File Nos. 33-30703
811-5872
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 10 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 10 [ X ]
(Check appropriate box or boxes.)
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o The Dreyfus Corporation
200 Park Avenue, New York, New York 10166
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 922-6000
Mark N. Jacobs, Esq.
200 Park Avenue
New York, New York 10166
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
immediately upon filing pursuant to paragraph (b)
----
X on January 31, 1997 pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)(i)
----
on (date) pursuant to paragraph (a)(i)
----
75 days after filing pursuant to paragraph (a)(ii)
----
on (date) pursuant to paragraph (a)(ii) of Rule 485
----
If appropriate, check the following box:
this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
----
Registrant has registered 500 million shares of its common stock under
the Securities Act of 1933 pursuant to Section 24(f) of the Investment
Company Act of 1940. Registrant's Rule 24f-2 Notice for the fiscal year
ended September 30, 1996 was filed on November 18, 1996.
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part A of
Form N-1A Caption Page
_________ _______ ____
1 Cover Page Cover
2 Synopsis 3
3 Condensed Financial Information 4
4 General Description of Registrant 4, 21
5 Management of the Fund 9
5(a) Management's Discussion of Fund's Performance *
6 Capital Stock and Other Securities 21
7 Purchase of Securities Being Offered 10
8 Redemption or Repurchase 15
9 Pending Legal Proceedings *
Items in
Part B of
Form N-1A
- ---------
10 Cover Page Cover
11 Table of Contents Cover
12 General Information and History B-29
13 Investment Objectives and Policies B-2
14 Management of the Fund B-12
15 Control Persons and Principal B-14
Holders of Securities
16 Investment Advisory and Other B-15
Services
_________________________________
NOTE: * Omitted since answer is negative or inapplicable.
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
Cross-Reference Sheet Pursuant to Rule 495(a) (continued)
Items in
Part B of
Form N-1A Caption Page
_________ _______ _____
17 Brokerage Allocation B-24
18 Capital Stock and Other Securities B-29
19 Purchase, Redemption and Pricing B-17, B-19
of Securities Being Offered B-24
20 Tax Status *
21 Underwriters B-1, B-14
22 Calculations of Performance Data B-27
23 Financial Statements B-51
Items in
Part C of
Form N-1A
_________
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under C-3
Common Control with Registrant
26 Number of Holders of Securities C-3
27 Indemnification C-3
28 Business and Other Connections of C-4
Investment Adviser
29 Principal Underwriters C-11
30 Location of Accounts and Records C-14
31 Management Services C-14
32 Undertakings C-14
_____________________________________
NOTE: * Omitted since answer is negative or inapplicable.
- ------------------------------------------------------------------------------
PROSPECTUS JANUARY 31, 1997
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
- ------------------------------------------------------------------------------
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC. (THE "FUND") IS AN
OPEN-END, NONDIVERSIFIED, MANAGEMENT INVESTMENT COMPANY. THE FUND'S
INVESTMENT OBJECTIVE IS TO MAXIMIZE CURRENT INCOME EXEMPT FROM FEDERAL AND
STATE OF CALIFORNIA PERSONAL INCOME TAXES TO THE EXTENT CONSISTENT WITH THE
PRESERVATION OF CAPITAL.
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.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED JANUARY 31, 1997,
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. THE SECURITIES AND
EXCHANGE COMMISSION MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS
THE STATEMENT OF ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE,
AND OTHER INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, 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 144.
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. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO
TIME.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Fee Table....................................................... 3
Condensed Financial Information................................. 4
Description of the Fund......................................... 4
Management of the Fund.......................................... 9
How to Buy Shares............................................... 10
Shareholder Services............................................ 12
How to Redeem Shares............................................ 15
Service Plan.................................................... 18
Shareholder Services Plan....................................... 18
Dividends, Distributions and Taxes.............................. 18
Performance Information......................................... 20
General Information............................................. 21
Appendix........................................................ 22
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
[This Page Intentionally Left Blank]
Page 2
<TABLE>
<CAPTION>
FEE TABLE
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTIONS EXPENSES
Redemption Fee* (as a percentage of amount redeemed)....................... .10%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees............................................................ .60%
12b-1 Fees................................................................. .00%
Other Expenses............................................................. .16%
Total Fund Operating Expenses (after expense reimbursement)................ .76%
* Shares held for less than 15 days may be subject to a .10% redemption fee
payable to the Fund. See "How to Redeem Shares."
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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: $8 $24 $42 $94
</TABLE>
- ------------------------------------------------------------------------------
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%.
- ------------------------------------------------------------------------------
The purpose of the foregoing table is to assist you in understanding
the costs and expenses borne by the Fund and investors, the payment of which
will reduce investors' annual return. Although the Fund's Board has adopted a
plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), management of the Fund currently does not intend to
implement the plan and will only do so if prior written notice is given to
shareholders. If management of the Fund decides to implement the plan, 12b-1
Fees and Total Fund Operating Expenses would be .25% and 1.01%, respectively.
If the plan were implemented, long-term investors could pay more in 12b-1
fees than the economic equivalent of paying a front-end sales charge. Certain
Service Agents (as defined below) may charge their clients direct fees for
effecting transactions in Fund shares; such fees are not reflected in the
foregoing table. See "Management of the Fund," "How to Buy Shares," "How to
Redeem Shares," "Service Plan" and "Shareholder Services Plan."
Page 3
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 Common Stock 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 SEPTEMBER 30,
-------------------------------------------------------------------
PER SHARE DATA: 1990(1) 1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.50 $12.43 $12.89 $13.33 $14.36 $12.90 $13.30
------- ------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS:
Investment income--net......... .90 .90 .85 .82 .78 .73 .70
Net realized and unrealized gain (loss)
on investments............... (.08) .47 .44 1.11 (1.40) .48 .19
------- ------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS .82 1.37 1.29 1.93 (.62) 1.21 .89
------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS:
Dividends from investment income--net (.89) (.91) (.85) (.82) (.78) (.73) (.68)
Dividends from net realized
gain on investments.......... -- -- -- (.08) (.06) (.08) (.16)
------- ------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS.......... (.89) (.91) (.85) (.90) (.84) (.81) (.84)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of year... $12.43 $12.89 $13.33 $14.36 $12.90 $13.30 $13.35
======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN............ 6.93%(2) 11.35% 10.31% 15.04% (4.43%) 9.82% 6.85%
RATIOS/SUPPLEMENTAL DATA:
Ratios of expenses to average net assets -- .21% .37% .64% .76% .76% .76%
Ratios of net investment income to
average net assets........... 7.35%(2) 7.06% 6.47% 5.96% 5.72% 5.66% 5.25%
Decrease reflected in the above expense
ratios due to undertakings by
The Dreyfus Corporation...... 1.05%(2) .62% .39% .11% ._ ._ ._
Portfolio Turnover Rate........ 9.94%(3) 2.81% 23.97% 30.20% 29.74% 83.31% 164.93%
Net Assets, end of year (000's omitted) $98,427 $271,656 $374,198 $456,429 $347,063 $317,835 $296,798
(1) From October 10, 1989 (commencement of operations) to September 30, 1990.
(2) Annualized.
(3) Not annualized.
</TABLE>
Further information about the Fund's performance is contained in the
Fund's annual report, which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's investment objective is to maximize current income exempt
from Federal and State of California personal income taxes to the extent
consistent with the preservation of capital. To accomplish its investment
objective, the Fund invests primarily in the debt securities of the State of
California, its political subdivisions, authorities and corporations, the
interest from which is, in the opinion of bond counsel to the issuer, exempt
from Federal and State of California personal income taxes (collectively,
Page 4
"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 1940 Act) of the Fund's outstanding voting shares. There can be no
assurance that the Fund's investment objective will be achieved.
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 do not
carry the pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Notes are
short-term instruments which are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal Obligations include municipal
lease/purchase agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities. Municipal Obligations
bear fixed, floating or variable rates of interest, which are determined in
some instances by formulas under which the Municipal Obligation's interest
rate will change directly or inversely to changes in interest rates or an
index, or multiples thereof, in many cases subject to a maximum and minimum.
Certain Municipal Obligations are subject to redemption at a date earlier
than their stated maturity pursuant to call options, which may be separated
from the related Municipal Obligation and purchased and sold separately.
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. At least 65% of the value of
the Fund's net assets (except when maintaining a temporary defensive
position) will be invested in bonds, debentures and other debt instruments.
Under normal circumstances, at least 65% 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 "Investment Considerations and
Risks _Investing in California Municipal Obligations" below, and "Dividends,
Distributions and Taxes."
At least 65% of the value of the Fund's net assets must consist of
Municipal Obligations which, in the case of bonds, are rated no lower than
Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard &
Poor's Ratings Group ("S&P") or Fitch Investors Service, L.P. ("Fitch"). The
Fund may invest up to 35% of the value of its net assets in Municipal
Obligations which, in the case of bonds, are rated lower than Baa by Moody's
and BBB by S&P and Fitch and as low as the lowest rating assigned by Moody's,
S&P or Fitch. The Fund may invest in short-term Municipal Obligations which
are rated in the two highest rating categories by Moody's, S&P or Fitch. See
"Appendix B" in the Statement of Additional Information. Municipal
Obligations rated BBB by S&P or Fitch or Baa
Page 5
by Moody's are considered investment grade obligations; those rated BBB by S&P
and Fitch are regarded as having an adequate capacity to pay principal and
interest, while those rated Baa by Moody's are considered medium grade
obligations which lack outstanding investment characteristics and have
speculative characteristics. Investments rated Ba or lower by Moody's and BB
or lower by S&P and Fitch ordinarily provide higher yields but involve greater
risk because of their speculative characteristics. The Fund may invest in
Municipal Obligations rated C by Moody's or D by S&P or Fitch, which is such
rating organizations' lowest rating and indicates that the Municipal
Obligation is in default and interest and/or repayment of principal is in
arrears. See "Investment Considerations and Risks _ Lower Rated Bonds" below
for a further discussion of certain risks. The Fund also may invest in
securities which, while not rated, are determined by The Dreyfus Corporation
to be of comparable quality to the rated securities in which the Fund may
invest; for purposes of the 65% requirement described in this paragraph, such
unrated securities shall be deemed to have the rating so determined. The Fund
also may invest in Taxable Investments of the quality described under
"Appendix -- Certain Portfolio Securities -- Taxable Investments." The Fund
intends to invest less than 35% of the value of its net assets in Municipal
Obligations rated Ba or lower by Moody's and BB or lower by S&P and Fitch.
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 the purpose 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. See"Investment Considerations and Risks" below.
The Fund may engage in various investment techniques, such as options
and futures transactions and lending portfolio securities. Use of certain of
these techniques may give rise to taxable income. See "Dividends,
Distributions and Taxes." For discussion of the investment techniques and
their related risks, see "Investment Considerations and Risks"and "Appendix _
Investment Techniques" below and "Investment Objective and Management
Policies -- Management Policies"in the Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- Even though interest-bearing securities are investments which
promise a stable stream of income, the prices of such securities are
inversely affected by changes in interest rates and, therefore, are subject
to the risk of market price fluctuations. Certain securities that may be
purchased by the Fund, such as those with interest rates that fluctuate
directly or indirectly based on multiples of a stated index, are designed to
be highly sensitive to changes in interest rates and can subject the holders
thereof to extreme reductions of yield and possibly loss of principal. The
values of fixed-income securities also may be affected by changes in the
credit rating or financial condition of the issuing entities. Once the rating
of a portfolio security has been changed, the Fund will consider all
circumstances deemed relevant in determining whether to continue to hold the
security. The Fund's
Page 6
net asset value generally will not be stable and should fluctuate based upon
changes in the value of the Fund's portfolio securities. Securities in which
the Fund invests may earn a higher level of current income than certain
shorter-term or higher quality securities which generally have greater
liquidity, less market risk and less fluctuation in market value.
INVESTING IN 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. From mid-1990 to late 1993,
the State suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. At June 30, 1994, according to California's
Department of Finance, the State's Special Fund for Economic Uncertainties
had an accumulated deficit, on a budget basis, of approximately $1.8 billion.
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 and $3.0
billion of revenue anticipation notes. The 1994-95 Budget Act contained a
plan to retire a projected $1.025 billion deficit in the 1995-96 fiscal year.
As a result of the deterioration in the State's budget and cash situation,
between October 1991 and July 1994 the ratings on the State's general
obligation bonds were 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 the 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.
INVESTING IN MUNICIPAL OBLIGATIONS -- The Fund may invest more than 25% of
the value of its total assets in Municipal Obligations which are related in
such a way that an economic, business or political development or change
affecting one such security also would affect the other securities; for
example, securities the interest upon which is paid from revenues of similar
types of projects. As a result, the Fund may be subject to greater risk as
compared to a fund that does not follow this practice.
Certain municipal lease/purchase obligations in which the Fund may
invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure
might prove difficult. In evaluating the credit quality of a municipal
lease/purchase obligation that is unrated, The 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
Page 7
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.
ZERO COUPON SECURITIES -- Federal income tax law requires the holder of a
zero coupon security or of certain pay-in-kind bonds to accrue income with
respect to these securities prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid
liability for Federal income taxes, the Fund may be required to distribute
such income accrued with respect to these securities and may have to dispose
of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.
LOWER RATED BONDS _ The Fund may invest up to 35% of the value of its net
assets in higher yielding (and, therefore, higher risk) debt securities such
as those rated Ba by Moody's or BB by S&P or Fitch or as low as the lowest
rating assigned by Moody's, S&P or Fitch (commonly known as junk bonds). They
may be subject to certain risks with respect to the issuing entity and to
greater market fluctuations than certain lower yielding, higher rated
fixed-income securities. The retail secondary market for these bonds may be
less liquid than that of higher rated bonds; adverse market conditions could
make it difficult at times for the Fund to sell certain securities or could
result in lower prices than those used in calculating the Fund's net asset
value. See "Appendix _ Certain Portfolio Securities _ Ratings."
USE OF DERIVATIVES -- The Fund may invest, to a limited extent, in
derivatives ("Derivatives"). These are financial instruments which derive
their performance, at least in part, from the performance of an underlying
asset, index or interest rate. The Derivatives the Fund may use include
options and futures. While Derivatives can be used effectively in furtherance
of the Fund's investment objective, under certain market conditions, they can
increase the volatility of the Fund's net asset value, can decrease the
liquidity of the Fund's portfolio and make more difficult the accurate
pricing of the Fund's portfolio. See "Appendix -- Investment Techniques --
Use of Derivatives" below, and "Investment Objective and Management Policies
- -- Management Policies -- Derivatives"in the Statement of Additional
Information.
NON-DIVERSIFIED STATUS -- The classification of the Fund 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 1940 Act. A "diversified" investment company is required by
the 1940 Act generally, with respect to 75% of its total assets, to invest
not more than 5% of such assets in the securities of a single issuer. Since a
relatively high percentage of the Fund's assets may be invested in the
obligations of a limited number of issuers, the Fund's portfolio may be more
sensitive to changes in the market value of a single issuer. However, to meet
Federal tax requirements, at the close of each quarter the Fund may not have
more than 25% of its total assets invested in any one issuer and, with
respect to 50% of total assets, not more than 5% of its total assets invested
in any one issuer. These limitations do not apply to U.S. Government
securities.
SIMULTANEOUS INVESTMENTS -- Investment decisions for the Fund are made
independently from those of other investment companies advised by The Dreyfus
Corporation. If, however, such other investment companies desire to invest
in, or dispose of, the same securities as the Fund, available investments or
opportunities for sales will be allocated equitably to each investment
company. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by the Fund or the price paid or
received by the Fund.
Page 8
MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- 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 December 31, 1996, The Dreyfus Corporation
managed or administered approximately $82 billion in assets for approximately
1.7 million investor accounts nationwide.
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 authority of the Fund's Board in accordance with Maryland law.
The Fund's primary portfolio manager is A. Paul Disdier. He has held that
position since the Fund's inception and has been employed by The Dreyfus
Corporation since February 1988. The Fund's other portfolio managers are
identified in the Statement of Additional Information. The Dreyfus Corporation
also provides research services for the Fund and for other funds advised by
The Dreyfus Corporation through a professional staff of portfolio managers
and securities analysts.
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, including The Dreyfus Corporation, Mellon managed more than
$226 billion in assets as of September 30, 1996, including approximately $85
billion in proprietary mutual fund assets. As of September 30, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $905 billion in assets,
including approximately $60 billion in mutual fund assets.
For the fiscal year ended September 30, 1996, the Fund paid The
Dreyfus Corporation a monthly management fee at the annual rate of .60 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
expense ratio of the Fund and increasing yield to investors. 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.
In allocating brokerage transactions for the Fund, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of the Fund or other funds managed, advised or administered by
The Dreyfus Corporation as factors in the selection of broker-dealers to
execute portfolio transactions for the Fund. See "Portfolio Transactions" in
the Statement of Additional Information.
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 Service Agents
in respect of these services.
Page 9
DISTRIBUTOR -- The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus 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, 90 Washington
Street, New York, New York 10286, is the Fund's Custodian.
HOW TO BUY SHARES
Fund shares may be purchased through the Distributor or certain
financial institutions (which may include banks), securities dealers
("Selected Dealers") and other industry professionals, such as investment
advisers, accountants and estate planning firms (collectively, "Service
Agents") that have entered into service agreements with the Distributor.
