Rule 497(c)
                                                       Registration No. 33-10436
================================================================================
CALIFORNIA DAILY TAX FREE                             600 FIFTH AVENUE
INCOME FUND, INC.                                     NEW YORK, NY 10020
                                                      (212) 830-5345
Class A Shares; Class B Shares                        (800) 433-1918 (Toll Free)
================================================================================

PROSPECTUS


April 29, 2008



A money market fund whose investment objectives are to seek as high a level of
current income exempt from federal income tax and, to the extent possible, from
California income taxes, as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal.


The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.







<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S>    <C>                                                     <C>  <C>
 2     Risk/Return Summary: Investments, Risks                  8   Management, Organization and Capital
       and Performance                                              Structure
 5     Risk/Return Summary: Fee Table                           9   Shareholder Information
 6     Investment Objectives, Principal Investment             19   Distribution Arrangements
       Strategies and Related Risks                            21   Financial Highlights
</TABLE>

The Notice of the Reich & Tang Privacy  Policy is included with this  Prospectus
but is not part of the Prospectus.

<PAGE>

--------------------------------------------------------------------------------
I.  RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
--------------------------------------------------------------------------------

Investment Objectives
---------------------
     The Fund seeks as high a level of current income exempt from federal income
tax and, to the extent possible, from California income taxes, as is believed to
be consistent with preservation of capital, maintenance of liquidity and
stability of principal. There can be no assurance that the Fund will achieve its
investment objectives.

Principal Investment Strategies
-------------------------------
     The Fund intends to achieve its investment objectives by investing
primarily in short-term, high quality, debt obligations of:

(i) California, and its political subdivisions;

(ii) Puerto Rico, Guam and other United States Territories, and their political
     subdivisions; and

(iii) other states.

     These debt obligations, including Participation Certificates therein, are
collectively referred to throughout this Prospectus as Municipal Obligations.

     The Fund is a money market fund and seeks to maintain an investment
portfolio with a dollar-weighted average maturity of 90 days or less, to value
its investment portfolio at amortized cost and to maintain a net asset value of
$1.00 per share.

     The Fund intends to concentrate (i.e., invest 25% or more of the Fund's net
assets) in California Municipal Obligations and Industrial Revenue Bonds,
including Participation Certificates therein. Participation Certificates
evidence ownership of an interest in the underlying Municipal Obligations,
purchased from banks, insurance companies, or other financial institutions.

Principal Risks
---------------

o Although the Fund seeks to preserve the value of your investment at $1.00 per
  share, it is possible to lose money by investing in the Fund.

o The value of the Fund's shares and the securities held by the Fund can each
  decline in value.

o An  investment  in the  Fund  is  not a bank  deposit  and is not  insured  or
  guaranteed  by  the  Federal   Deposit   Insurance   Corporation  or  any
  other governmental agency.

o The amount of income the Fund generates will vary with changes in prevailing
  interest rates.

o Because the Fund intends to concentrate in California Municipal Obligations,
  including Participation Certificates, investors should also consider the
  greater risk of the Fund's concentration versus the safety that comes with a
  less concentrated investment portfolio.

o Because the Fund may invest in Participation Certificates, investors should
  understand the characteristics of the banking industry and the risks that
  such investments entail.

o An investment in the Fund should be made with an understanding of the risks
  that an investment in California Municipal Obligations may entail. Payment
  of interest and preservation of capital are dependent upon the continuing
  ability of California issuers and/or obligors of state, municipal and
  public authority debt obligations to meet their payment obligations. Risk
  factors affecting the State of California are described in "California Risk
  Factors" in the Statement of Additional Information.


o    Because the Fund reserves the right to invest up to 20% of its net assets
     in taxable securities, investors should understand that some of the income
     generated by the Fund may be subject to taxation including the federal
     alternative minimum tax.

o    The payment of interest and preservation of capital are dependent upon the
     continuing ability of issuers to meet payment obligations.

                                       2
<PAGE>

Risk/Return Bar Chart and Table
-------------------------------

     The following bar chart and table may assist you in deciding whether to
invest in the Fund. The bar chart shows the change in the annual total returns
of the Fund's Class A shares for the last ten calendar years. The table shows
the Fund's average annual total return for the last one, five, and ten year and
since inception periods for each Class of shares. While analyzing this
information, please note that the Fund's past performance is not an indicator of
how the Fund will perform in the future. The current 7-day yield for each Class
may be obtained by calling the Fund at (212) 830-5345 or toll-free at (800)
433-1918.


                                       3
<PAGE>

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

<TABLE>
<CAPTION>

      California Daily Tax Free Income Fund, Inc. - Class A Shares (1)(2)

[GRAPHIC OMITTED]

<S>                                 <C>
CALENDAR YEAR END             % TOTAL RETURN

1998                               2.48%
1999                               2.25%
2000                               2.75%
2001                               1.57%
2002                               0.55%
2003                               0.17%
2004                               0.33%
2005                               1.50%
2006                               2.45%
2007                               2.72%

<FN>

(1) The Fund's highest quarterly return was 0.76% for the quarter ending June
    30, 2000; the lowest quarterly return was 0.02% for the quarter
    ending September 30, 2003.

(2) Participating Organizations may charge a fee to investors for
    purchasing and redeeming shares. Therefore, the net return to
    such investors may be less than the net return by investing in
    the Fund directly.

</FN>
</TABLE>

<TABLE>
<CAPTION>

    Average Annual Total Returns - For the periods ended December 31, 2007

<S>     <C>                                            <C>            <C>
                                                     Class A        Class B
                                                     -------        -------
        One Year                                      2.72%          2.95%
        Five Years                                    1.43%          1.63%
        Ten Years                                     1.67%          1.90%
        Since Inception*                              2.66%          2.03%


<FN>
* The inception date was February 10, 1987, for the Class A shares and October
  9, 1996, for the Class B shares.
</FN>
</TABLE>

                                       4
<PAGE>

                                    FEE TABLE
--------------------------------------------------------------------------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
<CAPTION>

Shareholder Fees
----------------
(fees paid directly from your investment)

<S>                                                             <C>

Sales Charge (Load) Imposed on Purchases...............         None
Wire Redemption Fee....................................         $15.00*

<FN>
*  There is a $15.00 fee for all wire redemptions of less than $10,000.
</FN>
</TABLE>

<TABLE>
<CAPTION>

Annual Fund Operating Expenses
------------------------------
(expenses that are deducted from Fund assets)


<S>                                                           <C>         <C>             <C>        <C>
                                                                       Class A Shares            Class B Shares
                                                                       -------------             --------------
Management Fees........................................                  0.30%                      0.30%
Distribution and Service (12b-1) Fees..................                  0.20%                      0.00%
Other Expenses.........................................                  0.38%                      0.37%
  Administration Fees..................................        0.21%                      0.21%
                                                                         -----                      ------
Total Annual Fund Operating Expenses...................                  0.88%                      0.67%

</TABLE>


<TABLE>
<CAPTION>

Example
-------

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:


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

Class A:                $90                $281                $488                $1084
Class B:                $68                $214                $373                $ 835

</TABLE>


                                       5
<PAGE>

II. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS

Investment Objectives
---------------------

     The Fund is a tax-exempt money market fund whose investment objectives are
to seek as high a level of current income exempt from federal income tax and, to
the extent possible, from California income taxes, as is believed to be
consistent with preservation of capital, maintenance of liquidity and stability
of principal.

     The investment objectives of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund.

Principal Investment Strategies
-------------------------------

     Although the Fund will attempt to invest 100% of its total assets in
Municipal Obligations and Participation Certificates therein, the Fund, under
normal circumstances, will invest at least 80% of its net assets, plus the
amount of any borrowings for investment purposes, in Municipal Obligations, the
income from which is exempt from both federal and California income tax. This
policy is fundamental and may not be changed without shareholder approval.

     With respect to 20% of its net assets, the Fund may purchase taxable
securities, including Municipal Obligations, whose interest income is subject to
federal, state and local income tax. The kinds of taxable securities in which
the Fund may invest are limited to short-term, fixed income securities as more
fully described in "Description of the Fund and Its Investments and Risks -
Taxable Securities" in the Statement of Additional Information.

     Included in the same 20% of net assets in taxable securities, the Fund may
also purchase Municipal Obligations whose interest income may be subject to the
federal alternative minimum tax.

     The Fund may also invest in Participation Certificates in Municipal
Obligations. Participation Certificates represent the Fund's interest in a
Municipal Obligation that is held by another entity (i.e., banks, insurance
companies or other financial institutions). Instead of purchasing a Municipal
Obligation directly, the Fund purchases and holds an undivided interest in a
Municipal Obligation that is held by a third party. The Fund's interest in the
underlying Municipal Obligation is proportionate to the Fund's participation
interest. Ownership of the Participation Certificates generally causes the Fund
to be treated as the owner of an interest in the underlying Municipal
Obligations for federal income tax purposes.

     The Fund may invest more than 25% of its assets in Participation
Certificates in Industrial Revenue Bonds and other California Municipal
Obligations provided, however, that such investments may not exceed 25% of the
Fund's total assets to the extent that (i) the interest and principal on such
instruments are payable solely from the revenues or assets of a private project
or private entity, and (ii) such instruments are not guaranteed by a state,
state agency, or a political subdivision thereof.

     To the extent suitable California Municipal Obligations and Territorial
Municipal Obligations are not available for investment by the Fund, the Fund may
purchase Municipal Obligations issued by other states, their agencies and
instrumentalities. The dividends derived from these investments will be
designated by the Fund as derived from interest income that will be, in the
opinion of bond counsel to the issuer at the date of issuance, exempt from
federal income tax, but may be subject to California income tax.

     The Fund will invest primarily in California Municipal Obligations. As a
temporary defensive measure the Fund may, from time to time, invest in
securities that are inconsistent with its principal investment strategies or
remain uninvested in an attempt to respond to adverse market, economic,
political or other conditions as determined by the

                                       6
<PAGE>

Fund's investment manager. Such a temporary defensive position may cause the
Fund to not achieve its investment objectives.

     With respect to 75% of its total assets, the Fund shall invest not more
than 5% of its total assets in Municipal Obligations issued by a single issuer.
The Fund shall not invest more than 5% of its total assets in Municipal
Obligations issued by a single issuer unless the Municipal Obligations are of
the highest quality, and in no event shall such investments exceed, in the
aggregate, 50% of the value of the Fund's total assets. With respect to 75% of
its total assets, the Fund shall invest not more than 10% of its total assets in
Municipal Obligations backed by a demand feature or guarantee from the same
institution.

     The Fund's investments may also include "when-issued" Municipal Obligations
and stand-by commitments.

     The Fund's investment manager considers the following factors when buying
and selling securities for the portfolio: (i) the availability of cash, (ii)
redemption requests, (iii) yield management, and (iv) credit management.

     In order to maintain a share price of $1.00, the Fund must comply with
certain industry regulations. The Fund will only invest in securities that are
denominated in United States dollars. Other requirements pertain to the maturity
and credit quality of the securities in which the Fund may invest. The Fund will
only invest in securities that have or are deemed to have a remaining maturity
of 397 days or less. Also, the average maturity for all securities contained in
the Fund, on a dollar-weighted basis, will be 90 days or less.

     The Fund will only invest in either securities that have been rated (or
whose issuers have been rated) in the highest short-term rating category by
nationally recognized statistical rating organizations, or are unrated
securities but that have been determined by the Fund's investment manager to be
of comparable quality.

     For a more detailed description of (i) the securities in which the Fund
will invest, (ii) fundamental investment restrictions, and (iii) industry
regulations governing credit quality and maturity, please refer to the Statement
of Additional Information.

Risks
-----

     The Fund complies with industry-standard requirements on the quality,
maturity and diversification of its investments, which are designed to help
maintain a $1.00 share price. A significant change in interest rates or a
default on the Fund's investments could cause its share price (and the value of
your investment) to change.

     By investing in liquid, short-term, high quality investments that have high
quality credit support from banks, insurance companies or other financial
institutions (i.e., Participation Certificates and other variable rate demand
instruments), the Fund's management believes that it can protect the Fund
against credit risks that may exist on long-term Municipal Obligations. The Fund
may still be exposed to the credit risk of the institution providing the
investment. Changes in the credit quality of the provider could affect the value
of the security and your investment in the Fund.

     Because of the Fund's concentration in investments in California Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the financial strength of California and its political subdivisions.

     The primary purpose of investing in a portfolio of California Municipal
Obligations is the special tax treatment accorded California resident individual
investors. Payment of interest and preservation of principal, however, are
dependent upon the continuing ability of the California issuers and/or obligors
of state, municipal and public authority debt obligations to meet their
obligations thereunder. Investors should consider the greater risk of the Fund's

                                       7
<PAGE>

concentration versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of California issues
with those of more diversified portfolios, including out-of-state issues, before
making an investment decision.

     Because the Fund may concentrate in Participation Certificates that may be
secured by bank letters of credit or guarantees, an investment in the Fund
should be made with an understanding of the characteristics of the banking
industry and the risks which such an investment may entail. These
characteristics and risks include extensive governmental regulations, changes in
the availability and cost of capital funds, and general economic conditions (see
"Variable Rate Demand Instruments and Participation Certificates" in the
Statement of Additional Information). These factors may limit both the amounts
and types of loans and other financial commitments that may be made and interest
rates and fees may be charged. The profitability of this industry is largely
dependent upon the availability and cost of capital funds for the purpose of
financing lending operations under prevailing money market conditions. Also,
general economic conditions play an important part in the operations of this
industry and exposure to credit losses arising from possible financial
difficulties of borrowers might affect a bank's ability to meet its obligations
under a letter of credit.

Portfolio Holdings
------------------

     A schedule of the Fund's complete portfolio holdings, current as of
month-end, will be available on the Fund's website no earlier than 5 days after
the end of each month. This information will remain available on the website at
least until updated for the next month or until the Fund files with the
Securities and Exchange Commission (the "SEC") its semi-annual/annual
shareholder report or quarterly portfolio holdings report that includes such
period. The most recent schedule is available on the Fund's website at
http://www.money-funds.com/portfolioholdings or by calling toll free at (800)
433-1918. The Fund may terminate or modify this policy at any time without
further notice to shareholders. A description of the Fund's policies and
procedures with respect to the disclosure of the Fund's portfolio securities is
available in the Statement of Additional Information.

III. MANAGEMENT, ORGANIZATION AND
     CAPITAL STRUCTURE

     The Fund's investment manager is Reich & Tang Asset Management, LLC (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of March 31, 2008, the Manager was the investment
manager, adviser or sub-adviser with respect to assets aggregating in excess of
$17.8 billion. The Manager has been an investment adviser since 1970 and
currently is manager or sub-adviser of seventeen portfolios of registered
investment companies, of which it acts as administrator for twelve. The Manager
also advises high net worth individuals, private funds, pension trusts,
profit-sharing trusts and endowments.

     Pursuant to the Investment Management Contract between the Fund and the
Manager, the Manager manages the Fund's portfolio of securities and makes
decisions with respect to the purchase and sale of investments, subject to the
general control of the Board of Directors of the Fund. Pursuant to the
Investment Management Contract, the Fund pays the Manager a fee equal to 0.30%
per annum of the Fund's average daily net assets for managing the Fund's
investment portfolio and performing related services. For the fiscal year ended
December 31, 2007, the Fund paid the Manager a management fee equal to 0.30% per
annum of the Fund's average daily net assets. A discussion regarding the basis
for the Board of Directors approving the continuance of the Investment
Management Contract is available in the Fund's annual report for the period
ended December 31, 2007.

                                       8
<PAGE>

     Pursuant to the Administrative Services Contract between the Fund and the
Manager, the Manager provides all management and administrative services
reasonably necessary for the Fund's operation, other than those services that
the Manager provides to the Fund pursuant to the Investment Management Contract.
The Manager also provides the Fund with the personnel to perform all other
clerical and accounting type functions not performed by the Manager pursuant to
the Investment Management Contract and the Administrative Services Contract. For
its services under the Administrative Services Contract, the Fund pays the
Manager a fee equal to 0.21% per annum of the Fund's average daily net assets.
For the fiscal year ended December 31, 2007, the Fund paid the Manager a fee for
administrative services equal to 0.21% per annum of the Fund's average daily net
assets. The Manager, at its discretion, may voluntarily waive all or a portion
of the investment management and the administrative services fees. Any portion
of the total fees received by the Manager may be used to provide shareholder
services and for distribution of Fund shares.

     In addition, Reich & Tang Distributors, Inc., (the "Distributor"), receives
a servicing fee equal to 0.20% per annum of the average daily net assets of the
Class A shares of the Fund under the Shareholder Servicing Agreement. The fees
are accrued daily and paid monthly. Investment management fees and operating
expenses, which are attributable to both Classes of shares of the Fund, will be
allocated daily to each Class of shares based on the percentage of shares
outstanding for each Class at the end of the day.

IV.      SHAREHOLDER INFORMATION

     The Fund sells and redeems its shares on a continuing basis at their net
asset value. The Fund does not impose a charge for either purchases or
redemptions, although there may be a fee imposed on certain wire redemption
requests. All transactions in Fund shares are processed through the Fund's
transfer agent or its principal underwriter, as appropriate, which accept orders
for purchases and redemptions from Participating Organizations (see "Investments
Through Participating Organizations - Purchase of Class A Shares" for a
definition of Participating Organizations) and from investors directly.

Pricing of Fund Shares
----------------------

     The net asset value of the Fund's shares is determined as of 4:00 p.m.,
Eastern time, on each Fund Business Day. Fund Business Day means weekdays
(Monday through Friday) except (i) days on which the New York Stock Exchange is
closed for trading (i.e., national holidays) and (ii) Columbus Day and Veterans'
Day. However, on certain days that the New York Stock Exchange is closed, the
Fund, at the direction of the Manager, may be open for purchases and redemptions
and will determine its net asset value. The Fund's net asset value is computed
by dividing the value of the Fund's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued, but excluding capital stock and surplus) by the total number of shares
outstanding. The Fund intends to maintain a stable net asset value at $1.00 per
share, although there can be no assurance that this will be achieved.

     The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"). Amortized cost valuation involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium. If fluctuating interest rates or credit
issues cause the market value of the Fund's portfolio to deviate more than 1/2
of 1% from the value determined on the basis of amortized cost, the Board of
Directors will consider whether any action should be initiated. Although the
amortized cost method provides certainty in valuation, it may result in periods
during which the value of an instrument is higher or lower than the price the
Fund would receive if the instrument were sold.

                                       9
<PAGE>

     Shares are issued as of the first determination of the Fund's net asset
value per share made after acceptance of the investor's purchase order. In order
to maximize earnings on its portfolio, the Fund normally has its assets as fully
invested as is practicable. Many securities in which the Fund invests require
the immediate settlement in funds of Federal Reserve member banks on deposit at
a Federal Reserve Bank (commonly known as "Federal Funds"). Fund shares begin
accruing income on the day the shares are issued to an investor.

     The Fund reserves the right to reject any purchase order of its shares. In
addition, the Fund does not accept cash, and may refuse to accept cash
equivalents (i.e., travelers cheques, money orders, cashier's checks or similar
instruments) and certain other forms of payment at its discretion. Certificates
for Fund shares will not be issued to investors.

Purchase of Fund Shares
-----------------------

     The Fund does not accept a purchase order from investors investing in the
Fund directly (i.e., not through Participating Organizations) until an
investor's payment has been converted into Federal Funds and is received by the
Fund's transfer agent, or its principal underwriter, as appropriate. Orders from
these direct investors that are accompanied by Federal Funds and received after
4:00 p.m., Eastern time, on a Fund Business Day will result in the issuance of
shares on the following Fund Business Day.

     Investors may, if they wish, invest in the Fund through a Participating
Organization with which they have accounts. Generally, all other investors, and
investors who have accounts with Participating Organizations but do not wish to
invest in the Fund through them, may invest in the Fund directly as Class B
shareholders. Class B shareholders generally do not receive the benefit of the
servicing functions performed by a Participating Organization. Class B shares
may also be offered to investors who purchase their shares through Participating
Organizations who, because they may not be legally permitted to receive such as
fiduciaries, do not receive compensation from the Distributor or the Manager.

     The minimum initial investment in the Fund for both Classes of shares is
(i) $1,000 for purchases through Participating Organizations - this may be
satisfied by initial investments aggregating $1,000 by a Participating
Organization on behalf of their customers whose initial investments are less
than $1,000, (ii) $1,000 for securities brokers, financial institutions and
other industry professionals that are not Participating Organizations, and (iii)
$5,000 for all other investors. Initial investments may be made in any amount in
excess of the applicable minimums. The minimum amount for subsequent investments
is $100 unless the investor is a client of a Participating Organization whose
clients have made aggregate subsequent investments of $100. The Fund may waive
any minimum purchase requirements.

     Each shareholder, except those purchasing through Participating
Organizations, will receive a personalized monthly statement from the Fund
listing (i) the total number of Fund shares owned as of the statement closing
date, (ii) purchases and redemptions of Fund shares, and (iii) the dividends
paid on Fund shares (including dividends paid in cash or reinvested in
additional Fund shares).

Investments Through Participating Organizations - Purchase of Class A Shares
----------------------------------------------------------------------------

     Generally, investors purchasing shares through a Participating Organization
become Class A shareholders and are referred to as Participant Investors.
Participating Organizations are securities brokers, banks and financial
institutions or other industry professionals or organizations that have entered
into shareholder servicing agreements with the Distributor with respect to
investment of their customer accounts in the Fund. When

                                       10
<PAGE>

instructed by a Participant Investor to purchase or redeem Fund shares, the
Participating Organization, on behalf of Participant Investor, transmits to the
Fund's transfer agent a purchase or redemption order, and in the case of a
purchase order, payment for the shares being purchased.

     Participating Organizations may confirm to Participant Investors each
purchase and redemption of Fund shares for their accounts. Also, Participating
Organizations may send periodic account statements to the Participant Investors
showing (i) the total number of Fund shares owned by each Participant Investor
as of the statement closing date, (ii) purchases and redemptions of Fund shares
by each Participant Investor during the period covered by the statement, and
(iii) the income earned by Fund shares of each Participant Investor during the
statement period (including dividends paid in cash or reinvested in additional
Fund shares). Participant Investors whose Participating Organizations have not
undertaken to provide such statements will receive them from the Fund directly.

     Participating Organizations may charge Participant Investors a fee in
connection with their use of specialized purchase and redemption procedures. In
addition, Participating Organizations offering purchase and redemption
procedures similar to those offered to shareholders who invest in the Fund
directly may impose charges, limitations, minimums and restrictions in addition
to or different from those applicable to shareholders who invest in the Fund
directly. Accordingly, the net yield to investors who invest through
Participating Organizations may be less than by investing in the Fund directly.
Participating Organizations may also set deadlines for receipt of orders from
Participant Investors that are earlier than the order deadline of the Fund due
to processing or other reasons. A Participant Investor should read this
Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.

     Qualified Participating Organizations may transmit an investor's purchase
or redemption order to the Fund's transfer agent after 4:00 p.m., Eastern time
on the day the order is received from the investor as long as the investor has
placed his order with the Participating Organization before 4:00 p.m., Eastern
time on that day. The investor will then receive the net asset value of the
Fund's shares determined as of 4:00 p.m., Eastern time on the day he placed his
order with the qualified Participating Organization. Participating Organizations
are responsible for instituting procedures to insure that purchase orders by
their respective clients are processed expeditiously.

Initial Direct Purchases of Class B Shares
------------------------------------------

     Investors who wish to invest in the Fund directly may obtain a current
Prospectus and the Fund application order form necessary to open an account by
telephoning the Fund at (212) 830-5345 or toll free at (800) 433-1918 during the
hours of 8:30 a.m. to 5:30 p.m., Eastern time.


