995 Employment is expected to be up 1.6%,
compared to 0.7% in the 1994-95 Governor's Budget.
The housing forecast remains essentially unchanged. Although existing
home sales have strengthened and subdivision surveys indicated increased
new home sales, building permits are up only slightly from recession lows.
Gains are expected in the months ahead, but higher mortgage interest rates
will dampen the upturn. Essentially, the earthquake adds a few thousand
units to the forecast, but this effect is offset by higher interest rates.
Interest rates represent one of several downside risks to the
forecast. The rise in interest rates has occurred more rapidly than
contemplated in the 1994-95 Governor's Budget forecast. In addition to
affecting housing, higher rates may also dampen consumer spending, given
the high proportion of California homeowners with adjustable-rate
mortgages. The May 1994 Revision forecast includes a further rise in the
Federal Funds rate to nearly 5% by the beginning of 1995. Should rates
rise more steeply, housing and consumer spending would be adversely
affected.
The employment upturn is still tenuous. The Employment Development
Department revised down February's employment gain and March was revised to
a small decline. Unemployment rates in California have historically been
volatile.
The July 1994 Bulletin of the Department of Finance reports that the
economy continued to show signs of recovery, although several labor market
indicators were weak in June. Based on a survey of employers, nonfarm
employment fell 12,000 in June, although it was still up over 17,000 since
December 1993. The Bulletin noted, however, that data from payroll tax
records and income tax withholding receipts for late 1993 and the first
part of 1994 were stronger than the employer survey results would indicate,
suggesting steady job gains thus far in 1994. The unemployment rate, which
is volatile, remained unchanged in June at 8.3%, still much higher than the
national average. The trend in the first six months of 1994, however,
appeared to be downward, and was below the 10.1% peak in March.
Housing permits were reported rising slowly, to a 93,000 annual rate
in May, continuing a modest recovery evident since late 1993. Retail sales
for January-April 1994 were up 4.3% over the same period a year earlier.
Sales had grown less than 1% in both 1992 and 1993.
APPENDIX B
Description of Standard & Poor's Corporation ("S&P"), Moody's
Investors Service, Inc. ("Moody's") and Fitch Investors Service, Inc.
("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, which is used 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.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities. Bonds in the Aa category which Moody's
believes possess the strongest investment attributes are designated by the
symbol Aa1.
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 range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (P-2) have a strong ability for repayment of
senior short-term debt obligations. Capitalization character-
istics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-
term loans are designated Moody's Investment Grade (MIG). Such
ratings recognize the difference between short-term credit risk and
long-term risk. Factors affecting the liquidity of the borrower
and short-term cyclical elements are critical in short-term
ratings, while other factors of major importance in bond risk,
long-term secular trends, for example, may be less important over
the short run.
A short-term rating may also be assigned on an issue having a
demand feature. Such ratings will be designated as VMIG or, if the
demand feature is not rated, as NR. Short-term ratings on issues
with demand features are differentiated by the use of the VMIG
symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on
external liquidity. Additionally, 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 MIG1 or VMIG 1 through MIG 4 or VMIG 4. As the name
implies, when Moody's assigns a MIG or VMIG rating, all categories
define an investment grade situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for
refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's
ability to meet the obligations of a specific debt issue or class
of debt. The ratings take into consideration special features of
the issue, its relationship to other obligations of the issuer, the
current financial conditions and operating performance of the
issuer and of any guarantor, as well as the political and economic
environment that might affect the issuer's future financial
strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong as
bonds rated AAA. Because bonds rated in the AAA and AA categories
are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated
F-1+.
Plus (+) and minus (-) signs are used with a rating symbol to
indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the AAA
category covering 12-36 months.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of up to three years,
including commercial paper, certificates of deposit, medium-term
notes, and municipal and investment notes.
Although the credit analysis is similar to Fitch's bond
analysis, the short-term rating places greater emphasis than bond
ratings on the existence of liquidity necessary to meet the
issuer's obligations in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for
timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payments, but the
margin of safety is not as great as the F-1+ and F-1 categories.