Stock 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 retirement 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 Service Agent which maintains an omnibus account in the Fund and
has made an aggregate minimum initial purchase for its customers of $2,500.
Subsequent investments must be at least $100. The initial investment must be
accompanied by the Account Application. For full-time or part-time employees
of The 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 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. Fund shares are
also offered without regard to the minimum initial investment requirements
through Dreyfus-AUTOMATIC Asset BuilderRegistration Mark, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan pursuant to the
Dreyfus Step Program. These services enable you to make regularly scheduled
investments and may provide you with a convenient way to invest for long-term
financial goals. You should be aware, however, that periodic investment plans
do not guarantee a profit and will not protect an investor against loss in a
declining market.
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
subsequent 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
Page 10
available funds may be transmitted by wire to The Bank of New York,
DDA#8900051736/General California Municipal Bond Fund, Inc., 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 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. Other purchase procedures may be in effect for clients
of certain Service Agents. 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."
Management understands that some Service Agents may impose certain
conditions on their clients which are different from those described in this
Prospectus, and, to the extent permitted by applicable regulatory authority,
may charge their clients direct fees for Servicing (as defined under "Service
Plan"). These fees would be in addition to any amounts which might be
received under the Service Plan, if it were implemented. You should consult
your Service Agent in this regard.
Fund shares are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent. Net asset value per share is determined as of the close of
trading on the floor of the New York Stock Exchange (currently 4:00 p.m., New
York time), on each day the New York Stock Exchange is open for business. For
purposes of determining net asset value per share, options and futures
contracts will be valued 15 minutes after the close of trading on the floor
of the New York Stock Exchange. Net asset value per share is computed by
dividing the value of the Fund's net assets (i.e., the value of its assets
less liabilities) by the total number of shares outstanding. The Fund's
investments are valued by an independent pricing service approved by the
Fund's Board and are valued at fair value as determined by the pricing
service. The pricing service's procedures are reviewed under the general
supervision of the Fund's Board. For further information regarding the
methods employed in valuing Fund investments, see "Determination of Net Asset
Value" in the Statement of Additional Information.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the 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 shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The
Page 11
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 shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agents and some Service Agents may
impose certain conditions on their clients which are different from those
described in this Prospectus. You should consult your Service Agent in this
regard. In addition, use of the privileges noted below may require that the
proper forms and information be filed with and processed by the Transfer
Agent.
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 applicable "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, by a separate signed
Shareholder Services Form, available by calling 1-800-645-6561, or by oral
request from any of the authorized signatories on the account by calling
1-800-645-6561. If you previously have established the Telephone Exchange
Privilege, you may telephone exchange instructions (including over The
Dreyfus TouchRegistration Mark automated telephone system) by calling
1-800-645-6561. If you are calling from overseas, call 516-794-5452. See "How
to Redeem 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.
The Fund will deduct a redemption fee equal to .10% of the net asset
value of Fund shares exchanged where the exchange is made less than 15 days
after the issuance of such shares. See "How to Redeem Shares." Otherwise,
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 you are exchanging were: (a)
purchased
Page 12
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 the exchange you must notify the Transfer
Agent or your Service Agent must notify the Distributor. Any such
qualification is subject to confirmation of your 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
administrative 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. See
"Dividends, Distributions and Taxes."
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 a shareholder. 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 day 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 mailing written notification 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. 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. See "Dividends, Distributions and Taxes."
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark -- 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 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 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
Page 13
Transfer Agent a completed Direct Deposit Sign-Up Form for each type of
payment that you desire to include in this Privilege. The appropriate form may
be obtained by calling 1-800-645-6561. Death or legal incapacity will
terminate your participation in this 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 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.
DREYFUS STEP PROGRAM -- Dreyfus Step Program enables you to purchase Fund
shares without regard to the Fund's minimum initial investment requirements
through Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government Direct Deposit
Privilege or Dreyfus Payroll Savings Plan. To establish a Dreyfus Step
Program account, you must supply the necessary information on the Fund's
Account Application and file the required authorization form(s) with the
Transfer Agent. For more information concerning this Program, or to request
the necessary authorization form(s), please call toll free 1-800-782-6620.
You may terminate your participation in this Program at any time by
discontinuing your participation in Dreyfus-AUTOMATIC Asset Builder, Dreyfus
Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the
case may be, as provided under the terms of such Privilege(s). The Fund may
modify or terminate this Program at any time.
DREYFUS DIVIDEND OPTIONS -- Dreyfus Dividend Sweep 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 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 price
s which do not include the sales load or which reflect a reduced sales load.
If you are investing in a fund that charges a contingent deferred sales
charge, the shares purchased will be subject on redemption to the contingent
deferred sales charge, if any, applicable to the purchased shares. See
"Shareholder Services" in the Statement of Additional Information. Dreyfus
Dividend ACH permits you to transfer electronically dividends or dividends
and capital gain distributions, if any, from the Fund to a designated bank
account. Only an account maintained at a 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. Enrollment in or
cancellation of these privileges is effective three business days following
receipt. These privileges are
Page 14
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.
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. The Automatic Withdrawal Plan may be ended at any time by
you, the Fund or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
HOW TO REDEEM 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 will deduct a redemption fee of .10% of the net asset value
of Fund shares redeemed or exchanged in less than 15 days following the
issuance of such shares. The fee will be retained by the Fund and used
primarily to offset the transaction costs that short-term trading imposes on
the Fund and its shareholders. For purposes of calculating the 15-day holding
period, the Fund will will employ the "first-in, first-out" method, which
assumes that the shares you are redeeming or exchanging are the ones you have
held the longest. No redemption fee will be charged on the redemption or
exchange of shares (1) through the Fund's Check Redemption Privilege,
Automatic Withdrawal Plan or Dreyfus Auto-Exchange Privilege, (2) through
accounts that are reflected on the records of the Transfer Agent as omnibus
accounts approved by Dreyfus Service Corporation, (3) through accounts
established by Service Agents approved by Dreyfus Service Corporation that
utilize the National Securities Clearing Corporation's networking system, or
(4) acquired through the reinvestment of dividends or distributions. The
redemption fee may be waived, modified or discontinued at any time, or from
time to time. Service Agents may charge their clients a fee for effecting
redemptions of Fund shares. Any certificates representing Fund shares being
redeemed must be submitted with the redemption request. 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 BUILDERRegistration
Mark AND SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER
AGENT, 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,
Page 15
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 Fund shares by using the regular redemption procedure
through the Transfer Agent, or, if you have checked the appropriate box and
supplied the necessary information on the Account Application or have filed a
Shareholder Services Form with the Transfer Agent, through the Check
Redemption Privilege, the Wire Redemption Privilege, the Telephone Redemption
Privilege, or the Dreyfus TELETRANSFER Privilege. Other redemption procedures
may be in effect for clients of certain Service Agents. The Fund makes
available to certain large institutions the ability to issue redemption
instructions through compatible computer facilities. The Fund reserves the
right to refuse any request made by wire or 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 any redemption
Privilege at any time or charge a service fee upon notice to shareholders. No
such fee currently is contemplated. Shares for which certificates have been
issued are not eligible for the Check Redemption, Wire Redemption, Telephone
Redemption or Dreyfus TELETRANSFER Privilege.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the 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 (including over The Dreyfus TouchRegistration Mark automated
telephone system) from any person representing himself or herself to be you,
or a representative of your Service Agent, and reasonably believed by the
Transfer Agent to be genuine. 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. During the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION -- Under the regular redemption procedure, you may redeem
your 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 which signature-guarantees in proper form
generally will be accepted from
Page 16
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 write Redemption Checks drawn on your
Fund account. Redemption Checks may be made payable to the order of any
person in the amount of $500 or more. Potential fluctuations in the net asset
value of Fund shares should be considered in determining the amount of the
check. 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 due to 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. This
Privilege will be terminated immediately, without notice, with respect to any
account which is, or becomes, subject to backup withholding on redemptions
(see "Dividends, Distributions and Taxes"). Any redemption check written on
an account which has become subject to backup withholding on redemptions will
not be honored by the Transfer Agent.
WIRE REDEMPTION PRIVILEGE -- 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 also 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 not more than $250,000 wired within any
30-day period. You may telephone redemption requests by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Statement of Additional Information sets forth instructions for transmitting
redemption requests by wire.
TELEPHONE REDEMPTION PRIVILEGE -- You may request by telephone that
redemption proceeds (maximum $150,000 per day) be paid by check and mailed
to your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452.
DREYFUS TELETRANSFER PRIVILEGE -- You may request by telephone that
redemption proceeds (minimum $500 per day) be transferred between your Fund
account and your bank account. Only a bank account maintained in a domestic
financial institution which is an Automated Clearing House member may be
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 (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 not more than $250,000 within any 30-day period.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
Page 17
SERVICE PLAN
Under the Service Plan, adopted pursuant to Rule 12b-1 under the 1940
Act, the Fund may (a) reimburse the Distributor for payments to certain
Service Agents for distributing the Fund's shares and servicing shareholder
accounts ("Servicing") and (b) pay The Dreyfus Corporation, Dreyfus Service
Corporation, a wholly-owned subsidiary of The Dreyfus Corporation, and any
affiliate of either of them (collectively, "Dreyfus") for advertising and
marketing relating to the Fund and for Servicing, at an aggregate annual rate
of .25 of 1% of the value of the Fund's average daily net assets. Each of the
Distributor and Dreyfus may pay one or more Service Agents a fee in respect
of Fund shares owned by shareholders with whom the Service Agent has a
Servicing relationship or for whom the Service Agent is the dealer or holder
of record. Each of the Distributor and Dreyfus determine the amount, if any,
to be paid to Service Agents under the Service Plan and the basis on which
such payments are made. The fees payable under the Service Plan are payable
without regard to actual expenses incurred.
The Fund is permitted to bear the costs of preparing and printing
prospectuses and statements of additional information used for regulatory
purposes and for distribution to existing shareholders. Under the Service
Plan, the Fund is permitted to bear (a) the costs of preparing, printing and
distributing prospectuses and statements of additional information used for
other purposes and (b) the costs associated with implementing and operating
the Service Plan (such as costs of printing and mailing service agreements),
the aggregate of such amounts not to exceed in any fiscal year of the Fund
the greater of $100,000 or .005 of 1% of the value of the Fund's average
daily net assets for such fiscal year. Each item for which a payment may be
made under the Service Plan may constitute an expense of distributing Fund
shares as the Securities and Exchange Commission construes such term under
Rule 12b-1.
Management of the Fund currently does not intend to implement the
Service Plan and will only do so if prior written notice is given to
shareholders.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan pursuant to which
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 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 its net investment income
on each day the New York Stock Exchange is open for business. Fund shares
begin earning income dividends on the day following the date of purchase.
Dividends usually are paid on the last business 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 next 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. If you are an omnibus accountholder and indicate in a partial
redemption request that a portion of any accrued dividends to which such
account is entitled belongs to an underlying accountholder who has redeemed
all shares in his or her account, such portion of the accrued dividends will
be paid to you along with the proceeds of the redemption. Distributions from
net realized securities gains, if any, generally are
Page 18
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 1940 Act. 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. No dividend paid by the Fund will qualify for the dividends
received deduction allowable to certain U.S. corporations. 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. Dividends and distributions attributable to
income or gain derived from securities transactions and from the use of
certain of the investment techniques described under "Appendix_Investment
Techniques" will be subject to Federal income tax. 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.
Although all or a substantial portion of the dividends paid by the
Fund may be excluded by shareholders of the Fund 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 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.
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.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of taxable dividends,
distributions from net realized securities gains and the
Page 19
proceeds of any redemption, regardless of the extent to which gain or loss may
be realized, 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 interest 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 September 30, 1996 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.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, tax equivalent yield, average annual total
return and/or total return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of the Fund's
current 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
current yield calculated as described above.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Fund was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end of
a stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, or for shorter time periods depending
upon the length of time during which the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may
Page 20
include the value of a hypothetical investment at the end of the period which
assumes the application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
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., Moody's Bond Survey Bond Index, Lehman Brothers
Municipal Bond Index, Morningstar, Inc. and other industry publications.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on August 18, 1989, and
commenced operations on October 10, 1989. The Fund is authorized to issue 500
million shares of Common Stock, par value $.001 per share. Each share has one
vote.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
Fund shareholders may not consider each year the election of Board members or
the appointment of auditors. However, pursuant to the Fund's By-Laws, the
holders of at least 10% of the shares outstanding and entitled to vote may
require the Fund to hold a special meeting of shareholders for purposes of
removing a Board member from office and for any other purpose. Fund
shareholders may remove a Board member by the affirmative vote of a majority
of the Fund's outstanding voting shares. In addition, the Fund's Board will
call a meeting of shareholders for the purpose of electing Board members if,
at any time, less than a majority of the Board members then holding office
have been elected by shareholders.
The Transfer Agent maintains a record of your ownership and sends
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561.
Page 21
APPENDIX
INVESTMENT TECHNIQUES
BORROWING MONEY -- The Fund is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331/3% of the value of its total assets. The Fund currently
intends to borrow money only for temporary or emergency (not
leveraging)purposes, in an amount up to 15% of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the Fund's total assets, the Fund will
not make any additional investments.
USE OF DERIVATIVES -- The Fund may invest in the types of Derivatives
enumerated under "Description of the Fund -- Investment Considerations and
Risks -- Use of Derivatives." These instruments and certain related risks are
described more specifically under "Investment Objective and Management
Policies -- Management Policies -- Derivatives" in the Statement of
Additional Information.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if its Derivatives
were poorly correlated with its other investments, or if the Fund were unable
to liquidate its position because of an illiquid secondary market. The market
for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although the Fund will not be a commodity pool, Derivatives subject
the Fund to the rules of the Commodity Futures Trading Commission which limit
the extent to which the Fund can invest in certain Derivatives. The Fund may
invest in futures contracts and options with respect thereto for hedging
purposes without limit. However, the Fund may not invest in such contracts
and options for other purposes if the sum of the amount of initial margin
deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
The Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Fund may write
(i.e., sell) covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission, the Fund will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its purchase of Derivatives. To maintain this require
d cover, the Fund may have to sell portfolio securities at disadvantageous
prices or times since it may not be possible to liquidate a Derivative
position at a reasonable price.
LENDING PORTFOLIO SECURITIES -- The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund continues to be
entitled to payments in amounts equal to the interest or other distributions
payable on the loaned securities which affords the Fund an opportunity to
earn interest on the amount of the loan and on the loaned securities'
collateral. Loans of portfolio securities may not exceed 331/3% of the value
of the Fund's total assets, and the Fund will receive collateral consisting
of cash, U.S. Government
Page 22
securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Such loans are terminable by the Fund at any time upon
specified notice. The Fund might experience risk of loss if the institution
with which it has engaged in a portfolio loan transaction breaches its
agreement with the Fund.
FORWARD COMMITMENTS -- The Fund may purchase Municipal Obligations and other
securities on a forward commitment or when-issued basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase. The payment obligation and the interest rate
receivable on a forward commitment or when-issued security are fixed when the
Fund enters into the commitment, but the Fund does not make payment until it
receives delivery from the counterparty. The Fund will commit to purchase
such securities only with the intention of actually acquiring the securities,
but the Fund may sell these securities before the settlement date if it is
deemed advisable. A segregated account of the Fund consisting of permissible
liquid assets at least equal at all times to the amount of the commitments
will be established and maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
CERTAIN TAX EXEMPT OBLIGATIONS -- The Fund may purchase floating and variable
rate demand notes and bonds, which are tax exempt obligations ordinarily
having stated maturities in excess of one year, but which permit the holder
to demand payment of principal at any time or at specified intervals.
Variable rate demand notes include master demand notes which are obligations
that permit the Fund to invest fluctuating amounts, at varying rates of
interest, pursuant to direct arrangements between the Fund, as lender, and
the borrower. These obligations permit daily changes in the amounts borrowed.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments generally will be
traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value, plus accrued
interest. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Each obligation purchased by the Fund will meet the quality criteria
established for the purchase of Municipal Obligations.
TAX EXEMPT PARTICIPATION INTERESTS -- The Fund may purchase from financial
institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase agreements). A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation interest bears to
the total principal amount of the Municipal Obligation. These instruments may
have fixed, floating or variable rates of interest. If the participation
interest is unrated, it will be backed by an irrevocable letter of credit or
guarantee of a bank that the Fund's Board has determined meets prescribed
quality standards for banks, or the payment obligation otherwise will be
collateralized by U.S. Government securities. For certain participation
interests, the Fund will have the right to demand payment, on not more than
seven days' notice, for all or any part of the Fund's participation interest
in the Municipal Obligation, plus accrued interest. As to these instruments, t
he 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.
TENDER OPTION BONDS -- The Fund may purchase tender option bonds. A tender
option bond is a Municipal Obligation (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing interest at a
fixed rate substantially higher than prevailing short-term tax exempt
Page 23
rates, that has been coupled with the agreement of a third party, such as a
bank, broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, at periodic intervals, to
tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the Municipal
Obligation's fixed coupon rate and the rate, as determined by a remarketing
or similar agent at or near the commencement of such period, that would cause
the securities, coupled with the tender option, to trade at par on the date
of such determination. Thus, after payment of this fee, the security holder
effectively holds a demand obligation that bears interest at the prevailing
short-term tax exempt rate. The 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 Obligation and
for other reasons.