Mail and Personal Delivery
--------------------------
     Investors may send or deliver a check made payable to "California Daily Tax
Free Income Fund, Inc." along with a completed Fund application to:

     California Daily Tax Free Income Fund, Inc.
     c/o Reich & Tang Funds
     600 Fifth Avenue - 8th Floor
     New York, New York 10020

     Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
will normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. If your check is returned unpaid due to
insufficient funds, your

                                       11
<PAGE>

order will be cancelled and your account will be charged a $20 fee for each
returned check.

Bank Wire
---------

     To purchase shares of the Fund using the wire system for transmittal of
money among banks, an investor, prior to his or her initial purchase of shares,
should first telephone the Fund at (212) 830-5345 or toll free at (800) 433-1918
to obtain a Fund application necessary to open a new account. The investor
should complete and fax the Fund application along with any required
documentation to the Fund at (212) 315-1112. The original Fund application and
documentation should then be mailed to the address specified under "Mail and
Personal Delivery." The investor should then telephone the Fund at the above
number to obtain a new account number and then instruct a member bank of the
Federal Reserve System to wire the amount of the investment immediately to:

     The Bank of New York Mellon
     ABA # 021000018
     Reich & Tang Funds
     DDA # 8900403527
     For California Daily Tax Free
        Income Fund, Inc.
     Account of (Investor's Name)
                 ----------------------------------
     Fund Account #
                   --------------------------------

     An account will not be opened until the Fund has received the Fund
application and required documentation in proper form and has accepted the
purchase order for its shares.

     There may be a charge by the investor's bank for transmitting the money by
bank wire, and there also may be a charge for use of Federal Funds. The Fund
does not charge investors in the Fund for its receipt of wire transfers. Payment
in the form of a "bank wire" received prior to 4:00 p.m., Eastern time, on a
Fund Business Day will be treated as a Federal Funds payment received on that
day.

Electronic Funds Transfers (EFT), Pre-authorized Credit and Direct Deposit
Privilege
-------------------------------------------------------------------------

     You may purchase shares of the Fund (minimum of $100) by having salary,
dividend payments, interest payments or any other payments designated by you,
including federal salary, social security, or certain veteran's, military or
other payments from the federal government, automatically deposited into your
Fund account. You can also have money debited from your checking account. To
enroll in any one of these programs, please contact your broker or the Fund for
the appropriate form. You may elect at any time to terminate your participation
by notifying in writing the appropriate depositing entity and/or federal agency.
Upon notification of death or legal incapacity your participation in the
Privilege will automatically terminate. Further, the Fund may terminate your
participation in the Privilege upon 30 days' notice to you.

Subsequent Purchases of Shares
------------------------------

     Subsequent purchases can be made by bank wire, as indicated above, or by
mailing a check to:


     California Daily Tax Free Income Fund, Inc.
     c/o Reich & Tang Funds

     P.O. Box 13232 Newark, New Jersey 07101-3232

     There is a $100 minimum for subsequent purchases of shares. All payments
should clearly indicate the shareholder's account number.

     Provided that the information on the application form on file with the Fund
is still applicable, a shareholder may reopen an account without filing a new
Fund application at any time during the year the shareholder's account is closed
or during the following calendar year.

Redemption of Shares
--------------------

     A redemption is effected immediately following, and at a price determined
in accordance with, the next determination of net asset value per share of the
Fund upon receipt by

                                       12
<PAGE>

the Fund's transfer agent of the redemption order (and any supporting
documentation which the Fund's transfer agent may require). Normally, payment
for redeemed shares is made on the same Fund Business Day the redemption is
effected, if the redemption proceeds are paid by wire (on the next Fund Business
Day if paid by check). However, redemption payments will not be paid out unless
the check (including a certified or cashier's check) used for investment has
been cleared for payment by the investor's bank, which can take up to 15 days
after investment. Shares redeemed are not entitled to participate in dividends
declared on the day a redemption becomes effective.

     A shareholder's original Fund application order form permits the
shareholder to redeem by written request and to elect one or more of the
additional redemption procedures described below. A shareholder may only change
the instructions indicated on his original Fund application order form by
transmitting a written direction to the Fund's transfer agent. Requests to
institute or change any of the additional redemption procedures will require a
signature guarantee.

     When a signature guarantee is called for, the shareholder should have
"Signature Guaranteed" stamped under his signature. It should be signed and
guaranteed by an eligible guarantor institution which includes a domestic bank,
a domestic savings and loan institution, a domestic credit union, a member bank
of the Federal Reserve System or a member firm of a national securities
exchange, pursuant to the Fund's transfer agent's standards and procedures.

Written Requests
----------------

     Shareholders may make a redemption in any amount by sending a written
request to the Fund addressed to:

     California Daily Tax Free Income Fund, Inc.
     c/o Reich & Tang Funds
     600 Fifth Avenue-8th Floor
     New York, New York 10020

     All written requests for redemption must be signed by the shareholder, in
each case with signature guaranteed, unless otherwise indicated on the Fund
application or in a subsequent written authorization.

     Normally, the redemption proceeds are paid by check and mailed to the
shareholder at the address of record.

Checks
------

     By making the appropriate election on their Fund application order form,
shareholders may request a supply of checks that may be used to effect
redemptions from the Class of shares of the Fund in which they invest. The
checks, which will be issued in the shareholder's name, are drawn on a special
account maintained by the Fund with the Fund's agent bank. Checks may be drawn
in any amount of $250 or more. When a check is presented to the Fund's agent
bank, it instructs the Fund's transfer agent to redeem a sufficient number of
full and fractional shares in the shareholder's account to cover the amount of
the check. The use of a check to make a withdrawal enables a shareholder in the
Fund to receive dividends on the shares to be redeemed up to the Fund Business
Day on which the check clears. Checks provided by the Fund may not be certified.
Fund shares purchased by check may not be redeemed by check until the check has
cleared, which can take up to 15 days following the date of purchase.

     There is no charge to the shareholder for checks provided by the Fund,
although there may be fees charged for checks provided in connection with
certain cash management programs offered through Participating Organizations.
The Fund reserves the right to impose a charge or impose a different minimum
check amount in the future.

     Shareholders electing the checking option are subject to the procedures,
rules and regulations of the Fund's agent bank governing checking accounts.
Checks drawn on a jointly

                                       13
<PAGE>

owned account may, at the shareholder's election, require only one signature.
Checks in amounts exceeding the value of the shareholder's account at the time
the check is presented for payment will not be honored. Since the dollar value
of the account changes daily, the total value of the account may not be
determined in advance and the account may not be entirely redeemed by check.
Shareholders will be charged a $16 fee for any stop payment requests, a $15 fee
if the Fund is requested to deliver a supply of checks overnight and a $4 fee
for each copy of a check requested. In addition, the Fund reserves the right to
charge the shareholder's account a fee up to $20 for checks not honored as a
result of an insufficient account value, a check deemed not negotiable because
it has been held longer than six months, an unsigned check, and/or a post-dated
check. The Fund reserves the right to terminate or modify the check redemption
procedure at any time or to impose additional fees following notification to the
Fund's shareholders.

     Corporations and other entities electing the checking option are required
to furnish a certified resolution or other evidence of authorization in
accordance with the Fund's normal practices. Individuals and joint tenants are
not required to furnish any supporting documentation. Appropriate authorization
forms will be sent by the Fund or its agents to corporations and other
shareholders who select this option. As soon as the authorization forms are
filed in good order with the Fund's agent bank, the Fund will provide the
shareholder with a supply of checks.

Telephone
---------

     The Fund accepts telephone requests for redemptions from shareholders who
elect this option on their Fund application. The proceeds of a telephone
redemption may be sent to the shareholders at their addresses of record or, if
in excess of $1,000, to their bank accounts, both as set forth in the Fund
application or in a subsequent written authorization. The Fund may accept
telephone redemption instructions from any person with respect to accounts of
shareholders who elect this service and thus such shareholders risk possible
loss of principal and interest in the event of a telephone redemption not
authorized by them. The Fund will employ reasonable procedures to confirm that
telephone redemption instructions are genuine, and will require that
shareholders electing such option provide a form of personal identification at
the time of such redemption requests. Failure by the Fund to employ such
reasonable procedures may cause the Fund to be liable for the losses incurred by
investors due to unauthorized or fraudulent telephone redemptions.

     A shareholder making a telephone withdrawal should call the Fund at (212)
830-5345 or toll free at (800) 433-1918 and state: (i) the name of the
shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address of
record, and (v) the name of the person requesting the redemption. Usually, the
proceeds are sent to the designated bank account or address of record on the
same Fund Business Day the redemption is effected, if the redemption proceeds
are paid by wire (on the next Fund Business Day if paid by check). The Fund
reserves the right to terminate or modify the telephone redemption service in
whole or in part at any time and will notify shareholders accordingly.

Generally
---------

     There is no redemption charge, although there may be a fee charged on
certain wire redemption requests, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals. Unless
other instructions are given in proper form to the Fund's transfer agent, a
check for the proceeds of a redemption will be sent to the shareholder's address
of record. If a shareholder elects to redeem all of his or her shares of the
Fund, all dividends accrued to the date of such redemption will be paid to the

                                       14
<PAGE>

shareholder along with the proceeds of the redemption. A redemption of shares
may result in taxable income to the shareholder.

     The right of redemption generally may not be suspended or the date of
payment upon redemption postponed for more than seven days after the shares are
tendered for redemption, except for (i) any period during which the New York
Stock Exchange is closed (other than customary weekend and holiday closings),
(ii) any period during which the SEC determines that trading thereon is
restricted, (iii) any period during which an emergency (as determined by the
SEC) exists as a result of which disposal by the Fund of its portfolio
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iv) for such other period as the SEC may by order permit for the
protection of the shareholders of the Fund.

     The Fund and its agents reserve the right to "freeze" or "block" (that is,
disallow any further purchases or redemptions from any account) or suspend
account services in certain instances as permitted or required by applicable
laws and regulations, including applicable anti-money laundering regulations.
Examples of such instances include, but are not limited to, (i) where an
accountholder appears on the list of "blocked" entities and individuals
maintained pursuant to OFAC (Office of Foreign Assets Control) regulations, (ii)
where the Fund or its agents detect suspicious activity or suspect fraudulent or
illegal activity, or (iii) when notice has been received by the Fund or its
agents that there is a dispute between the registered or beneficial account
owners.

     The Fund reserves the right to redeem the shares of any shareholder if the
total value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization. The Participating Organization
will be responsible for notifying the Participant Investor of the proposed
mandatory redemption. A shareholder or Participating Organization who receives
such notice may avoid mandatory redemption by purchasing sufficient additional
shares to increase its account value to the minimum amount during the notice
period.

     In addition, in accordance with applicable customer identification
regulations, the Fund reserves the right to redeem the shares of any shareholder
and close the shareholder's account if the Fund and its agents are unable to
verify the shareholder's identity within a reasonable time after the
shareholder's account is opened. If the Fund closes a shareholder's account in
this manner, the shares will be valued in accordance with the net asset value
next calculated after the Fund decides to close the account.

Automatic Withdrawal Plan
-------------------------

     Shareholders may elect to withdraw shares and receive payment from the Fund
of a specified amount of $50 or more automatically on a monthly or quarterly
basis. The monthly or quarterly withdrawal payments of the specified amount are
made by the Fund on the date specified on the Automatic Withdrawal Authorization
form. Whenever such day of the month is not a Fund Business Day, the payment
date is the Fund Business Day preceding the day of the month specified on the
Automatic Withdrawal Authorization form. In order to make a payment, a number of
shares equal in aggregate net asset value to the payment amount are redeemed at
their net asset value on the Fund Business Day immediately preceding the date of
payment. To the extent that the redemptions to make plan payments exceed the
number of shares purchased

                                       15
<PAGE>

through reinvestment of dividends and distributions, the redemptions reduce the
number of shares purchased on original investment, and may ultimately liquidate
a shareholder's investment.

     The election to receive automatic withdrawal payments may be made at the
time of the original application by completing an Automatic Authorization
Withdrawal form. The election may also be made, changed or terminated at any
later time by sending a signature guaranteed written request to the transfer
agent. Because the withdrawal plan involves the redemption of Fund shares, such
withdrawals may constitute taxable events to the shareholder. However, the Fund
does not expect that there will be any realized capital gains.

Dividends and Distributions
---------------------------

     The Fund declares dividends equal to all its net investment income
(excluding long-term capital gains and losses, if any, and amortization of
market discount) on each Fund Business Day and pays dividends monthly. There is
no fixed dividend rate. In computing these dividends, interest earned and
expenses are accrued daily.

     Net realized capital gains, if any, are distributed at least annually and
in no event later than 60 days after the end of the Fund's fiscal year.

     All dividends and distributions of capital gains are automatically
invested, at no charge, in additional Fund shares of the same Class of shares
immediately upon payment thereof unless a shareholder has elected by written
notice to the Fund to receive either of such distributions in cash. The
reinvestment of capital gains or any taxable dividends does not avoid a taxable
event to the shareholder, even though such shareholder has not received a cash
distribution to pay the resulting tax, if any. See "Tax Consequences."

     Because Class A shares bear the service fee under the Fund's 12b-1 Plan,
the net income of and the dividends payable to the Class A shares will be lower
than the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.

Exchange Privilege
------------------

     Shareholders of the Fund are entitled to exchange some or all of their
Class of shares in the Fund for shares of the same Class of certain other
investment companies that retain Reich & Tang Asset Management, LLC as
investment manager and that participate in the exchange privilege program with
the Fund. If only one Class of shares is available in a particular exchange
fund, the shareholders of the Fund are entitled to exchange their shares for the
shares available in that exchange fund. Currently the exchange privilege program
has been established between the Fund and Connecticut Daily Tax Free Income
Fund, Inc., Daily Income Fund, Delafield Fund, Inc., Florida Daily Municipal
Income Fund, New Jersey Daily Municipal Income Fund, Inc. and New York Daily Tax
Free Income Fund, Inc. In the future, the exchange privilege program may be
extended to other investment companies that retain Reich & Tang Asset
Management, LLC as investment adviser or manager.

     There is no charge for the exchange privilege or limitation as to frequency
of exchange. The minimum amount for an exchange is $1,000. However, shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Each Class of shares is exchanged at its
respective net asset value.

                                       16
<PAGE>

     The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares of the same Class may be exchanged
only between investment company accounts registered in identical names. Before
making an exchange, an investor should review the current prospectus of the
investment company into which the exchange is to be made. An exchange will be a
taxable event to an exchanging shareholder. See "Tax Consequences."

     Instructions for exchanges may be made by sending a written request to:

     California Daily Tax Free Income Fund, Inc.
     c/o Reich & Tang Funds
     600 Fifth Avenue - 8th Floor
     New York, New York 10020

or, for shareholders who have elected that option, by telephoning the Fund at
(212) 830-5345 or toll free at (800) 433-1918. The Fund reserves the right to
reject any exchange request and may modify or terminate the exchange privilege
at any time.

Frequent Trading
----------------

    The Reich & Tang family of funds discourages short-term or excessive trading
("frequent trading") of their shares by shareholders (including by means of
exchanges) and maintains procedures reasonably designed to detect and deter such
frequent trading, except with respect to the money market funds as discussed
below. Frequent trading is sometimes referred to as market timing. Market timing
may take many forms but commonly refers to arbitrage activity involving the
frequent buying and selling of mutual fund shares in order to take advantage of
the fact that there may be a lag between a change in the value of a mutual
fund's portfolio securities and the reflection of that change in the fund's
share price. Frequent trading may dilute the value of fund shares held by
long-term shareholders. Frequent trading may also interfere with the efficient
management of a fund's portfolio, as it may result in a fund maintaining higher
cash balances than it otherwise would (which would result in reduced yields for
money market funds) or cause a fund to sell portfolio securities at a time it
otherwise would not. Frequent trading may further result in increased portfolio
transaction (or brokerage) costs, administrative and other operating costs and
may cause a fund to realize taxable capital gains or harvest capital losses at a
time that it otherwise would not. For these reasons, frequent trading poses the
risk of lower returns for long-term shareholders of a fund. There is no
guarantee that these policies and procedures will be effective in detecting and
preventing frequent trading in whole or in part.

    Money market funds are not effective vehicles for market timing activity
since these types of funds seek to maintain a constant net asset value of $1.00
per share. In addition, the risks of frequent trading are not generally
applicable to money market funds because money market funds are created as cash
management vehicles which accommodate frequent inflows and outflows of cash. As
a result, money market funds are managed to accommodate such cash flows,
particularly when used as sweep vehicles, which generally eliminates the
potential for disruptive trading.

    Nonetheless, as indicated under "Pricing of Fund Shares" and "Exchange
Privilege," the Fund reserves the right to reject any purchase or exchange order
for its shares for any reason and thus may exercise such right in the event it
determines that a purchase or exchange order is disruptive to the Fund's
management or otherwise. The Fund's procedures with respect to frequent
purchases and redemptions of Fund shares by shareholders are thus limited to the
Fund exercising its right to reject purchase or exchange orders it determines in
its discretion

                                       17
<PAGE>

to be disruptive.  The Fund may change its policies relating to frequent trading
at any time without prior notice to shareholders.

Tax Consequences
-------------------------------------------------------------------------------

Federal Income Taxes
--------------------

     The Fund has elected and intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, dividends paid by the Fund that are
designated by the Fund as exempt interest dividends and derived from Municipal
Obligations and Participation Certificates, will be exempt from regular federal
income tax whether received in cash or reinvested in additional shares, provided
the Fund meets certain requirements of the Code, including the requirement in
the Code that at the close of each quarter of its taxable year at least 50
percent of the value of the total assets of the Fund consists of Municipal
Obligations and certain other state and local obligations described in Code
Section 103(a), but may be subject to the federal alternative minimum tax. These
dividends are referred to as exempt interest dividends. Income exempt from
federal income tax, however, may be subject to state and local income tax.

     Dividends paid from net investment income from taxable investments, if any,
and distributions of any realized short-term capital gains (from tax-exempt or
taxable obligations) are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares of the Fund.

     For shareholders that are Social Security and Railroad Retirement
recipients, interest on tax-exempt bonds, including exempt interest dividends
paid by the Fund, is to be added to the shareholders' adjusted gross income to
determine the amount of Social Security benefits includible in their gross
income.

     Interest on certain private activity bonds will constitute an item of tax
preference subject to the individual federal alternative minimum tax.
Shareholders that are corporations will be required to include in alternative
minimum taxable income 75% of the amount by which their adjusted current
earnings (including tax-exempt interest) exceed their alternative minimum
taxable income (determined without this tax item). In certain cases,
shareholders that are Subchapter S corporations with accumulated earnings and
profits from Subchapter C years will be subject to a tax on tax-exempt interest.

     The Fund does not expect to realize long-term capital gains, and thus does
not contemplate distributing "capital gain dividends" or having undistributed
capital gain income.

     The Fund will inform shareholders of the amount and nature of its income
and gains in a written notice mailed to shareholders not later than 60 days
after the close of the Fund's taxable year.

     The sale, exchange or redemption of shares will generally be a taxable
disposition of an asset that may result in a taxable gain or loss for the
shareholder if the shareholder receives more or less than its adjusted tax basis
for the shares. An exchange pursuant to the exchange privilege is treated as a
sale on which the shareholder may realize a taxable gain or loss.

     With respect to variable rate demand instruments, including Participation
Certificates therein, the Fund will be treated for federal income tax purposes
as the owner of an interest in the underlying Municipal Obligations and that the
interest thereon will be exempt from regular federal income taxes to the Fund to
the same extent as the interest on the underlying Municipal Obligations.

     The United States Supreme Court has held that there is no constitutional
prohibition against the federal government's taxing the interest earned on state
or other municipal bonds. The decision does not, however, affect the current
exemption from taxation of the interest earned

                                       18
<PAGE>

on the Municipal Obligations.  Investors should review the information regarding
taxes in the Statement of Additional Information.

    The U.S. Supreme Court has granted review and heard oral arguments in
Kentucky Department of Revenue v. Davis, where it is considering whether a state
unlawfully discriminates against interstate commerce by providing an exemption
from its income tax for interest income derived from bonds issued by the state
and its political subdivisions while treating income realized from bonds issued
by other states and their political subdivisions as subject to the state's
income tax. The Supreme Court's decision could affect the state and local income
and franchise tax treatment of distribution from the Fund as described herein.

    Shareholders are urged to consult their tax advisers with respect to the
treatment of distributions from the Fund and ownership of shares of the Fund in
their own states and localities.

California Income Taxes
-----------------------

     The designation of all or a portion of a dividend paid by the Fund as an
exempt-interest dividend under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. Under California law, in order to pay exempt-interest dividends, at
the end of each quarter of its tax year, at least 50% of the "value" of the
Fund's assets must consist of obligations the interest on which, when held by an
individual, would be exempt from taxation by the State of California. Assuming
compliance with this requirement and the California designation limitation
described below, with respect to dividends treated for federal income tax
purposes as exempt-interest dividends that are paid by the Fund to a California
resident individual shareholder, amounts correctly designated as derived from
California Municipal Obligations and/or Territorial Municipal Obligations will
not be subject to the California Income Tax. California law, however, limits the
amount that may be designated as exempt-interest dividends. With respect to the
Fund's taxable year, if the aggregate amount designated as an exempt-interest
dividend is greater than the excess of (i) the amount of interest it received
which, if held by an individual, was exempt from taxation by California, over
(ii) the amounts that, if the Fund were treated as an individual, would be
disallowed as deductions for expenses related to exempt income under California
or federal law, the portion of the distribution designated an exempt-interest
dividend that will be allowed shall be only that proportion of the designated
amount that the excess bears to the designated amount.

     Distributions from net investment income and capital gains, including
exempt interest dividends, will be subject to California corporate franchise tax
if received by a corporate shareholder subject to such tax and may be subject to
state taxes in states other than California and to local taxes imposed by
certain cities within California and outside California. Accordingly, investors
in the Fund including, in particular, corporate investors which may be subject
to the California corporate franchise tax, should consult their tax advisers
with respect to the application of such taxes to an investment in the Fund, to
the receipt of Fund dividends and as to their California tax situation in
general.

     Exempt-interest dividends which are not derived from California Municipal
Obligations and any other dividends of the Fund which do not qualify as
exempt-interest dividends under California law will be includible in a
California resident's tax base for purposes of the California income tax.

     Shareholders are urged to consult their tax advisers with respect to the
treatment of distributions from the Fund and ownership of shares of the Fund in
their own states and localities. Investors should also review the information
regarding taxes in the Statement of Additional Information.

V.   DISTRIBUTION ARRANGEMENTS

Rule 12b-1 Fees
---------------

     Investors do not pay a sales charge to purchase shares of the Fund.
However, the

                                       19
<PAGE>

Fund  pays  shareholder  servicing  fees in  connection  with the  provision  of
servicing to the Class A shareholders.  The Fund pays these fees from its assets
on an ongoing  basis and  therefore,  over time,  the payment of these fees will
increase  the cost of your  investment  and may cost you more than paying  other
types of sales charges.

     The Fund's Board of Directors has adopted a Rule 12b-1 distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Distributor
have entered into a Distribution Agreement and a Shareholder Servicing Agreement
(with respect to the Class A shares of the Fund only).

     Under the Distribution Agreement, the Distributor serves as distributor of
the Fund's shares and for nominal consideration (i.e., $1.00) and as agent for
the Fund, the Distributor will solicit orders for the purchase of the Fund's
shares, provided that any orders will not be binding on the Fund until accepted
by the Fund as principal.

     Under the Shareholder Servicing Agreement, the Distributor receives, with
respect to the Class A shares only, a service fee of 0.20% per annum of the
Class A shares average daily net assets (the "Shareholder Service Fee"). The fee
is accrued daily and paid monthly. Pursuant to this Agreement, the Distributor
provides personal shareholder services and maintains shareholder accounts. Any
portion of the fee may be deemed to be used by the Distributor for payments to
Participating Organizations with respect to their provision of such services to
their clients or customers who are shareholders of the Class A shares of the
Fund. The Class B shareholders will generally not receive the benefit of such
services from Participating Organizations and, therefore, will not be assessed a
Shareholder Servicing Fee.