<TABLE>
<CAPTION>
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS JULY 31, 1994
PRINCIPAL
TAX EXEMPT INVESTMENTS-100.0% AMOUNT VALUE
-------------- -------------
<S> <C> <C>
Anaheim Housing Authority, MFHR, VRDN:
(Bel Age Project) 3%, Series A (LOC; Federal Home Loan Banks) (a,b)..... $ 5,300,000 $ 5,300,000
Refunding (Villas At Anaheim Hill) 2.85% (LOC; National Bank of Canada) (a,b) 8,850,000 8,850,000
Burbank Redevelopment Agency, Multi-Family Revenue, VRDN
2.60% (LOC; Coast Savings and Loan) (a,b)............................... 15,400,000 15,400,000
State of California, RAW 3.75%, 12/21/94.................................... 15,000,000 15,042,671
California Health Facilities Financing Authority, Revenue, VRDN:
Refunding (Saint Josephs Health Services) 2.65%, Series A (a)........... 2,585,000 2,585,000
(Scripps Memorial Hospital) 2.90%, Series B (Insured; MBIA) (a)......... 12,000,000 12,000,000
California Pollution Control Financing Authority:
PCR:
CP (Refunding-Pacific Gas and Electric):
3.25%, Series A, 8/11/94 (LOC; Swiss Bank Corp.) (b).............. 22,995,000 22,995,000
3.15%, Series D, 8/18/94 (LOC; Bank of Tokyo) (b)................. 5,000,000 5,000,000
VRDN;
(Refunding-Shell Oil Co.) 2.60% (Corp. Guaranty; Shell Oil Co.) (a) 4,800,000 4,800,000
RRR, VRDN:
(Delano Project) 2.60% (LOC; ABN-Amro Bank) (a,b)..................... 23,300,000 23,300,000
(Honey Lake Power Co. Project) 2.60% (LOC; Banque Nationale de Paris) (a,b) 15,100,000 15,100,000
Refunding:
(Ultra Power Malaga Project) 2.65%, Series A (LOC; Bank of America) (a,b) 5,300,000 5,300,000
(Ultra Power Rocklin Project):
2.65%, Series A (LOC; Bank of America) (a,b).................... 16,400,000 16,400,000
2.65%, Series B (LOC; Bank of America) (a,b).................... 3,900,000 3,900,000
California School Cash Reserve Program Authority 4.50%, Series A, 7/5/95.... 11,000,000 11,073,545
California Statewide Community Development Authority, TRAN
4.50%, Series A, 7/17/95................................................ 23,000,000 23,162,545
Concord, MFMR, VRDN:
(Arcadian Apartments) 2.85%, Series A (LOC; Federal Home Loan Banks) (a,b) 6,000,000 6,000,000
(Crossroads Apartments) 2.85%, Series B (LOC; Federal Home Loan Banks) (a,b) 3,500,000 3,500,000
Contra Costa County, MFMR, VRDN (El Cerrito Royale Project)
2.90%, Series A (LOC; Bank of America) (a,b)............................ 1,745,000 1,745,000
Foothill Eastern Transportation Corridor Agency, Toll Road Revenue, VRDN
2.65% (LOC; Morgan Guaranty Trust Co.) (a,b)............................ 19,500,000 19,500,000
Garden Grove Housing Authority, Multi-Family Revenue, VRDN
(Valley View Senior Villas Project) 3.25%, Series A (LOC; Wells Fargo Bank) (a,b) 1,600,000 1,600,000
Huntington Beach, MFHR, VRDN:
(Five Points Seniors Project) 3.25%, Series A (LOC; Wells Fargo Bank) (a,b) 3,100,000 3,100,000
(Mercury Savings and Loan Village)
3.20%, Series A (LOC; Resolution Funding Corp.) (a,b)................. 6,000,000 6,000,000
Irvine Ranch Water District, VRDN 2.70%, Series A (LOC; Sumitomo Bank) (a,b) 1,000,000 1,000,000
Irwindale, IDR, VRDN (Toys "R" Us Inc. Project) 3.025% (LOC; Bankers Trust) (a,b) 3,000,000 3,000,000
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1994
PRINCIPAL
TAX EXEMPT INVESTMENTS (CONTINUED) AMOUNT VALUE
-------------- -------------
Kern County, COP, VRDN (Kern Public Facilities Project)
2.70%, Series B (LOC; Sanwa Bank) (a,b)................................. $ 13,900,000 $ 13,900,000
Loma Linda, VRDN:
HR (Loma Linda University Medical Center):
2.70%, Series C (LOC; Industrial Bank of Japan) (a,b)................. 13,065,000 13,065,000
2.85%, Series C (LOC; Industrial Bank of Japan) (a,b)................. 5,000,000 5,000,000
MFHR, VRDN (Loma Linda Springs Apartment) 3.65% (LOC; Tokai Bank) (a,b). 3,930,000 3,930,000
Los Angeles, MFHR, VRDN:
(Beverly Park Apartments) 2.75%, Series A (LOC; Barclays Bank) (a,b).... 7,600,000 7,600,000
(Studio Colony Project) 2.90%, Series C (LOC; Industrial Bank of Japan) (a,b) 9,795,000 9,795,000
Los Angeles Community Redevelopment Agency, MFHR, VRDN:
(Grand Promenade Project) 3.45% (LOC; Tokai Bank) (a,b)................. 7,900,000 7,900,000
(Rental Academy Apartments) 3.20%, Series A (LOC; Dai-Ichi Kangyo Bank) (a,b) 6,300,000 6,300,000