CUSTODIAL RECEIPTS -- The Fund may purchase custodial receipts representing
the right to receive certain future principal and interest payments on
Municipal Obligations which underlie the custodial receipts. A number of
different arrangements are possible. In a typical custodial receipt
arrangement, an issuer or a third party owner of Municipal Obligations
deposits such obligations with a custodian in exchange for two classes of
custodial receipts. The two classes have different characteristics, but, in
each case, payments on the two classes are based on payments received on the
underlying Municipal Obligations. One class has the characteristics of a
typical auction rate security, where at specified intervals its interest rate
is adjusted, and ownership changes, based on an auction mechanism. This
class's interest rate generally is expected to be below the coupon rate of
the underlying Municipal Obligations and generally is at a level comparable
to that of a Municipal Obligation of similar quality and having a maturity
equal to the period between interest rate adjustments. The second class bears
interest at a rate that exceeds the interest rate typically borne by a
security of comparable quality and maturity; this rate also is adjusted, but
in this case inversely to changes in the rate of interest of the first class.
In no event will the aggregate interest paid with respect to the two classes
exceed the interest paid by the underlying Municipal Obligations. The value
of the second class and similar securities should be expected to fluctuate
more than the value of a Municipal Obligation of comparable quality and
maturity and their purchase by the Fund should increase the volatility of its
net asset value and, thus, its price per share. These custodial receipts are
sold in private placements. The Fund also may purchase directly from issuers,
and not in a private placement, Municipal Obligations having characteristics
similar to custodial receipts. These securities may be issued as part of a
multi-class offering and the interest rate on certain classes may be subject
to a cap or floor.
STAND-BY COMMITMENTS -- 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 its portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The Fund may pay for stand-by commitments if
such action is deemed necessary, thus increasing to a degree the cost of the
underlying Municipal Obligation and similarly decreasing such security's
yield to investors. Gains realized in connection with stand-by commitments
Page 24
will be taxable. The Fund also may acquire call options on specific Municipal
Obligations. The Fund generally would purchase these call options to protect
the Fund from the issuer of the related Municipal Obligation redeeming, or
other holder of the call option from calling away, the Municipal Obligation
before maturity. The sale by the Fund of a call option that it owns on a
specific Municipal Obligation could result in the receipt of taxable income
by the Fund.
ZERO COUPON SECURITIES -- The Fund may invest in zero coupon securities which
are debt securities issued or sold at a discount from their face value which
do not entitle the holder to any periodic payment of interest prior to
maturity or a specified redemption date (or cash payment date). The amount of
the discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and
perceived credit quality of the issuer. Zero coupon securities also may take
the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interest in such stripped debt obligations and coupons. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero coupon
securities having similar maturities and credit qualities.
ILLIQUID SECURITIES -- The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. 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. As to these securities, the
Fund is subject to a risk that should the Fund desire to sell them when a
ready buyer is not available at a price that the Fund deems representative of
their value, the value of the Fund's net assets could be adversely affected.
TAXABLE INVESTMENTS -- From time to time, on a temporary basis other than for
temporary defensive purposes (but not to exceed 20% of the value of the
Fund's net assets) or for temporary defensive purposes, the Fund may invest
in taxable short-term investments ("Taxable Investments") consisting of:
notes of issuers having, at the time of purchase, a quality rating within the
two highest grades of Moody's, S&P or Fitch; obligations of the U.S.
Government, its agencies or instrumentalities; commercial paper rated not
lower than P-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. 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 personal income taxes. 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.
Ratings _ Bonds rated Ba by Moody's are judged to have speculative elements;
their future cannot be considered as well assured and often the protection of
interest and principal payments may be very moderate. Bonds rated BB by S&P
are regarded as having predominantly speculative characteristics and,
Page 25
while such obligations have less near-term vulnerability to default than other
speculative grade debt, they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. Bonds
rated BB by Fitch are considered speculative and the payment of principal and
interest may be affected at any time by adverse economic changes. Bonds rated
C by Moody's are regarded as having extremely poor prospects of ever
attaining any real investment standing. Bonds rated D by S&P are in default
and the payment of interest and/or repayment of principal is in arrears.
Bonds rated DDD, DD or D by Fitch are in actual or imminent default, are
extremely speculative and should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the issuer; DDD represents
the highest potential for recovery of such bonds; and D represents the lowest
potential for recovery. Such bonds, though high yielding, are characterized
by great risk. See "Appendix B" in the Statement of Additional Information
for a general description of Moody's, S&P and Fitch ratings of Municipal
Obligations.
The ratings of Moody's, S&P and Fitch represent their opinions as to
the quality of the Municipal Obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and,
although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of these
bonds. Although these ratings may be an initial criterion for selection of
portfolio investments, The Dreyfus Corporation also will evaluate these
securities and the ability of the issuers of such securities to pay interest
and principal. The Fund's ability to achieve its investment objective may be
more dependent on The Dreyfus Corporation's credit analysis than might be the
case for a fund that invested in higher rated securities.
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 26
[This Page Intentionally Left Blank]
Page 27
General California Municipal Bond Fund, Inc.
Prospectus
Registration Mark
Copy Rights 1997 Dreyfus Service Corporation
131p013197
Page 28
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
JANUARY 31, 1997
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 Bond Fund, Inc. (the "Fund"), dated January
31, 1997, as it may be revised from time to time. To obtain a copy of the
Fund's Prospectus, please write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call toll free 1-800-645-6561.
The 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-12
Management Agreement. . . . . . . . . . . . . . . . . . . . .B-15
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . .B-17
Service Plan. . . . . . . . . . . . . . . . . . . . . . . . .B-18
Shareholder Services Plan . . . . . . . . . . . . . . . . . .B-18
Redemption of Shares. . . . . . . . . . . . . . . . . . . . .B-19
Shareholder Services. . . . . . . . . . . . . . . . . . . . .B-21
Determination of Net Asset Value. . . . . . . . . . . . . . .B-24
Portfolio Transactions. . . . . . . . . . . . . . . . . . . .B-24
Dividends, Distributions and Taxes. . . . . . . . . . . . . .B-25
Performance Information . . . . . . . . . . . . . . . . . . .B-27
Information About the Fund. . . . . . . . . . . . . . . . . .B-29
Transfer and Dividend Disbursing Agent, Custodian,
Counsel and Independent Auditors . . . . . . . . . . . .B-29
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . .B-30
Appendix B. . . . . . . . . . . . . . . . . . . . . . . . . .B-43
Financial Statements. . . . . . . . . . . . . . . . . . . . .B-51
Report of Independent Auditors. . . . . . . . . . . . . . . .B-62
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the sections in the Fund's Prospectus entitled
"Description of the Fund" and "Appendix."
Portfolio Securities
Municipal Obligations. The average distribution of investments (at value)
in Municipal Obligations (including notes) by ratings for the fiscal year
ended September 30, 1996, computed on a monthly basis, was as follows:
Fitch Moody's Standard
Investors Investors & Poor's
Service, L.P. Service, Inc. Ratings Group Percentage
("Fitch") or ("Moody's") or ("S&P") of Value
AAA Aaa AAA 43.6%
AA Aa AA 7.9
A A A 24.4
BBB Baa BBB 11.2
BB Ba BB .4
D C D .4
F-1+/F-1 VMIG1/MIG1, SP-1+/SP-1, 5.1
P-1 A-1
Not Rated Not Rated Not Rated 7.0*
100.0%
________________
* Included in the Not Rated category are securities comprising 7.0% of the
Fund's market value which, while not rated, have been determined by the
Manager to be of comparable quality to securities in the following rating
categories: Aaa/AAA (1.9%), A (.3%) and Baa/BBB (4.8%).
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 one year, but
which permit the holder to demand payment of principal at any time, or at
specified intervals. 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 obligation 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, including fees paid under the Fund's Shareholder Services Plan,
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 staff of the Securities
and Exchange Commission currently considers certain lease obligations to be
illiquid. Determination as to the liquidity of such securities is made in
accordance with guidelines established by the Fund's Board. Pursuant to
such guidelines, the Board has directed the Manager to monitor carefully
the Fund's investment in such securities with particular regard to (1) the
frequency of trades and quotes for the lease obligation; (2) the number of
dealers willing to purchase or sell the lease obligation and the number of
other potential buyers; (3) the willingness of dealers to undertake to make
a market in the lease obligation; (4) the nature of the marketplace trades
including the time needed to dispose of the lease obligation, the method of
soliciting offers and the mechanics of transfer; and (5) such other factors
concerning the trading market for the lease obligation as the Manager may
deem relevant. In addition, in evaluating the liquidity and credit quality
of a lease obligation that is unrated, the Fund's Board has directed the
Manager to consider (a) whether the lease can be cancelled; (b) what
assurance there is that the assets represented by the lease can be sold;
(c) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (d) the
likelihood that the municipality will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to
the operations of the municipality (e.g., the potential for an "event of
nonappropriation"); (e) the legal recourse in the event of failure to
appropriate; and (f) such other factors concerning credit quality as the
Manager may deem relevant. The Fund will not invest more than 15% of the
value of its net assets in lease obligations that are illiquid and in other
illiquid securities.
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. Subsequent to its purchase by the
Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the
Fund, but the Manager will consider such event in determining whether the
Fund should continue to hold the Municipal Obligations. 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 are relative and subjective and
are not absolute standards of quality. Although these ratings may be an
initial criterion for selection of portfolio investments, the Manager also
will evaluate these securities.
Illiquid Securities. Where a substantial market of qualified
institutional buyers develops for certain restricted securities purchased
by the Fund pursuant to Rule 144A under the Securities Act of 1933, as
amended, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Fund's Board. Because it is not
possible to predict with assurance how the market for restricted securities
pursuant to Rule 144A will develop, the Fund's Board has directed the
Manager 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.
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. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities are supported by the full faith and credit
of the U.S. Treasury; others by the right of the issuer to borrow from the
U.S. Treasury; others by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others
only by the credit of the agency or instrumentality. These securities bear
fixed, floating or variable rates of interest. 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.
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.
In a repurchase agreement, the Fund buys, and the seller agrees to
repurchase, a security at a mutually agreed upon time and price (usually
within seven days). The repurchase agreement thereby determines the yield
during the purchaser's holding period, while the seller's obligation to
repurchase is secured by the value of the underlying security. The Fund's
custodian or sub-custodian will have custody of, and will hold in a
segregated account, securities acquired by the Fund under a repurchase
agreement. Repurchase agreements are considered by the staff of the
Securities and Exchange Commission to be loans by the Fund. In an attempt
to reduce the risk of incurring a loss on a repurchase agreement, the Fund
will enter into repurchase agreements only with domestic banks with total
assets in excess of $1 billion, or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect to
securities of the type in which the Fund may invest, and will require that
additional securities be deposited with it if the value of the securities
purchased should decrease below resale price. Repurchase agreements could
involve risks in the event of a default or insolvency of the other party to
the agreement, including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities.
Management Policies
Derivatives. The Fund may invest in Derivatives (as defined in the
Prospectus) for a variety of reasons, including to hedge certain market
risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest
than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and
the portfolio as a whole. Derivatives permit the Fund to increase or
decrease the level of risk, or change the character of the risk, to which
its portfolio is exposed in much the same way as the Fund can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
When required by the Securities and Exchange Commission, the Fund will
set aside permissible liquid assets in a segregated account to cover its
obligations relating to its purchase of Derivatives. To maintain this
required cover, the Fund may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
Derivative position at a reasonable price. Derivatives may be purchased on
established exchanges or through privately negotiated transactions referred
to as over-the-counter Derivatives. Exchange-traded Derivatives generally
are guaranteed by the clearing agency which is the issuer or counterparty
to such Derivatives. This guarantee usually is supported by a daily
payment system (i.e., variation margin requirements) operated by the
clearing agency in order to reduce overall credit risk. As a result,
unless the clearing agency defaults, there is relatively little
counterparty credit risk associated with Derivatives purchased on an
exchange. By contrast, no clearing agency guarantees over-the-counter
Derivatives. Therefore, each party to an over-the-counter Derivative bears
the risk that the counterparty will default. Accordingly, the Manager will
consider the creditworthiness of counterparties to over-the-counter
Derivatives in the same manner as it would review the credit quality of a
security to be purchased by a Series. Over-the-counter Derivatives are
less liquid than exchange-traded Derivatives since the other party to the
transaction may be the only investor with sufficient understanding of the
Derivative to be interested in bidding for it.
Futures Transactions--In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the
Fund intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could
move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant
market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract. For example,
if the Fund uses futures to hedge against the possibility of a decline in
the market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit
of the increased value of securities which it has hedged because it will
have offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. The Fund may have
to sell such securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, The Fund may be required to segregate permissible
liquid assets in connection with its commodities transactions in an amount
generally equal to the value of the underlying commodity. The segregation
of such assets will have the effect of limiting the Fund's ability
otherwise to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell interest
rate futures contracts. An interest rate future obligates the Fund to
purchase or sell an amount of a specific debt security at a future date at
a specific price.
Options--In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security or securities at the exercise price at any time
during the option period, or at a specific date. Conversely, a put option
gives the purchaser of the option the right to sell, and obligates the
writer to buy, the underlying security or securities at the exercise price
at any time during the option period, or at a specific date.
A covered call option written by the Fund is a call option with
respect to which the Fund owns the underlying security or otherwise covers
the transaction by segregating cash or other securities. A put option
written by the Fund is covered when, among other things, cash or liquid
securities having a value equal to or greater than the exercise price of
the option are placed in a segregated account with the Fund's custodian to
fulfill the obligation undertaken. The principal reason for writing
covered call and put options is to realize, through the receipt of
premiums, a greater return than would be realized on the underlying
securities alone. The Fund receives a premium from writing covered call or
put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen
events, at times have rendered certain of the clearing facilities
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts
or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If,
as a covered call option writer, the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or it otherwise covers its position.
Successful use by a Fund of options will be subject to the ability of
the Manager to predict correctly movements in interest rates. To the
extent such predictions are incorrect, a Fund may incur losses.
Future Developments. The Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other Derivatives which are not presently contemplated for use by
the Fund or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund. Before entering
into such transactions or making any such investment, the Fund will provide
appropriate disclosure in its Prospectus or Statement of Additional
Information.
Forward Commitments. Municipal Obligations and other securities
purchased on a forward commitment or when-issued basis are subject to
changes in value (generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise)
based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates.
Securities purchased on a forward commitment or when-issued basis may
expose the Fund to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a when-issued
basis can involve the additional risk that the yield available in the
market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Fund is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Fund's net assets and its net asset value per share.
Lending Portfolio Securities. In connection with its securities
lending transactions, the Fund may return to the borrower or a third party
which is unaffiliated with the Fund, and which is acting as a "placing
broker," a part of the interest earned from the investment of collateral
received from securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (3) the Fund must
be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any interest or other
distributions payable on the loaned securities, and any increase in market
value; and (5) the Fund may pay only reasonable custodian fees in
connection with the loan.
Investment Considerations and Risks
Investing in California Municipal Obligations. Investors 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. From
mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. At June 30, 1994,
according to California's Department of Finance, the State's Special Fund
for Economic Uncertainties had an accumulated deficit, on a budget basis,
of approximately $1.8 billion. 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 and $3.0 billion of revenue
anticipation notes. The 1994-95 budget Act contained a plan to retire a
projected $1.025 billion deficit in the 1995-96 fiscal year. As a result
of the deterioration of the State's budget and cash situation between
October 1991 and July 1994, the rating on the State's general obligation
bonds were reduced by S&P from AAA to A, by Moody's from Aaa to A1 and by
Fitch 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.
Lower Rated Bonds. The Fund is permitted to invest in securities
rated Ba or lower by Moody's or BB or lower by S&P and Fitch and as low as
the lowest rating assigned by Moody's, S&P or Fitch. Such bonds, though
higher yielding, are characterized by risk. See "Description of the Fund--
Investment Considerations and Risks--Lower Rated Bonds" in the Prospectus
for a discussion of certain risks and "Appendix B" for a general
description of Moody's, S&P and Fitch ratings of Municipal Obligations.
Although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of these
bonds. The Fund will rely on the Manager's judgment, analysis and
experience in evaluating the creditworthiness of an issuer.
Investors should be aware that the market values of many of these
bonds tend to be more sensitive to economic conditions than are higher
rated securities. These bonds generally are considered by Moody's, S&P and
Fitch to be predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation
and generally will involve more credit risk than securities in the higher
rating categories.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these bonds does exist, it generally
is not as liquid as the secondary market for higher rated securities. The
lack of a liquid secondary market may have an adverse impact on market
price and yield and the Fund's ability to dispose of particular issues when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the
issuer. The lack of a liquid secondary market for certain securities also
may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio and calculating its
net asset value. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of
these securities. In such cases, judgment may play a greater role in
valuation because less reliable, objective data may be available.
These bonds may be particularly susceptible to economic downturns. It
is likely that any economic recession could disrupt severely the market for
such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn
could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon and increase the incidence of
default for such securities.