     The Plan and the Shareholder Servicing Agreement provide that, in addition
to the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Distributor and Participating Organizations in carrying out their
obligations under the Shareholder Servicing Agreement with respect to Class A
shares or the Participating Organization agreement, as the case may be, and (ii)
preparing, printing and delivering the Fund's prospectus to existing
shareholders of the Fund and preparing and printing Fund applications for
shareholder accounts.

     The Plan provides that the Manager may make payments from time to time from
its own resources, which may include the management fee, administrative services
fee and past profits for the following purposes: (i) to pay the costs of and to
compensate others, including Participating Organizations with whom the
Distributor has entered into written agreements, for performing shareholder
servicing on behalf of the Class A shares of the Fund, (ii) to compensate
Participating Organizations for providing assistance in distributing the Class A
shares of the Fund, and (iii) to pay the costs of the preparation and printing
of brochures and other promotional materials, mailings to prospective
shareholders, advertising, and other promotional activities, including the
salaries and/or commissions of sales personnel of the Distributor and other
persons in connection with the distribution of the Fund's shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholding Servicing Fee (with respect to Class A
shares) and past profits, for the purposes enumerated in (i) above. The
Distributor may determine the amount of such payments made pursuant to the Plan,
provided that such payments will not increase the amount which the Fund is
required to pay to the Manager and Distributor for any fiscal year under either
the Investment Management Contract or Administrative Services Contract in effect
for that year or under the Shareholder Servicing Agreement in effect for that
year.

     The Distributor or an affiliate may, from time to time, at its expense and
out of its own resources (a source of which may be the 12b-1 fees paid by the
Fund under the Plan), make cash payments to some but not all

                                       20
<PAGE>

Participating Organizations for shareholder services, as an incentive to sell
shares of the Fund and/or to promote retention of their customers' assets in the
Fund. These payments may be referred to as "revenue sharing," but do not change
the price paid by investors to purchase the Fund's shares or the amount the Fund
receives as proceeds from such sales. Revenue sharing payments may be made to
Participating Organizations that provide services to the Fund or its
shareholders, including (without limitation) shareholder servicing,
administration, accounting, transfer agency and/or distribution services. The
Distributor negotiates the level of payments described above to any particular
Participating Organization with each firm, based on, among other things, the
nature and level of services provided by such Participating Organization and the
significance of the overall relationship of the Participating Organization to
the Manager and its affiliates. The amount of these payments may be significant
and may create an incentive for the Participating Organization to sell shares of
the Fund to you or to recommend one fund complex over another. Please speak with
your Participating Organization to learn more about payments made to them by the
Distributor or its affiliates. Additional information regarding these payments
can be found in the Fund's Statement of Additional Information. In addition, to
the extent allowable under the Financial Industry Regulatory Authority ("FINRA")
rules and any other applicable regulations, the Distributor or an affiliate may
contribute to sales programs for certain Participating Organizations and may
provide non-cash compensation to certain Participating Organizations like
sponsorship or funding of sales seminars, tickets to sporting events, theater or
other entertainment, opportunities to participate in golf or other outings and
gift certificates for meals or by giving out merchandise at industry
conferences, which may be paid for by the Distributor or an affiliate out of its
own resources.

                                       21
<PAGE>
--------------------------------------------------------------------------------

VI.  FINANCIAL HIGHLIGHTS

These financial highlights tables are intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been derived from the Fund's financial statements audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, is included in the annual report, which is available upon request.

<TABLE>

                                                               Years Ended December 31,
                                                  ---------------------------------------------------------

                                                   <c>       <c>           <c>         <c>          <c>
Class A shares                                      2007        2006         2005         2004         2003
--------------                                    -------     -------      -------      -------      -------
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year........         $ 1.00       $ 1.00       $ 1.00       $ 1.00      $ 1.00
                                                   -------      -------      -------      -------     -------
Income from investment operations:
    Net investment income.................           0.027        0.024        0.015       0.003        0.002
    Net realized and unrealized gain (loss)
      on investments......................           0.000        0.000        0.000       0.000        0.000
                                                   -------      -------      -------      -------     -------
    Total from investment operations......           0.027        0.024        0.015       0.003        0.002
                                                   -------      -------      -------      -------     -------
Less distributions from:
    Dividends from net investment income..          (0.027)      (0.024)      (0.015)     (0.003)      (0.002)
    Net realized gains on investments.....          ( --  )      ( --  )      ( --  )     ( --  )      ( --  )
                                                   -------      -------      -------      -------     -------
    Total Distributions...................          (0.027)      (0.024)      (0.015)     (0.003)      (0.002)
                                                   -------      -------      -------      -------     -------
Net asset value, end of year..............         $ 1.00       $ 1.00       $ 1.00       $ 1.00       $ 1.00
                                                   =======      =======      =======      =======     =======
Total Return..............................           2.72%        2.45%        1.50%        0.33%        0.17%
Ratios/Supplemental Data
Net assets, end of year (000's)...........      $ 218,833     $166,999     $ 172,476    $ 182,770    $ 163,675
Ratios to average net assets:
  Expenses (net of fees waived) (a).......           0.88%        0.91%        0.88%        0.88%        0.84%
  Net investment income...................           2.69%        2.40%        1.44%        0.35%        0.19%
  Management and/or administration fees waived        --           --           --          0.02%        0.04%
  Shareholder servicing fees waived.......            --           --           --          0.00%        0.02%
  Expenses paid indirectly................           0.00%         --           0.00%       0.00%        0.00%
<fn>
(a)      Includes expenses paid indirectly if applicable.
</fn>
</TABLE>

                                       22
<PAGE>

VI.  FINANCIAL HIGHLIGHTS (Continued)

<TABLE>

--------------------------------------------------------------------------------
                                                               Years Ended December 31,
                                                  ---------------------------------------------------------

                                                   <c>       <c>           <c>         <c>          <c>
Class B shares                                      2007        2006         2005         2004         2003
--------------                                    -------     -------      -------      -------      -------
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year........         $ 1.00       $ 1.00       $ 1.00       $ 1.00      $ 1.00
                                                   -------      -------      -------      -------     -------
Income from investment operations:
    Net investment income.................           0.029        0.026        0.017        0.005       0.004
    Net realized and unrealized gain (loss)
      on investments......................           0.000        0.000        0.000        0.000       0.000
                                                   -------      -------      -------      -------     -------
    Total from investment operations......           0.029        0.026        0.017        0.005       0.004
                                                   -------      -------      -------      -------     -------
Less distributions from:
    Dividends from net investment income..          (0.029)      (0.026)      (0.017)      (0.005)     (0.004)
    Net realized gains on investments.....          ( --  )      ( --  )      ( --  )      ( --  )     ( --  )
                                                   -------      -------      -------      -------     -------
    Total Distributions...................          (0.029)      (0.026)      (0.017)      (0.005)     (0.004)
                                                   -------      -------      -------      -------     -------
Net asset value, end of year..............         $ 1.00       $ 1.00       $ 1.00       $ 1.00      $ 1.00
                                                   =======      =======      =======      =======     =======
Total Return..............................           2.95%        2.66%        1.68%        0.52%       0.39%
Ratios/Supplemental Data
Net assets, end of year (000's)...........        $ 19,008     $ 18,439     $ 20,663     $ 24,030    $ 15,526
Ratios to average net assets:
  Expenses (net of fees waived) (a).......           0.67%        0.71%        0.71%        0.69%       0.63%
  Net investment income...................           2.92%        2.60%        1.58%        0.58%       0.39%
  Management and/or administration fees waived        --           --           --          0.02%       0.04%
  Expenses paid indirectly................           0.00%         --          0.00%        0.00%       0.00%
<fn>
(a)      Includes expenses paid indirectly if applicable.
</fn>
</TABLE>

                                       23
<PAGE>
--------------------------------------------------------------------------------

                     NOTICE OF REICH & TANG* PRIVACY POLICY


     We do not disclose to third parties nonpublic personal information about
current or former Reich & Tang customers, clients or mutual fund shareholders
other than as described below.


     We collect nonpublic personal information about you, such as your name,
address, social security number, account activity and account balances from your
account application and other forms that you may deliver to us. We use this
information to provide advisory services to you, to open an account for you, or
to process a transaction for your account. In order to service your account and
effect your transactions, we provide your nonpublic personal information to our
affiliates and to unaffiliated firms to effect or process transactions for you
or to assist us in servicing your account.


     We may also disclose nonpublic personal information about you to other
service providers who agree to protect the confidentiality of your information
and to use the information only for the purpose for which the disclosure is
made. We do not otherwise provide nonpublic personal information about you to
outside firms, organizations or individuals except as permitted by law.


     We restrict access to nonpublic personal information about you to those
employees who need to know that information to provide products or services to
you. We maintain physical, electronic and procedural safeguards that comply with
federal standards to guard your personal information.


-----------------------------
*   For purposes of this notice, "Reich & Tang" includes: Reich & Tang Asset
    Management, LLC, Reich & Tang Distributors, Inc., Reich & Tang Services,
    Inc. and all mutual funds or other funds managed or advised by Reich & Tang
    Asset Management, LLC.


             THIS PAGE IS NOT PART OF THE PRECEDING FUND PROSPECTUS

<PAGE>


A Statement of Additional                             CALIFORNIA DAILY TAX FREE
Information (SAI) dated April 29, 2008,               INCOME FUND, INC.
includes additional information about
the Fund and its investments and is
incorporated by reference into this
Prospectus. Further information about                 PROSPECTUS
Fund investments is available in the
annual and semi-annual shareholder                    April 29, 2008
reports. You may obtain the SAI, the
annual and semi-annual reports without
charge by calling the Fund toll free at
(800) 433-1918. You may also obtain the
SAI and the annual and semi-annual
reports without charge by visiting the
Fund's website at
http://www.money-funds.com/funds/index.
To request other information about the
Fund, please call your financial
intermediary or the Fund.
==============================================

==============================================

A current SAI has been filed with
the Securities and Exchange Commission.
Information about the Fund (including
the SAI) is also available from the
Public Reference Room of the Securities
and Exchange Commission. Information on
the operation of the Public Reference
Room may be obtained by calling the
Commission at (202) 551-8090. Fund
reports and other information about the
Fund are available on the EDGAR Database
on the Commission's Internet site at
http://www.sec.gov. Copies of this
information may be obtained, after
paying a duplicating fee, by electronic
request at publicinfo@sec.gov, or by
writing the Commission's Public
Reference Section, Washington, D.C.
20549-0104.

Investment Company Act No. 811-4922

            Reich & Tang Distributors, Inc.
                   600 Fifth Avenue
                  New York, NY 10020
                    (212) 830-5345

CA4/08P

<PAGE>
                                                       Rule 497(c)
                                                       Registration No. 33-10436
================================================================================
ADVANTAGE CALIFORNIA TAX EXEMPT LIQUIDITY FUND

Shares of California Daily Tax Free Income Fund, Inc. (the "Fund")


       PROSPECTUS

       April 29 2008



A money market fund whose investment objectives are to seek as high a level of
current income exempt from federal income tax and, to the extent possible, from
California income taxes, as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal. This Prospectus
relates to the Advantage California Tax Exempt Liquidity Fund Class only
("Advantage Shares").


THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.


The Notice of the Reich & Tang Privacy  Policy is included with this  Prospectus
but is not part of this Prospectus.


OPPENHEIMER
Available exclusively to customers of
Oppenheimer & Co. Inc. and its Affiliates

125 Broad Street
New York, NY 10004


<PAGE>

<TABLE>
<CAPTION>
        <S>                                                           <C>
       TABLE OF CONTENTS

        Risk/Return Summary: Investments,                              Management, Organization and
        Risks and Performance                       3                  Capital Structure                    10
        Risk/Return Summary: Fee Table              6                  Shareholder Information              11
        Investment Objectives, Principal Investment                    Distribution Arrangements            17
        Strategies and Related Risks                7                  Financial Highlights                 20

</TABLE>

2

<PAGE>

RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
--------------------------------------------------------------------------------

Investment Objectives
---------------------

The Fund seeks as high a level of current income exempt from federal income tax
and, to the extent possible, from California income taxes, as is believed to be
consistent with preservation of capital, maintenance of liquidity and stability
of principal. There can be no assurance that the Fund will achieve its
investment objectives.

Principal Investment Strategies
-------------------------------

The Fund intends to achieve its investment objectives by investing primarily in
short-term, high quality, debt obligations of:

     (i)   California, and its political subdivisions;

     (ii)  Puerto Rico, Guam and other United States
           Territories, and their political subdivisions; and

     (iii) other states.

These debt obligations, including Participation Certificates therein, are
collectively referred to throughout this Prospectus as Municipal Obligations.

The Fund is a money market fund and seeks to maintain an investment portfolio
with a dollar-weighted average maturity of 90 days or less, to value its
investment portfolio at amortized cost and to maintain a net asset value of
$1.00 per share.

The Fund intends to concentrate (i.e., invest 25% or more of the Fund's assets)
in California Municipal Obligations and Industrial Revenue Bonds, including
Participation Certificates therein. Participation Certificates evidence
ownership of an interest in the underlying Municipal Obligations, purchased from
banks, insurance companies, or other financial institutions.

Principal Risks
---------------

o    Although the Fund seeks to preserve the value of your investment at $1.00
     per share, it is possible to lose money by investing in the Fund.

o    The value of the Fund's shares and the securities held by the Fund can each
     decline in value.

o    An investment in the Fund is not a bank deposit and is not insured or
     guaranteed by the Federal Deposit Insurance Corporation or any other
     governmental agency.

o    The amount of income the Fund generates will vary with changes in
     prevailing interest rates.

o    Because the Fund intends to concentrate in California Municipal
     Obligations, including Participation Certificates, investors should also
     consider the greater risk of the Fund's concentration versus the safety
     that comes with a less concentrated investment portfolio.

o    Because the Fund may invest in Participation Certificates, investors should
     understand the characteristics of the banking industry and the risks that
     such investments entail.

o    An investment in the Fund should be made with an understanding of the risks
     that an investment in California Municipal

                                                                               3
<PAGE>

     Obligations may entail. Payment of interest and preservation of capital are
     dependent upon the continuing ability of California issuers
     and/or obligors of state, municipal and public authority debt obligations
     to meet their payment obligations.  Risk factors affecting the State of
     California are described in "California Risk Factors" in the Statement of
     Additional Information.

o    Because the Fund reserves the right to invest up to 20% of its net assets
     in taxable securities, investors should understand that some of the income
     generated by the Fund may be subject to taxation including the federal
     alternative minimum tax.

o    The payment of interest and preservation of capital are dependent upon the
     continuing ability of issuers to meet payment obligations.

Risk/Return Bar Chart and Table
-------------------------------

The following bar chart and table may assist you in deciding whether to invest
in the Advantage Shares. The bar chart shows the change in the annual total
return of the Advantage Shares for the last four calendar years. The table shows
the average annual total returns of the Fund's Advantage Class of shares for the
last one year, five year and since inception periods. While analyzing this
information, please note that the Fund's past performance is not an indicator of
how the Fund will perform in the future. The current 7-day yield of the Fund may
be obtained by calling the Fund at (212) 830-5345 or toll free at (800)
433-1918.










4
<PAGE>

<TABLE>
<CAPTION>
[GRAPHIC OMITTED]

     California Daily Tax Free Income Fund, Inc. - Advantage Shares (1),(2)

CALENDAR YEAR END             % TOTAL RETURN
<S>                                 <C>
2003                               0.17%
2004                               0.34%
2005                               1.38%
2006                               2.34%
2007                               2.58%

<FN>
(1)             The Fund's highest quarterly return was 0.67% for the quarter
                ending June 30, 2007; the lowest quarterly return was 0.02% for
                the quarter ending September 30, 2003.


(2)             Participating Organizations may charge a fee to investors for
                purchasing and redeeming shares. Therefore, the net return to
                such investors may be less than if they had invested in the Fund
                directly.
</FN>
</TABLE>


<TABLE>
<CAPTION>

            Average Annual Total Returns - Advantage Shares
            For the periods ended December 31, 2007
<S>                                                                     <C>
          One Year                                                       2.58%
          Five Year                                                      1.35%
          Since Inception*                                               1.33%


<FN>
           * The inception date of the Advantage Shares was November 22, 2002.
</FN>
</TABLE>

                                                                               5
<PAGE>

--------------------------------------------------------------------------------
FEE TABLE
--------------------------------------------------------------------------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
<CAPTION>

Shareholder Fees
----------------
(fees paid directly from your investment)

<S>                                                                     <C>

Sales Charge (Load) Imposed on Purchases...............                None

</TABLE>

<TABLE>
<CAPTION>

Annual Fund Operating Expenses
------------------------------
(expenses that are deducted from Fund assets)

<S>                                                          <C>    <C>
                                                             Advantage Shares
                                                             ----------------
Management Fees........................................             0.30%
Distribution and Service (12b-1) Fees*.................             0.70%
Other Expenses.........................................             0.32%
  Administration Fees..................................      0.21%
                                                                    -----
Total Annual Fund Operating Expenses*..................             1.32%

<FN>
*The Fund's distributor has voluntarily waived a portion of the 12b-1 Fees.
After such waivers, the 12b-1 Fees were 0.40%. As a result, the actual Total
Annual Fund Operating Expenses were 1.02%. The fee waiver may be modified or
discontinued from time to time by the Fund's distributor without prior notice.

</FN>
</TABLE>


<TABLE>
<CAPTION>

Example

This Example is intended to help you compare the cost of investing in the Fund's
Advantage Shares with the cost of investing in other money market funds.

The Example assumes that you invest $10,000 in the Advantage  Shares of the Fund
for the time periods  indicated and then redeem all of your shares at the end of
those  periods.  The Example also assumes that your  investment  has a 5% return
each year and that the Advantage  Shares'  operating  expenses  remain the same.
Although  your actual costs may be higher or lower,  based on these  assumptions
your costs would be:

<S>                             <C>             <C>             <C>             <C>
                                1 Year          3 Years         5 Years         10 Years
Advantage Shares:               $134            $418            $723            $1,590

</TABLE>

6

<PAGE>

INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
--------------------------------------------------------------------------------

Investment Objectives
---------------------

The Fund is a tax-exempt money market fund whose investment objectives are to
seek as high a level of current income exempt from federal income tax and, to
the extent possible, from California income tax, as is believed to be consistent
with preservation of capital, maintenance of liquidity and stability of
principal.

The investment objectives of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund.

Principal Investment Strategies
-------------------------------

Although the Fund will attempt to invest 100% of its total assets in Municipal
Obligations and Participation Certificates therein, the Fund, under normal
circumstances, will invest at least 80% of its net assets, plus the amount of
any borrowings for investment purposes, in Municipal Obligations, the income
from which is exempt from both federal and California income tax. This policy is
fundamental and may not be changed without shareholder approval.

With respect to 20% of its net assets, the Fund may purchase taxable securities,
including Municipal Obligations, whose interest income is subject to federal,
state and local income tax. The kinds of taxable securities in which the Fund
may invest are limited to short-term, fixed-income securities as more fully
described in "Description of the Fund and Its Investments and Risks - Taxable
Securities" in the Statement of Additional Information.

Included in the same 20% of net assets in taxable securities, the Fund may also
purchase Municipal Obligations whose interest income may be subject to the
federal alternative minimum tax.

The Fund may also invest in Participation Certificates in Municipal Obligations.
Participation Certificates represent the Fund's interest in a Municipal
Obligation that is held by another entity (i.e., banks, insurance companies or
other financial institutions). Instead of purchasing a Municipal Obligation
directly, the Fund purchases and holds an undivided interest in a Municipal
Obligation that is held by a third party. The Fund's interest in the underlying
Municipal Obligation is proportionate to the Fund's participation interest.
Ownership of the Participation Certificates generally causes the Fund to be
treated as the owner of an interest in the underlying Municipal Obligations for
federal income tax purposes.

The Fund may invest more than 25% of its assets in Participation Certificates in
Industrial Revenue Bonds and other California Municipal Obligations, provided,
however, that such investments may not exceed 25% of the Fund's total assets to
the extent that (i) the interest and principal on such instruments are payable
solely from the revenues or assets of a private project or private entity, and
(ii) such instruments are not guaranteed by a state, state agency, or a
political subdivision thereof.

To the extent suitable California Municipal Obligations and Territorial
Municipal Obligations are not available for investment by the Fund, the

                                                                               7

<PAGE>

Fund may purchase Municipal Obligations issued by other states, their agencies
and instrumentalities. The dividends derived from these investments will be
designated by the Fund as derived from interest income that will be, in the
opinion of bond counsel to the issuer at the date of issuance, exempt from
federal income tax, but may be subject to California income tax.

The Fund will invest primarily in California Municipal Obligations. As a
temporary defensive measure the Fund may, from time to time, invest in
securities that are inconsistent with its principal investment strategies or
remain uninvested in an attempt to respond to adverse market, economic,
political or other conditions as determined by the Fund's investment manager.
Such a temporary defensive position may cause the Fund to not achieve its
investment objectives.

With respect to 75% of its total assets, the Fund shall invest not more than 5%
of its total assets in Municipal Obligations issued by a single issuer. The Fund
shall not invest more than 5% of its total assets in Municipal Obligations
issued by a single issuer unless the Municipal Obligations are of the highest
quality, and in no event shall such investments exceed, in the aggregate, 50% of
the value of the Fund's total assets.

With respect to 75% of its total assets, the Fund shall invest not more than 10%
of its total assets in Municipal Obligations backed by a demand feature or
guarantee from the same institution.

The Fund's investments may also include "when-issued" Municipal Obligations and
stand-by commitments.

The Fund's investment manager considers the following factors when buying and
selling securities for the portfolio: (i) the availability of cash, (ii)
redemption requests, (iii) yield management, and (iv) credit management.

In order to maintain a share price of $1.00, the Fund must comply with certain
industry regulations. The Fund will only invest in securities that are
denominated in United States dollars. Other requirements pertain to the maturity
and credit quality of the securities in which the Fund may invest. The Fund will
only invest in securities that have or are deemed to have a remaining maturity
of 397 days or less. Also, the average maturity for all securities contained in
the Fund, on a dollar-weighted basis, will be 90 days or less.

The Fund will only  invest in either  securities  that have been rated (or whose
issuers have been rated) in the highest short-term rating category by nationally
recognized statistical rating organizations, or in unrated securities that have
been determined by the Fund's investment manager to be of comparable quality.

For a more detailed description of (i) the securities in which the Fund will
invest, (ii) fundamental investment restrictions, and (iii) industry regulations
governing credit quality and maturity, please refer to the Statement of
Additional Information.

Risks
-----

The Fund complies with industry-standard requirements on the quality, maturity
and diversification of its investments, which are designed to help maintain a
$1.00 share price. A significant change in interest rates or a default on the
Fund's investments could cause its share price (and the value of your
investment) to change.

By investing in liquid, short-term, high quality investments that have high
quality credit support

8
<PAGE>

from banks, insurance companies or other financial institutions (i.e.,
Participation Certificates and other variable rate demand instruments), the
Fund's management believes that it can protect the Fund against credit risks
that may exist on long-term Municipal Obligations. The Fund may still be exposed
to the credit risk of the institution providing the investment. Changes in the
credit quality of the provider could affect the value of the security and your
investment in the Fund.

Because of the Fund's concentration in investments in California Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the financial strength of California and its political subdivisions.

The primary purpose of investing in a portfolio of California Municipal
Obligations is the special tax treatment accorded California resident individual
investors. Payment of interest and preservation of principal, however, are
dependent upon the continuing ability of the California issuers and/or obligors
of state, municipal and public authority debt obligations to meet their
obligations thereunder. Investors should consider the greater risk of the Fund's
concentration versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of California issues
with those of more diversified portfolios, including out-of-state issues, before
making an investment decision.