Los Angeles County, TRAN 4.50%, 6/30/95..................................... 13,710,000 13,788,265
Los Angeles County Department of Water and Power, CP 3.20%, 8/16/94......... 8,750,000 8,750,000
Los Angeles County Housing Authority, MFHR, VRDN:
(Malibu Canyon Apartments) 2.80%, Series B (LOC; Coast Savings and Loan) (a,b) 9,300,000 9,300,000
(River Park Apartment Project) 3.05%, Series D (LOC; Dai-Ichi Kangyo Bank) (a,b) 5,000,000 5,000,000
Los Angeles County Industrial Development Authority, IDR, VRDN (Fruitland
Association)
4%, Issue II (LOC; Tokai Bank) (a,b).................................... 3,600,000 3,600,000
Los Angeles County Local Educational Agencies, COP, TRAN 4.50%, 7/6/95...... 8,000,000 8,053,644
Los Angeles County Metropolitan Transportation Authority:
Revenue, RAN 3.75%, Series A, 3/14/95 (LOC; Union Bank of Switzerland) (b) 14,000,000 14,037,558
Sales Tax Revenue, Refunding, VRDN (Property C)
2.65%, Series A (Insured; MBIA and SBPA; Industrial Bank of Japan) (a) 29,000,000 29,000,000
Los Angeles County Transportation Community, Sales Tax Revenue, CP
3.10%, Series A 10/19/94 (LOC: ABN-Amro Bank, Banco Nationale de Paris,
Bank of
California, Canadian Imperial Bank of Commerce and National Westminster Bank) (b) 10,000,000 10,000,000
Los Angeles Harbor Department, Revenue, VRDN (Wilmington Liquid Terminals
Inc.)
3% (LOC; The Bank of New York) (a,b).................................... 25,000,000 25,000,000
Los Angeles Unified School District, TRAN 4.50%, 7/10/95.................... 10,875,000 10,963,716
City of Oceanside, MFMR, VRDN (Riverview Springs Apartments)
3.05%, Series A (LOC; Bank of Tokyo) (a,b).............................. 3,820,000 3,820,000
Orange County Various Sanitation Districts, COP, Refunding, VRDN
2.65% (Insured; FGIC) (a,b)............................................. 100,000 100,000
City of Oxnard Housing Authority, MFHR, VRDN (Seawind Apartments Project)
2.95%, Series A (LOC; Federal Home Loan Banks) (a,b).................... 2,400,000 2,400,000
Palm Springs Industrial Development Authority, Revenue, VRDN (BP Holdings
Project)
2.95%, Series A (LOC; First Interstate Bank of California) (a,b)........ 5,200,000 5,200,000
Paramount, MFHR, VRDN:
(Mercury Savings and Loan Triangle Development Project)
3.20%, Series A (LOC; Resolution Funding Corp.) (a,b)................. 9,000,000 9,000,000
(Twin Towers Apartments Project) 3% (LOC; Federal Home Loan Banks) (a,b) 8,700,000 8,700,000
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1994
PRINCIPAL
TAX EXEMPT INVESTMENTS (CONTINUED) AMOUNT VALUE
-------------- -------------
Pleasant Hill, MFMR, VRDN (Brookside Apartments)
2.85%, Series A (LOC; Federal Home Loan Banks) (a,b).................... $ 2,200,000 $ 2,200,000
Redlands, MFHR, VRDN, Refunding (Parkview Terrace)
2.75%, Series A (LOC; Bank of America) (a,b)............................ 10,000,000 10,000,000
Riverside, MFHR, VRDN (Crest Apartments Project)
3.45%, Series A (LOC; Tokai Bank) (a,b)................................. 3,500,000 3,500,000
Riverside County, TRAN 4.25%, 6/30/95....................................... 10,000,000 10,057,177
Riverside County Housing Authority, VRDN:
MFHR:
(Tyler Village Project) 3.65%, Series A (LOC; Tokai Bank) (a,b)....... 3,355,000 3,355,000
(Victoria Springs Apartments) 3.05% (LOC; Bank of America) (a,b)...... 6,300,000 6,300,000
MFMR (Emeritus Park) 2.85%, Series B (LOC; Federal Home Loan Banks) (a,b) 3,850,000 3,850,000
Riverside County School Financing Authority, RAN (School District Financing)
4.50%, 7/7/95........................................................... 23,100,000 23,276,340
Sacramento County, VRDN:
COP (Administration Center and Court House Project)
2.70% (LOC; Union Bank of Switzerland) (a,b).......................... 5,000,000 5,000,000
MFHR:
3.05%, Series A (LOC; Dai-Ichi Kangyo Bank) (a,b)..................... 7,900,000 7,900,000
3.05%, Series C (LOC; Dai-Ichi Kangyo Bank) (a,b)..................... 2,400,000 2,400,000
Refunding (Smoketree Apartments) 2.85% (LOC; Federal Home Loan Banks) (a,b) 3,900,000 3,900,000
Sacramento County Housing Authority, MFHR, VRDN:
Refunding (Grouse Run Apartments) 2.75% (LOC; Bank of America) (a,b).... 2,400,000 2,400,000
(Stone Creek Apartments Project) 3.10%, Series L