The Fund may acquire these bonds during an initial offering. Such
securities may involve special risks because they are new issues. The Fund
has no arrangement with any persons concerning the acquisition of such
securities, and the Manager will review carefully the credit and other
characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon bonds and pay-in-kind bonds in which the
Fund may invest up to 5% of its net assets. Such zero coupon, pay-in-kind
or delayed interest bonds carry an additional risk in that, unlike bonds
which pay interest throughout the period to maturity, the Fund will realize
no cash until the cash payment date unless a portion of such securities are
sold and, if the issuer defaults, the Fund may obtain no return at all on
its investment. See "Dividends, Distributions and Taxes."
Investment Restrictions
The Fund has adopted investment restrictions numbered 1 through 9 as
fundamental policies, which cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Fund's outstanding voting shares.
Investment restrictions numbered 10 and 11 are not fundamental policies and
may be changed by a vote of a majority of the Fund's Board members at any
time. The Fund may not:
1. Purchase securities other than Municipal Obligations and Taxable
Investments and those arising out of transactions in futures and options or
as otherwise provided in the Fund's Prospectus.
2. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of
the Fund's total assets). Transactions in futures and options do not
involve any borrowings for purposes of this restriction.
3. Sell securities short or purchase securities on margin, except
for such short-term credits as are necessary for the clearance of
transactions, but the Fund may make margin deposits in connection with
transactions in futures, including those related to indices, and options on
futures contracts or indices.
4. Underwrite the securities of other issuers, except that the Fund
may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage
of the lower purchase price available.
5. Purchase, hold or deal in real estate, real estate investment
trust securities or oil and gas interests, but the Fund may invest in
Municipal Obligations secured by real estate or interests therein.
6. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to indices, and options on
futures contracts or indices, as described in the Fund's Prospectus.
7. Lend any funds or other assets, except through the purchase of
qualified debt obligations and the entry into repurchase agreements
referred to above and in the Fund's Prospectus; however, the Fund may lend
its portfolio securities in an amount not to exceed 33-1/3% of the value of
its total assets. Any loans of portfolio securities will be made according
to guidelines established by the Securities and Exchange Commission and the
Fund's Board.
8. Invest more than 25% of its total assets in the securities of
issuers in any single industry; provided that there shall be no such
limitation on the purchase of Municipal Obligations and, for temporary
defensive purposes, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
9. Purchase securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of
assets.
10. Pledge, mortgage, hypothecate, or otherwise encumber its assets,
except to the extent necessary to secure permitted borrowings, and except
to the extent related to the deposit of assets in escrow in connection with
the purchase of securities on a when-issued or delayed-delivery basis and
collateral and initial or variation margin arrangements with respect to
futures contracts, including those relating to indices, and options on
futures contracts or indices.
11. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid if,
in the aggregate, more than 15% of the value of the Fund's net assets would
be so invested.
In addition, the Fund will not issue any senior security (as such term
is defined in Section 18(f) of the 1940 Act), except to the extent the
activities permitted in Investment Restriction Nos. 2, 3, 6 and 10 may be
deemed to give rise to a senior security.
For purposes of Investment Restriction No. 8, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together
as an "industry."
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values
or assets will not constitute a violation of such restriction.
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
Board members and officers of the Fund, together with information as
to their principal business occupations during at least the last five
years, are shown below. Each Board member who is deemed to be an
"interested person" of the Fund, as defined in the 1940 Act, is indicated
by an asterisk.
Board Members of the Fund
CLIFFORD L. ALEXANDER, JR., Board Member. President of Alexander &
Associates, Inc., a management consulting firm. From 1977 to 1981,
Mr. Alexander served as Secretary of the Army and Chairman of the
Board of the Panama Canal Company, and from 1975 to 1977, he was a
member of the Washington, D.C. law firm of Verner, Liipfert, Bernhard,
McPherson and Alexander. He is a director of American Home Products
Corporation, Cognizant Corporation, The Dun & Bradstreet Corporation,
MCI Communications Corporation, Mutual of America Life Insurance
Company and TLC Beatrice International Holdings, Inc. He is 63 years
old and his address is 400 C Street, N.E., Washington, D.C. 20002.
PEGGY C. DAVIS, Board Member. Shad Professor of Law, New York
University School of Law. Professor Davis has been a member of the New
York University law faculty since 1983. Prior to that time, she
served for three years as a judge in the courts of New York State; was
engaged for eight years in the practice of law, working in both
corporate and non-profit sectors; and served for two years as a
criminal justice administrator in the government of the City of New
York. She writes and teaches in the fields of evidence,
constitutional theory, family law, social sciences and the law, legal
process and professional methodology and training. She is 53 years
old and her address is c/o New York University School of Law, 249
Sullivan Street, New York, New York 10011.
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman
of the Board of various funds in the Dreyfus Family of Funds. He is
also Chairman of the Board of Directors of Noel Group, Inc., a venture
capital company; and a director of The Muscular Dystrophy Association,
HealthPlan Services Corporation, Belding Heminway Company, Inc., a
manufacturer and marketer of industrial threads, specialty yarns, home
furnishings and fabrics, Curtis Industries, Inc., a national
distributor of security products, chemicals, and automotive and other
hardware, and Staffing Resources, Inc. For more than five years prior
to January 1995, he was President, a director and, until August 1994,
Chief Operating Officer of the Manager and Executive Vice President
and a director of Dreyfus Service Corporation, a wholly-owned
subsidiary of the Manager and, until August 24, 1994, the Fund's
distributor. From August 1994 until December 31, 1994, he was a
director of Mellon Bank Corporation. He is 52 years old and his
address is c/o Noel Group, Inc. 667 Madison Avenue, 25th Floor, New
York, New York 10021.
ERNEST KAFKA, Board Member. A physician engaged in private practice
specializing in the psychoanalysis of adults and adolescents. Since
1981, he has served as an Instructor at the New York Psychoanalytic
Institute and, prior thereto, held other teaching positions. He is
Associate Clinical Professor of Psychiatry at Cornell Medical School.
For more than the past five years, Dr. Kafka has held numerous
administrative positions and has published many articles on subjects
in the field of psychoanalysis. He is 64 years old and his address is
23 East 92nd Street, New York, New York 10128.
SAUL B. KLAMAN, Board Member. Chairman and Chief Executive Officer of SBK
Associates, which provides research and consulting services to
financial institutions. Dr. Klaman was President of the National
Association of Mutual Savings Banks until November 1983, President of
the National Council of Savings Institutions until June 1985, Vice
Chairman of Golembe Associates and BEI Golembe, Inc. until 1989 and
Chairman Emeritus of BEI Golembe, Inc. until November 1992. He also
served as an Economist to the Board of Governors of the Federal
Reserve System and on several Presidential Commissions, and has held
numerous consulting and advisory positions in the fields of economics
and housing finance. He is 76 years old and his address is 431-B
Dedham Street, The Gables, Newton Center, Massachusetts 02159.
NATHAN LEVENTHAL, Board Member. President of Lincoln Center for the
Performing Arts, Inc. Mr. Leventhal was Deputy Mayor for Operations
of New York City from September 1979 until March 1984 and Commissioner
of the Department of Housing Preservation and Development of New York
City from February 1978 to September 1979. Mr. Leventhal was an
associate and then a member of the New York law firm of Poletti
Freidin Prashker Feldman and Gartner from 1974 to 1978. He was
Commissioner of Rent and Housing Maintenance for New York City from
1972 to 1973. Mr. Leventhal serves as Chairman of Citizens Union, an
organization which strives to reform and modernize city and state
government. He is 53 years old and his address is 70 Lincoln Center
Plaza, New York, New York 10023-6583.
For so long as the Fund's plans described in the sections captioned
"Service Plan" and "Shareholder Services Plan" remain in effect, the Board
members of the Fund who are not "interested persons" of the Fund, as
defined in the 1940 Act, will be selected and nominated by the Board
members who are not "interested persons" of the Fund.
The Fund typically pays its Board members an annual retainer and a per
meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Fund for the fiscal year
ended September 30, 1996, and by all other funds in the Dreyfus Family of
Funds for which such person is a Board member (the number of which is set
forth in parenthesis next to each Board member's total compensation) for
the year ended December 31, 1995, is as
follows:
Total Compensation
Aggregatefrom from Fund and Fund
Name of Board Compensation from Complex Paid to
Member Fund* Board Member
Clifford L. Alexander, Jr. $3,750 $ 94,386 (17)
Peggy C. Davis $3,750 $ 81,636 (15)
Joseph S. DiMartino $4,688 $448,610 (94)
Ernest Kafka $3,500 $ 81,136 (15)
Saul B. Klaman $3,750 $ 81,886 (15)
Nathan Leventhal $3,750 $ 81,636 (15)
* Amount does not include reimbursed expenses for attending
Board meetings, which amounted to $2,893 for all Board members
as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer and a director 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., the ultimate parent of which is
Boston Institutional Group, Inc. She is 39 years old.
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. He is 32 years old.
RICHARD W. INGRAM, Vice President and Assistant Treasurer. Senior Vice
President and Director of Client Services and Treasury Operations of
Funds Distributor, Inc. and an officer of other investment companies
advised or administered by the Manager. From March 1994 to November
1995, he was Vice President and Division Manager for First Data
Investor Services Group. From 1989 to 1994, he was Vice President,
Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company, Inc. He is 40 years old.
JOSEPH F. TOWER, III, Vice President and 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. He is 34 years old.
MARY A. NELSON, Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of Funds Distributor,
Inc. and an officer of other investment companies advised or
administered by the Manager. From September 1989 to July 1994, she
was an Assistant Vice President and Client Manager for The Boston
Company, Inc. She is 32 years old.
ELIZABETH A. KEELEY, Vice President and Assistant Secretary. Assistant
Vice President of the Distributor and an officer of other investment
companies advised or administered by the Manager. She is 26 years
old.
DOUGLAS C. CONROY, Vice President and Assistant Secretary. Supervisor of
Treasury Services and Administration of Funds Distributor, Inc. and an
officer of other investment companies advised or administered by the
Manager. From April 1993 to January 1995, he was a Senior Fund
Accountant for Investors Bank & Trust Company. From December 1991 to
March 1993, he was employed as a Fund Accountant at The Boston
Company, Inc. He is 27 years old.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
The Fund's Board members and officers, as a group, owned less than 1%
of the Fund's shares outstanding on January 6, 1997.
The following shareholder owned of record 5% or more of the Fund's
shares outstanding as of January 6, 1997: Charles Schwab & Co. Inc.
Reinvest Account, Attn: Mutual Funds Department, 101 Montgomery Street, San
Francisco, CA 94104-4122 (5.0270%).
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 or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities
of the Fund, provided that in either event the continuance also is approved
by a majority of the Board members who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Manager, by vote cast in person
at a meeting called for the purpose of voting on such approval. The
Agreement was approved by shareholders on August 3, 1994, and was last
approved by the Fund's Board, including a majority of the Board members who
are not "interested persons" of any party to the Agreement, at a meeting
held on September 17, 1996. The Agreement is terminable without penalty,
on 60 days' notice, by the Fund's Board or by vote of the holders of a
majority of the Fund's shares, or, on not less than 90 days' notice, by the
Manager. The Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of the Manager:
W. Keith Smith, Chairman of the Board; Christopher M. Condron, President,
Chief Executive Officer, Chief Operating Officer and a director; Stephen E.
Canter, Vice Chairman, Chief Investment Officer and a director; Lawrence S.
Kash, Vice Chairman-Distribution and a director; William T. Sandalls, Jr.,
Senior Vice President and Chief Financial Officer; William F. Glavin, Jr.,
Vice President-Corporate Development; Mark N. Jacobs, Vice President,
General Counsel and Secretary; Patrice M. Kozlowski, Vice President-
Corporate Communications; Mary Beth Leibig, Vice President-Human Resources;
Jeffrey N. Nachman, Vice President-Mutual Fund Accounting; Andrew S.
Wasser, Vice President-Information Systems; Elvira Oslapas, Assistant
Secretary; and Mandell L. Berman, Burton C. Borgelt and Frank V. Cahouet,
directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board. The Manager is responsible for investment decisions, and provides
the Fund with portfolio managers who are authorized by the Fund's Board to
execute purchases and sales of securities. The Fund's portfolio managers
are Joseph P. Darcy, A. Paul Disdier, Douglas J. Gaylor, Karen M. Hand,
Stephen C. Kris, Richard J. Moynihan, Jill C. Shaffro, Samuel J. Weinstock
and Monica S. Wieboldt. The Manager also maintains a research department
with a professional staff of portfolio managers and securities analysts who
provide research services for the Fund and for other funds advised by the
Manager. All purchases and sales are reported for the Board's 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: organizational
costs, taxes, interest, loan commitment fees, interest and distributions
paid on securities sold short, brokerage fees and commissions, if any, fees
of Board members who are not officers, directors, employees or holder of 5%
or more of the outstanding voting securities of the Manager, Securities and
Exchange Commission fees, state Blue Sky qualification fees, advisory fees,
charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, outside auditing and
legal expenses, costs of maintaining corporate existence, costs of
independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, costs of shareholders' reports and meetings, and any
extraordinary expenses.
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager 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 .60 of 1% of the
value of the Fund's average daily net assets. All fees and expenses are
accrued daily and deducted before payment of dividends to investors. For
the fiscal years ended September 30, 1994, 1995 and 1996, the management
fees payable amounted to $2,351,917, $1,897,821 and $1,865,723,
respectively.
The Manager has agreed that if in any fiscal year the aggregate
expenses of the Fund, exclusive of taxes, brokerage, interest on borrowings
and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including the management fee,
exceed the expense limitation of any state having jurisdiction over the
Fund, the Fund may deduct from the payment to be made to the Manager under
the Agreement, or the Manager will bear, such excess expense to the extent
required by state law. 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 SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to Buy
Shares."
The Distributor. The Distributor serves as the Fund's distributor on
a best efforts basis 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. 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 at any time. Purchase orders received by 4:00 P.M., New York
time, on any business day that Dreyfus Transfer, Inc., the Fund's transfer
and dividend disbursing agent (the "Transfer Agent"), and the New York
Stock Exchange are open for business will be credited to the shareholder's
Fund account on the next bank business day following such purchase order.
Purchase orders made after 4:00 P.M., New York time, on any business day
the Transfer Agent and the New York Sock Exchange are open for business, or
orders made on Saturday, Sunday or any Fund holiday (e.g., when the New
York Stock Exchange is not open for business), will be credited to the
shareholder's Fund account on the second bank business day following such
purchase order. To qualify to use the Dreyfus TeleTransfer Privilege, the
initial payment for purchase of Fund shares must be drawn on, and
redemption proceeds paid to, the same bank and account as are designated on
the Account Application or Shareholder Services Form on file. If the
proceeds of a particular redemption are to be wired to an account at any
other bank, the request must be in writing and signature-guaranteed. See
"Redemption of 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.
SERVICE PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Service
Plan."
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange
Commission under the 1940 Act provides, among other things, that an
investment company may bear expenses of distributing its shares only
pursuant to a plan adopted in accordance with the Rule. The Fund's Board
has adopted, but not implemented, such a plan (the "Service Plan") pursuant
to which the Fund may (i) reimburse the Distributor for payments to certain
financial institutions (which may include banks), securities dealers and
other financial industry professionals (collectively, "Service Agents") for
distributing the Fund's shares and servicing shareholder accounts and (ii)
pay the Manager, Dreyfus Service Corporation and any affiliate of either of
them for advertising and marketing relating to the Fund and for servicing
shareholder accounts. The Fund's Board believes that there is a reasonable
likelihood that the Plan may benefit the Fund and its shareholders.
A quarterly report of the amounts expended under the Service Plan, and
the purposes for which such expenditures were incurred, must be made to the
Board for its review. In addition, the Service Plan provides that it may
not be amended to increase materially the costs which the Fund may bear for
distribution pursuant to the Service Plan without shareholder approval and
that other material amendments of the Service Plan must be approved by the
Board, and by the Board members who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Manager and have no direct or
indirect financial interest in the operation of the Service Plan or in the
related service agreements, by vote cast in person at a meeting called for
the purpose of considering such amendments. The Service Plan and the
related service agreements are subject to annual approval by such vote of
the Board members cast in person at a meeting called for the purpose of
voting on the Service Plan. The Service Plan was last so approved at a
meeting held on September 17, 1996. The Plan is terminable at any time by
vote of a majority of the Board members who are not "interested persons"
and have no direct or indirect financial interest in the operation of the
Service Plan or in any of the related service agreements or by vote of a
majority of the Fund's shares.
Management of the Fund currently does not intend to implement the
Service Plan and will only do so if prior written notice is given to
shareholders.
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 Service Plan pursuant to which the
Fund reimburses Dreyfus Service Corporation 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 Board for its review. In addition, the Shareholder
Services Plan provides that material amendments of the Shareholder Services
Plan must be approved by the Board, and by the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Fund and have no
direct or indirect financial interest in the operation of the Shareholder
Services Plan by vote of the Board members cast in person at a meeting
called for the purpose of considering such amendments. The Shareholder
Services Plan is subject to annual approval by such vote of the Board
members cast in person at a meeting called for the purpose of voting on the
Shareholder Services Plan. The Shareholder Services Plan is terminable at
any time by vote of a majority of the Board members who are not "interested
persons" and have no direct or indirect financial interest in the operation
of the Shareholder Services Plan.