Because the Fund may concentrate in Participation Certificates that may be
secured by bank letters of credit or guarantees, an investment in the Fund
should be made with an understanding of the characteristics of the banking
industry and the risks which such an investment may entail. These
characteristics and risks include extensive governmental regulations, changes in
the availability and cost of capital funds, and general economic conditions (see
"Variable Rate Demand Instruments and Participation Certificates" in the
Statement of Additional Information). These factors may limit both the amounts
and types of loans and other financial commitments that may be made and interest
rates and fees may be charged. The profitability of this industry is largely
dependent upon the availability and cost of capital funds for the purpose of
financing lending operations under prevailing money market conditions. Also,
general economic conditions play an important part in the operations of this
industry and exposure to credit losses arising from possible financial
difficulties of borrowers might affect a bank's ability to meet its obligations
under a letter of credit.

Portfolio Holdings
------------------

A schedule of the Fund's complete portfolio holdings, current as of month-end,
will be available on the Fund's website no earlier than 5 days after the end of
each month. This information will remain available on the website at least until
updated for the next month or until the Fund files with the Securities and
Exchange Commission (the "SEC") its semi-annual/annual shareholder report or
quarterly portfolio holdings report that includes such period. The most recent
schedule is available on the Fund's website at
http://www.money-funds.com/portfolioholdings or by calling toll free at (800)
433-1918. The Fund may terminate or modify this policy at any time without
further notice to shareholders. A description of the Fund's policies and
procedures with respect to the disclosure of the Fund's portfolio securities is
available in the Statement of Additional Information.

                                                                               9
<PAGE>

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
--------------------------------------------------------------------------------

The Fund's investment manager is Reich & Tang Asset Management, LLC (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of March 31, 2008, the Manager was the investment
manager, adviser or sub-adviser with respect to assets aggregating in excess of
$17.8 billion. The Manager has been an investment adviser since 1970 and
currently is manager or sub-adviser of seventeen portfolios of registered
investment companies, of which it acts as administrator for twelve. The Manager
also advises high net worth individuals, private funds, pension trusts,
profit-sharing trusts and endowments.

Pursuant to the Investment Management Contract between the Fund and the Manager,
the Manager manages the Fund's portfolio of securities and makes decisions with
respect to the purchase and sale of investments, subject to the general control
of the Board of Directors of the Fund. Pursuant to the Investment Management
Contract, the Fund pays the Manager a fee equal to 0.30% per annum of the Fund's
average daily net assets for managing the Fund's investment portfolio and
performing related services. For the fiscal year ended December 31, 2007, the
Fund paid the Manager a management fee equal to 0.30% per annum of the Fund's
average daily net assets. A discussion regarding the basis for the Board of
Directors approving the continuance of the Investment Management Contract is
available in the Fund's annual report for the period ended December 31, 2007.

Pursuant to the Administrative Services Contract between the Fund and the
Manager, the Manager provides all management and administrative services
reasonably necessary for the Fund's operation, other than those services that
the Manager provides to the Fund pursuant to the Investment Management Contract.
The Manager also provides the Fund with the personnel to perform all other
clerical and accounting type functions not performed by the Manager pursuant to
the Investment Management Contract and the Administrative Services Contract. For
its services under the Administrative Services Contract, the Fund pays the
Manager a fee equal to 0.21% per annum of the Fund's average daily net assets.
For the fiscal year ended December 31, 2007, the Fund paid the Manager a fee for
administrative services equal to 0.21% per annum of the Fund's average daily net
assets.

The Manager, at its discretion, may voluntarily waive all or a portion of the
investment management and the administrative services fees. Any portion of the
total fees received by the Manager may be used to provide shareholder services
and for distribution of Fund shares.

In addition, Reich & Tang Distributors, Inc., (the "Distributor"), receives a
servicing fee equal to 0.25% per annum of the average daily net assets of the
Advantage Shares of the Fund under the Shareholder Servicing Agreement and a fee
equal to 0.45% per annum of the average daily net assets of the Advantage Shares
of the Fund under the Distribution Agreement. The fees are accrued daily and
paid monthly. Investment management fees and operating expenses, which are
attributable to all Classes of shares of the Fund, will be allocated daily to
each Class of shares based on the percentage of shares outstanding for each
Class at the end of the day.

10
<PAGE>

SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------

The Fund sells and redeems its shares on a continuing basis at their net asset
value. The Fund does not impose a charge for either purchases or redemptions.
All transactions in Advantage Shares are effected through the Fund's transfer
agent, who accepts orders for purchases and redemptions from Oppenheimer & Co.
Inc.

Pricing of Fund Shares
----------------------

The net asset value of the Fund's shares is determined as of 4:00 p.m., Eastern
time, on each Fund Business Day. Fund Business Day means weekdays (Monday
through Friday) except (i) days on which the New York Stock Exchange is closed
for trading (i.e., national holidays) and (ii) Columbus Day and Veterans' Day.
However, on certain days that the New York Stock Exchange is closed, the Fund,
at the direction of the Manager, may be open for purchases and redemptions and
will determine its net asset value. The Fund's net asset value is computed by
dividing the value of the Fund's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued,
but excluding capital stock and surplus) by the total number of shares
outstanding. The Fund intends to maintain a stable net asset value at $1.00 per
share, although there can be no assurance that this will be achieved.

The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act"). Amortized cost valuation involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium. If fluctuating interest rates or credit
issues cause the market value of the Fund's portfolio to deviate more than 1/2
of 1% from the value determined on the basis of amortized cost, the Board of
Directors will consider whether any action should be initiated. Although the
amortized cost method provides certainty in valuation, it may result in periods
during which the value of an instrument is higher or lower than the price the
Fund would receive if the instrument were sold.

Purchase and Redemption of Shares
---------------------------------

Only the Advantage Shares of the Fund are offered through this Prospectus. All
shares are held in an omnibus account at the Fund through Oppenheimer & Co.
Inc., which will maintain individual investor accounts.

Oppenheimer & Co. Inc. and its affiliates may impose account fees separate
from any fees charged by the Fund and may also set deadlines for receipt of
orders from investors that are earlier than the deadline of the Fund due to
processing or other reasons. Investors should read this prospectus in
conjunction with the materials provided by Oppenheimer & Co. Inc.

Oppenheimer & Co. Inc. may transmit an investor's purchase or redemption order
to the Fund's transfer agent after 4:00 p.m., Eastern time on the day the order
is received from the investor as long as the investor has placed his

                                                                              11
<PAGE>

order with Oppenheimer & Co. Inc. before 4:00 p.m., Eastern time on that day.
The investor will then receive the net asset value of the Fund's shares
determined as of 4:00 p.m., Eastern time on the day he placed his order with
Oppenheimer & Co. Inc. Oppenheimer & Co. Inc. is responsible for instituting
procedures to ensure that purchase orders by its respective clients are
processed expeditiously.

There is no minimum initial or subsequent investment for Advantage Shares.

Initial Investments (Purchases)
-------------------------------

Contact your Financial Advisor to arrange for an initial investment in the Fund.
You may use the Fund either as the money market fund tied to your Oppenheimer &
Co. Inc. securities account through Oppenheimer & Co. Inc.'s sweep service or as
an additional investment position held in your securities account.

The "sweep" means that cash is automatically invested in the Fund when the cash
becomes available in your Oppenheimer & Co. Inc. securities account from any
source such as proceeds from securities sales, receipt of dividends or interest
income, or a check deposit from you. Amounts of $10,000 or more are invested on
the next business day; amounts less than $10,000 are invested once a week on the
first business day of the following week. The sweep automatically withdraws cash
from the Fund when appropriate to cover purchases or other activities in your
account.

Subsequent Investments (Purchases)
----------------------------------

Mail or deliver your check, payable to Oppenheimer & Co. Inc., to your Financial
Advisor. Please write your securities account number and the Fund name on the
check. If you wish to make an investment by sending a wire from your bank,
contact your Financial Advisor to obtain wiring instructions.

General Information on Purchases
--------------------------------

Shares are issued as of the first determination of the Fund's net asset
value per share made after acceptance of the investor's purchase order. In order
to maximize earnings on its portfolio, the Fund normally has its assets as fully
invested as is practicable. Many securities in which the Fund invests require
the immediate settlement in funds of Federal Reserve member banks on deposit at
a Federal Reserve Bank (commonly known as "Federal Funds"). Fund shares begin
accruing income on the day the shares are issued to an investor.

The Fund reserves the right to reject any purchase order for its shares. In
addition, the Fund does not accept cash and may refuse to accept cash
equivalents (i.e., travelers cheques, money orders, cashier's checks or similar
instruments) and certain other forms of payment at its discretion. Certificates
for Advantage Shares will not be issued to investors.

Withdrawals (Redemptions)
-------------------------

For withdrawals other than those automatically activated by the sweep, please
instruct your Financial Advisor as to the withdrawal amount and the delivery of
the proceeds.

12
<PAGE>

General Information on Redemptions
----------------------------------

There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals. If a
shareholder elects to redeem all the shares of the Fund he owns, all dividends
accrued to the date of such redemption will be paid to the shareholder along
with the proceeds of the redemption.

A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of the Fund
upon receipt by the Fund's transfer agent of the redemption order (and any
supporting documentation which the Fund's transfer agent may require). Normally,
payment for redeemed shares is made on the same Fund Business Day the redemption
is effected if the redemption proceeds are paid by wire (on the next Fund
Business Day if paid by check), provided the redemption request is received
prior to 4:00 p.m., Eastern time. Shares redeemed are not entitled to
participate in dividends declared on the day a redemption becomes effective.

The right of redemption generally may not be suspended or the date of payment
upon redemption postponed for more than seven days after the shares are tendered
for redemption, except for (i) any period during which the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (ii) any
period during which the SEC determines that trading thereon is restricted, (iii)
any period during which an emergency (as determined by the SEC) exists as a
result of which disposal by the Fund of its portfolio securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Fund to fairly determine the value of its net assets, or (iv) for such
other period as the SEC may by order permit for the protection of the
shareholders of the Fund.

The Fund and its agents reserve the right to "freeze" or "block" (that is,
disallow any further purchases or redemptions from any account) or suspend
account services in certain instances as permitted or required by applicable
laws and regulations, including applicable anti-money laundering regulations.
Examples of such instances include, but are not limited to, (i) where an
accountholder appears on the list of "blocked" entities and individuals
maintained pursuant to OFAC (Office of Foreign Assets Control) regulations, (ii)
where the Fund or its agents detect suspicious activity or suspect fraudulent or
illegal activity, or (iii) when notice has been received by the Fund or its
agents that there is a dispute between the registered or beneficial account
owners.

In addition, in accordance with applicable customer identification regulations,
the Fund reserves the right to redeem the shares of any shareholder and close
the shareholder's account if the Fund and its agents are unable to verify the
shareholder's identity within a reasonable time after the shareholder's account
is opened. If the Fund closes a shareholder's account in this manner, the shares
will be valued in accordance with the net asset value next calculated after the
Fund decides to close the account.

                                                                              13

<PAGE>

Dividends and Distributions
---------------------------

The Fund declares dividends equal to all its net investment income (excluding
long-term capital gains and losses, if any, and amortization of market discount)
on each Fund Business Day and pays dividends monthly. There is no fixed dividend
rate. In computing these dividends, interest earned and expenses are accrued
daily.

Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year.

All dividends and distributions of capital gains are automatically reinvested,
at no charge, in additional Advantage Shares immediately upon payment thereof
unless a shareholder has elected by written notice to the Fund to receive either
of such distributions in cash. The reinvestment of capital gains or any taxable
dividends does not avoid a taxable event to the shareholder. See "Tax
Consequences." If you elect to receive dividends and distributions in cash and
the U.S. Postal Service cannot deliver the checks, or if the checks remain
uncashed for six months, the checks will be reinvested into your account at the
then current net asset value.

Frequent Trading
----------------

The Reich & Tang family of funds discourages short-term or excessive trading
("frequent trading") of their shares by shareholders (including by means of
exchanges) and maintains procedures reasonably designed to detect and deter such
frequent trading, except with respect to the money market funds as discussed
below. Frequent trading is sometimes referred to as market timing. Market timing
may take many forms but commonly refers to arbitrage activity involving the
frequent buying and selling of mutual fund shares in order to take advantage of
the fact that there may be a lag between a change in the value of a mutual
fund's portfolio securities and the reflection of that change in the fund's
share price. Frequent trading may dilute the value of fund shares held by
long-term shareholders. Frequent trading may also interfere with the efficient
management of a fund's portfolio, as it may result in a fund maintaining higher
cash balances than it otherwise would (which would result in reduced yields for
money market funds) or cause a fund to sell portfolio securities at a time it
otherwise would not. Frequent trading may further result in increased portfolio
transaction (or brokerage) costs, administrative and other operating costs and
may cause a fund to realize taxable capital gains or harvest capital losses at a
time that it otherwise would not. For these reasons, frequent trading poses the
risk of lower returns for long-term shareholders of a fund. There is no
guarantee that these policies and procedures will be effective in detecting and
preventing frequent trading in whole or in part.

Money market funds are not effective vehicles for market timing activity since
these types of funds seek to maintain a constant net asset value of $1.00 per
share. In addition, the risks of frequent trading are not generally applicable
to money market funds because money market funds are created as cash management
vehicles which accommodate frequent inflows and outflows of cash. As a result,
money market funds are managed to accommodate such cash flows, particularly when
used as sweep vehicles, which generally eliminates the potential for disruptive
trading.

14

<PAGE>

Nonetheless, as indicated under "General Information on Purchases" the Fund
reserves the right to reject any purchase or exchange order for its shares for
any reason and thus may exercise such right in the event it determines that a
purchase or exchange order is disruptive to the Fund's management or otherwise.
The Fund's procedures with respect to frequent purchases and redemptions of Fund
shares by shareholders are thus limited to the Fund exercising its right to
reject purchase or exchange orders it determines in its discretion to be
disruptive. The Fund may change its policies relating to frequent trading at any
time without prior notice to shareholders.

Tax Consequences
----------------

Federal Income Taxes
--------------------

The Fund has elected and intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, dividends paid by the Fund that are
designated by the Fund as exempt interest dividends and derived from Municipal
Obligations and Participation Certificates, will be exempt from regular federal
income tax whether received in cash or reinvested in additional shares, provided
the Fund meets certain requirements of the Code, including the requirement in
the Code that at the close of each quarter of its taxable year at least 50
percent of the value of the total assets of the Fund consists of Municipal
Obligations and certain other state and local obligations described in Code
Section 103(a), but may be subject to the federal alternative minimum tax. These
dividends are referred to as exempt interest dividends. Income exempt from
federal income tax, however, may be subject to state and local income tax.

Dividends paid from net investment income from taxable investments, if any, and
distributions of any realized short-term capital gains (from tax-exempt or
taxable obligations) are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares of the Fund.

For shareholders that are Social Security and Railroad Retirement recipients,
interest on tax-exempt bonds, including exempt interest dividends paid by the
Fund, is to be added to the shareholders' adjusted gross income to determine the
amount of Social Security benefits includible in their gross income.

Interest on certain private activity bonds will constitute an item of tax
preference subject to the individual federal alternative minimum tax.
Shareholders that are corporations will be required to include in alternative
minimum taxable income 75% of the amount by which their adjusted current
earnings (including tax-exempt interest) exceed their alternative minimum
taxable income (determined without this tax item). In certain cases,
shareholders that are Subchapter S corporations with accumulated earnings and
profits from Subchapter C years will be subject to a tax on tax-exempt interest.

The Fund does not expect to realize long-term capital gains, and thus does not
contemplate distributing "capital gain dividends" or having undistributed
capital gain income.

The Fund will inform shareholders of the amount and nature of its income
and gains in a written notice mailed to shareholders not later than 60 days
after the close of the Fund's taxable year.

                                                                              15
<PAGE>

The sale, exchange or redemption of shares will generally be a taxable
disposition of an asset that may result in a taxable gain or loss for the
shareholder if the shareholder receives more or less than its adjusted tax basis
for the shares. An exchange pursuant to the exchange privilege is treated as a
sale on which the shareholder may realize a taxable gain or loss.

With respect to variable rate demand instruments, including Participation
Certificates therein, the Fund will be treated for federal income tax purposes
as the owner of an interest in the underlying Municipal Obligations and the
interest thereon will be exempt from regular federal income taxes to the Fund to
the same extent as the interest on the underlying Municipal Obligations.

The United States Supreme Court has held that there is no constitutional
prohibition against the federal government's taxing the interest earned on state
or other municipal bonds. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Municipal Obligations.
Investors should review the information regarding taxes in the Statement of
Additional Information.

The U.S. Supreme Court has granted review and heard oral arguments in Kentucky
Department of Revenue v. Davis, where it is considering whether a state
unlawfully discriminates against interstate commerce by providing an exemption
from its income tax for interest income derived from bonds issued by the state
and its political subdivisions while treating income realized from bonds issued
by other states and their political subdivisions as subject to the state's
income tax. The Supreme Court's decision could affect the state and local income
and franchise tax treatment of distributions from the Fund as described herein.

Shareholders are urged to consult their tax advisers with respect to the
treatment of distributions from the Fund and ownership of shares of the Fund in
their own states and localities.

California Income Taxes
-----------------------

The designation of all or a portion of a dividend paid by the Fund as an
exempt-interest dividend under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. Under California law, in order to pay exempt-interest dividends, at
the end of each quarter of its tax year, at least 50% of the "value" of the
Fund's assets must consist of obligations the interest on which, when held by an
individual, would be exempt from taxation by the State of California. Assuming
compliance with this requirement and the California designation limitation
described below, with respect to dividends treated for federal income tax
purposes as exempt-interest dividends that are paid by the Fund to a California
resident individual shareholder, amounts correctly designated as derived from
California Municipal Obligations and/or Territorial Municipal Obligations will
not be subject to the California Income Tax. California law, however, limits the
amount that may be designated as exempt-interest dividends. With respect to the
Fund's taxable year, if the aggregate amount designated as an exempt-interest
dividend is greater than the excess of (i)

16

<PAGE>

the amount of interest it received which, if held by an individual, was exempt
from taxation by California, over (ii) the amounts that, if the Fund were
treated as an individual, would be disallowed as deductions for expenses related
to exempt income under California or federal law, the portion of the
distribution designated an exempt-interest dividend that will be allowed shall
be only that proportion of the designated amount that the excess bears to the
designated amount.

Distributions from net investment income and capital gains, including exempt
interest dividends, will be subject to California corporate franchise tax if
received by a corporate shareholder subject to such tax and may be subject to
state taxes in states other than California and to local taxes imposed by
certain cities within California and outside California. Accordingly, investors
in the Fund including, in particular, corporate investors which may be subject
to the California corporate franchise tax, should consult their tax advisers
with respect to the application of such taxes to an investment in the Fund, to
the receipt of Fund dividends and as to their California tax situation in
general.

Exempt-interest dividends which are not derived from California Municipal
Obligations and any other dividends of the Fund which do not qualify as
exempt-interest dividends under California law will be includible in a
California resident's tax base for purposes of the California income tax.

Shareholders are urged to consult their tax advisers with respect to the
treatment of distributions from the Fund and ownership of shares of the Fund in
their own states and localities. Investors should review the information
regarding taxes in the Statement of Additional Information.

DISTRIBUTION ARRANGEMENTS
--------------------------------------------------------------------------------

Rule 12b-1 Fees
---------------

Investors do not pay a sales charge to purchase Advantage Shares of the Fund.
However, the Fund pays fees in connection with the distribution of shares and
for the provision of servicing to Advantage shareholders. The Fund pays these
fees from its assets on an ongoing basis and therefore, over time, the payment
of these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.

The Fund's Board of Directors has adopted a Rule 12b-1 distribution and service
plan (the "Plan") and, pursuant to the Plan, the Fund and the Distributor have
entered into a Distribution Agreement and a Shareholder Servicing Agreement with
respect to the Advantage Shares of the Fund.

Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares. The Distributor receives, with respect to the Advantage Shares, a
distribution fee equal to

                                                                              17
<PAGE>

0.45% per annum of the Advantage Shares' average daily net assets (the
"Distribution Fee") for providing distribution related services, and for making
payments to Oppenheimer & Co. Inc. for providing assistance in distributing the
Advantage Shares. As agent for the Fund, the Distributor solicits orders for the
purchase of the Fund's shares, provided that any orders will not be binding on
the Fund until accepted by the Fund as principal.

Under the Shareholder Servicing Agreement, the Distributor receives, with
respect to the Advantage Shares, a service fee of 0.25% per annum of the
Advantage Shares' average daily net assets (the "Shareholder Servicing Fee") for
providing personal shareholder services and for the maintenance of shareholder
accounts. The fees are accrued daily and paid monthly. Any portion of the fees
may be deemed to be used by the Distributor for payments to Oppenheimer & Co.
Inc. with respect to its provision of such distribution or shareholder services
to its clients or customers who are Advantage shareholders. The Distributor, at
its discretion, may voluntarily waive all or a portion of the Distribution Fee
or Shareholder Servicing Fee.

The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Distributor and Oppenheimer & Co. Inc. in carrying out their obligations
under the Shareholder Servicing Agreement with respect to Advantage Shares or
the Distributor's agreement with Oppenheimer & Co. Inc., as the case may be, and
(ii) preparing, printing and delivering the Fund's prospectus to existing
Advantage shareholders and preparing and printing Fund applications for
shareholder accounts.

The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the management fee, administrative services fee
and past profits for the following purposes: (i) to pay the cost of and to
compensate Oppenheimer & Co. Inc. for performing shareholder servicing on behalf
of the Advantage Shares of the Fund, (ii) to compensate Oppenheimer & Co. Inc.
for providing assistance in distributing the Advantage Shares of the Fund, and
(iii) to pay the costs of the preparation and printing of brochures and other
promotional materials, mailings to prospective shareholders, advertising, and
other promotional activities, including the salaries and/or commissions of sales
personnel of the Distributor and other persons in connection with the
distribution of the Advantage Shares. The Distributor may also make payments
from time to time from its own resources, which may include the (a) Shareholder
Servicing Fee and past profits, for the purposes enumerated in (i) above and (b)
the Distribution Fee and past profits, for the purposes enumerated in (ii) and
(iii) above. The Distributor will determine the amount of such payments made
pursuant to the Plan, provided that such payments will not increase the amount
which the Fund is required to pay to the Manager and Distributor for any fiscal
year under either the Investment Management Contract, Administrative Services

18
<PAGE>

Contract, Shareholder Servicing Agreement or Distribution Agreement in effect
for that year.

     Oppenheimer & Co. Inc. receives distribution and servicing payments from
the Distributor with respect to the Advantage Shares in amounts that exceed the
payments the Distributor receives from the Fund pursuant to the Plan,
Distribution Agreement and Shareholder Servicing Agreement with respect to such
shares. The excess of such payments over the total payments the Distributor
receives from the Fund represents payments made out of the Manager's and/or
Distributor's own resources. These payments may be referred to as "revenue
sharing" but do not change the price paid by investors to purchase the Fund's
shares or the amount the Fund receives as proceeds from such sales. Revenue
sharing payments may be made to Oppenheimer & Co. Inc. for providing services to
the Fund or its shareholders, including, without limitation, shareholder
servicing and distribution assistance. The amount of these payments may create
an incentive for Oppenheimer & Co., and its affiliates to sell shares of the
Fund to you or to recommend one Fund complex over another. Please speak with
your financial advisor to learn more about these payments. Additional
information regarding these payments can be found in the Fund's Statement of
Additional Information. In addition, to the extent allowable under the Financial
Industry Regulatory Authority ("FINRA") rules and any other applicable
regulations, the Distributor or an affiliate may contribute to sales programs
for Oppenheimer & Co. and may provide non-cash compensation to Oppenheimer & Co.
like sponsorship or funding of sales seminars, tickets to sporting events,
theater or other entertainment, opportunities to participate in golf or other
outings and gift certificates for meals or by giving out merchandise at industry
conferences, which may be paid for by the Distributor or an affiliate out of its
own resources.