(LOC; First Interstate Bank of California) (a,b)...................... 5,450,000 5,450,000
San Bernardino Board of Education, TRAN 4.25%, 7/28/95...................... 10,000,000 10,027,518
San Bernardino County, VRDN:
COP 3.05% (LOC; Sumitomo Trust and Banking Co.) (a,b)................... 12,000,000 12,000,000
MFHR:
(Meadowland Apartments Project)
2.90%, Series A (LOC; Bayerische Landesbank Girozentrale) (a,b)... 8,000,000 8,000,000
Refunding (Park Heights Apartments) 3.10% (LOC; Federal Home Loan Banks) (a,b) 5,520,000 5,520,000
City of San Diego, MFHR, Refunding, VRDN (University Town Center Apartments)
2.75% (LOC; Bank of America) (a,b)...................................... 7,000,000 7,000,000
San Diego Area Local Government, COP, TRAN 4.50%, 6/30/95................... 15,000,000 15,115,344
San Diego County Regional Transportation Commission, Sales Tax Revenue, VRDN
2.85%, (Insured; FGIC) (a).............................................. 6,000,000 6,000,000
San Diego Housing Authority, MFHR, VRDN (Nobel Court Apartments)
2.80% (LOC; Citibank) (a,b)............................................. 4,000,000 4,000,000
San Dimas Redevelopment Agency Industrial Development Authority, IDR, VRDN
(French Co. Project) 3.20% (LOC; Credit Commercial de France) (a,b)..... 4,600,000 4,600,000
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1994
PRINCIPAL
TAX EXEMPT INVESTMENTS (CONTINUED) AMOUNT VALUE
-------------- -------------
San Francisco City and County Redevelopment Agency, Multi-Family Revenue,
VRDN
(Bayside Village Project):
2.80%, Series A (LOC; Industrial Bank of Japan) (a,b)................. $ 2,500,000 $ 2,500,000
2.80%, Series B (LOC; Industrial Bank of Japan) (a,b)................. 7,600,000 7,600,000
San Francisco City and County Unified School District, TRAN 3.50%, 8/12/94.. 8,000,000 8,001,052
Santa Ana Housing Authority, MFHR, VRDN (Vintage Apartments Project)
3.65%, Series A (LOC; Tokai Bank) (a,b)................................. 4,225,000 4,225,000
Santa Clara, Electric Revenue, VRDN (Junior Lien)
2.75%, Series B (LOC; National Westminster Bank) (a,b).................. 3,400,000 3,400,000
Santa Clara County Transportation District, Refunding, VRDN
2.60%, Series 85A (LOC; Sumitomo Bank) (a,b)............................ 1,600,000 1,600,000
Simi Valley, MFHR, Refunding, VRDN 2.80%, Series A (LOC; Bank of America) (a,b) 12,070,000 12,070,000
Southern California Public Power Authority, Transmission Project Revenue,
Refunding
VRDN (Southern Transmission)
2.70% (Insured; AMBAC and LOC; Swiss Bank Corp.) (a,b).................. 15,600,000 15,600,000
----------
TOTAL INVESTMENTS (cost $686,704,375)....................................... $ 686,704,375
=============
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation MFMR Multi-Family Mortgage Revenue
COP Certificate of Participation PCR Pollution Control Revenue
CP Commercial Paper RAN Revenue Anticipation Notes
FGIC Financial Guaranty Insurance Corporation RAW Revenue Anticipation Warrants
HR Hospital Revenue RRR Resources Recovery Revenue
IDR Industrial Development Revenue SBPA Standby Bond Purchase Agreement
LOC Letter of Credit TRAN Tax and Revenue Anticipation Notes
MBIA Municipal Bond Insurance Association VRDN Variable Rate Demand Notes
MFHR Multi-Family Housing Revenue
</TABLE>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- ------- ------------------ -------------------
VMIG1/MIG1, P1 (c) SP1+/SP1, A1+/A1 (c) 91.0%
VMIG2/MIG2, P2 SP2, A2 2.4
Aaa/Aa (d) AAA/AA (d) 5.5
Not Rated (e) Not Rated (e) 1.1
------
100.0%
======
NOTES TO STATEMENT OF INVESTMENT:
(a) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(b) Secured by letters of credit. At July 31, 1994, 67.9% of the Fund's
net assets are backed by letters of credit issued by domestic banks and
foreign banks.
(c) P1 and A1 are the highest ratings assigned tax-exempt commercial
paper by Moody's and Standard & Poor's, respectively.
(d) Notes which are not MIG or SP rated are represented by bond ratings
of the issuers.
(e) Securities which, while not rated by Moody's and Standard & Poor's,
respectively, have been determined by the Fund's Board of Trustees to be
of comparable quality to those rated securities in which the Fund may
invest.
(f) At July 31, 1994, the Fund had $227,410,000 (32.5% of net assets)