During the fiscal year ended September 30, 1996, the Fund was charged
an aggregate $185,456 pursuant to the Shareholder Services Plan.
REDEMPTION OF SHARES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "How to
Redeem Shares."
Redemption Fee. The Fund will deduct a redemption fee equal to .10%
of the net asset value of Fund shares redeemed (including redemptions
through the use of the Fund Exchanges service) less than fifteen days
following the issuance of such shares. The redemption fee will be deducted
from the redemption proceeds and retained by the Fund.
No redemption fee will be charged on the redemption or exchange of
shares (1) through the Fund's Check Redemption Privilege, Automatic
Withdrawal Plan or Dreyfus Auto-Exchange Privilege, (2) through accounts
that are reflected on the records of the Transfer Agent as omnibus accounts
approved by Dreyfus Service Corporation, (3) through accounts established
by Service Agents approved by Dreyfus Service Corporation that utilize the
National Securities Clearing Corporation's networking system, or (4)
acquired through the reinvestment of dividends or distributions. The
redemption fee may be waived, modified or terminated at any time.
Check Redemption Privilege. An investor may indicate on the Account
Application, Shareholder Services Form or by later written request that the
Fund provide Redemption Checks ("Checks") drawn on the investor's Fund
account. Checks will be sent only to the registered owner(s) of the
account and only to the address of record. The Account Application,
Shareholder Services Form 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 full and fractional
shares in the investor's account to cover the amount of the Check.
Dividends are earned until the Check clears. After clearance, a copy of
the Check will be returned to 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, or a representative of the investor's Service Agent, and
reasonably believed by the Transfer Agent to be genuine. Ordinarily, the
Fund will initiate payment for shares redeemed pursuant to this Privilege
on the next business day after receipt by the Transfer Agent of the
redemption request in proper form. Redemption proceeds ($1,000 minimum)
will be transferred by Federal Reserve wire only to the commercial bank
account specified by the investor on the Account Application or Shareholder
Services Form, or to a correspondent bank if the investor's bank is not a
member of the Federal Reserve System. 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 transmission:
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 "Stock Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if
they have selected the Dreyfus TeleTransfer Privilege, any request for a
wire redemption will be effected as a Dreyfus TeleTransfer transaction
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
Shares--Dreyfus TeleTransfer Privilege."
Stock Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York
Stock Exchange Medallion 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 reserves the right to make payments in whole or in part
in securities (which may include non-marketable 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
portfolio of the Fund is valued. If the recipient sold such securities,
brokerage charges might be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities and
Exchange Commission so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c)
for such other periods as the Securities and Exchange Commission by order
may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Shareholder
Services."
Fund Exchanges. A .10% redemption fee will be charged upon an
exchange of Fund shares where the exchange occurs less than 15 days
following the issuance of such shares. Shares of other funds purchased by
exchange will be purchased on the basis of relative net asset value per
share as follows:
A. Exchanges for shares of funds 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 the 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 applicable "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 (including
over The Dreyfus TouchRegistration Mark automated telephone system) from
any person representing himself or herself to be the investor or a
representative of the investor's Service Agent, and reasonably believed by
the Transfer Agent to be genuine. Telephone exchanges may be subject to
limitations as to the amount involved or the number of telephone exchanges
permitted. Shares issued in certificate form are not eligible for
telephone exchange.
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 ("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 the IRA accounts, but not from IRA
accounts to regular accounts. With respect to all other retirement
accounts, exchanges may be made only among those accounts.
Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available
to shareholders resident in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between
accounts having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchanges service or
Dreyfus Auto-Exchange Privilege may be modified or terminated at any time
upon notice to shareholders.
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. 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.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest automatically 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. Dividend 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.
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
Shares."
Valuation of Portfolio Securities. The Fund's investments are valued
by an independent pricing service (the "Service") approved by the Board.
When, in the judgment of the Service, quoted bid prices for investments are
readily available and are representative of the bid side of the market,
these investments are valued at the mean between the quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the
Service, based on methods which include consideration of: yields or prices
of municipal bonds of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. The
Service may employ electronic data processing techniques and/or a matrix
system to determine valuations. The Service's procedures are reviewed by
the Fund's officers under the general supervision of the Board. Expenses
and fees, including the management fee (reduced by the expense limitation,
if any) and fees pursuant to the Shareholder Services Plan, are accrued
daily and are taken into account for the purpose of determining the net
asset value of Fund shares.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily
are purchased directly from the issuer or from an underwriter; other
purchases and sales usually are placed with those dealers from which it
appears that the best price or execution will be obtained. Usually no
brokerage commissions, as such, are paid by the Fund for such purchases and
sales, although the price paid usually includes an undisclosed compensation
to the dealer acting as agent. The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to
the underwriter, and purchases of after-market securities from dealers
ordinarily are executed at a price between the bid and asked price. No
brokerage commissions have been paid by the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and
analysis with the views and information of other securities firms.
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.
The Fund's portfolio turnover rate for the fiscal years ended
September 30, 1995 and 1996 was 83.31% and 164.93%, respectively. The Fund
anticipates that its annual portfolio turnover rate generally will not
exceed 100%, but the turnover rate will not be a limiting factor when the
Fund deems it desirable to sell or purchase securities. Therefore,
depending upon market conditions, the Fund's annual portfolio turnover rate
may exceed 100% in particular years.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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 September 30, 1996, and the Fund
intends to continue to so qualify, if such qualification is in the best
interests of its shareholders. As a regulated investment company, the Fund
will pay no Federal income tax on net investment income and net realized
capital gains to the extent that such income and gains are distributed to
shareholders in accordance with applicable provisions of the Code. 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, 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 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 purposes
of computing the California alternative minimum tax.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of his shares below the
cost of his investment. Such a distribution would be a return on the
investment in an economic sense although taxable as stated in "Dividends,
Distributions and Taxes" in the Prospectus. In addition, the Code provides
that if a shareholder has not held his Fund shares for more than six months
(or such shorter period as the Internal Revenue Service may prescribe by
regulation) and has received an exempt-interest dividend with respect to
such shares, any loss incurred on the sale of such shares will be
disallowed to the extent of the exempt-interest dividend received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of any gains
realized from the sale or other disposition of certain market discount
bonds will be treated as ordinary income under Section 1276 of the Code.
In addition, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section
1258 of the Code. "Conversion transactions" are defined to include certain
forward, futures, option and "straddle" transactions, transactions marketed
or sold to produce capital gains, or transactions described in Treasury
regulations to be issued in the future.
Under Section 1256 of the Code, gain or loss the Fund realizes from
certain futures and options transactions will be treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. Gain or loss
will arise upon exercise or lapse of such futures and options as well as
from closing transactions. In addition, such futures or options remaining
unexercised at the end of the Fund's taxable year will be treated as sold
for their then fair market value, resulting in additional gain or loss to
the Fund characterized in the manner described above.
Offsetting positions held by the Fund involving certain futures and
options transactions may constitute "straddles." "Straddles" are defined
to include "offsetting positions" in actively traded personal property.
The tax treatment of "straddles" is governed by Sections 1092 and 1258 of
the Code, which, in certain circumstances, overrides or modifies the
provisions of Section 1256 of the Code. As such, all or a portion of any
short or long-term capital gain from certain "straddle" transactions may be
recharacterized to ordinary income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in certain futures or options transactions, such "straddles" would
be characterized as "mixed straddles" if the futures or options
transactions comprising a part of such "straddles" were governed by Section
1256 of the Code. The Fund may make one or more elections with respect to
"mixed straddles." Depending on which election is made, if any, the
results to the Fund may differ. If no election is made to the extent the
"straddle" rules apply to positions established by the Fund, losses
realized by the Fund will be deferred to the extent of unrealized gain in
the offsetting position. Moreover, as a result of the "straddle" and
conversion transaction rules, short-term capital losses on "straddle"
positions may be recharacterized as long-term capital losses, and long-term
capital gains may be treated as short-term capital gains.
Investment by the Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to shareholders. For example, the Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such
portion in order to maintain its qualification as a regulated investment
company. In such case, the Fund may have to dispose of securities which it
might otherwise have continued to hold in order to generate cash to satisfy
these distribution requirements.
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled "Performance
Information."
The Fund's current yield for the 30-day period ended September 30,
1996 was 4.95%. Current yield is computed pursuant to a formula which
operates as follows: the amount of the Fund's expenses accrued for the
30-day period (net of reimbursements) is subtracted from the amount of the
dividends and interest earned (computed in accordance with regulatory
requirements) by the Fund during the period. That result is then divided
by the product of: (a) the average daily number of shares outstanding
during the period that were entitled to receive dividends, and (b) the net
asset value per share on the last day of the period less any undistributed
earned income per share reasonably expected to be declared as a dividend
shortly thereafter. The quotient is then added to 1, and that sum is
raised to the 6th power, after which 1 is subtracted. The current yield is
then arrived at by multiplying the result by 2.
Based upon a combined 1996 Federal and State of California effective
tax rate of 45.22%, the Fund's tax equivalent yield for the 30-day period
ended September 30, 1996 was 9.04%. Tax equivalent yield is computed by
dividing that portion of the current yield (calculated as described above)
which is tax exempt by 1 minus a stated tax rate and adding the quotient to
that portion, if any, of the yield of the Fund that is not tax exempt.
The tax equivalent 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 any local (including, but not limited
to, county, district or city) taxes, including applicable surcharges. In
addition, there may be pending legislation which could affect such stated
tax rates or yields. Each investor should consult its tax adviser, and
consider its own factual circumstances and applicable tax laws, in order to
ascertain the relevant tax equivalent yield.
The Fund's average annual total return for the 1, 5 and 6.975 year
periods ended September 30, 1996 was 6.85%, 7.31% and 7.83%, respectively.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result.
The Fund's total return for the period October 10, 1989 (commencement
of operations) to September 30, 1996 was 69.19%. Total return is
calculated by subtracting the amount of the Fund's net asset value per
share at the beginning of a stated period from the net asset value per
share at the end of the period (after giving effect to the reinvestment of
dividends and distributions during the period), and dividing the result by
the net asset value per share at the beginning of the period.
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 not as representative 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, statistical or other information relating to investment
companies, as compiled by industry associations such as the Investment
Company Institute, and Morningstar ratings and related analysis supporting
the rating.
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 liquidation. Shares have no preemptive, subscription or
conversion rights and are freely transferable.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN, COUNSEL,
AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, P.O.
Box 9671, Providence, Rhode Island, 02940-9671, is the Fund's transfer and
dividend disbursing agent. Under a transfer agency agreement with the
Fund, the Transfer Agent arranges for the maintenance of shareholder
account records for the Fund, the handling of certain communications
between shareholders and the Fund and the payment of dividends and
distributions payable by the Fund. For these services, the Transfer Agent
receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for the Fund during the month, and is reimbursed for
certain out-of-pocket expenses. For the period December 1, 1995 (effective
date of transfer agency agreement) through September 30, 1996, the Fund
paid the Transfer Agent $83,601. The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Fund's custodian. Neither the
Transfer Agent nor The Bank of New York 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, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the
shares being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX A
Certain California (the "State") constitutional amendments,
legislative measures, executive orders, civil actions and voter
initiatives, as well as the general financial condition of the State, could
adversely affect the ability of issuers of California Municipal Obligations
to pay interest and principal on such 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 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. From mid-1990 to late 1993, the State suffered a
recession with the worst economic, fiscal and budget conditions since the
1930s. Construction, manufacturing (especially aerospace), exports and
financial services, among others, were all severely affected. Job losses
have been the worst of any post-war recession. Unemployment reached 10.1%
in January 1994, but fell sharply to 7.7% in October and November 1994.
According to the State's Department of Finance, recovery from the recession
in California began in 1994.
The recession seriously affected State tax revenues, which basically
mirror economic conditions. It also has 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
experienced recurring budget deficits in the late 1980s and early 1990s.
The State Controller reported that expenditures exceeded revenues for four
of the five fiscal years ending with 1991-92. The State had an operating
surplus of approximately $109 million in 1992-93 and $836 million in 1993-
94. However, at June 30, 1994, according to the Department of Finance, the
State's Special Fund for Economic Uncertainties ("SFEU") still had a
deficit, on a budget basis, of approximately $1.8 billion.
The accumulated budget deficits over the past several years, together
with expenditures for school funding which have not been reflected in the
budget, and reduction of available internal borrowable funds, have combined
to significantly deplete the State's cash resources to pay its ongoing
expenses. In order to meet its cash needs, the State has had to rely for
several years on a series of external borrowings, including borrowings past
the end of a fiscal year. Such borrowings are expected to continue in
future fiscal years. 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 matured on April 25, 1996, and $3.0 billion of
revenue anticipation notes which matured on June 28, 1995.
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 ratings on the State's general obligation
bonds were reduced by S&P from "AAA" to "A," by Moody's from "Aaa" to "A1"
and by Fitch from "AAA" to "A."
The 1994-95 Fiscal Year Budget (as updated in the January 10, 1995
Governor's Budget) projected $42.4 billion of General Fund revenues and
transfers and $41.7 billion of budgeted expenditures. In addition, the
1994-95 Budget Act anticipated 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.
The Governor's Budget for 1995-96 proposed General Fund revenues and
transfers of $42.5 billion and expenditures of $41.7 billion, which was
estimated to leave a balance of approximately $92 million in the budget
reserve, the SFEU, at June 30, 1996 after repayment of the accumulated
budget deficits. The Budget proposal was based on a number of assumptions,
including receipt of $830 million from the Federal government to offset
costs of undocumented and refugee immigrants.
On December 6, 1994, Orange County, California (the "County"),
together with its pooled investment funds (the "County Funds") filed for
protection under Chapter 9 of the Federal Bankruptcy Code, after reports
that the County Funds had suffered significant market losses in their
investments, causing a liquidity crisis for the County Funds and the
County. More than 200 other public entities, most of which, but not all,
are located in the County, were also depositors in the County Funds. As of
mid-January 1995, following a restructuring of most of the County Funds'
assets to increase their liquidity and reduce their exposure to interest
rate increases, the County estimated the County Funds' loss at about $1.69
billion, or about 23% of their initial deposits of approximately $7.5
billion. Many of the entities which deposited monies in the County Funds,
including the County, faced interim and/or extended cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects. The County has embarked on a fiscal recovery plan based
on sharp reductions in services and personnel, and rescheduling of
outstanding short term debt using certain new revenues transferred to the
County from other local governments pursuant to special legislation enacted
in October 1995.
The State has no existing obligation with respect to any outstanding
obligations or securities of the County or any of the other participating
entities. However, in the event the County is unable to maintain county
administered State programs because of insufficient resources, it may be
necessary for the State to intervene, but the State cannot presently
predict what, if any, action may occur.
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 $43 million to the General Fund from the SFEU and 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 $7.53 billion under the limit.
The limit for the 1993-94 fiscal year was $36.060 billion, and the
appropriations subject to limitation were $6.74 billion under the limit.
The limit for the 1994-95 fiscal year was $37.55 billion, and the
appropriations subject to limitations were $5.93 billion under the limit.
The estimated limit for the 1995-96 fiscal year end was $39.31 billion, and
the appropriations subject to limitations are estimated to have been $6.47
billion 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 $18.5 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 the $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 1993-94 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 35% to reflect the property tax shift among
local government agencies.
The 1994-95 Budget Act appropriated $14.4 billion of Proposition 98
funds for K14 schools based on Test 2. This exceeded 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 appropriated 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 fundings. These and
other minor appropriation adjustments increased the 1993-94 Proposition 98
guarantee to $13.8 billion, which exceeded the minimum guarantee in that
year by $272 million and provided per pupil funding of $4,225.
The 1995-96 Governor's Budget adjusted the 1993-94 minimum guarantee
to reflect changes in enrollment and inflation, and 1993-94 Proposition 98
appropriations were increased to $14.1 billion, primarily to reflect
changes in the statutory continuous appropriation for apportionments. The
revised appropriations exceeded the minimum guarantee by $32 million. This
appropriation level provided per-pupil funding of $4,225.
The 1994-95 Proposition 98 minimum guarantee also has been adjusted
for changes in factors described above, and was calculated to be $14.9
billion. Within the minimum guarantee, the dollars per pupil were
maintained at the prior year's level; consequently, the 1994-95 minimum
guarantee included a loan repayment of $135 million, and the per-pupil
funding increased to $4,231.
The 1995-96 Governor's Budget proposed to appropriate $15.9 billion of
Proposition 98 funds to K-14 to meet the guarantee level. Included within
the guarantee was a loan repayment of $379 million for the combined
outstanding loans of $1.76 billion. Funding per pupil was estimated to
have increased by $61 over 1994-95 to $4,292.