                                                                              19
<PAGE>

FINANCIAL HIGHLIGHTS

This financial highlights table is intended to help you understand the financial
performance of the Advantage Shares for the past five years. Certain information
reflects financial results for a single Fund share. The total return in the
table represents the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been derived from the Fund's financial statements audited by
PricewaterhouseCoopers LLP, whose report, along with Fund's financial
statements, is included in the annual report, which is available upon request.



<TABLE>

                                                               Years Ended December 31,
                                                  ---------------------------------------------------------

                                                   <c>       <c>           <c>         <c>          <c>
Advantage shares                                    2007        2006         2005         2004         2003
----------------                                  -------     -------      -------      -------      -------
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year........         $ 1.00       $ 1.00       $ 1.00       $ 1.00      $ 1.00
                                                   -------      -------      -------      -------     -------
Income from investment operations:
    Net investment income.................           0.026        0.023        0.014        0.003       0.002
    Net realized and unrealized gain (loss)
      on investments......................           0.000        0.000        0.000        0.000       0.000
                                                   -------      -------      -------      -------     -------
    Total from investment operations......           0.026        0.023        0.014        0.003       0.002
                                                   -------      -------      -------      -------     -------
Less distributions from:
    Dividends from net investment income..         (0.026)       (0.023)      (0.014)      (0.003)     (0.002)
    Net realized gains on investments.....         ( --  )       ( --  )      ( --  )      ( --  )     ( --  )
                                                   -------      -------      -------      -------     -------
    Total Distributions...................         (0.026)       (0.023)      (0.014)      (0.003)     (0.002)
                                                   -------      -------      -------      -------     -------
Net asset value, end of year..............         $ 1.00       $ 1.00       $ 1.00       $ 1.00      $ 1.00
                                                   =======      =======      =======      =======     =======
Total Return..............................           2.58%        2.34%        1.38%        0.31%        0.17%
Ratios/Supplemental Data
Net assets, end of year (000's)...........        $ 54,924     $ 48,001     $ 34,387     $ 34,997     $ 49,822
Ratios to average net assets:
  Expenses (net of fees waived) (a).......           1.02%        1.02%        1.00%        0.90%        0.84%
  Net investment income...................           2.55%        2.28%        1.34%        0.31%        0.19%
  Management and/or administration fees waived        --           --           --          0.02%        0.04%
  Distribution fees waived................           0.30%        0.34%        0.35%        0.43%        0.46%
  Expenses paid indirectly................           0.00%         --          0.00%        0.00%        0.00%
<fn>
(a)      Includes expenses paid indirectly if applicable.
</fn>
</TABLE>

20

<PAGE>

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


                     NOTICE OF REICH & TANG* PRIVACY POLICY


     We do not disclose to third parties nonpublic personal information about
current or former Reich & Tang customers, clients or mutual fund shareholders
other than as described below.


     We collect nonpublic personal information about you, such as your name,
address, social security number, account activity and account balances from your
account application and other forms that you may deliver to us. We use this
information to provide advisory services to you, to open an account for you, or
to process a transaction for your account. In order to service your account and
effect your transactions, we provide your nonpublic personal information to our
affiliates and to unaffiliated firms to effect or process transactions for you
or to assist us in servicing your account.


     We may also disclose nonpublic personal information about you to other
service providers who agree to protect the confidentiality of your information
and to use the information only for the purpose for which the disclosure is
made. We do not otherwise provide nonpublic personal information about you to
outside firms, organizations or individuals except as permitted by law.


     We restrict access to nonpublic personal information about you to those
employees who need to know that information to provide products or services to
you. We maintain physical, electronic and procedural safeguards that comply with
federal standards to guard your personal information.


* For purposes of this notice, "Reich & Tang" includes: Reich & Tang Asset
Management, LLC, Reich & Tang Distributors, Inc., Reich & Tang Services, Inc.
and all mutual funds or other funds managed or advised by Reich & Tang Asset
Management, LLC.



<PAGE>


                     [This page intentionally left blank.]



<PAGE>



                     [This page intentionally left blank.]



<PAGE>


SHARES OF CALIFORNIA DAILY TAX FREE INCOME FUND, INC.
-----------------------------------------------------

A Statement of Additional
Information (SAI) dated April 29, 2008             [GRAPHIC OMITTED]
includes additional information about              OPPENHEIMER
the Fund and its investments and is
incorporated by reference into this                Available exclusively to
Prospectus. Further information about              customers of Oppenheimer &
Fund investments is available in the               Co. Inc. and its Affiliates
annual and semi-annual shareholder
reports. You may obtain the SAI, the
annual and semi-annual reports without
charge by calling the Fund at (800)
433-1918. You may also obtain the SAI
and the annual and semi-annual reports
without charge by visiting the Fund's               ADVANTAGE CALIFORNIA
website at http://www.money-funds.com               TAX EXEMPT LIQUIDITY FUND
/funds/AdvantageLiquidity.
To request other information about the
Fund, please call your financial                    PROSPECTUS
intermediary or the Fund.                           --------------------
                                                    April 29, 2008

A current SAI has been filed with
the Securities and Exchange Commission.
Information about the Fund (including
the SAI) is also available from the
Public Reference Room of the Securities
and Exchange Commission. Information on
the operation of the Public Reference
Room may be obtained by calling the
Commission at (202) 551-8090. Fund
reports and other information about the
Fund are available on the EDGAR Database
on the Commission's Internet site at
http://www.sec.gov. Copies of this
information may be obtained, after
paying a duplicating fee, by electronic
request at publicinfo@sec.gov, or by
writing the Commission's Public
Reference Section, Washington, D.C.
20549-0104.

Investment Company Act No. 811-4922

          Reich & Tang Distributors, Inc.
                  600 Fifth Avenue
                 New York, NY 10020
                   (212) 830-5345

ADV_CA4/08P

<PAGE>

                                                       Rule 497(c)
                                                       Registration No. 33-10436
================================================================================
CALIFORNIA                                  600 Fifth Avenue, New York, NY 10020
DAILY TAX FREE                              (212) 830-5345
INCOME FUND, INC.                           (800) 433-1918 (Toll Free)
================================================================================

                       STATEMENT OF ADDITIONAL INFORMATION

                   APRIL 29, 2008 RELATING TO THE PROSPECTUSES
   FOR THE CLASS A SHARES, CLASS B SHARES AND ADVANTAGE CALIFORNIA TAX EXEMPT
              LIQUIDITY FUND CLASS OF SHARES DATED APRIL 29, 2008



This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current
Prospectuses of the California Daily Tax Free Income Fund, Inc. (the "Fund"),
and should be read in conjunction with each Prospectus.


A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll free at (800) 433-1918. The audited Financial
Statements of the Fund have been incorporated by reference into the SAI from the
Fund's Annual Report. The Annual Report is available, without charge, upon
request by calling the toll free number provided. The material relating to the
purchase, redemption and pricing of shares has been incorporated by reference
into the SAI from the Fund's Prospectuses.


If you wish to invest in the Advantage California Tax Exempt Liquidity Fund
Shares (the "Advantage Shares"), you should obtain a separate Prospectus by
writing to Oppenheimer & Co. Inc., 125 Broad Street, New York,
NY 10004, or calling the Fund toll free at (800) 433-1918.


This SAI is incorporated by reference into the Fund's Prospectuses in its
entirety.


<TABLE>
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                                TABLE OF CONTENTS
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Fund History................................................2   Capital Stock and Other Securities....................27
Description of the Fund and Its Investments                     Purchase, Redemption and Pricing of Shares............28
And Risks...................................................2   Taxation of the Fund..................................29
Management of the Fund.....................................17   Underwriters..........................................31
Control Persons and Principal Holders of Securities........21   Financial Statements..................................31
Investment Advisory and Other Services.....................22   Description of Ratings................................32
Brokerage Allocation and Other Practices...................27   Taxable Equivalent Yield Tables.......................33
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I.  FUND HISTORY

The Fund was incorporated on December 5, 1986, in the State of Maryland.

II.  DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS

The Fund is an open-end, management investment company that is a tax-exempt
money market fund. The Fund's investment objectives are to seek as high a level
of current income exempt from federal income tax and, to the extent possible,
from California income taxes, as is believed to be consistent with preservation
of capital, maintenance of liquidity and stability of principal. No assurance
can be given that these objectives will be achieved.

The following discussion expands upon the description of the Fund's investment
strategies and policies in each of the Prospectuses.

The Fund's assets will be invested primarily in (i) high quality debt
obligations issued by or on behalf of the State of California, other states,
territories and possessions of the United States and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which
is, in the opinion of bond counsel to the issuer at the date of issuance,
currently exempt from federal income taxation and in (ii) Participation
Certificates (which generally cause the Fund to be treated as the owner of an
interest in the underlying municipal obligations for federal income tax
purposes) in municipal obligations purchased from banks, insurance companies or
other financial institutions. These debt obligations, including Participation
Certificates therein, are collectively referred to throughout this Statement of
Additional Information as Municipal Obligations. Dividends paid by the Fund are
exempt-interest dividends by virtue of being properly designated by the Fund as
derived from Municipal Obligations. They will be exempt from federal income tax
provided the Fund qualifies as a "regulated investment company" under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"), and provided
that at the close of each quarter of its taxable year at least 50 percent of the
value of the total assets of the Fund consists of Municipal Obligations and
certain other state and local obligations described in Code Section 103(a).
Although the Supreme Court has determined that Congress has the authority to
subject the interest on bonds such as the Municipal Obligations to federal
income taxation, existing law excludes such interest from federal income tax.
However, such interest may be subject to the federal alternative minimum tax.

Taxable securities, the interest income on which is subject to federal, state
and local income tax, will not exceed 20% of the value of the Fund's net assets.
(See "Federal Income Taxes" herein.) Exempt-interest dividends paid by the Fund
that are correctly identified by the Fund as derived from obligations issued by
or on behalf of the State of California or any California local governments, or
their instrumentalities, authorities or districts ("California Municipal
Obligations") and from obligations of Puerto Rico, Guam and the United States
Virgin Islands, as well as any other types of obligations that California is
prohibited from taxing under the Constitution, the laws of the United States of
America or the California Constitution ("Territorial Municipal Obligations"),
will be exempt from California income tax provided the Fund complies with
applicable California requirements. (See "California Income Taxes" herein.) To
the extent that suitable California Municipal Obligations and Territorial
Municipal Obligations are not available for investment by the Fund, the Fund may
purchase Municipal Obligations issued by other states, their agencies and
instrumentalities. The dividends on these will be designated by the Fund as
derived from interest income which will be, in the opinion of bond counsel to
the issuer at the date of issuance, exempt from federal income tax but will be
subject to the California income tax. Except as a temporary defensive measure
during periods of adverse market conditions as determined by Reich & Tang Asset
Management, LLC (the "Manager"), the Fund will invest primarily in California
Municipal Obligations. The Fund seeks to maintain an investment portfolio with a
dollar-weighted average maturity of 90 days or less and to value its investment
portfolio at amortized cost and maintain a net asset value at $1.00 per share.
There can be no assurance that this value will be maintained.

The Fund may hold uninvested cash reserves pending investment. The Fund's
investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements. Although the Fund will attempt to
invest 100% of its total assets in Municipal Obligations, the Fund reserves the
right to invest up to 20% of the value of its net assets in securities, the
interest income on which is subject to federal, state and local income

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tax. The Fund may invest more than 25% of its assets in Participation
Certificates purchased from banks in industrial revenue bonds and other
California Municipal Obligations, provided, however, that such investments may
not exceed 25% of the Fund's total assets to the extent that (i) the interest
and principal on such instruments are payable solely from the revenues or assets
of a private project or private entity, and (ii) such instruments are not
guaranteed by a state, state agency, or a political subdivision thereof. In view
of this possible "concentration" in bank Participation Certificates in
California Municipal Obligations, an investment in Fund shares should be made
with an understanding of the characteristics of the banking industry and the
risks which such an investment may entail. (See "Variable Rate Demand
Instruments and Participation Certificates" herein.) The investment objectives
of the Fund described in the preceding paragraphs of this section may not be
changed unless approved by the holders of a majority of the outstanding shares
of the Fund. As used herein, the term "majority of the outstanding shares" of
the Fund means the vote of the lesser of (i) 67% or more of the shares of the
Fund present at a meeting, if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy, or (ii) more than 50% of
the outstanding shares of the Fund.

The Fund may only purchase United States dollar-denominated securities that have
been determined by the Manager to present minimal credit risks and that are
Eligible Securities at the time of acquisition. The term Eligible Securities
means: (i) securities which have or are deemed to have remaining maturities of
397 days or less and are rated in the two highest short-term rating categories
by any two nationally recognized statistical rating organizations ("NRSROs") or
in such categories by the only NRSRO that has rated the Municipal Obligations
(collectively, the "Requisite NRSROs") or (ii) unrated securities determined by
the Manager to be of comparable quality. In addition, securities which have or
are deemed to have remaining maturities of 397 days or less but that at the time
of issuance were long-term securities (i.e., with maturities greater than 397
days) and that are deemed unrated securities may be purchased if they have
received a long-term rating from the Requisite NRSROs in one of the three
highest rating categories. Provided, however, that such may not be purchased if
it (i) does not satisfy the rating requirements set forth in the preceding
sentence and (ii) has received a long-term rating from any NRSRO that is not
within the three highest long-term rating categories. A determination of
comparability by the Manager is made on the basis of its credit evaluation of
the issuer, which may include an evaluation of a letter of credit, guarantee,
insurance or other credit facility issued in support of the securities. While
there are several organizations that currently qualify as NRSROs, two examples
of NRSROs are Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc. ("S&P") and Moody's Investors Service, Inc. ("Moody's"). The two
highest ratings by S&P and Moody's are "AAA" and "AA" by S&P in the case of
long-term bonds and notes or "Aaa" and "Aa" by Moody's in the case of bonds;
"SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the case of notes;
"A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's in the case of
tax-exempt commercial paper. The highest rating in the case of variable and
floating demand notes is "VMIG-1" by Moody's or "A1+" by S&P. Such instruments
may produce a lower yield than would be available from less highly rated
instruments. It is the Fund's policy to only invest in securities that have been
rated (or whose issuers have been rated) in the highest short-term rating by the
Requisite NRSROs, or are unrated securities that have been determined by the
Manager to be of comparable quality.

Subsequent to its purchase by the Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Fund. If this occurs, the Manager of the Fund shall promptly reassess whether
the security presents minimal credit risks and shall cause the Fund to take such
action as it determines is in the best interest of the Fund and its
shareholders. However, reassessment is not required if the security is disposed
of or matures within five business days of the Manager becoming aware of the new
rating and provided further that the Board of Directors is subsequently notified
of the Manager's actions.

In addition, in the event that a security (i) is in default, (ii) ceases to be
an Eligible Security under Rule 2a-7 of the Investment Company Act of 1940, as
amended, (the "1940 Act"), or (iii) is determined to no longer present minimal
credit risks, or an event of insolvency occurs with respect to the issuer of a
portfolio security or the provider of any Demand Feature or Guarantee, the Fund
will dispose of the security absent a determination by the Fund's Board of
Directors that disposal of the security would not be in the best interests of
the Fund. Disposal of the security shall occur as soon as practicable consistent
with achieving an orderly disposition by sale, exercise of

                                       3
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any demand feature or otherwise. In the event of a default with respect to a
security which immediately before default accounted for 1/2 of 1% or more of the
Fund's total assets, the Fund shall promptly notify the Securities and Exchange
Commission (the "SEC") of such fact and of the actions that the Fund intends to
take in response to the situation.

All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.

With respect to 75% of its total assets, the Fund shall invest not more than 5%
of its total assets in Municipal Obligations issued by a single issuer. However,
the Fund shall not invest more than 5% of its total assets in Municipal
Obligations or Participation Certificates issued by a single issuer, unless such
Municipal Obligations are rated in the highest short-term rating category and in
no event shall such investments exceed, in the aggregate, 50% of the value of
the Fund's total assets.

The Fund has elected and intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Code. For the Fund to qualify, at
the close of each quarter of the taxable year, at least 50% of the value of its
total assets must consist of cash, government securities, regulated investment
company securities and other securities which are limited in respect of any one
issuer to not more than 5% in value of the total assets of the Fund and to not
more than 10% of the outstanding voting securities of such issuer. In addition,
at the close of each quarter of its taxable year, not more than 25% in value of
the Fund's total assets may be invested in securities of one issuer (or two or
more issuers that the Fund controls) other than Government securities or
regulated investment company securities or in securities of qualified publicly
traded partnerships. The limitations described in this paragraph regarding
qualification as a regulated investment company are not fundamental policies and
may be revised to the extent applicable federal income tax requirements are
revised. (See "Federal Income Taxes" herein.)

Description Of Municipal Obligations

As used herein, "Municipal Obligations" include the following as well as
"Variable Rate Demand Instruments" and "Participation Certificates."

(1) Municipal Bonds with remaining maturities of 397 days or less that are
   Eligible Securities at the time of acquisition. Municipal Bonds are debt
   obligations of states, cities, counties, municipalities and municipal
   agencies (all of which are generally referred to as "municipalities"). They
   generally have a maturity at the time of issuance of one year or more and are
   issued to raise funds for various public purposes such as construction of a
   wide range of public facilities, to refund outstanding obligations and to
   obtain funds for institutions and facilities.

   The two principal classifications of Municipal Bonds are "general obligation"
   and "revenue" bonds. General obligation bonds are secured by the issuer's
   pledge of its faith, credit and taxing power for the payment of principal and
   interest. Issuers of general obligation bonds include states, counties,
   cities, towns and other governmental units. The principal of, and interest
   on, revenue bonds are payable from the income of specific projects or
   authorities and generally are not supported by the issuer's general power to
   levy taxes. In some cases, revenues derived from specific taxes are pledged
   to support payments on a revenue bond.

   In addition, certain kinds of "private activity bonds" are issued by public
   authorities to provide funding for various privately operated industrial
   facilities (hereinafter referred to as "industrial revenue bonds" or "IRBs").
   Interest on IRBs is generally exempt, with certain exceptions, from federal
   income tax pursuant to Section 103(a) of the Code, provided the issuer and
   corporate obligor thereof continue to meet certain conditions. (See "Federal
   Income Taxes" herein.) IRBs are, in most cases, revenue bonds and do not
   generally constitute the pledge of the credit of the issuer of such bonds.
   The payment of the principal and interest on IRBs usually depends solely on
   the ability of the user of the facilities financed by the bonds or

                                       4
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   other guarantor to meet its financial obligations and, in certain
   instances, the pledge of real and personal property as security for
   payment. If there is no established secondary market for the IRBs, the IRBs
   or the Participation Certificates in IRBs purchased by the Fund will be
   supported by letters of credit, guarantees or insurance that meet the
   definition of Eligible Securities at the time of acquisition and provide
   the demand feature which may be exercised by the Fund at any time to
   provide liquidity. Shareholders should note that the Fund may invest in
   IRBs acquired in transactions involving a Participating Organization. In
   accordance with Investment Restriction 6 herein, the Fund is permitted to
   invest up to 10% of the portfolio in high quality, short-term Municipal
   Obligations (including IRBs) meeting the definition of Eligible Securities
   at the time of acquisition that may not be readily marketable or have a
   liquidity feature.

(2)Municipal Notes with remaining maturities of 397 days or less that are
   Eligible Securities at the time of acquisition. The principal kinds of
   Municipal Notes include tax anticipation notes, bond anticipation notes,
   revenue anticipation notes. Notes sold in anticipation of collection of
   taxes, a bond sale or receipt of other revenues are usually general
   obligations of the issuing municipality or agency. The Fund's investments may
   be concentrated in Municipal Notes of California issuers.

(3)Municipal Commercial Paper that is an Eligible Security at the time of
   acquisition. Issues of Municipal Commercial Paper typically represent very
   short-term, unsecured, negotiable promissory notes. These obligations are
   often issued to meet seasonal working capital needs of municipalities or to
   provide interim construction financing. They are paid from general revenues
   of municipalities or are refinanced with long-term debt. In most cases
   Municipal Commercial Paper is backed by letters of credit, lending
   agreements, note repurchase agreements or other credit facility agreements
   offered by banks or other institutions which may be called upon in the event
   of default by the issuer of the commercial paper.

(4)Municipal Leases, which may take the form of a lease or an installment
   purchase or conditional sale contract, issued by state and local governments
   and authorities to acquire a wide variety of equipment and facilities such as
   fire and sanitation vehicles, telecommunications equipment and other capital
   assets. Municipal Leases frequently have special risks not normally
   associated with general obligation or revenue bonds. Leases and installment
   purchase or conditional sale contracts (which normally provide for title to
   the leased asset to pass eventually to the governmental issuer) have evolved
   as a means for governmental issuers to acquire property and equipment without
   meeting the constitutional and statutory requirements for the issuance of
   debt. The debt-issuance limitations of many state constitutions and statutes
   are deemed to be inapplicable because of the inclusion in many leases or
   contracts of "non-appropriation" clauses. These clauses provide that the
   governmental issuer has no obligation to make future payments under the lease
   or contract unless money is appropriated for such purpose by the appropriate
   legislative body on a yearly or other periodic basis. To reduce this risk,
   the Fund will only purchase Municipal Leases subject to a non-appropriation
   clause where the payment of principal and accrued interest is backed by an
   unconditional irrevocable letter of credit, a guarantee, insurance or other
   comparable undertaking of an approved financial institution. These types of
   Municipal Leases may be considered illiquid and subject to the 10% limitation
   of investments in illiquid securities set forth under "Investment
   Restrictions" contained herein. The Board of Directors may adopt guidelines
   and delegate to the Manager the daily function of determining and monitoring
   the liquidity of Municipal Leases. In making such determination, the Board
   and the Manager may consider such factors as the frequency of trades for the
   obligation, the number of dealers willing to purchase or sell the obligations
   and the number of other potential buyers and the nature of the marketplace
   for the obligations, including the time needed to dispose of the obligations
   and the method of soliciting offers. If the Board determines that any
   Municipal Leases are illiquid, such lease will be subject to the 10%
   limitation on investments in illiquid securities. The Fund has no intention
   to invest in Municipal Leases in the foreseeable future and will amend this
   Statement of Additional Information in the event that such an intention
   should develop in the future.

(5)Any other federal tax-exempt obligations, and to the extent possible,
   California Income tax-exempt obligations issued by or on behalf of states and
   municipal governments and their authorities, agencies, instrumentalities and
   political subdivisions, whose inclusion in the Fund would be consistent with
   the Fund's investment objectives, policies and risks described herein and
   permissible under Rule 2a-7 under the 1940 Act.

Variable Rate Demand Instruments and Participation Certificates

Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations. They provide for a periodic adjustment in the interest
rate paid on the instrument and permit the holder to demand payment of the
unpaid principal balance plus accrued interest at specified intervals upon a
specified number of days' notice either from the

                                       5
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issuer or by drawing on a bank letter of credit, guarantee, insurance or other
credit facility issued with respect to such instrument.