invested in securities whose payment of principal and interest is
dependent upon revenues generated from housing projects.
See notes to financial statements.
<TABLE>
<CAPTION>
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value-Note 1(a)........................... $686,704,375
Cash.................................................................... 9,926,428
Interest receivable..................................................... 2,807,363
Prepaid expenses........................................................ 41,545
------------
699,479,711
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 148,937
Accrued expenses and other liabilities.................................. 225,795 374,732
----------- ------------
NET ASSETS ................................................................ $699,104,979
============
REPRESENTED BY:
Paid-in capital......................................................... $699,224,635
Accumulated net realized (loss) on investments.......................... (119,656)
------------
NET ASSETS at value applicable to 699,224,635 shares outstanding
(unlimited number of $.001 par value shares of
Beneficial Interest authorized)......................................... $699,104,979
============
NET ASSET VALUE, offering and redemption price per share
($699,104,979 / 699,224,635 shares)..................................... $1.00
=====
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1994
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 17,903,061
EXPENSES:
Management fee-Note 2(a)............................................. $3,474,588
Shareholder servicing costs-Note 2(c)................................. 592,752
Custodian fees........................................................ 62,272
Professional fees..................................................... 52,770
Registration fees..................................................... 33,033
Prospectus and shareholders' reports-Note 2(b)........................ 25,478
Trustees' fees and expenses-Note 2(d)................................. 18,932
Miscellaneous......................................................... 22,172
----------
4,281,997
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 1,968,729
----------
TOTAL EXPENSES.................................................. 2,313,268
---------
INVESTMENT INCOME-NET...................................................... 15,589,793
NET REALIZED (LOSS) ON INVESTMENTS.......................................... (111,389)
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 15,478,404
=============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
----------------------------------
1993 1994
-------------- ---------------
<S> <C> <C>
OPERATIONS:
Investment income-net.................................................. $ 14,833,228 $ 15,589,793
Net realized (loss) on investments...................................... (8,267) (111,389)
-------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 14,824,961 15,478,404
-------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net.................................................. (14,833,228) (15,589,793)
Net realized gain on investments........................................ (4,534) --
-------------- ---------------
TOTAL DIVIDENDS....................................................... (14,837,762) (15,589,793)
-------------- ---------------
BENEFICIAL INTEREST TRANSACTIONS ($1.00 per share):
Net proceeds from shares sold........................................... 1,580,032,863 2,518,641,419
Dividends reinvested.................................................... 13,832,655 14,582,815
Cost of shares redeemed................................................. (1,534,701,903) (2,442,541,575)
-------------- ---------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS.......... 59,163,615 90,682,659
-------------- ---------------
TOTAL INCREASE IN NET ASSETS...................................... 59,150,814 90,571,270
NET ASSETS:
Beginning of year....................................................... 549,382,895 608,533,709
-------------- ---------------
End of year............................................................. $ 608,533,709 $ 699,104,979
============== ===============
See notes to financial statements.