Sources of Tax Revenue. The California personal income tax, which in
1994-95 contributed about 43% 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 9.3%. 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 34% of General Fund
revenue in 1994-95. Bank and corporation tax revenues comprised about 13%
of General Fund revenue in 1994-95. 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. In the years following
enactment of the Federal Tax Reform Act of 1986, and conforming changes to
the State's tax laws, taxpayer behavior became more difficult to predict,
and the State experienced a series of fiscal years in which revenue came in
significantly higher or lower than original estimates. The 1989-90 fiscal
year ended with revenues below estimates and the SFEU was fully depleted by
June 30, 1990. This date essentially coincided with the date of the most
recent recession, and the State subsequently accumulated a budget deficit
in the SFEU approaching $2.8 billion at its peak. The State's budget
problems in recent years also have been caused by a structural imbalance
which has been identified by the current and previous Administrations. The
largest General Fund programs -- K-14 education, health, welfare and
corrections -- were increasing faster than the revenue base, driven by the
State's rapid population increases.
Starting in the 1990-91 fiscal year, each budget required multibillion
dollar actions to bring projected revenues and expenditures into balance
and to close large "budget gaps" which were identified. The Legislature
and Governor eventually agreed on significant cuts in program expenditures,
some transfers of program responsibilities and funding from the State to
local governments, revenue increases (particularly in the 1991-92 fiscal
year budget), and various one-time adjustments and accounting changes.
However, as the recession took hold and deepened after the summer of 1990,
revenues dropped sharply and expenditures for health and welfare programs
increased as job losses mounted, so that the State ended each of the 1990-
91 and 1991-92 fiscal years with an unanticipated deficit in the budget
reserve, the SFEU, as compared to projected positive balances.
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 a 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.
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 a
balance in the SFEU of $28 million on June 30, 1993.
The $7.9 billion budget gap was closed primarily through cuts in the
program expenditures (principally for health and welfare programs, aid to
schools and support for higher education), together with some increases in
revenues from accelerated collections and changes in tax laws to confirm to
Federal law changes, and a variety of on-time inter-fund transfers and
deferrals. The other major component of the budget compromise was a law
requiring local governments to transfer a total of $1.3 billion to K-12
school and community college districts, thereby reducing by that amount
General Fund support for those districts under Proposition 98.
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. The 1993-94 fiscal year
represented the third consecutive year the Governor and the Legislature
were faced with a very difficult budget environment, requiring revenue
actions and expenditure cuts totaling billions of dollars to produce a
balanced budget. 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 that
matured 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 for the 1993-94 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 to
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 were very close to
the projections made in the Governor's Budget of January 10, 1994, which
was consistent with a slow turn around in the economy.
The Department of Finance's July 1994 Bulletin, which included 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 the end-of-
year adjustments and reconciliations. Personal income tax and sales tax
continued to track projections. The largest factor in the higher than
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 that matured
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 $1.8 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
that matured 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 represented 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 had already been made in the last three years. The Governor's
Budget Proposal, as updated in May and June 1994 proposed a two-year
solution to pass the accumulated deficit. The budget proposal set forth
revenue and expenditure forecasts and revenue and expenditure proposals
which estimated 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 $1.8 billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994,
projected revenues and transfers of $41.9 billion, $2.1 billion higher than
revenues in 1993-94. This reflected the Administration's forecast of an
improving economy. Also included in this figure was the projected receipt
of about $360 million from the Federal government to reimburse the State's
cost of incarcerating undocumented immigrants, most of which eventually was
not received.
The 1994-95 Budget Act projected Special Fund revenues of $12.1
billion, a decrease of 2.4% from 1993-94 estimated revenues.
The 1994-95 Budget Act projected 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 projected Special Fund expenditures of $13.7
billion, a 5.4% increase over 1993-94 fiscal year estimated expenditures.
The 1994-95 Budget Act contained 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 1995 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 assumed that the State would use a cash flow
borrowing program in 1994-95 which combines one-year notes and two-year
warrants, which were 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 enacted
along with the 1994-95 Budget Act is designed to ensure that the warrants
will be repaid in the 1995-96 fiscal year.
The Department of Finance Bulletin for April 1995 reported that
General Fund revenues for March 1995 were $28 million, or 1.1%, below
forecast, and that year-to-date General Fund revenues were $110 million, or
0.4%, below forecast.
Initial analysis of the Federal fiscal year 1995 budget by the
Department of Finance indicates that about $98 million was appropriated for
California to offset costs of incarceration of undocumented and refugee
immigrants, less than the $356 million which was assumed in the State's
1994-95 Budget Act.
For the first time in four years, the State entered the upcoming 1995-
96 fiscal year with strengthening revenues based on an improving economy.
On January 10, 1995, the Governor presented his 1995-96 Fiscal Year Budget
Proposal (the "Proposed Budget"). The Proposed Budget estimated General
Fund revenues and transfers of $42.5 billion (an increase of 0.2% over
1994-95). This nominal increase from 1994-95 fiscal year reflects the
Governor's realignment proposal and the first year of his tax cut proposal.
Without these two proposals, General Fund revenues would have been
projected at approximately $43.8 billion, or an increase of 3.3% over 1994-
95. Expenditures were estimated at $41.7 billion (essentially unchanged
from 1994-95). Special Fund revenues were estimated at $13.5 billion
(10.7% higher than 1994-95) and Special Fund expenditures are estimated at
$13.8 billion (12.2% higher than 1994-95). The Proposed Budget projected
that the General Fund would end the fiscal year at June 30, 1996 with a
budget surplus in SFEU of about $92 million, or less than 1% of General
Fund expenditures, and will have repaid all of the accumulated budget
deficits. The Department of Finance projected in June 1996 that the
General Fund would end the fiscal year at June 30, 1996 with a budget
surplus in SEFU of $28 million.
On January 10, 1996, the Governor released his proposed budget for the
Fiscal Year 1996-97 (the "Governor's Budget"). The Governor requested
total General Fund appropriations of about $45.2 billion, based on
projected revenues and transfers of about $45.6 billion, which would leave
a budget reserve in SFEU at June 30, 1997 of about $400 million. The
Governor renewed a proposal, which had been rejected by the Legislature in
1995, for a 15% phased cut in individual and corporate tax rates over three
years (the budget proposal assumes this will be enacted, reducing revenues
in 1996-97 by about $600 million). There was also a proposal to
restructure trial court funding in a way which would result in a $300
million decrease in General Fund revenues. The Governor requested
legislation to make permanent a moratorium on cost of living increases for
welfare payments, and suspension of a renters tax credit, which otherwise
would go back into effect in the 1996-97 fiscal year. He further proposed
additional costs in certain health and welfare programs, and assumed that
cuts previously approved by the Legislature will receive Federal approval.
The Governor's Budget proposes increases in funding for K-12 school under
Proposition 98, for State higher education systems (with a second year of
no student fee increases), and for corrections. The Governor's Budget
projects external cash flow borrowing of up to $3.2 billion, to mature by
June 30, 1997.
Recent Economic Trends. Revised employment data indicate that
California's recession ended in 1993, and following a period of stability,
a solid recovery is now underway. The State's unemployment rate fell
sharply last year, from 10.1% in January to 7.7% in October and November
1994. The gap between the national and California jobless rates narrowed
from 3.4 percentage points at the beginning of 1994 to an average of 2
percentage points in October and November. The number of unemployed
Californians fell by nearly 400,000 during the year, while civilian
employment increased more than 300,000 in 1994.
Other indicators, including retail sales, homebuilding activity,
existing home sales and bank lending volume all confirm the State's
recovery.
Personal income was severely affected by the Northridge Earthquake,
which reduced the first quarter 1994 figure by $22 billion at an annual
rate, reflecting the uninsured damage to residences and unincorporated
businesses. As a result, personal income growth for all of 1994 was about
4.2%. However, excluding the Northridge effects, growth would have been in
excess of 5%. Personal income is expected to grow 6.6% for 1995.
APPENDIX B
Description of S&P, Moody's and Fitch ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable, and will
include: (1) likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature 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.
A
Principal and interest payments on bonds in this category are regarded
as safe. This rating describes the third strongest capacity for payment of
debt service. It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the issuer
to meet debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several
of the above factors could contribute to a lesser capacity for payment of
debt service. The difference between "A" and "BBB" rating is that the
latter shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one deficiency among
the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger.
BB, B, CCC, CC, C
Debt rated BB, B, CCC, CC or C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B
Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC
Debt rated CCC has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the capacity to
pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the
major ratings categories.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
Commercial Paper Ratings
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are
denoted with a plus sign (+) designation. Capacity for timely payment on
issues with an A-2 designation is strong. However, the relative degree of
safety is not as high as for issues designated A-1.
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.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Generally, Moody's provides either a generic rating or a rating with a
numerical modifier of 1 for bonds in each of the generic rating categories
Aa, A, Baa, and B. Moody's also provides numerical modifiers of 2 and 3 in
each of these categories for bond issues in the health care, higher
education and other not-for-profit sectors; the modifier 1 indicates that
the issue ranks in the higher end of its generic rating category; the
modifier 2 indicates that the issue is in the mid-range of the generic
category; and the modifier 3 indicates that the issue is in the low end of
the generic category.
Municipal Note Ratings
Moody's ratings for state municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term ratings, while other factors of major importance
in bond risk, long-term secular trends for example, may be less important
over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature
is not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may be limited to
the external liquidity with no or limited legal recourse to the issuer in
the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a wide range of financial
markets and assured sources of alternative liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
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+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of
interest and/or principal payments. Such bonds are extremely speculative
and should be valued on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. DDD represents the highest
potential for recovery on these bonds and D represents the lowest potential
for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category covering 12-36
months or the DDD, DD or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations in
a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
<TABLE>
<CAPTION>
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
STATEMENT OF INVESTMENTS SEPTEMBER 30, 1996
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS-96.8% AMOUNT VALUE
_______ _______
<S> <C> <C>
CALIFORNIA-93.1%
ABAG Finance Corp., COP (ABAG XXIV) 6.90%, 4/1/2012......................... $ 3,500,000 $ 3,680,600
Alameda County, COP (Various Financing Projects)
6%, 9/1/2021 (Insured; MBIA, LOC; The Fuji Bank) (a,b).................. 5,000,000 5,082,400
Allan Hancock Joint Community College District, COP, Refunding
7.625%, 10/1/2005....................................................... 1,055,000 1,156,565
Anaheim Public Financing Authority, Tax Allocation Revenue
6.45%, 12/28/2018 (Insured; MBIA) (b)................................... 6,000,000 6,400,440
Beaumont Unified School District, COP (Capital Improvement Project)
7.70%, 1/1/2021......................................................... 1,100,000 1,162,227
California 5.25%, 10/1/2015................................................. 5,300,000 5,051,960
California Educational Facilities Authority, Revenue
(Chapman College) 7.50%, 1/1/2018....................................... 1,760,000 1,900,448
California Health Facilities Financing Authority, Revenue:
(HELP Group) 7%, 8/1/2021
(Insured; California Health Facilities Construction Loan Program)..... 1,800,000 1,922,976
(Pomona Valley Hospital Medical Center) 7.375%, 1/1/2014................ 750,000 798,412
(Walden House) 6.85%, 3/1/2022.......................................... 3,225,000 3,419,661
California Housing Finance Agency:
Home Mortgage Revenue:
6.37%, 8/1/2027 (c)................................................... 2,250,000 2,273,040
7.50%, 8/1/2029....................................................... 1,480,000 1,544,114
7.60%, 8/1/2030....................................................... 1,715,000 1,810,748
7.70%, 8/1/2030....................................................... 1,105,000 1,162,582
Multi-Family Housing Revenue 6.15%, 8/1/2022 (Insured; AMBAC) (c)....... 3,850,000 3,852,810
California Pollution Control Financing Authority, PCR, Refunding
(San Diego Gas and Electric) 5.90%, 6/1/2014 (Insured; MBIA)............ 5,000,000 5,181,300
California Public Works Board, LR, Refunding
(Department of Corrections):
5.20%, 12/1/2009 (Insured; MBIA)...................................... 2,830,000 2,783,984
5.625%, 11/1/2016 (Insured; MBIA) (c)................................. 4,000,000 3,990,000
California Statewide Communities Development Authority, COP,
Health Facilities Revenue, Refunding (Barton Memorial Hospital)
6.50%, 12/1/2009 (LOC; Banque Nationale De Paris) (a)................... 1,600,000 1,703,888
Chico Public Financing Authority, Revenue
(Chico Municipal Airport and Central Chico Redevelopment Project)
7.40%, 4/1/2021 (Prerefunded 4/1/2000) (d).............................. 2,410,000 2,684,981
Commerce Joint Powers Financing Authority, Revenue, Multiple Project Loans
8%, 3/1/2022............................................................ 2,445,000 2,607,470
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1996
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
_______ _______
CALIFORNIA (CONTINUED)
Compton, COP, Refunding (Civic Center Project)
7.50%, 8/1/2005 (LOC; Mitsui Trust and Banking) (a)..................... $ 2,680,000 $ 2,881,884
Contra Costa County, Mortgage Revenue, Refunding (Cedar Pointe)
6.15%, 9/1/2025......................................................... 3,000,000 3,033,090
Del Mar Race Track Authority, Revenue, Refunding 6.20%, 8/15/2011........... 2,000,000 1,994,640
Dry Creek Joint School District, Special Tax
(Community Facilities District Number 1)
7.25%, 9/1/2011 (Insured; FSA, Prerefunded 9/1/2000) (d)................ 1,000,000 1,123,210
Duarte, COP (City of Hope Medical Center):
6%, 4/1/2008............................................................ 3,570,000 3,577,747
6.25%, 4/1/2023......................................................... 7,000,000 6,975,710
East Bay Municipal Utility District, Revenue, Refunding:
Wastewater Treatment System 5%, 6/1/2016 (Insured; FGIC)................ 8,035,000 7,432,455
Water System:
5%, 6/1/2014 (Insured; FGIC).......................................... 5,000,000 4,679,100
5%, 6/1/2016 (Insured; FGIC).......................................... 9,785,000 9,051,223
Folsom Public Financing Authority, Local Agency Revenue 7.70%, 10/1/2020.... 1,200,000 1,241,412
Fontana Public Financing Authority, Tax Allocation Revenue, Refunding
(North Fontana Redevelopment Project) 7.25%, 9/1/2020................... 2,000,000 1,993,080
Foothill/Eastern Transportation Corridor Agency, Toll Road Revenue:
Zero Coupon, 1/1/2017................................................... 5,000,000 1,368,800
Zero Coupon, 1/1/2029................................................... 23,295,000 2,868,779
6%, 1/1/2034............................................................ 3,000,000 2,914,950
Fresno Unified School District, COP (Project Phase VI) 7.20%, 5/1/2011...... 4,250,000 4,568,622
Hollister Redevelopment Agency, Tax Allocation
(Hollister Community Development Project) 7.55%, 10/1/2013.............. 1,000,000 1,064,870
Inglewood, HR (Daniel Freeman Hospital) 6.75%, 5/1/2013..................... 2,000,000 2,099,860
Loma Linda, HR (Loma Linda University Medical Center Project)
6%, 12/1/2023........................................................... 5,000,000 4,821,250
Los Angeles County Public Works Financing Authority, LR, Refunding
4.375%, 9/1/2000........................................................ 9,370,000 9,347,980
Madera County, COP (Valley Childrens Hospital):
6.25%, 3/15/2007 (Insured; MBIA)........................................ 2,545,000 2,768,044
6.50%, 3/15/2008 (Insured; MBIA)........................................ 3,165,000 3,500,901
Metropolitan Water District, Southern California Waterworks Revenue
4.875%, 7/1/2010 (Insured; MBIA)........................................ 6,000,000 5,638,200
Newhall Elementary and Castaic Union School Districts, COP
(School Improvement Project) 7.70%, 3/1/2011............................ 2,695,000 2,860,177
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1996
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
_______ _______
CALIFORNIA (CONTINUED)
Northern California Power Agency, Public Power Revenue
(Hydroelectric Project Number 1):
7.15%, 7/1/2024....................................................... $ 5,345,000 $ 5,616,098
Refunding 6.30%, 7/1/2018 (Insured; MBIA)............................. 20,400,000 22,302,912
Orange County:
COP (Juvenile Justice Center) 7.625%, 6/1/2019 (Prerefunded 6/1/1999) (d) 2,500,000 2,748,950
Special Tax (Community Facilities District Number 87-3)
7.80%, 8/15/2015 (Prerefunded 8/15/2000) (d).......................... 1,500,000 1,698,270
Orange County Recovery, COP, Refunding 6%, 7/1/2026 (Insured; MBIA)......... 5,720,000 5,803,741
Otay Municipal Water District (Improvement District Number 27) 6.70%, 9/1/2022 2,000,000 2,056,040
Palm Desert (Assessment District Number 94-1) 7.625%, 9/2/2019.............. 1,920,000 1,976,755
Port Oakland, Special Facilities Revenue (Mitsui O.S.K. Lines Limited)
6.80%, 1/1/2019 (LOC; Industrial Bank of Japan) (a)..................... 3,000,000 3,148,590
Richmond Joint Powers Financing Authority, Revenue
7.25%, 5/15/2013 (Prerefunded 5/15/2000) (d)............................ 2,000,000 2,214,900
Sacramento County, Special Tax (Community Facilities District Number 1)
8.25%, 12/1/2020........................................................ 5,610,000 6,009,376
San Bernardino, Health Care Systems Revenue (Sisters of Charity) 7%, 7/1/2021 2,000,000 2,236,240
San Diego Public Facilities Financing Authority, Sewer Revenue:
5%, 5/15/2020 (Insured; FGIC)........................................... 6,000,000 5,468,940
5%, 5/15/2025 (Insured; FGIC)........................................... 11,125,000 10,053,218
San Francisco City and County Airports Commission, International Airport
Revenue
5.70%, 5/1/2026 (Insured; MBIA)......................................... 4,000,000 3,935,160
San Jose Redevelopment Agency, Tax Allocation, Refunding
(Merged Area Redevelopment Project) 6%, 8/1/2008........................ 3,000,000 3,208,530
San Marcos Public Facilities Authority, Revenue, Refunding
(Public Improvement-Civic Center) 6.20%, 8/1/2022....................... 3,000,000 2,982,480
San Marcos Unified School District
(School Facilities Improvement District Number 1)
5.80%, 11/1/2014 (Insured; AMBAC)....................................... 3,540,000 3,610,411
Simi Valley, Single Family Residential Mortgage Revenue 7.625%, 8/1/2022 (e) 1,739,784 295,763
Southern California Home Finance Authority, SFMR
6.90%, 10/1/2024 (Collateralized: FNMA and GNMA)........................ 1,665,000 1,727,537
Southern California Public Power Authority, Power Project Revenue
(Multiple Projects) 6.75%, 7/1/2011..................................... 3,750,000 4,217,025
Tehachapi Unified School District, COP (Tompkins Elementary School Project)
7.80%, 2/1/2021 (Prerefunded 2/1/2001) (d).............................. 1,000,000 1,125,700
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 1996
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
_______ _______
CALIFORNIA (CONTINUED)
University of California, HR (Davis Medical Center):
5.75%, 7/1/2013 (Insured; AMBAC)........................................ $ 10,560,000 $10,725,898
6%, 7/1/2026 (Insured; AMBAC)........................................... 6,000,000 6,087,840
Valley Health System, HR, Refunding (Improvement Project) 6.50%, 5/15/2015.. 6,250,000 6,178,313
West Covina Redevelopment Agency, Special Tax, Refunding
(Community Facilities District - Fashion Plaza):
6%, 9/1/2017.......................................................... 6,000,000 6,017,400
6%, 9/1/2022.......................................................... 8,325,000 8,308,184
Yolo County Housing Authority, Mortgage Revenue (Walnut Park Apartments)
7.20%, 8/1/2033 (Insured; FHA).......................................... 4,150,000 4,342,436
U. S. RELATED-3.7%
Puerto Rico Commonwealth, Refunding 6%, 7/1/2014............................ 5,000,000 5,047,200
Puerto Rico Electric Power Authority, Power Revenue:
6.50%, 7/1/2006......................................................... 5,000,000 5,591,300
7.125%, 7/1/2014........................................................ 540,000 582,482
_______
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (cost $284,635,506)................... $293,294,279
=======
SHORT-TERM MUNICIPAL INVESTMENTS-3.2%
California Pollution Control Financing Authority, PCR, Refunding, VRDN
(Pacific Gas and Electric)
3.85% (LOC; Bank of America National Trust & Saving Association) (a,f).. $ 8,500,000 $ 8,500,000
Los Angeles County Metropolitan Transportation Authority,
Sales Tax Revenue, Refunding, VRDN 3.65% (f)............................ 1,100,000 1,100,000
_______
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (cost $9,600,000).................... $ 9,600,000
=======
TOTAL INVESTMENTS-100.0% (cost $294,235,506)................................ $302,894,279
=======
</TABLE>
<TABLE>
<CAPTION>
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
COP Certificate of Participation LR Lease Revenue
FGIC Financial Guaranty Insurance Company MBIA Municipal Bond Investors Assurance
FNMA Federal National Mortgage Association Insurance Corporation
FHA Federal Housing Administration PCR Pollution Control Revenue
FSA Financial Security Assurance SFMR Single Family Mortgage Revenue
GNMA Government National Mortgage Association VRDN Variable Rate Demand Notes
HR Hospital Revenue
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
<S> <C> <C> <C>
FITCH (G) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
_____ _____ __________ ____________
AAA Aaa AAA 40.6%
AA Aa AA 6.8
A A A 22.4
BBB Baa BBB 9.6
BB Ba BB .7
D N/A D .6
F1+ & F1 MIG1, VMIG1 & P1 SP1 & A1 12.8
Not Rated (h) Not Rated (h) Not Rated (h) 6.5
____
100.0%
====
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Secured by letters of credit.