The variable rate demand instruments in which the Fund may invest are payable on
demand on not more than 30 calendar days' notice and may be exercised at any
time or at specified intervals not exceeding 397 days depending upon the terms
of the instrument. Variable rate demand instruments that cannot be disposed of
properly within seven days in the ordinary course of business are illiquid
securities. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to 397 days. The adjustments
are based upon an appropriate interest rate adjustment index as provided in the
respective instruments or a negotiated market rate. The Fund will decide which
variable rate demand instruments it will purchase in accordance with procedures
prescribed by its Board of Directors to minimize credit risks. A fund utilizing
the amortized cost method of valuation under Rule 2a-7 of the 1940 Act may
purchase variable rate demand instruments only if (i) the instrument is subject
to an unconditional demand feature, exercisable by the Fund in the event of a
default in the payment of principal or interest on the underlying securities,
that is an Eligible Security or (ii) the instrument is not subject to an
unconditional demand feature but does qualify as an Eligible Security and has a
long-term rating by the Requisite NRSROs in one of the two highest rating
categories, or if unrated, is determined to be of comparable quality by the
Manager. The Manager may determine that an unrated variable rate demand
instrument meets the Fund's high quality criteria if it is backed by a letter of
credit or guarantee or is insured by an insurer that meets the quality criteria
for the Fund stated herein or on the basis of a credit evaluation of the
underlying obligor. If an instrument is ever not deemed to be an Eligible
Security, the Fund either will sell it in the market or exercise the demand
feature.

The variable rate demand instruments in which the Fund may invest include
Participation Certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Obligations (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations. The Fund will not purchase Participation Certificates
in fixed rate tax-exempt Municipal Obligations without obtaining an opinion of
counsel that the Fund will be treated as the owner thereof for federal income
tax purposes. A Participation Certificate 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 and
provides the demand repurchase feature described below. Where the institution
issuing the participation does not meet the Fund's eligibility criteria, the
participation is backed by an irrevocable letter of credit or guaranty of a bank
(which may be the bank issuing the Participation Certificate, a bank issuing a
confirming letter of credit to that of the issuing bank, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
certificate of participation) or insurance policy of an insurance company that
the Manager has determined meets the prescribed quality standards for the Fund.
The Fund has the right to sell the Participation Certificate back to the
institution. Where applicable, the Fund can draw on the letter of credit or
insurance after no more than 30 days' notice either at any time or at specified
intervals not exceeding 397 days (depending on the terms of the participation),
for all or any part of the full principal amount of the Fund's participation
interest in the security plus accrued interest. The Fund intends to exercise the
demand only (i) upon a default under the terms of the bond documents, (ii) as
needed to provide liquidity to the Fund in order to make redemptions of Fund
shares, or (iii) to maintain a high quality investment portfolio. The
institutions issuing the Participation Certificates will retain a service and
letter of credit fee (where applicable) and a fee for providing the demand
repurchase feature, in an amount equal to the excess of the interest paid on the
instruments over the negotiated yield at which the participations were purchased
by the Fund. The total fees generally range from 5% to 15% of the applicable
prime rate or other interest rate index. With respect to insurance, the Fund
will attempt to have the issuer of the Participation Certificate bear the cost
of the insurance. However, the Fund retains the option to purchase insurance if
necessary, in which case the cost of insurance will be an expense of the Fund.
The Manager has been instructed by the Fund's Board of Directors to continually
monitor the pricing, quality and liquidity of the variable rate demand
instruments held by the Fund, including the Participation Certificates, on the
basis of published financial information and reports of the rating agencies and
other bank analytical services to which the Fund may subscribe. Although these
instruments may be sold by the Fund, the Fund intends to hold them until
maturity, except under the circumstances stated above.

In view of the possible "concentration" of the Fund in Participation
Certificates in California Municipal Obligations, which may be secured by bank
letters of credit or guarantees, an investment in the Fund should be made with
an understanding of the characteristics of the banking industry and the risks
which such an investment may entail. Banks are subject to extensive governmental
regulations which may limit both the amounts and types of loans and other
financial commitments which may be made and interest rates and fees which may be
charged. The profitability of this industry is largely dependent upon the
availability and cost of capital funds for the purpose of financing lending
operations under prevailing money market conditions. Also, general economic
conditions play

                                       6
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an important part in the operations of this industry and exposure to credit
losses arising from possible financial difficulties of borrowers might affect a
bank's ability to meet its obligations under a letter of credit. The Fund may
invest 25% or more of its net assets in securities that are related in such a
way that an economic, business or political development or change affecting one
of the securities would also affect the other securities. This includes, for
example, securities the interest upon which is paid from revenues of similar
type projects, or securities the issuers of which are located in the same state.

While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or values of securities
increase, the potential for capital appreciation and the risk of potential
capital depreciation is less than would be the case with a portfolio of fixed
income securities. The Fund may contain variable rate demand instruments on
which stated minimum or maximum rates, or maximum rates set by state law, limit
the degree to which interest on such variable rate demand instruments may
fluctuate; to the extent state law contains such limits, increases or decreases
in value may be somewhat greater than would be the case without such limits.
Additionally, the Fund may contain variable rate demand Participation
Certificates in fixed rate Municipal Obligations. The fixed rate of interest on
these Municipal Obligations will be a ceiling on the variable rate of the
Participation Certificate. In the event that interest rates increase so that the
variable rate exceeds the fixed rate on the Municipal Obligations, the Municipal
Obligations can no longer be valued at par and may cause the Fund to take
corrective action, including the elimination of the instruments from the Fund.
Because the adjustment of interest rates on the variable rate demand instruments
is made in relation to movements of the applicable banks' "prime rates," or
other interest rate adjustment index, the variable rate demand instruments are
not comparable to long-term fixed rate securities. Accordingly, interest rates
on the variable rate demand instruments may be higher or lower than current
market rates for fixed rate obligations or obligations of comparable quality
with similar maturities.

Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.

For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (i) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (ii) the period remaining until the instrument's next interest
rate adjustment. The maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity. If a variable rate demand instrument
ceases to be an Eligible Security it will be sold in the market or through
exercise of the repurchase demand feature to the issuer.

When-Issued Securities

New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on these Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date of the Fund's
commitment to purchase. Although the Fund will only make commitments to purchase
when-issued Municipal Obligations with the intention of actually acquiring them,
the Fund may sell these securities before the settlement date if deemed
advisable by the Manager.

Municipal Obligations purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way; that is, both experiencing appreciation when interest rates
decline and depreciation 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. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have

                                       7
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a value greater or lesser than the Fund's payment obligations). Sale of
securities to meet such obligations may result in the realization of capital
gains or losses, which are not exempt from federal income tax.

Stand-by Commitments

When the Fund purchases Municipal Obligations, it may also acquire stand-by
commitments from banks and other financial institutions. Under a stand-by
commitment, a bank or broker-dealer agrees to purchase at the Fund's option a
specified Municipal Obligation at a specified price with same day settlement. A
stand-by commitment is the equivalent of a "put" option acquired by the Fund
with respect to a particular Municipal Obligation held in its portfolio.

The amount payable to the Fund upon its exercise of a stand-by commitment
normally would be (i) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (ii) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank or dealer during the
time a stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation.

The Fund's right to exercise a stand-by commitment would be unconditional and
unqualified. A stand-by commitment would not be transferable by the Fund,
although it could sell the underlying Municipal Obligation to a third party at
any time.

The Fund expects stand-by commitments to generally be available without the
payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio will not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after the
acquisition of each stand-by commitment.

The Fund will enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks. If the issuer of the Municipal Obligation does not meet the eligibility
criteria, the issuer of the stand-by commitment will have received a rating
which meets the eligibility criteria or, if not rated, will present a minimal
risk of default as determined by the Manager. The Fund's reliance upon the
credit of these banks and broker-dealers will be supported by the value of the
underlying Municipal Obligations held by the Fund that were subject to the
commitment.

The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from federal income tax
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment. The acquisition
of a stand-by commitment would not affect the valuation or assumed maturity of
the underlying Municipal Obligations which will continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund will be valued at zero in determining net asset value. In those cases in
which the Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund. Stand-by commitments will not affect the
dollar-weighted average maturity of the Fund's portfolio. The maturity of a
security subject to a stand-by commitment is longer than the stand-by repurchase
date.

The stand-by commitments the Fund may enter into are subject to certain risks.
These include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.

In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by commitments will be exempt from federal income taxation (see

                                       8
<PAGE>

"Federal Income Taxes" herein). In the absence of a favorable tax ruling or
opinion of counsel, the Fund will not engage in the purchase of securities
subject to stand-by commitments.

Taxable Securities

Although the Fund will attempt to invest 100% of its total assets in tax-exempt
Municipal Obligations, the Fund may invest up to 20% of the value of its net
assets in securities of the kind described below. The interest income from such
securities is subject to federal and California income tax. The Fund may
purchase and hold such taxable securities under any one or more of the following
circumstances: (i) pending investment of proceeds of sales of Fund shares or of
portfolio securities, (ii) pending settlement of purchases of portfolio
securities, and (iii) to maintain liquidity for the purpose of meeting
anticipated redemptions. In addition, the Fund may temporarily invest more than
20% in such taxable securities when, in the opinion of the Manager, it is
advisable to do so because of adverse market conditions affecting the market for
Municipal Obligations. The kinds of taxable securities in which the Fund may
invest are limited to the following short-term, fixed-income securities
(maturing in 397 days or less from the time of purchase): (i) obligations of the
United States Government or its agencies, instrumentalities or authorities, (ii)
commercial paper meeting the definition of Eligible Securities at the time of
acquisition, (iii) certificates of deposit of domestic banks with assets of $1
billion or more, and (iv) repurchase agreements with respect to any Municipal
Obligations or other securities which the Fund is permitted to own.

Repurchase Agreements

The Fund may invest in instruments subject to repurchase agreements with
securities dealers, member banks of the Federal Reserve System and other
entities the Manager has determined are creditworthy. Under the terms of a
typical repurchase agreement, the Fund will acquire an underlying debt
instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the 1940 Act. All repurchase agreements entered
into by the Fund shall be fully collateralized at all times during the period of
the agreement in that the value of the underlying security shall be at least
equal to the amount of the loan, including the accrued interest thereon.
Additionally, the Fund or its custodian shall have possession of the collateral,
which the Fund's Board believes will give it a valid, perfected security
interest in the collateral. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs in connection with the disposition of the
collateral. The Fund's Board believes that the collateral underlying repurchase
agreements may be more susceptible to claims of the seller's creditors than
would be the case with securities owned by the Fund. It is expected that
repurchase agreements will give rise to income which will not qualify as
tax-exempt income when distributed by the Fund. The Fund will not invest in a
repurchase agreement maturing in more than seven days if any such investment,
together with illiquid securities held by the Fund, exceeds 10% of the Fund's
total net assets. (See Investment Restriction Number 6 herein.) Repurchase
agreements are subject to the same risks described herein for stand-by
commitments.

California Risk Factors

Because the Fund invests primarily in California Municipal Securities, the value
of its portfolio investments will be highly sensitive to events affecting the
fiscal stability of the State of California (sometimes referred to in this
section as the "State") and its municipalities, authorities and other
instrumentalities that issue such securities. The following information is based
on information available as of the date of this Statement of Additional
Information primarily from official statements and prospectuses relating to
securities offerings of the State, the latest of which is dated March 4, 2008.

General Economic Conditions
---------------------------

The economy of the State is the largest among the 50 states and one of the
largest in the world. The diversified economy of the State has major components
in high technology, trade, entertainment, agriculture, tourism, construction and
services. Certain of the State's significant industries, such as high
technology, are sensitive to economic disruptions in their export markets.

                                       9
<PAGE>

Since early 2001, the State has faced severe financial challenges, which may
continue for several years. The State experienced an economic recession in 2001
and a sluggish recovery in 2002 and 2003 (with greatest impacts in the high
technology, internet, and telecommunications sectors, especially in Northern
California); weakened exports; and most particularly, large stock market
declines (with attendant declines in stock option values and capital gains
realizations). These adverse fiscal and economic factors resulted in a serious
erosion of General Fund tax revenues. In recent years, the State has derived a
significant portion of its revenue from personal income and sales taxes. Because
the amount collected from these taxes is particularly sensitive to economic
conditions, the State's revenues have been volatile.

California's geographic location subjects it to earthquake risks. It is
impossible to predict the time, magnitude or location of a major earthquake or
its effect on the California economy. In January 1994, a major earthquake struck
the Los Angeles area, causing significant damage in a four county area. The
possibility exists that another such earthquake could create a major dislocation
of the California economy and significantly affect State and local governmental
budgets.

State Budgets
-------------

2007 Budget Act. The Governor's Budget for the 2007-08 fiscal year, released in
January 2007, projected General Fund revenues and transfers of $101.3 billion
and expenditures of $103.1 billion, with a $1.9 billion budget operating deficit
for such fiscal year. The Governor's Budget proposed closing the operating
deficit by applying a portion of the then estimated $3.2 billion General Fund
balance from the 2006 Budget, leaving fiscal year 2007-08 with a $2.1 billion
reserve, significantly better than earlier estimates by the Governor and the
State's Legislative Analyst's Office (the "LAO").

In its January 12, 2007 Overview of the 2007-08 Governor's Budget, the LAO
concluded that the 2007-08 budget "contains a significant number of downside
risks and is based on a number of optimistic assumptions." Even if the budget
were adopted as proposed, the LAO believed that the budgeted savings and new
revenues would fall short of levels estimated by the Governor's budget. Further,
the LAO projected that the State would continue to face structural deficits in
outlying years and recommended that the Legislature develop a more realistic
budget.

In February 2007, the LAO released a further analysis of the budget and the
Governor's proposals. Based on newer data, the LAO projected that 2007-08
expenditures would exceed revenues by $2.6 billion which would leave the State
with a $726 million year-end deficit, compared to the Governor's January
estimate of a $2.1 billion positive General Fund reserve. In addition the State
would face operating deficits in outlying years through the 2010-11 fiscal year.

The 2007 May Revision to the Governor's Budget projected revenues and transfers
that roughly equaled those predicted in January, although it projected
additional expenditures of approximately $600 million compared to the January
budget release. The 2007 May Revision forecasted General Fund revenues and
transfers for the fiscal year ending June 30, 2008 of $101.3 billion and
expenditures of $103.8 billion. By applying a then estimated General Fund
balance for fiscal year 2006-07 of $4.0 billion, the State projected it would
end the 2007-08 fiscal year with a balance of $1.5 billion, a decrease of nearly
$2.5 billion compared to 2006-07.

In May 2007, the LAO released its Overview of the 2007-08 May Revision, in which
it focused on certain economic uncertainties facing the State. The State faces
potential risks associated with the declining housing market and the effects of
high crude oil and retail gasoline prices. The LAO concluded that "adverse
developments in these areas could significantly impact both overall economic
performance and state revenues." The LAO reiterated its earlier warning that
one-time solutions in the proposed budget failed to address structural deficits
in outlying years.

The Governor signed the 2007 Budget Act on August 24, 2007, using his line item
veto authority to reduce General Fund appropriations by $703 million from those
approved by the Legislature. The 2007 Budget Act contains substantially similar
proposals as contained in the Governor's 2007-08 May Revision. The 2007 Budget
Act forecasted $102.3 billion in General Fund revenues and transfers and $102.3
billion in expenditures, an increase of $1.0 billion and a decrease of $1.5
billion, respectively, compared to the May Revision. The 2007 Budget Act
projected that by utilizing the prior fiscal year's $4.1 billion General Fund
balance, the General Fund would end the fiscal year with a balance of about $4.1
billion. The 2007 Budget Act assumed that the State would not issue Economic
Recovery Bonds or raise taxes.

                                       10
<PAGE>

Significant Deterioration of State Finances. Although the 2007 Budget Act was in
operating balance at the time it was adopted, the Governor projected there would
be an operating deficit of about $6.1 billion for 2008-09 absent further
corrective actions. Subsequent to the adoption of the 2007 Budget Act, fiscal
year-to-date revenues were much lower than projected and continuing economic
difficulties existed, particularly in the housing market.

On November 14, 2007, the State's Department of Finance issued its "Finance
Bulletin" (the "November Finance Bulletin") reporting actual General Fund
receipts. The November Finance Bulletin also reported that recent economic data
confirmed ongoing effects of the housing slump in the State. The November
Finance Bulletin reported that fiscal year-to-date General Fund cash receipts
were about $1.1 billion, or 3.8%, below those forecasted in the 2007 Budget Act.

On the same date, the LAO released a report titled "California's Fiscal Outlook
- LAO Projections 2007-08 through 2012-13." Among other things, this report
projected that the 2007-08 revenues had deteriorated by about $6 billion
compared to the projections in the 2007 Budget Act, which exceeded the projected
year-end General Fund balance of $4.1 billion. The report also projected that
about $10 billion of budget solutions would be needed to balance the 2008-09
Budget.

The 2008 Governor's Budget projected that the 2007-08 fiscal year would end with
a $3.3 billion deficit that would grow to $14.5 billion in 2008-2009 if left
unchecked.

2008 Governor's Budget. The Governor's Budget for the 2008-09 fiscal year was
released in January 2008. Concurrently, the Governor declared a fiscal emergency
and a special session of the State legislature to address the $14.5 billion
projected deficit for 2008-09. Among other measures, the Governor's Budget
proposed a "Budget Stabilization Act", a State Constitutional Amendment to
reform the budget process. If approved, the Act would create a Revenue
Stabilization Fund into which revenues exceeding budgeted projections would be
set aside from the General Fund for use in outlying years. Further, the Act
would also require automatic reductions in State appropriations during the
course of a fiscal year if mid-year deficits were projected. The budget also
proposed strict spending restraint, the suspension of earlier approved
accelerated bond repayments, accruing tax revenues received in fiscal year
2009-10 to 2008-09 and the issuance of $3.3 billion in Economic Recovery Bonds.

Assuming that the State adopted such measures, the Governor projected General
Fund revenues and transfers for the fiscal year ending June 30, 2009 of $102.9
billion, and expenditures of $101.0 billion, for a projected $1.9 billion budget
operating surplus. With the projected $1.8 billion General Fund balance from the
2007-08 fiscal year, the Governor's Budget proposed leaving 2008-09 with a $3.7
billion reserve.

In its January 14, 2008 Overview of the 2008-09 Governor's Budget, the LAO
concluded that the 2008-09 budget "uses a mix of both one-time and ongoing
solutions to close the 2008-09 budget gap." The LAO concurred with the
Governor's revenue forecasts, but expressed concern that there are further
downside economic risks that could further diminish revenues. The LAO criticized
the Governor's proposal for "across-the-board" spending reductions and suggested
the Governor eliminate or significantly reduce low-priority State programs while
preserving higher priority programs. The LAO also encouraged the Governor to
explore revenue-raising proposals.

On February 20, 2008, the LAO issued its "Highlights of the 2008-09 Budget Bill"
report in which the LAO projected a $16 billion gap between revenues and
expenditures for 2008-09, $1.5 billion greater than that projected by the
Governor in January, largely due to shrinking revenue projections. The LAO
warned that due to structural shortfalls in the budget, even if the Legislature
adopted the 2008 Governor's Budget, the State would face multibillion dollar
shortfalls in outlying years. The LAO reiterated its earlier criticism of the
Governor's proposed "across-the-board" spending reductions to close the budget
deficit and encouraged the Governor's administration to set spending priorities
and to explore new revenue raising options.

Constraints on the Budget Process. Proposition 58, approved in March 2004 with
the State's Economic Recovery Bonds, requires the State to enact a balanced
budget and establish a special reserve in the General Fund and restricts future
borrowing to cover budget deficits. As a result of the provisions requiring the
enactment of a balanced budget and restricting borrowing, the State would, in
some cases, have to take more immediate actions to correct budgetary shortfalls.
Beginning with the budget for fiscal year 2004-05, Proposition 58 requires the
Legislature to pass a balanced budget and provides for mid-year adjustments in
the event that the budget falls out of balance. The balanced budget
determination is made by subtracting expenditures from all available resources,
including prior-year balances.

                                       11
<PAGE>

If the Governor determines that the State is facing substantial revenue
shortfalls or spending deficiencies, the Governor is authorized to declare a
fiscal emergency. He or she would then be required to propose legislation to
address the emergency and call the Legislature into special session to consider
that legislation. If the Legislature fails to pass and send to the Governor
legislation to address the budget fiscal emergency within 45 days, the
Legislature would be prohibited from acting on any other bills or adjourning in
joint recess until such legislation is passed.

Proposition 58 also requires that a special reserve (the Budget Stabilization
Account) be established in the State's General Fund. Beginning with fiscal year
2006-07, a specified portion of estimated annual General Fund revenues would be
transferred by the Controller into the Budget Stabilization Account no later
than September 30 of each fiscal year. These transfers would continue until the
balance in the Budget Stabilization Account reaches $8 billion or 5 percent of
the estimated General Fund revenues for that fiscal year, whichever is greater.
The annual transfer requirement would be in effect whenever the balance falls
below the $8 billion or 5 percent target. The annual transfers could be
suspended or reduced for a fiscal year by an executive order issued by the
Governor no later than June 1 of the preceding fiscal year.

Proposition 58 also prohibits certain future borrowing to cover budget deficits.
This restriction applies to general obligation bonds, revenue bonds, and certain
other forms of long-term borrowing. The restriction does not apply to certain
other types of borrowing, such as short-term borrowing to cover cash shortfalls
in the General Fund (including revenue anticipation notes or revenue
anticipation warrants currently used by the State), or inter-fund borrowings.

Future Budgets. It cannot be predicted what actions will be taken in the future
by the Legislature and the Governor to deal with changing State revenues and
expenditures. The State budget will be affected by national and State economic
conditions and other factors.

State Indebtedness
------------------

General Obligation Bonds and Revenue Bonds. As of March 1, 2008, the State had
approximately $62.2 billion aggregate principal of outstanding long-term general
obligation bonds and revenue bonds. Including estimated interest of
approximately $36.2 billion, the State's debt service requirements for general
obligation bonds and revenue bonds totaled over $98.4 billion. As of January 1,
2008, general obligation bond authorizations of approximately $65.2 billion
remained unissued.

Ratings. As of March 24, 2008 the State's general obligation bonds were rated A1
by Moody's, A+ by Standard & Poor's, and A+ by Fitch Ratings. It is not possible
to determine whether, or the extent to which, Moody's, Standard & Poor's or
Fitch Ratings will change such ratings in the future.

Strategic Growth Plan. Coinciding with the release of the Governor's 2006-07
budget, the Governor announced a "Strategic Growth Plan" for the State in which
he proposed that the State spend nearly $223 billion over 10 years on State
infrastructure programs such as transportation, education, flood control, public
safety and courts. The Strategic Growth Plan would be financed in part through
the issuance of $68 billion in general obligation bonds. In response to the
Governor's proposal, the Legislature in May 2006 approved a $116 billion
Strategic Growth Plan package, which included $37.3 billion in new general
obligation bonds (approved by the voters on November 7, 2006), $50.1 billion in
existing funding, and $28.4 billion in new leveraged funding sources. The
Strategic Growth Plan proposes that the new general obligation bonds be placed
on the ballot in the 2008 and 2010 elections and additional leveraged funding
through the use of public-private partnerships. Assuming these ballot measures
are approved, total funding for the Strategic Growth Plan could total $210
billion.

Local Government
----------------

The primary units of local government in California are the counties, ranging in
population from 1,200 (Alpine) to approximately 10 million (Los Angeles).
Counties are responsible for the provision of many basic services, including
indigent healthcare, welfare, courts, jails and public safety in unincorporated
areas. There are also 478 incorporated cities and thousands of other special
districts formed for education, utility and other services. The fiscal condition
of local governments has been constrained since the enactment of "Proposition
13" in 1978 and later constitutional

                                       12
<PAGE>

amendments, which reduced and limited the future growth of property taxes and
limited the ability of local governments to impose "special taxes" (those
devoted to a specific purpose) without two-thirds voter approval. Proposition
218, another initiative constitutional amendment enacted in 1996, further
limited the ability of local governments to impose or raise various taxes, fees,
charges and assessments without voter approval. Counties, in particular, have
had fewer options to raise revenues than many other local government entities,
and have been required to maintain many services.

Some local governments in California have experienced notable financial
difficulties, including Los Angeles County, Orange County and San Diego County,
and there is no assurance that any California issuer will make full or timely
payments of principal or interest or remain solvent. It should be noted that the
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State, and there
is no obligation on the part of the State to make payment on such local
obligations in the event of default.