</TABLE>
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
Reference is made to page 3 of the Fund's Prospectus dated November 29,
1994.
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940 ("Act")
as a non-diversified open-end management investment company. Dreyfus Service
Corporation acted as the distributor of the Fund's shares until August 24,
1994, which are sold to the public without a sales load. Dreyfus Service
Corporation is a wholly-owned subsidiary of The Dreyfus Corporation
("Manager"). Effective August 24, 1994, the Manager became a direct
subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services Inc. ("Premier") was
engaged as the Fund's distributor. Premier, located at One Exchange Place,
Boston, Massachusetts 02109, is a wholly-owned subsidiary of Institutional
Administration Services, Inc., a provider of mutual fund administration
services, the parent company of which is Boston Institutional Group, Inc.
It is the Fund's policy to maintain a continuous net asset value per
share of $1.00; the Fund has adopted certain investment, portfolio valuation
and dividend and distribution policies to enable it to do so.
(A) PORTFOLIO VALUATION: Investments are valued at amortized cost, which
has been determined by the Fund's Board of Trustees to represent the fair
value of the Fund's investments.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Interest income, adjusted
for amortization of premiums and original issue discounts on investments, is
earned from settlement date and recognized on the accrual basis. Realized
gain and loss from securities transactions are recorded on the identified
cost basis.
The Fund follows an investment policy of investing primarily in municipal
obligations of one state. Economic changes affecting the state and certain of
its public bodies and municipalities may affect the ability of issuers within
the state to pay interest on, or repay principal of, municipal obligations
held by the Fund.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain, if any, are normally declared and
paid annually, but the Fund may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income taxes.
The Fund has an unused capital loss carryover of approximately $8,200
available for Federal income tax purposes to be applied against future net
securities profits, if any realized subsequent to July 31, 1994. The
carryover does not include net realized securities losses from November 1,
1993 through July 31, 1994 which are treated, for Federal income tax
purposes, as arising in fiscal 1995. If not applied, the carryover expires in
fiscal 2002.
At July 31, 1994, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .50 of 1% of the average
daily value of the Fund's net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Fund's
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed 1 1/2% of the average value of the Fund's net
assets for any full fiscal year. However, during the year ended July 31,
1994, the Manager had undertaken to reduce the management fee paid by the
Fund, to the extent that the Fund's aggregate expenses exceeded specified
annual percentages of the Fund's average daily net assets. The reduction in
management fee, pursuant to the undertaking, amounted to $1,968,729 for the
year ended July 31, 1994.
The Manager may modify the expense limitation percentages from time to
time, provided that the resulting expense reimbursement would not be less
than the amount required pursuant to the Agreement.
(B) The Fund has adopted a Service Plan (the "Plan") pursuant to which
the Fund will bear the costs of preparing, printing and distributing certain
of the Fund's prospectuses and statements of additional information and costs
associated with implementing and operating the Plan, not to exceed the
greater of $100,000 or .005 of 1% of the Fund's average daily net assets for
any full fiscal year. For the year ended July 31, 1994, the Fund was charged
$11,231 pursuant to the Plan.
(C) Pursuant to the Fund's Shareholder Services Plan, the Fund reimburses
Dreyfus Service Corporation an amount not to exceed an annual rate of .25 of
1% of the value of the Fund's average daily net assets for servicing
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. During the year ended
July 31, 1994, the Fund was charged an aggregate of $226,917 pursuant to the
Shareholder Services Plan.
(D) Certain officers and trustees of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or Dreyfus Service Corporation.
Each trustee who is not an "affiliated person" receives an annual fee of
$2,500 and an attendance fee of $250 per meeting.
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
GENERAL CALIFORNIA MUNICIPAL MONEY MARKET FUND
We have audited the accompanying statement of assets and liabilities of
General California Municipal Money Market Fund, including the statement of
investments, as of July 31, 1994, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the
two years in the period then ended and financial highlights for each of the
years indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 1994 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of General California Municipal Money Market Fund at July 31, 1994,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the indicated years, in conformity with generally
accepted accounting principles.
(signature logo)
New York, New York
September 6, 1994