(b) Wholly held by the custodian in a segregated account as collateral
for delayed-delivery securities.
(c) Purchased on a delayed-delivery basis.
(d) Bonds which are prerefunded are collateralized by U.S. Government
securities which are held in escrow and are used to pay principal and
interest on the municipal issue and to retire the bonds in full at the
earliest refunding date.
(e) Non-income producing security; interest payments in default.
(f) 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.
(g) Fitch currently provides creditworthiness information for a limited
number of investments.
(h) Securities which, while not rated by Fitch, Moody's or Standard &
Poor's have been determined by the Manager to be of comparable quality to
those rated securities in which the Fund may invest.
(i) At September 30, 1996, 27.1% of the Fund's net assets are insured by
MBIA.
See notes to financial statements.
<TABLE>
<CAPTION>
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1996
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $294,235,506)-see statement..................................... $302,894,279
Interest receivable..................................................... 4,569,144
Prepaid expenses........................................................ 11,274
_______
307,474,697
LIABILITIES:
Due to The Dreyfus Corporation and affiliates........................... $ 141,918
Payable for investment securities purchased............................. 10,118,754
Accrued expenses and other liabilities.................................. 416,293 10,676,965
______ _______
NET ASSETS ................................................................ $296,797,732
=======
REPRESENTED BY:
Paid-in capital......................................................... $282,368,780
Accumulated undistributed investment income-net......................... 426,999
Accumulated undistributed net realized gain on investments.............. 5,343,180
Accumulated net unrealized appreciation on investments-Note 3(b)........ 8,658,773
_______
NET ASSETS at value applicable to 22,225,417 shares outstanding
(500 million shares of $.001 par value Common Stock authorized)......... $296,797,732
=======
NET ASSET VALUE, offering and redemption price per share
($296,797,732 / 22,225,417 shares)...................................... $13.35
=======
STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1996
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 18,741,512
EXPENSES:
Management fee-Note 2(a).............................................. $ 1,865,723
Shareholder servicing costs-Note 2(b)................................. 329,807
Professional fees..................................................... 43,856
Custodian fees........................................................ 40,300
Directors' fees and expenses-Note 2(c)................................ 31,020
Prospectus and shareholders' reports.................................. 24,632
Registration fees..................................................... 17,725
Miscellaneous......................................................... 22,760
______
TOTAL EXPENSES.................................................... 2,375,823
_______
INVESTMENT INCOME-NET............................................. 16,365,689
_______
REALIZED AND UNREALIZED GAIN ON INVESTMENTS-Note 3:
Net realized gain on investments........................................ $ 6,662,496
Net realized (loss) on financial futures................................ (490,245)
______
NET REALIZED GAIN..................................................... 6,172,251
Net unrealized (depreciation) on investments............................ (1,721,041)
_______
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................... 4,451,210
_______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 20,816,899
=======
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED SEPTEMBER 30,
__________________________________
1995 1996
_______ ______
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 17,903,962 $ 16,365,689
Net realized gain on investments........................................ 2,920,516 6,172,251
Net unrealized appreciation (depreciation) on investments for the year.. 7,663,008 (1,721,041)
_______ ______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 28,487,486 20,816,899
_______ ______
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................... (17,856,933) (15,985,719)
Net realized gain on investments........................................ (2,098,798) (3,748,977)
_______ ______
TOTAL DIVIDENDS....................................................... (19,955,731) (19,734,696)
_______ ______
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold........................................... 136,023,008 159,413,680
Dividends reinvested.................................................... 13,460,614 13,771,940
Cost of shares redeemed................................................. (187,243,378) (195,305,564)
_______ ______
(DECREASE) IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS.............. (37,759,756) (22,119,944)
_______ ______
TOTAL (DECREASE) IN NET ASSETS.................................... (29,228,001) (21,037,741)
NET ASSETS:
Beginning of year....................................................... 347,063,474 317,835,473
_______ ______
End of year (including undistributed investment income-net:
$47,029 in 1995 and $426,999 in 1996)................................. $ 317,835,473 $ 296,797,732
======= ======
SHARES SHARES
_______ ______
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 10,429,450 11,970,554
Shares issued for dividends reinvested.................................. 1,047,791 1,027,566
Shares redeemed......................................................... (14,495,652) (14,661,989)
_______ ______
NET (DECREASE) IN SHARES OUTSTANDING.................................. (3,018,411) (1,663,869)
======= ======
See notes to financial statements.
</TABLE>
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
FINANCIAL HIGHLIGHTS
Reference is made to page 4 of the Fund's Prospectus
dated January 31, 1997.
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
General California Municipal Bond Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 ("Act") as a non-diversified
open-end management investment company. The Fund's investment objective is to
maximize current income exempt from Federal and State of California personal
income taxes to the extent consistent with the preservation of capital. The
Dreyfus Corporation ("Manager") serves as the Fund's investment adviser. The
Manager is a direct subsidiary of Mellon Bank, N.A. Premier Mutual Fund
Services, Inc. acts as the distributor of the Fund's shares, which are sold
to the public without a sales charge.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: The Fund's investments (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Directors. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Options
and financial futures on municipal and U.S. treasury securities are valued at
the last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market
on each business day. Investments not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost 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. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
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 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, if any, it is the policy of the Fund not to distribute such gain.
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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 and excise
taxes.
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 .60 of 1% of the value
of the Fund's average daily net assets and is payable monthly. The Agreement
provides that if in any full fiscal year the aggregate expenses of the Fund,
exclusive of taxes, brokerage, interest on borrowings and extraordinary
expenses, exceed the expense limitation of any state having jurisdiction over
the Fund, the Fund may deduct from payments to be made to the Manager, or the
Manager will bear the amount of such excess to the extent required by state
law. The most stringent state expense limitation applicable to the Fund
presently requires reimbursement of expenses in any full fiscal year that
such expenses (exclusive of certain expenses as described above) exceed 2-1/2%
of the first $30 million, 2% of the next $70 million and 1-1/2% of the excess
over $100 million of the value of the Fund's average daily net assets in
accordance with California "blue sky" regulations. There was no expense
reimbursement for the year ended September 30, 1996.
(B) Pursuant to the Fund's Shareholder Services Plan, the Fund reimburses
Dreyfus Service Corporation, a wholly-owned subsidiary of the Manager, 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.
During the year ended September 30, 1996, the Fund was charged an aggregate
of $185,456 pursuant to the Shareholder Services Plan.
Effective December 1, 1995, the Fund compensates Dreyfus Transfer, Inc.,
a wholly-owned subsidiary of the Manager, under a transfer agency agreement
for providing personnel and facilities to perform transfer agency services
for the Fund. Such compensation amounted to $83,601 during the period ended
September 30, 1996.
(C) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 3-SECURITIES TRANSACTIONS:
(A) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the year ended September 30, 1996
amounted to $481,249,225 and $504,465,540, respectively.
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Fund may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The Fund is exposed to
market risk as a result of changes in the value of the underlying financial
instruments. Investments in financial futures require the Fund to "mark to
market" on a daily basis, which reflects the change in the market value of the
contract at the close of each day's trading. Accordingly, variation margin
payments are received or made to reflect daily unrealized gains or losses. When
the contracts are closed, the Fund recognizes a realized gain or loss. These
investments require initial margin deposits with a custodian, which consist of
cash or cash equivalents, up to approximately 10% of the contract amount. The
amount of these deposits is determined by the exchange or Board of Trade on
which the contract is traded and is subject to change. At September 30, 1996,
there were no financial futures contracts outstanding.
(B) At September 30, 1996, accumulated net unrealized appreciation on
investments was $8,658,773, consisting of $11,076,976 gross unrealized
appreciation and $2,418,203 gross unrealized depreciation.
At September 30, 1996, 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 BOND FUND, INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
We have audited the accompanying statement of assets and liabilities of
General California Municipal Bond Fund, Inc., including the statement of
investments, as of September 30, 1996, 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 September 30, 1996 by correspondence with the custodian
and brokers. 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 Bond Fund, Inc. at September 30,
1996, 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.
[Ernst and Young LLP signature logo]
New York, New York
October 28, 1996
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
PART C. OTHER INFORMATION
_________________________
Item 24. Financial Statements and Exhibits - List
_______ _________________________________________
(a) Financial Statements:
Included in Part A of the Registration Statement:
Condensed Financial Information -- For the period from
October 10, 1989 (commencement of operations) to
September 30, 1990 and for each of the six years in the
period ended September 30, 1996.
Included in Part B of the Registration Statement:
Statement of Investments--September 30, 1996.
Statement of Assets and Liabilities--September 30,
1996.
Statement of Operations--year ended September 30, 1996.
Statement of Changes in Net Assets--for each of the
years ended September 30, 1995 and 1996.
Notes to Financial Statements.
Report of Ernst & Young LLP, Independent Auditors,
dated October 28, 1996.
Schedule Nos. I through VII and other financial statement information, for
which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission, are either omitted because they are not
required under the related instructions, they are inapplicable, or the
required information is presented in the financial statements or notes
which are included in Part B to the Registration Statement.
Item 24. Financial Statements and Exhibits - List (continued)
_______ _____________________________________________________
(b) Exhibits:
(1) Registrant's Articles of Incorporation and Articles of Amendment
are incorporated by reference to Exhibit (1) of Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A filed
on January 26, 1996.
(2) Registrant's By-Laws, as amended are incorporated by reference to
Exhibit (2) of Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A filed on January 26, 1996.
(5) Management Agreement is incorporated by reference to Exhibit (5)
of Post-Effective Amendment No. 6 to the Registration Statement
on Form N-1A filed on January 30, 1995.
(6)(a) Distribution Agreement is incorporated by reference to Exhibit
(6)(a) of Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A filed on January 30, 1995.
(6)(b) Forms of Service Agreements are incorporated by reference to
Exhibit (8)(a) of Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A filed on January 30, 1995.
(8)(a) Amended and Restated Custody Agreement is incorporated by
reference to Exhibit (8)(a) of Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A filed on January 26,
1996.
(8)(b) Forms of Sub-Custodian Agreements are incorporated by reference
to Exhibit (8)(b) of Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A filed on January 26, 1996.
(9) Shareholder Services Plan is incorporated by reference to Exhibit
(9) of Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A filed on January 30, 1995.
(10) Opinion and consent of Registrant's counsel is incorporated by
reference to Exhibit (10) of Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A filed on January 26,
1996.
(11) Consent of Independent Auditors.
(15) Service Plan is incorporated by reference to Exhibit (15) of
Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A filed on January 30, 1995.
(16) Schedules of Computation of Performance Data are incorporated by
reference to Exhibit (16) of Post-Effective Amendment No. 5 to
the Registration Statement on Form N-1A filed on December 3,
1993.
(17) Financial Data Schedule.
Item 24. Financial Statements and Exhibits. - List (continued)
Other Exhibits
(a) Powers of Attorney.
(b) Certificate of Secretary.
Item 25. Persons Controlled by or under Common Control with Registrant
Not Applicable
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Title of Class Holders as of January 6, 1997
Shares of Common Stock,
par value $.001 per share 5,433
Item 27. Indemnification
Reference is made to Articles SEVENTH of the Registrant's
Articles of Incorporation filed as Exhibit 1 hereto and to Section
2-418 of the Maryland General Corporation Law. The application of
these provisions is limited by Article VIII of the Registrant's
By-Laws filed as Exhibit 2 hereto and by the following undertaking
set forth in the rules promulgated by the Securities and Exchange
Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in such Act and will be governed by the final
adjudication of such issue.
Reference is made to the Distribution Agreement incorporated by
reference to Exhibit (6)(a) of Form N-1A, filed on January 30,
1995.
Item 28. Business and Other Connections of Investment Adviser
The Dreyfus Corporation ("Dreyfus") and subsidiary companies
comprise a financial service organization whose business
consists primarily of providing investment management services
as the investment adviser and manager for sponsored investment
companies registered under the Investment Company Act of 1940
and as an investment adviser to institutional and individual
accounts. Dreyfus also serves as sub-investment adviser to
and/or administrator of other investment companies. Dreyfus
Service Corporation, a wholly-owned subsidiary of Dreyfus,
serves primarily as a registered broker-dealer of shares of
investment companies sponsored by Dreyfus and of other
investment companies for which Dreyfus acts as investment
adviser, sub-investment adviser or administrator. Dreyfus
Management, Inc., another wholly-owned subsidiary, provides
investment management services to various pension plans,
institutions and individuals.
Item 28. Business and Other Connections of Investment Adviser (continued)
________ ________________________________________________________________
Officers and Directors of Investment Adviser
____________________________________________
Name and Position
with Dreyfus Other Businesses
_________________ ________________
MANDELL L. BERMAN Real estate consultant and private investor
Director 29100 Northwestern Highway, Suite 370
Southfield, Michigan 48034;
Past Chairman of the Board of Trustees:
Skillman Foundation;
Member of The Board of Vintners Intl.
BURTON C. BORGELT Chairman Emeritus of the Board and
Director Past Chairman, Chief Executive Officer and
Director:
Dentsply International, Inc.