According to the State, the 2004 Budget Act, related legislation and the
enactment of Senate Constitutional Amendment No. 4 (described below) will
dramatically change the State-local fiscal relationship. These constitutional
and statutory changes implement an agreement negotiated between the Governor and
local government officials (the "State-local agreement") in connection with the
2004 Budget Act. One change relates to the reduction of the Vehicle License Fee
("VLF") rate from 2 percent to 0.65 percent of the market value of the vehicle.
In order to protect local governments, the reduction in VLF revenue to cities
and counties from this rate change will be replaced by an increase in the amount
of property tax they receive.

As part of the State-local agreement, Senate Constitutional Amendment No. 4 was
enacted by the Legislature and subsequently approved by the voters at the
November 2004 election. Senate Constitutional Amendment No. 4 amends the State
Constitution to, among other things, reduce the Legislature's authority over
local government revenue sources by placing restrictions on the State's access
to local governments' property, sales, and VLF revenues as of November 3, 2004.
Beginning with fiscal year 2008-09, the State will be able to borrow up to 8
percent of local property tax revenues, but only if the Governor proclaims such
action is necessary due to a severe State fiscal hardship, two-thirds of both
houses of the Legislature approves the borrowing and the amount borrowed is
required to be paid back within three years. The State also will not be able to
borrow from local property tax revenues for more than two fiscal years within a
period of 10 fiscal years. In addition, the State cannot reduce the local sales
tax rate or restrict the authority of the local governments to impose or change
the distribution of the statewide local sales tax.

Senate Constitutional Amendment No. 4 also prohibits the State from mandating
activities on cities, counties or special districts without providing for the
funding needed to comply with the mandates. If the State does not provide
funding for an activity that has been determined to be mandated, the requirement
on cities, counties or special districts to abide by the mandate will be
suspended. In addition, Senate Constitutional Amendment No. 4 expands the
definition of what constitutes a mandate to encompass State action that
transfers to cities, counties and special districts financial responsibility for
a required program for which the State previously had partial or complete
responsibility. The State mandate provisions of Senate Constitutional Amendment
No. 4 do not apply to schools or community colleges or to mandates relating to
employee rights.

Constitutional, Legislative and Other Factors
---------------------------------------------

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

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

                                       13
<PAGE>

reasonable user charges or fees and certain other non-tax funds. Various types
of appropriations are excluded from the Appropriations Limit.

The State's Appropriations Limit in each year is based on the Limit for the
prior year, adjusted annually for changes in State per capita personal income
and changes in population, and adjusted, when applicable, for any transfer of
financial responsibility for providing services to or from another unit of
government or any transfer of the financial source for the provisions of
services from tax proceeds to non-tax proceeds.

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

On November 8, 1988, voters of the State approved Proposition 98, a combined
initiative constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act." Proposition 98 changed State
funding of public education below the university level and the operation of the
State appropriations funding, primarily by guaranteeing K-14 schools a minimum
share of General Fund revenues. Proposition 98 permits the Legislature by
two-thirds vote of both houses, with the Governor's concurrence, to suspend the
K-14 schools' minimum funding formula for a one-year period. Proposition 98 also
contains provisions transferring certain State tax revenues in excess of the
Article XIII B limit to K-14 schools.

Because of the complexities of Article XIII B, the ambiguities and possible
inconsistencies in its terms, the applicability of its exceptions and exemptions
and the impossibility of predicting future appropriations, it is not possible to
predict the impact of this or related legislation on the bonds in the Fund's
portfolio.

Article XIII B and other Articles of the State Constitution were adopted as
measures that qualified for the ballot pursuant to the State's initiative
process. Other Constitutional amendments affecting State and local taxes and
appropriations have been proposed from time to time. If any such initiatives
were adopted, the State could be pressured to provide additional financial
assistance to local Governments or appropriate revenues as mandated by such
initiatives. Propositions such as Proposition 98 and others that may be adopted
in the future may place increasing pressure on the State's budget over future
years, potentially reducing resources available for other State programs,
especially to the extent the Article XIII B spending limit would restrain the
State's ability to fund such other programs by raising taxes.

Effect of other State Laws on Bond Obligations. Some of the California Municipal
Securities that the Fund can invest in may be obligations payable solely from
the revenues of a specific institution or secured by specific properties. These
are subject to provisions of California law that could adversely affect the
holders of such obligations. For example, the revenues of California health care
institutions may be adversely affected by State laws, and California law limits
the remedies of a creditor secured by a mortgage or deed of trust on real
property. Debt obligations payable solely from revenues of health care
institutions may also be insured by the State but no guarantee exists that
adequate reserve funds will be appropriated by the Legislature for such purpose.

Litigation
----------

The State is a party to numerous legal proceedings, many of which normally occur
in governmental operations. In addition, the State is involved in certain other
legal proceedings that, if decided against the State might require the State to
make significant future expenditures or impair future revenue sources. Because
of the prospective nature of these proceedings, it is not presently possible to
predict the outcome of such litigation or estimate the potential impact on the
ability of the State to pay debt service costs on its obligations.

On August 8, 2005, a lawsuit titled California Teachers Association et al. v.
Arnold Schwarzenegger et al. was filed. Plaintiffs - California Teachers
Association, California Superintendent of Public Instruction Jack O'Connell, and
various other individuals - allege that the California Constitution's minimum
school funding guarantee was not followed for the 2004-05 fiscal year and the
2005-06 fiscal year in the aggregate amount of approximately $3.1 billion.
Plaintiffs seek a writ of mandate requiring the State to recalculate the
minimum-funding guarantee in compliance with the California Constitution. In
2006, the parties reached a settlement, which was ratified by the Legislature
and approved by the

                                       14
<PAGE>

Governor. The settlement calls for payment of the outstanding balance of the
minimum funding obligation to school districts and community college districts
(approximately $3 billion in the aggregate) through the 2013-14 fiscal year.

On November 15, 2005, a California Superior Court judge entered a decision in a
case which sought judicial validation for the issuance by the State of pension
obligation bonds. The judge ruled the bonds were not valid. The State appealed,
but it will not be able to issue pension obligation bonds until the matter is
finally resolved. For the 2005-06 fiscal year, the State made payments of about
$525 million for a portion of the fiscal year contribution to the California
Public Employees' Retirement System which had been planned to be funded from the
bonds. Neither the 2007 Budget Act nor the 2008 Governor's Budget calls for the
issuance of any pension obligation bonds.

Investment Restrictions

The Fund has adopted the following fundamental investment restrictions. They may
not be changed unless approved by a majority of the outstanding shares of the
Fund. The term "majority of the outstanding shares" of the Fund means the vote
of the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The Fund may not:

(1)Make portfolio investments other than as described under "Description of the
   Fund and Its Investments and Risks." Any other form of federal tax-exempt
   investment must meet the Fund's high quality criteria, as determined by the
   Board of Directors, and be consistent with the Fund's objectives and
   policies.

(2)Borrow money. This restriction shall not apply to borrowings from banks for
   temporary or emergency (not leveraging) purposes. This includes the meeting
   of redemption requests that might otherwise require the untimely disposition
   of securities, in an amount up to 15% of the value of the Fund's total assets
   (including the amount borrowed) valued at market less liabilities (not
   including the amount borrowed) at the time the borrowing was made. While
   borrowings exceed 5% of the value of the Fund's total assets, the Fund will
   not make any investments. Interest paid on borrowings will reduce net income.

(3)Pledge, hypothecate, mortgage or otherwise encumber its assets, except in an
   amount up to 15% of the value of its total assets and only to secure
   borrowings for temporary or emergency purposes.

(4)Sell securities short or purchase securities on margin, or engage in the
   purchase and sale of put, call, straddle or spread options or in writing such
   options. However, securities subject to a demand obligation and stand-by
   commitments may be purchased as set forth under "Description of the Fund and
   Its Investments and Risks."

(5)Underwrite the securities of other issuers, except insofar as the Fund may
   be deemed an underwriter under the Securities Act of 1933 in disposing of a
   portfolio security.

(6)Purchase securities subject to restrictions on disposition under the
   Securities Act of 1933 ("restricted securities"), except the Fund may
   purchase variable rate demand instruments which contain a demand feature. The
   Fund will not invest in a repurchase agreement maturing in more than seven
   days if any such investment together with securities that are not readily
   marketable held by the Fund exceed 10% of the Fund's net assets.

(7)Purchase or sell real estate, real estate investment trust securities,
   commodities or commodity contracts, or oil and gas interests. This shall not
   prevent the Fund from investing in Municipal Obligations secured by real
   estate or interests in real estate.

(8)Make loans to others, except through the purchase of portfolio investments,
   including repurchase agreements, as described under "Description of the Fund
   and Its Investments and Risks."

(9)Purchase more than 10% of all outstanding voting securities of any one
   issuer or invest in companies for the purpose of exercising control.

(10)Invest more than 25% of its assets in the securities of "issuers" in any
   single industry. The Fund may invest more than 25% of its assets in
   Participation Certificates and there shall be no limitation on the purchase
   of those Municipal Obligations and other obligations issued or guaranteed by
   the United States Government, its agencies or instrumentalities. When the
   assets and revenues of an agency, authority, instrumentality or other
   political subdivision are separate from those of the government creating the
   issuing entity and a security is backed only by the assets and revenues of
   the entity, the entity would be deemed to be the sole issuer of the

                                       15
<PAGE>

   security. Similarly, in the case of an industrial revenue bond, if that bond
   is backed only by the assets and revenues of the non-government user, then
   such non-government user would be deemed to be the sole issuer. If, however,
   in either case, the creating government or some other entity, such as an
   insurance company or other corporate obligor, guarantees a security or a bank
   issues a letter of credit, such a guarantee or letter of credit would be
   considered a separate security and would be treated as an issue of such
   government, other entity or bank. Immediately after the acquisition of any
   securities subject to a Demand Feature or Guarantee (as such terms are
   defined in Rule 2a-7 of the 1940 Act), with respect to 75% of the total
   assets of the Fund, not more than 10% of the Fund's assets may be invested in
   securities that are subject to a Guarantee or Demand Feature from the same
   institution. However, the Fund may only invest more than 10% of its assets in
   securities subject to a Guarantee or Demand Feature issued by a
   Non-Controlled Person (as such term is defined in Rule 2a-7 of the 1940 Act).

(11)Invest in securities of other investment companies. The Fund may purchase
   unit investment trust securities where such unit trusts meet the investment
   objectives of the Fund and then only up to 5% of the Fund's net assets,
   except as they may be acquired as part of a merger, consolidation or
   acquisition of assets.

(12)Issue senior securities, except insofar as the Fund may be deemed to have
   issued a senior security in connection with a permitted borrowing.

If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.

Disclosure of Portfolio Holdings

The Fund's Board of Directors has adopted the Manager's policies and procedures
relating to the disclosure of Fund portfolio holdings information (the
"Policy"). The Policy prohibits the disclosure of portfolio holdings unless: (1)
the disclosure is in response to a regulatory request and the Chief Compliance
Officer ("CCO") of the Fund has authorized such disclosure; (2) the disclosure
is to a mutual fund rating or statistical agency or person performing similar
functions where there is a legitimate business purpose for such disclosure and
such entity has signed a confidentiality or similar agreement, where available,
with the Fund or its agents and the CCO of the Fund has authorized such
disclosure (procedures to monitor the use of any non-public information by these
entities may include (a) annual certifications relating to the confidentiality
of such information or (b) the conditioning of the receipt of such information
upon the entity agreeing to maintain the confidentiality of the information,
along with other representations, where such representations accompany the
transmittal of the information); (3) the disclosure is made to parties involved
in the investment process, administration or custody of the Fund, including its
Board of Directors; (4) the disclosure is in connection with (a) a quarterly,
semi-annual or annual report that is available to the public or (b) other
periodic disclosure that is publicly available; or (5) the disclosure is made
pursuant to prior written approval of the CCO of the Fund. The Manager shall not
accept on behalf of itself, its affiliates or the Fund any compensation or other
consideration in connection with the disclosure of portfolio holdings of such
Fund. Any disclosure made pursuant to Item 5 above is reported to the Board at
the next quarterly meeting. This Policy may change at any time without prior
notice to shareholders.

Subject to the Fund's policies described in Item 2 above, the Manager and/or the
Fund maintains ongoing arrangements with the following rating or statistical
agencies or agencies providing similar functions pursuant to which non-public
information about the Fund's portfolio securities holdings, including
information derived from such holdings (e.g., breakdown of portfolio holdings by
securities type, percentage of holdings subject to alternative minimum tax,
weighted average maturity of the portfolio, etc.), may be provided:

<TABLE>
<CAPTION>
<S>                                                                     <C>                     <C>
Entity and Type of Information                                          Frequency               Lag Time
------------------------------                                          ---------               --------
iMoneyNet, Inc. (information derived from the portfolio)                Weekly                  1 business day lag

Investment Company Institute (information derived from the portfolio)   Monthly                 10 business day lag

Lipper, Inc. (information derived from the portfolio)                   Quarterly               15 calendar day lag

</TABLE>

In addition, portfolio holdings information may be provided to the Fund's
service providers on an as-needed basis in connection with the services provided
to the Fund by such service providers. Information may be provided to these

                                       16
<PAGE>

parties without a time lag. Service providers that may be provided with
information concerning the Fund's portfolio holdings include the Manager and its
affiliates, legal counsel, independent registered public accounting firm,
custodian, fund accounting agent, and financial printers. Portfolio holdings
information may also be provided to the Fund's Board of Directors.

The entities to whom the Fund provides portfolio holdings information, either by
explicit arrangement or by virtue of their respective duties to the Fund, are
required to maintain the confidentiality of the information provided. Neither
the Fund nor the Manager or its affiliates receives any compensation or other
consideration in connection with these ongoing arrangements. There can be no
guarantee that the Policy will be effective in preventing the potential misuse
of confidential information regarding the Fund's portfolio holdings by
individuals or entities in possession of such information.

III.  MANAGEMENT OF THE FUND

The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, employs the Manager to serve as investment manager
of the Fund. The Manager provides persons satisfactory to the Fund's Board of
Directors to serve as officers of the Fund. Due to the services performed by the
Manager, the Fund currently has no employees and its officers are not required
to devote their full-time to the affairs of the Fund.

The Board has an Audit Committee that meets at least annually to assist the
Board in selecting, overseeing and setting the compensation of the Fund's
independent registered public accounting firm. The Audit Committee is
responsible for pre-approving all audit or non-audit services performed by the
independent registered public accounting firm for the Fund and for pre-approving
certain non-audit services performed by the independent registered public
accounting firm for the Manager and certain control persons of the Manager. The
Audit Committee also meets with the Fund's independent registered public
accounting firm to review the Fund's financial statements and to report on its
findings to the Board, and to provide the independent registered public
accounting firm the opportunity to report on various other matters. The Audit
Committee is chaired by Edward A. Kuczmarski, with Albert R. Dowden, Dr. W.
Giles Mellon and James L. Schultz serving as members. The Audit Committee met
five times during the fiscal year ended December 31, 2007.

The Board also has a Nominating Committee comprised of Albert R. Dowden, Carl
Frischling, Edward A. Kuczmarski, William Lerner, Dr. W. Giles Mellon, James L.
Schultz, Robert Straniere and Dr. Yung Wong to whose discretion the selection
and nomination of Directors who are not "interested persons," as defined in the
1940 Act, of the Fund is committed. The Nominating Committee met once during the
fiscal year ended December 31, 2007. Nominees recommended by shareholders are
considered by the Nominating Committee to the extent required by applicable law.

The Board also has a Compliance Oversight Committee. The Compliance Oversight
Committee is chaired by William Lerner, with Carl Frischling and Robert
Straniere serving as members. The Compliance Oversight Committee is responsible
for reviewing compliance related matters raised by the Fund's Chief Compliance
Officer. The Compliance Oversight Committee met four times during the fiscal
year ended December 31, 2007.

In addition to serving on the Fund's Nominating Committee, Dr. Yung Wong, the
Fund's Lead Independent Director, will attend Audit Committee meetings and
Compliance Oversight Committee meetings at his discretion.

The following table shows the Directors and executive Officers of the Fund and
their principal occupations during the past five years. Unless otherwise
specified, the address of each of the following persons is 600 Fifth Avenue, New
York, New York 10020.

                                       17
<PAGE>

<TABLE>
<CAPTION>
<S>                       <C>          <C>        <C>                    <C>                              <C>            <C>
                                                  Directors and Officers Information
---------------------- ----------- ---------------- ------------------------------------------------ --------------  -------------
  Name, Address,       Position(s) Term of Office                 Principal Occupation(s)              Number of        Other
     and Age            Held with   and Length of                       During Past                   Portfolios     Directorships
                          Fund     Time Served (1)                        5 Years                       in Fund        held by
                                                                                                        Complex        Director
                                                                                                      Overseen by
                                                                                                       Director
-------------------------------   ------------- ------------------------------------------------  --------------    ---------------
Disinterested Directors:
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------

Albert R. Dowden,      Director    Since 2006   Corporate Director/Trustee for Annuity & Life Re  Director/Trustee  Director/Trustee
Age 66                                          (Holdings) Ltd., Boss Group, Ltd., Homeowners of     of seven         for Annuity &
                                                America Holding Corporation, AIM Funds and          Portfolios          Life Re
                                                CompuDyne Corporation.                                                 (Holdings)
                                                                                                                       Ltd., Boss
                                                                                                                       Group, Ltd.,
                                                                                                                      Homeowners of
                                                                                                                     America Holding
                                                                                                                       Corporation,
                                                                                                                       AIM Funds and
                                                                                                                        CompuDyne
                                                                                                                       Corporation.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Carl Frischling, Esq., Director    Since 2006   Partner of Kramer Levin Naftalis & Frankel LLP (a  Director/Trustee  Director of AIM
Age 71                                          law firm) with which he has been associated with       of seven          Funds.
                                                                                                     Portfolios
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Edward A. Kuczmarski,  Director    Since 2006   Certified Public Accountant and Partner of Hays &  Director/Trustee  Trustee of the
Age 58                                          Company LLP since 1980.                              of eleven        Empire Builder
                                                                                                     Portfolios      Tax Free Bond
                                                                                                                        Fund and
                                                                                                                     Director of ISI
                                                                                                                         Funds.

---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
William Lerner, Esq.,  Director    Since 2006   Self-employed consultant to business entities and  Director/TrusteE  Director of MTM
Age 71                                          entrepreneurs for corporate governance and           of seven         Technologies,
                                                corporate secretarial services.                      Portfolios      Inc. and Coach
                                                                                                                       Industries
                                                                                                                        Group, Inc.
-------------------------------   ------------- ------------------------------------------------  --------------    ---------------
Dr. W. Giles Mellon,   Director    Since 1987   Professor Emeritus of Business Administration in   Director/Trustee     N/A
Age 77                                          the Graduate School of Management, Rutgers              of ten
                                                University with which he hasbeen associated          Portfolios
                                                since 1966.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
James L. Schultz,      Director    Since 2006   Self-employed as a consultant.                     Director/Trustee   Director of
Age 71                                                                                                of seven          Computer
                                                                                                    Portfolios        Research, Inc.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Robert Straniere, Esq., Director   Since 1987   Owner, Straniere Law Firm since 1980, NYS           Director/Trustee Director of
Age 67                                          Assemblyman since 1981 to 2004.  Partner,               of ten       Sparx Japan
                                                Hantor-Davidoff law firm since May, 2006.  Partner,   Portfolios        Funds.
                                                Gotham Global Group since June, 2005.  President,
                                                NYC Hot Dog Co., since November, 2005.  Counsel at
                                                Fisher & Fisher from 1995 to 2006.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Dr. Yung Wong,         Director     Since 1987  Managing Director of Abacus Associates, an          Director/Trustee     N/A
Age 69                                          investment firm, since 1996.                            of ten
                                                                                                     Portfolios

---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Interested Director/Officers:
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------

Steven W. Duff,       Director(2)   Since 1994  President and Chief Executive Officer of Reich &   Director/Trustee      None
Age 54                                          Tang Asset Management, LLC (the "Manager"), a         of ten
                                                registered Investment Advisor and Chief Investment  Portfolios
                                                Officer of the Mutual Funds Division of the
                                                Manager.  Mr. Duff has been associated with the
                                                Manager since August 1994.  Mr. Duff is also
                                                Director/Trustee of six other funds in the Reich &
                                                Tang Fund Complex.  Prior to December 2007,  Mr.
                                                Duff was President of the Fund and President of
                                                eight other funds in the Reich & Tang Fund Complex,
                                                Director of Pax World Money Market Fund, Inc.,
                                                Principal Executive Officer of Delafield Fund, Inc.
                                                and President and Chief Executive Officer of Tax
                                                Exempt Proceeds Fund, Inc.   Mr. Duff also serves
                                                as a Director of Reich & Tang Services, Inc. and
                                                Director, Chief Executive Officer and President of
                                                Reich & Tang Distributors, Inc.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Michael Lydon,        President    Since 2007   Executive Vice President of the Manager and              N/A            N/A
Age 44                  and                     President and Chief Executive Officer of the
                      Director(2)               Mutual Funds division of the Manager.  Mr. Lydon
                                                was Vice President at Automatic Data Processing
                                                from July 2000 to December 2004.   Mr. Lydon is
                                                also President and Director/Trustee of four other
                                                funds in the Reich & Tang Fund Complex, President
                                                to New York Daily Tax Free Income Fund, Inc.,
                        Vice                    Director of Pax World Money Market Fund, Inc.,
                      President   From 2005 to  Principal Executive Officer of Delafield Fund,
                                   2007         Inc. and President and Chief Executive Officer of
                                                Tax Exempt Proceeds Fund, Inc.  Mr. Lydon also
                                                serves as President and Chief Executive Officer
                                                for Reich & Tang Services, Inc.  Prior to
                                                December 2007, Mr. Lydon was Vice President of
                                                eleven other Funds in the Reich & Tang Fund
                                                Complex.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>
<S>                       <C>          <C>        <C>                    <C>                              <C>            <C>
                                                  Directors and Officers Information (continued)
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Interested Director/Officers:
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Christopher Brancazio,  Chief     Since 2007    Vice President, Chief Compliance Officer, AML            N/A            N/A
Age 42                Compliance                Officer and Secretary of the Manager since
                        Officer                 September 2007.    Mr. Brancazio is also Chief
                                                Compliance Officer and AML Officer of eight other
                                                funds in the Reich & Tang Fund Complex.  From
                                                February 2007 to August 2007, Mr. Brancazio was a
                                                Compliance Officer at Bank of New York Asset
                                                Management.  From March 2002 to February 2007 Mr.
                                                Brancazio served as Vice President, Chief
                                                Compliance Officer, and AML Officer of Trainer
                                                Wortham & Co. Inc., and the Trainer Wortham
                                                Mutual Funds.  Mr. Brancazio also serves as Vice
                                                President, Chief Compliance Officer, AML Officer
                                                and Secretary of Reich & Tang Services, Inc. and
                                                Reich & Tang Distributors, Inc.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Richard De Sanctis,     Vice       Since 2005   Executive Vice President and Chief Operating             N/A            N/A
Age 51                President                 Officer of the Manager and of Reich & Tang
                                                Services, Inc.  Associated with the Manager since
                                                1990. Mr. De Sanctis is also Vice President of
                                                eight other funds in the Reich & Tang Fund
                                                Complex and serves as Executive Vice President
                                                and Chief Financial Officer of Reich & Tang
                                                Distributors, Inc.  Prior to December 2004, Mr.
                                                De Sanctis was Treasurer and Assistant Secretary
                                                of eleven funds in the Reich & Tang Fund Complex
                                                and Vice President, Treasurer and Assistant
                                                Secretary of Cortland Trust, Inc.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Joseph Jerkovich,        Vice      Since 2008   Senior Vice President and Chief Financial Officer        N/A            N/A
Age 40                President                 of the Manager and of Reich & Tang Services, Inc.
                                                Associated with the Manager since September 2004.
                                                Mr. Jerkovich is Vice President of eight other
                                                funds in the Reich & Tang Fund Complex and is also
                                                Senior Vice President and Controller of Reich & Tang
                                                Distributors, Inc.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Christine Manna,       Secretary   Since 2007   Vice President and Assistant Secretary of the            N/A            N/A
Age 37                                          Manager. Ms. Manna is also Secretary of eight
                                                other funds in the Reich & Tang Complex.  Ms.
                                                Manna has been associated with the Manager and
                                                its predecessors since June 1995.  Ms. Manna is
                                                also Vice President and Assistant Secretary of
                                                Reich & Tang Services, Inc. and Reich & Tang
                                                Distributors, Inc.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Anthony Pace,          Treasurer   Since 2004   Vice President of the Manager since September           N/A            N/A
Age 42                     and                  2004.  Mr. Pace was a Director of a Client
                       Assistant                Service Group at GlobeOp Financial Services, Inc.
                       Secretary                from May 2002 to August 2004 and Controller/Director
                                                of Mutual Fund Administration for Smith Barney Funds
                                                Management LLC and Solomon Brothers Asset Management
                                                Inc. from 1998 to May 2002.  Mr. Pace is also
                                                Treasurer and Assistant Secretary of eight other
                                                funds in the Reich & Tang Fund Complex.
---------------------- --------   ------------- ------------------------------------------------  --------------    ---------------
Robert Rickard,       Vice         Since 2007   Senior Vice President of the Manager. Associated        N/A            N/A
Age 39                President                 with the Manager since December 1991. Mr. Rickard
                                                is also Vice President of eight other funds in the
                                                Reich & Tang Fund Complex and is also Senior Vice
                                                President of Reich & Tang Distributors, Inc.