570 West College Avenue
York, Pennsylvania 17405
Director:
DeVlieg-Bullard, Inc.
1 Gorham Island
Westport, Connecticut 06880
Mellon Bank Corporation***;
Mellon Bank, N.A.***
FRANK V. CAHOUET Chairman of the Board, President and
Director Chief Executive Officer:
Mellon Bank Corporation***;
Mellon Bank, N.A.***
Director:
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103;
Saint-Gobain Corporation
750 East Swedesford Road
Valley Forge, Pennsylvania 19482;
Teledyne, Inc.
1901 Avenue of the Stars
Los Angeles, California 90067
W. KEITH SMITH Chairman and Chief Executive Officer:
Chairman of the Board The Boston Company****;
Vice Chairman of the Board:
Mellon Bank Corporation***;
Mellon Bank, N.A.***;
Director:
Dentsply International, Inc.
570 West College Avenue
York, Pennsylvania 17405
CHRISTOPHER M. CONDRON Vice Chairman:
President, Chief Mellon Bank Corporation***;
Executive Officer, The Boston Company****;
Chief Operating Deputy Director:
Officer and a Mellon Trust***;
Director Chief Executive Officer:
The Boston Company Asset Management,
Inc.****;
President:
Boston Safe Deposit and Trust Company****
STEPHEN E. CANTER Director:
Vice Chairman and The Dreyfus Trust Company++;
Chief Investment Officer, Formerly, Chairman and Chief Executive Officer:
and a Director Kleinwort Benson Investment Management
Americas Inc.*
LAWRENCE S. KASH Chairman, President and Chief
Vice Chairman-Distribution Executive Officer:
and a Director The Boston Company Advisors, Inc.
53 State Street
Exchange Place
Boston, Massachusetts 02109
Executive Vice President and Director:
Dreyfus Service Organization, Inc.**;
Director:
Dreyfus America Fund
The Dreyfus Consumer Credit Corporation*;
The Dreyfus Trust Company++;
Dreyfus Service Corporation*;
President:
The Boston Company****;
Laurel Capital Advisors***;
Boston Group Holdings, Inc.;
Executive Vice President:
Mellon Bank, N.A.***;
Boston Safe Deposit and Trust
Company****;
WILLIAM T. SANDALLS, JR. Director:
Senior Vice President and Dreyfus Partnership Management, Inc.*;
Chief Financial Officer Seven Six Seven Agency, Inc.*;
President and Director:
Lion Management, Inc.*;
Executive Vice President and Director:
Dreyfus Service Organization, Inc.*;
Vice President, Chief Financial Officer and
Director:
Dreyfus Acquisition Corporation*;
Dreyfus America Fund
Vice President and Director:
The Dreyfus Consumer Credit Corporation*;
The Truepenny Corporation*;
Treasurer, Financial Officer and Director:
The Dreyfus Trust Company++;
Treasurer and Director:
Dreyfus Management, Inc.*;
Dreyfus Personal Management, Inc.*;
Dreyfus Service Corporation*;
Major Trading Corporation*;
Formerly, President and Director:
Sandalls & Co., Inc.
WILLIAM F. GLAVIN, JR. Executive Vice President:
Vice President-Corporate Dreyfus Service Corporation*;
Development Senior Vice President:
The Boston Company Advisors, Inc.
53 State Street
Exchange Place
Boston, Massachusetts 02109
MARK N. JACOBS Vice President, Secretary and Director:
Vice President, Lion Management, Inc.*;
General Counsel Secretary:
and Secretary The Dreyfus Consumer Credit Corporation*;
Dreyfus Management, Inc.*;
Assistant Secretary:
Dreyfus Service Organization, Inc.**;
Major Trading Corporation*;
The Truepenny Corporation*
PATRICE M. KOZLOWSKI None
Vice President-
Corporate Communications
MARY BETH LEIBIG None
Vice President-
Human Resources
JEFFREY N. NACHMAN President and Director:
Vice President-Mutual Fund Dreyfus Transfer, Inc.
Accounting One American Express Plaza
Providence, Rhode Island 02903
ANDREW S. WASSER Vice President:
Vice President-Information Mellon Bank Corporation***
Services
ELVIRA OSLAPAS Assistant Secretary:
Assistant Secretary Dreyfus Service Corporation*;
Dreyfus Management, Inc.*;
Dreyfus Acquisition Corporation, Inc.*;
The Truepenny Corporation+
______________________________________
* The address of the business so indicated is 200 Park Avenue, New
York, New York 10166.
** The address of the business so indicated is 131 Second Street, Lewes,
Delaware 19958.
*** The address of the business so indicated is One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258.
**** The address of the business so indicated is One Boston Place, Boston,
Massachusetts 02108.
+ The address of the business so indicated is Atrium Building, 80 Route
4 East, Paramus, New Jersey 07652.
++ The address of the business so indicated is 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144.
Item 29. Principal Underwriters
________ ______________________
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or
exclusive distributor:
1) Comstock Partners Funds, Inc.
2) Dreyfus A Bonds Plus, Inc.
3) Dreyfus Appreciation Fund, Inc.
4) Dreyfus Asset Allocation Fund, Inc.
5) Dreyfus Balanced Fund, Inc.
6) Dreyfus BASIC GNMA Fund
7) Dreyfus BASIC Money Market Fund, Inc.
8) Dreyfus BASIC Municipal Fund, Inc.
9) Dreyfus BASIC U.S. Government Money Market Fund
10) Dreyfus California Intermediate Municipal Bond Fund
11) Dreyfus California Tax Exempt Bond Fund, Inc.
12) Dreyfus California Tax Exempt Money Market Fund
13) Dreyfus Cash Management
14) Dreyfus Cash Management Plus, Inc.
15) Dreyfus Connecticut Intermediate Municipal Bond Fund
16) Dreyfus Connecticut Municipal Money Market Fund, Inc.
17) Dreyfus Florida Intermediate Municipal Bond Fund
18) Dreyfus Florida Municipal Money Market Fund
19) The Dreyfus Fund Incorporated
20) Dreyfus Global Bond Fund, Inc.
21) Dreyfus Global Growth Fund
22) Dreyfus GNMA Fund, Inc.
23) Dreyfus Government Cash Management
24) Dreyfus Growth and Income Fund, Inc.
25) Dreyfus Growth and Value Funds, Inc.
26) Dreyfus Growth Opportunity Fund, Inc.
27) Dreyfus Income Funds
28) Dreyfus Institutional Money Market Fund
29) Dreyfus Institutional Short Term Treasury Fund
30) Dreyfus Insured Municipal Bond Fund, Inc.
31) Dreyfus Intermediate Municipal Bond Fund, Inc.
32) Dreyfus International Funds, Inc.
33) Dreyfus Investment Grade Bond Funds, Inc.
34) The Dreyfus/Laurel Funds, Inc.
35) The Dreyfus/Laurel Funds Trust
36) The Dreyfus/Laurel Tax-Free Municipal Funds
37) Dreyfus LifeTime Portfolios, Inc.
38) Dreyfus Liquid Assets, Inc.
39) Dreyfus Massachusetts Intermediate Municipal Bond Fund
40) Dreyfus Massachusetts Municipal Money Market Fund
41) Dreyfus Massachusetts Tax Exempt Bond Fund
42) Dreyfus MidCap Index Fund
43) Dreyfus Money Market Instruments, Inc.
44) Dreyfus Municipal Bond Fund, Inc.
45) Dreyfus Municipal Cash Management Plus
46) Dreyfus Municipal Money Market Fund, Inc.
47) Dreyfus New Jersey Intermediate Municipal Bond Fund
48) Dreyfus New Jersey Municipal Bond Fund, Inc.
49) Dreyfus New Jersey Municipal Money Market Fund, Inc.
50) Dreyfus New Leaders Fund, Inc.
51) Dreyfus New York Insured Tax Exempt Bond Fund
52) Dreyfus New York Municipal Cash Management
53) Dreyfus New York Tax Exempt Bond Fund, Inc.
54) Dreyfus New York Tax Exempt Intermediate Bond Fund
55) Dreyfus New York Tax Exempt Money Market Fund
56) Dreyfus 100% U.S. Treasury Intermediate Term Fund
57) Dreyfus 100% U.S. Treasury Long Term Fund
58) Dreyfus 100% U.S. Treasury Money Market Fund
59) Dreyfus 100% U.S. Treasury Short Term Fund
60) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
61) Dreyfus Pennsylvania Municipal Money Market Fund
62) Dreyfus S&P 500 Index Fund
63) Dreyfus Short-Intermediate Government Fund
64) Dreyfus Short-Intermediate Municipal Bond Fund
65) The Dreyfus Socially Responsible Growth Fund, Inc.
66) Dreyfus Stock Index Fund, Inc.
67) Dreyfus Tax Exempt Cash Management
68) The Dreyfus Third Century Fund, Inc.
69) Dreyfus Treasury Cash Management
70) Dreyfus Treasury Prime Cash Management
71) Dreyfus Variable Investment Fund
72) Dreyfus Worldwide Dollar Money Market Fund, Inc.
73) General California Municipal Bond Fund, Inc.
74) General California Municipal Money Market Fund
75) General Government Securities Money Market Fund, Inc.
76) General Money Market Fund, Inc.
77) General Municipal Bond Fund, Inc.
78) General Municipal Money Market Fund, Inc.
79) General New York Municipal Bond Fund, Inc.
80) General New York Municipal Money Market Fund
81) Premier Insured Municipal Bond Fund
82) Premier California Municipal Bond Fund
83) Premier Equity Funds, Inc.
84) Premier Global Investing, Inc.
85) Premier GNMA Fund
86) Premier Growth Fund, Inc.
87) Premier Municipal Bond Fund
88) Premier New York Municipal Bond Fund
89) Premier State Municipal Bond Fund
90) Premier Strategic Growth Fund
91) Premier Value Fund
(b)
Positions and
Name and principal Positions and offices with offices with
business address the Distributor Registrant
__________________ ___________________________ _____________
Marie E. Connolly+ Director, President, Chief President and
Executive Officer and Compliance Treasurer
Officer
Joseph F. Tower, III+ Senior Vice President, Treasurer Vice President
and Chief Financial Officer and Assistant
Treasurer
John E. Pelletier+ Senior Vice President, General Vice President
Counsel, Secretary and Clerk and Secretary
Roy M. Moura+ First Vice President None
Dale F. Lampe+ Vice President None
Mary A. Nelson+ Vice President Vice President
and Assistant
Treasurer
Paul Prescott+ Vice President None
Elizabeth A. Keeley++ Assistant Vice President Vice President
and Assistant
Secretary
Jean M. O'Leary+ Assistant Secretary and None
Assistant Clerk
John W. Gomez+ Director None
William J. Nutt+ Director None
________________________________
+ Principal business address is One Exchange Place, Boston, Massachusetts
02109.
++ Principal business address is 200 Park Avenue, New York, New York 10166.
Item 30. Location of Accounts and Records
________________________________
1. First Data Investor Services Group, Inc.,
a subsidiary of First Data Corporation
P.O. Box 9671
Providence, Rhode Island 02940-9671
2. The Bank of New York
90 Washington Street
New York, New York 10286
3. Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, Rhode Island 02940-9671
4. The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Item 31. Management Services
_______ ___________________
Not Applicable
Item 32. Undertakings
________ ____________
(1) To call a meeting of shareholders for the purpose of voting upon
the question of removal of a Board member or Board members when
requested in writing to do so by the holders of at least 10% of
the Registrant's outstanding shares and in connection with such
meeting to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder
communications.
(2) To furnish each person to whom a prospectus is delivered with a
copy of the Fund's latest Annual Report to Shareholders, upon
request and without charge.
SIGNATURES
__________
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
New York, and State of New York on the 27th day of January, 1997.
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
BY: /s/Marie E. Connolly*
--------------------------------------
Marie E. Connolly, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signatures Title Date
__________________________ ___________________________ __________
/s/Marie E. Connolly* President (Principal Executive 01/27/97
- -------------------------- Officer)
Marie E. Connolly
/s/Joseph F. Tower, III* Assistant Treasurer (Principal 01/27/97
- -------------------------- Accounting and Financial Officer)
Joseph F. Tower, III
/s/Clifford L. Alexander, Jr.* Director 01/27/97
- --------------------------
Clifford L. Alexander, Jr.
/s/Peggy C. Davis* Director 01/27/97
- --------------------------
Peggy C. Davis
/s/Joseph S. DiMartino* Director 01/27/97
- --------------------------
Joseph S. DiMartino
/s/Ernest Kakfa* Director 01/27/97
- --------------------------
Ernest Kafka
/s/Saul B. Klaman* Director 01/27/97
- --------------------------
Saul B. Klaman
/s/Nathan Leventhal* Director 01/27/97
- --------------------------
Nathan Leventhal
*BY: /s/Elizabeth A. Keeley
-----------------------
Elizabeth A. Keeley
Attorney-in-Fact
INDEX OF EXHIBITS
(11) Consent of Independent Auditors
(17) Financial Data Schedule
Other Exhibits
(a) Powers of Attorney
(b) Certificate of Secretary
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Condensed
Financial Information" and "Transfer and Dividend Disbursing Agent,
Custodian, Counsel and Independent Auditors" and to the use of our report
dated October 28, 1996, in this Registration Statement (Form N-1A 33-30703)
of General California Municipal Bond Fund, Inc.
ERNST & YOUNG LLP
New York, New York
January 24, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000854857
<NAME> GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 294236
<INVESTMENTS-AT-VALUE> 302895
<RECEIVABLES> 4569
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 307475
<PAYABLE-FOR-SECURITIES> 10119
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 558
<TOTAL-LIABILITIES> 10677
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 282369
<SHARES-COMMON-STOCK> 22225
<SHARES-COMMON-PRIOR> 23889
<ACCUMULATED-NII-CURRENT> 427
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5343
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8659
<NET-ASSETS> 296798
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18742
<OTHER-INCOME> 0
<EXPENSES-NET> 2376
<NET-INVESTMENT-INCOME> 16366
<REALIZED-GAINS-CURRENT> 6172
<APPREC-INCREASE-CURRENT> (1721)
<NET-CHANGE-FROM-OPS> 20817
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15986)
<DISTRIBUTIONS-OF-GAINS> (3749)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11971
<NUMBER-OF-SHARES-REDEEMED> (14662)
<SHARES-REINVESTED> 1028
<NET-CHANGE-IN-ASSETS> (21038)
<ACCUMULATED-NII-PRIOR> 47
<ACCUMULATED-GAINS-PRIOR> 2920
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1866
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2376
<AVERAGE-NET-ASSETS> 310954
<PER-SHARE-NAV-BEGIN> 13.30
<PER-SHARE-NII> .70
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> (.68)
<PER-SHARE-DISTRIBUTIONS> (.16)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.35
<EXPENSE-RATIO> .008
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Item 24.(b)
Other Exhibits (a)
POWER OF ATTORNEY
The undersigned hereby constitute and appoint Elizabeth A. Keeley,
Marie E. Connolly, Richard W. Ingram, Mark A. Karpe and John E. Pelletier
and each of them, with full power to act without the other, his or her true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all
amendments to the Registration Statement of General California Municipal
Bond Fund, Inc. (including post-effective amendments and amendments
thereto), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing ratifying and confirming all that said attorneys-in-fact and agents
or any of them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
/s/Clifford L. Alexander, Jr. November 7, 1996
- --------------------------------
Clifford L. Alexander, Jr.
/s/Peggy C. Davis November 7, 1996
- --------------------------------
Peggy C. Davis
/s/Joseph S. DiMartino November 7, 1996
- --------------------------------
Joseph S. DiMartino
/s/Ernst Kafka November 7, 1996
- --------------------------------
Ernst Kafka
/s/Saul B. Klaman November 7, 1996
- --------------------------------
Saul B. Klaman
/s/Nathan Leventhal November 7, 1996
- --------------------------------
Nathan Leventhal
ITEM 24.(b)
OTHER EXHIBIT (b)
GENERAL CALIFORNIA MUNICIPAL BOND FUND, INC.
Certificate of Assistant Secretary
The undersigned, Elizabeth A. Keeley, Vice President and Assistant
Secretary of General California Municipal Bond Fund, Inc. (the "Fund"),
hereby certifies that set forth below is a copy of the resolution adopted
by the Fund's Board authorizing the signing by Elizabeth A. Keeley, Marie
E. Connolly, Richard W. Ingram, Mark A. Karpe and John Pelletier on behalf
of the proper officers of the Fund pursuant to a power of attorney:
RESOLVED, that the Registration Statement and any and
all amendments and supplements thereto, may be signed by any one of
Elizabeth A. Keeley, Marie E. Connolly, Richard W. Ingram, Mark A. Karpe
and John Pelletier as the attorney-in-fact for the proper officers of the
Fund, with full power of substitution and resubstitution; and that the
appointment of each of such persons as such attorney-in-fact hereby is
authorized and approved; and that such attorneys-in-fact, and each of them,
shall have full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection with such
Registration Statement and any and all amendments and supplements thereto,
as fully to all intents and purposes as the officer, for whom he or she is
acting as attorney-in-fact, might or could do in person.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed
the seal of the Fund on January 23, 1997.
-----------------------
Elizabeth A. Keeley
Vice President and
Assistant Secretary