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

<FN>
(1) Each Director will hold office for an indefinite term until the earliest of
(i) the next meeting of shareholders, if any, called for the purpose of
considering the election or re-election of such Director and until the election
and qualification of his or her successor, if any, elected at such meeting, or

(ii) the date a Director resigns or retires, or a Director is removed by the
Board of Directors or shareholders, in accordance with the Fund's Articles of
Incorporation, as amended, and Amended and Restated By-Laws. Each officer will
hold office for an indefinite term until the date he or she resigns or retires
or until their successor is elected and qualifies.


(2) Steven W. Duff and Michael P. Lydon may be deemed interested persons of the
Fund, as defined in the 1940 Act, due to their affiliation with the Manager.
</FN>
</TABLE>

                                       19
<PAGE>

The following table shows the dollar range of Fund shares beneficially owned by
each director as of December 31, 2007:

<TABLE>
<CAPTION>
<S>                                      <C>            <C>                     <C>                <C>
                                                                                 Aggregate Dollar Range of Equity Securities in
                                         Dollar Range of Equity Securities in   All Funds Overseen or to be Overseen by Director
Name of Director                                       the Fund                   or Nominee in Family of Investment Companies
---------------                          ------------------------------------   ------------------------------------------------
Disinterested Directors:
-----------------------

Albert R. Dowden                                        None                                         None

Carl Frischling                                         None                                  $50,001 - $100,000

Edward A. Kuczmarski                                    None                                  $10,001 - $50,000

William Lerner                                          None                                         None

Dr. W. Giles Mellon                                     None                                     Over $100,000

James L. Schultz                                        None                                     $1 - $10,000

Robert Straniere                                        None                                   $50,001 - $100,000

Dr. Yung Wong                                           None                                    Over $100,000

Interested Director:
-------------------
Steven W. Duff                                          None                                    Over $100,000

Michael P.Lydon                                         None                                    Over $100,000

</TABLE>

The Fund paid an aggregate remuneration of $17,167 to its directors with respect
to the period ended December 31, 2007, all of which consisted of directors' fees
paid to the eight disinterested directors, pursuant to the terms of the
Investment Management Contract (see "Investment Advisory and Other Services"
herein.)

Effective January 1, 2008, the Directors of the Fund not affiliated with the
Manager will be paid a fee that is to be allocated among multiple funds, as
defined below. Each Independent Director will receive an annual retainer of
$60,000 and a fee of $3,000 for each Board of Directors meeting attended. Each
Independent Director will also receive a fee of up to $1,500 at the discretion
of the Lead Independent Director for telephonic Board meetings and committee
meetings that are not held on the same day as a Board Meeting. In addition, the
Lead Independent Director will receive an additional annual fee of $13,800,
payable quarterly and the Audit Committee Chairman and Compliance Committee
Chairman will each receive an additional annual fee of $9,200, payable
quarterly. Each Independent Director will also be reimbursed for all
out-of-pocket expenses relating to attendance at such meetings. The fees noted
above are to be allocated at the discretion of the Manager among certain funds
in the Reich & Tang Fund complex. The Independent Directors' fees will be
allocated among the Fund, the Florida Daily Municipal Income Fund, the
Connecticut Daily Tax Free Income Fund, Inc., the Daily Income Fund and the New
Jersey Municipal Income Fund, Inc. in accordance with the Manager's discretion.
Directors who are affiliated with the Manager do not receive compensation from
the Fund. (See "Compensation Table.")

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                             Compensation Table
                           Aggregate Compensation    Pension or Retirement       Estimated Annual       Total Compensation From
                                From the Fund      Benefits Accrued as Part  Benefits Upon Retirement  Fund and Fund Complex Paid
     Name of Person,                                   of Fund Expenses                                      to Directors*
         Position

<S>                                 <C>                       <C>                     <C>                 <C>
Albert R. Dowden,                 $1,847                       0                       0                  $66,500 (5 Funds)
Director

Carl Frischling,                  $1,731                       0                       0                  $54,244 (5 Funds)
Director

Edward A. Kuczmarski              $2,505                       0                       0                  $105,375 (10 Funds)
Director

William Lerner,                   $2,082                       0                       0                  $73,000 (5 Funds)
Director

Dr. W. Giles Mellon,              $2,237                       0                       0                  $82,500 (9 Funds)
Director

James L. Schultz,                 $1,847                       0                       0                  $66,500 (5 Funds)
Director

Robert Straniere,                 $2,279                       0                       0                  $82,500 (9 Funds)
Director

Dr. Yung Wong,                    $2,639                       0                       0                  $96,500 (9 Funds)
Director

<FN>

* The total compensation paid to such persons by the Fund and Fund Complex for
  the fiscal year ending December 31, 2007. The parenthetical number represents
  the number of investment companies (including the Fund) from which the
  directors receive compensation. A Fund is considered to be in the same Fund
  complex if, among other things, it shares a common investment adviser with the
  Fund.
</FN>

</TABLE>

Information About Proxy Voting

Information regarding the Fund's proxy voting record for the 12 month period
ending June 30 of each year is filed with the SEC on Form N-PX no later than
August 31 of each year. The Fund's Form N-PX is available without charge, upon
request, by calling the Fund toll free at (800) 433-1918 and on the SEC's
website (http//www.sec.gov). The Fund does not presently invest in voting
securities and has therefore not adopted proxy voting policies and procedures.

IV.  CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

On March 31, 2008 there were 195,076,932 shares of Class A common stock
outstanding, 19,533,612 shares of Class B common stock outstanding and
78,686,560 shares of Advantage shares of common stock outstanding. As of March
31, 2008, the amount of shares owned by all officers and directors of the Fund
as a group was less than 1% of the outstanding shares of the Fund. Set forth
below is certain information as to persons who owned 5% or more of each Class of
the Fund's outstanding common stock as of March 31, 2008:

                                       21
<PAGE>


<TABLE>
<CAPTION>
                                                     % of            Nature of
Name and Address                                     Class           Ownership
----------------                                    ------           ---------
<S>                                                   <C>               <C>
CLASS A
-------

M.L. Stern LLC                                        52.71%           Record
FBO Various Clients
8350 Wilshire Blvd.
Beverly Hills, CA  90211

Lehman Brothers                                       17.53%           Record
For the Exclusive Benefit of Clients
70 Hudson Street -7th Floor
Mutual Fund Department
Jersey City, NJ 07302

ICCC                                                  12.15%           Record
Attn: Commissions/Special Services
210 West 10th Street
Kansas City, MO 64105

Pershing                                              11.76%           Record
One Pershing Plaza
Jersey City, NJ  07399


CLASS B
-------

Oppenheimer & Co.                                     85.10%            Record
FBO Various Customers
125 Broad Street
New York, NY 10004



Advantage Shares
----------------
Oppenheimer & Co.                                     100.00%           Record
FBO Various Customers
125 Broad Street
New York, NY 10004
</TABLE>

V.  INVESTMENT ADVISORY AND OTHER SERVICES

 The investment manager for the Fund is Reich & Tang Asset Management, LLC, a
Delaware limited liability company with principal offices at 600 Fifth Avenue,
New York, New York 10020. The Manager was, as of March 31, 2008, investment
manager, adviser, or sub-adviser with respect to assets aggregating in excess of
$17.8 billion. The Manager has been an investment adviser since 1970 and
currently is manager or sub-adviser of seventeen portfolios of registered
investment companies, of which it acts as administrator for twelve. The Manager
also advises high net worth individuals, private funds, pension trusts,
profit-sharing trusts and endowments.

The Manager is a direct subsidiary of Natixis Global Asset Management, L.P.
(formerly IXIS Asset Management US Group, L.P.) which owns, in addition to the
Manager, a number of other asset management and distribution and service
entities. Natixis Global Asset Management, L.P. is part of Natixis Global Asset
Management (formerly IXIS Asset Management Group), an international asset
management group based in Paris, France, that is ultimately owned principally,
directly or indirectly, by three large French financial services entities:
Natixis, an investment banking and financial services firm; the Caisse Nationale
des Caisses d'Epargne ("CNCE"), a financial institution owned by French regional
savings banks known as the Caisses d'Epargne; and Banque Federale des Banques
Populaires ("BFBP"), a financial institution owned by regional cooperative banks
known as the Banques Populaires. Natixis, CNCE and BFBP (the "Affiliated
Owners") each owns, directly or indirectly, other investment advisers
established in various jurisdictions. Natixis Global Asset Management, L.P.,
which owns the Manager and is indirectly owned by the Affiliated Owners, is the
direct and indirect owner of various investment advisers.

                                       22
<PAGE>

The fifteen affiliated asset management firms of Natixis Global Asset
Management, L.P., collectively, have more than $291.4 billion in assets under
management or administration as of March 31, 2008.

On September 14, 2007, the Board of Directors, including a majority of the
Directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, most recently approved the continuance of the Investment
Management Contract for a term extending to September 30, 2008. The contract may
be continued in force for successive twelve-month periods beginning each October
1, provided that such continuance is specifically approved annually by a
majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by a majority of the Directors who are not parties
to the Investment Management Contract or interested persons of any such party,
by votes cast in person at a meeting called for the purpose of voting on such
matter.

Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. The Manager also provides persons satisfactory to the Board of
Directors of the Fund to serve as officers of the Fund. Such officers, as well
as certain other employees and directors of the Fund, may be directors, officers
or employees of the Manager or its affiliates.

The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Directors,
or by the Manager on sixty days written notice, and will automatically terminate
in the event of its assignment. The Investment Management Contract provides that
in the absence of willful misfeasance, bad faith or gross negligence on the part
of the Manager, or of reckless disregard of its obligations thereunder, the
Manager shall not be liable for any action or failure to act in accordance with
its duties thereunder.

Under the Investment Management Contract, the Manager receives from the Fund a
fee equal to 0.30% per annum of the Fund's average daily net assets. The fees
are accrued daily and paid monthly.

Any portion of the total fees received by the Manager may be used by the Manager
to provide shareholders services and for distribution of Fund shares. For the
fiscal years ended December 31, 2007, December 31, 2006 and December 31, 2005,
the Manager received management fees as set forth in the table below:

<TABLE>
<CAPTION>
                                                        Management Fees
             <S>                                    <C>                            <C>                    <C>
           Fiscal Year End                        Payable                         Waived                 Paid
---------------------------------------- ------------------------------- ----------------------------- ------------
           December 31, 2007                        $775,461                          $0                   $775,461
---------------------------------------- ------------------------------- ----------------------------- ------------
           December 31, 2006                        $715,560                          $0                   $715,560
---------------------------------------- ------------------------------- ----------------------------- ------------
           December 31, 2005                        $706,506                          $0                   $706,506
---------------------------------------- ------------------------------- ----------------------------- ------------
</TABLE>

The Fund's net assets at the close of business on December 31, 2007 totaled
$292,765,490.

Pursuant to the Administrative Services Contract with the Fund, the Manager also
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of accounting related services by The Bank of New York, the Fund's
accounting agent, (ii) prepare reports to and filings with regulatory
authorities and (iii) perform such other services as the Fund may from time to
time request of the Manager. The personnel rendering such services may be
employees of the Manager, of its affiliates or of other organizations. For its
services under the Administrative Services Contract, the Manager receives from
the Fund a fee equal to 0.21% per annum of the Fund's average daily net assets.
For the fiscal years ended December 31, 2007, December 2006, and December 31,
2005, the Manager received the administrative fees set forth in the table below:

                               Administrative Fees

<TABLE>
<CAPTION>
                                                        Administrative Fees
             <S>                                    <C>                            <C>                    <C>
           Fiscal Year End                        Payable                         Waived                 Paid
---------------------------------------- ------------------------------- ---------------------------- -----------------
           December 31, 2007                        $542,823                         $0                   $542,823
---------------------------------------- ------------------------------- ---------------------------- -----------------
           December 31, 2006                        $500,892                         $0                   $500,892
---------------------------------------- ------------------------------- ---------------------------- -----------------
           December 31, 2005                        $494,554                         $0                   $494,554
---------------------------------------- ------------------------------- ---------------------------- -----------------
</TABLE>

                                       23
<PAGE>

The Manager at its discretion may waive its rights to any portion of the
management fee or the administrative services fee and may use any portion of
these fees for purposes of shareholder and administrative services and
distribution of the Fund's shares. There can be no assurance that such fees will
be waived in the future.

Investment management fees and operating expenses which are attributable to more
than one Class of the Fund will be allocated daily to each Class based on the
percentage of outstanding shares at the end of the day. Additional expenses for
shareholder services and distribution services provided by Participating
Organizations (including Oppenheimer & Co. Inc.) to Fund shareholders, may be
compensated for by the Distributor from its own resources which includes the
shareholder servicing and distribution fees and past profits or by the Manager
from its own resources which includes the management fee and administrative
services fee and past profits. Expenses incurred in the distribution of Class B
shares and the servicing of Class B shares shall be paid by the Manager. (See
"Distribution and Service Plans" herein).

Distribution and Service Plans

The Fund's distributor is Reich & Tang Distributors, Inc. (the "Distributor"), a
Delaware corporation with principal officers at 600 Fifth Avenue, New York, New
York 10020, and an affiliate of the Manager. Pursuant to Rule 12b-1 under the
1940 Act, the SEC has required that an investment company which bears any direct
or indirect expense of distributing its shares must do so only in accordance
with a plan permitted by the Rule. The Fund's Board of Directors has adopted
distribution and service plans (each a "Plan", and collectively the "Plans")
and, pursuant to the Plans, the Fund has entered into Distribution Agreements
(with respect to all Classes) and Shareholder Servicing Agreements (with respect
to Class A and Advantage shares only) with the Distributor, as distributor of
the Fund's shares.

Under the Distribution Agreements, the Distributor, as agent for the Fund, will
solicit orders for the purchase of the Fund's shares, provided that any
subscriptions and orders will not be binding on the Fund until accepted by the
Fund as principal. The Distribution Agreement (with respect to the Fund's Class
A and B shares) provides that the Distributor will receive nominal consideration
(i.e., $1.00) for providing such distribution related services.

Pursuant to the Distribution Agreement for Advantage shares, the Distributor
receives a distribution fee of % per annum of the Advantage shares' average
daily net assets (the "Advantage Distribution Fee") for providing distribution
related services and for making payments to Oppenheimer & Co. Inc. for providing
assistance in distributing the Advantage shares.

Under the Shareholder Servicing Agreements, the Distributor receives from the
Fund a fee equal to 0.20% and 0.25% per annum of the Fund's average daily net
assets of the Class A and Advantage shares of the Fund, respectively (the
"Shareholder Servicing Fee") for providing or arranging for others to provide
personal shareholder services and for the maintenance of shareholder accounts.

The Shareholder Servicing Fee and the Advantage Distribution Fee are accrued
daily and paid monthly. Any portion of the Shareholder Servicing Fee may be
deemed to be used by the Distributor for purposes of providing servicing or
making payments to Participating Organizations (including Oppenheimer & Co. Inc.
with respect to Advantage shares) with respect to servicing their clients or
customers who are Class A and Advantage shareholders of the Fund. The Class B
shareholders will generally not receive the benefit of such services from
Participating Organizations and, therefore, will not be assessed a shareholder
servicing fee. Any portion of the Advantage Distribution Fee may be deemed to be
used by the Distributor for purposes of distribution of the Advantage Class
shares.

The following table provides the total fees paid by each Class of the Fund
(after waiver for the Advantage Shares) pursuant to the Plans and the manner in
which payments were made pursuant to the Plans for certain types of activities
for the fiscal year ended December 31, 2007:

                                       24
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                             <C>                 <C>               <C>
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
                                                                                 CLASS A             CLASS B        ADVANTAGE CLASS
                                                                                 SHARES              SHARES           OF SHARES
                                                                           -------------------- ----------------- -----------------
                                                                           -------------------- ----------------- -----------------
TOTAL FEES PAID BY EACH CLASS OF THE FUND UNDER THE PLANS:                        $376,124              $0             $162,702
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
PAYMENTS MADE BY THE MANAGER AND DISTRIBUTOR TO OR ON BEHALF OF                  $1,081,723          $54,771           $462,564
PARTICIPATING ORGANIZATIONS:
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
BREAKDOWN OF PAYMENTS MADE PURSUANT TO THE PLANS FOR CERTAIN TYPES OF
ACTIVITIES:
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
    ADVERTISING:                                                                    $0                 $0                $0
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
    PRINTING AND MAILING OF PROSPECTUSES TO OTHER THAN CURRENT
    SHAREHOLDERS:                                                                 $1,052              $1,052            $3,589
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
    COMPENSATION TO UNDERWRITERS:                                                   $0                 $0                $0
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
    COMPENSATION TO BROKER-DEALERS:                                              $1,081,723          $54,771           $462,564
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
    COMPENSATION TO SALES PERSONNEL:                                              $6,091             $6,090              $0
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
    INTEREST, CARRYING OR OTHER FINANCING CHARGES:                                  $0                 $0                $0
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
    TRAVEL AND ENTERTAINMENT FOR SALES PERSONNEL:                                  $444               $445               $0
-------------------------------------------------------------------------- -------------------- ----------------- -----------------
    MISCELLANEOUS EXPENSES:                                                         $81                $80               $0
-------------------------------------------------------------------------- -------------------- ----------------- -----------------

</TABLE>

For the fiscal year ended December 31, 2007, the total amount spent pursuant to
the Plan for the Class A shares was 0.58% of the average daily net assets of the
Class A shares of the Fund, of which 0.20% of the average daily net assets was
paid by the Fund to the Distributor, pursuant to the Shareholder Servicing
Agreement, and an amount representing 0.38% was paid by the Manager (which may
be deemed an indirect payment by the Fund). The excess of such payments over the
total payments the Distributor received from the Fund under the Plan represents
distribution and servicing expenses funded by the Manager from its own
resources, including the management and administrative services fees.

For the fiscal year ended December 31, 2007, the total amount spent pursuant to
the Plan for the Class B shares was 0.32% of the average daily net assets of the
Class B shares of the Fund. These payments represent distribution and servicing
expenses funded by the Manager (which may be deemed an indirect payment by the
Fund).

For the fiscal year ended December 31, 2007, the total amount spent pursuant to
the Plan for the Advantage shares was 0.92% of the average daily net assets of
the Advantage shares of the Fund, of which 0.40% of the average daily net assets
was paid by the Fund to the Distributor, pursuant to the Distribution Agreement
and Shareholder Servicing Agreement, and an amount representing 0.52% was paid
by the Manager (which may be deemed an indirect payment by the Fund). The excess
of such payments over the total payments the Distributor received from the Fund
under the Plan represents distribution and servicing expenses funded by the
Manager from its own resources, including the management and administrative
services fees.

The Plans and the Shareholder Servicing Agreements provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses, including the cost of dedicated lines and CRT terminals, incurred by
the Distributor and Participating Organizations in carrying out their
obligations under the Shareholder Servicing Agreements and Participating
Organization Agreement, as the case may be, with respect to the Class A and
Advantage shares or the Participating Organization agreement, as the case may
be, and (ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Fund and preparing and printing Fund application
forms for shareholder accounts.

The Plans provide that the Manager may make payments from time to time from its
own resources, which may include the management fee, administrative services fee
and past profits for the following purposes: (i) to pay the cost of, and to
compensate others, including Participating Organizations with whom the
Distributor has entered into written agreements for performing shareholder
servicing and related administrative functions on behalf of the Fund; (ii) to
compensate Participating Organizations for providing assistance in distributing
Class A and Advantage shares; and (iii)

                                       25
<PAGE>

to pay the costs of the preparation and printing of brochures and other
promotional materials, mailings to prospective shareholders, advertising, and
other promotional activities, including the salaries and/or commissions of sales
personnel of the Distributor and other personnel in connection with the
distribution of the Fund's shares. The Manager, at its expense, also may from
time to time provide additional promotional incentives to Participating
Organizations who sell Fund shares. The Distributor may also make payments from
time to time from its own resources, which may include (1) the Shareholder
Servicing Fee with respect to Class A and Advantage shares and past profits for
the purpose enumerated in (i) above and (2) the Advantage Distribution Fee and
past profits for the purposes enumerated in (ii) and (iii) above. The
Distributor may determine the amount of such payments made pursuant to the
Plans, provided that such payments will not increase the amount which the Fund
is required to pay to the Manager or the Distributor for any fiscal year under
the Investment Management Contract, the Administrative Services Contract, the
Shareholder Servicing Agreements or Advantage Distribution Agreement in effect
for that year.

The Distributor or an affiliate may, from time to time, at its expense and out
of its own resources (a source of which may be the 12b-1 fees paid by the Fund
under the Plan), make cash payments to some but not all Participating
Organizations for shareholder services, as an incentive to sell shares of the
Fund and/or to promote retention of their customers' assets in the Fund. These
payments may be referred to as "revenue sharing," but do not change the price
paid by investors to purchase the Fund's shares or the amount the Fund receives
as proceeds from such sales. Revenue sharing payments may be to Participating
Organizations that provide services to the Fund or its shareholders, including
(without limitation) shareholder servicing, administration, accounting, transfer
agency and/or distribution services. The Distributor negotiates the level of
payments described above to any particular Participating Organization with each
firm, based one, among other things, the nature and level of services provided
by such Participating Organization and the significance of the overall
relationship of the Participating Organization to the Manager and its
affiliates. The amount of these payments may be significant and may create an
incentive for the Participating Organization to sell shares of the Fund to you
or to recommend one fund complex over another. Please speak with your
Participation Organization to learn more about payments made to them by the
Distributor or its affiliates. In addition, to the extent allowable under the
Financial Industry Regulatory Authority ("FINRA") rules and any other applicable
regulations, the Distributor or an affiliate may contribute to sales programs
for certain Participating Organizations and may provide non-cash compensation to
certain Participating Organizations like sponsorship or funding of sales
seminars, tickets to sporting events, theater or other entertainment,
opportunities to participate in golf or other outings and gift certificates for
meals or by giving out merchandise at industry conferences, which may be paid
for by the Distributor or an affiliate out of its own resources.

In accordance with Rule 12b-1, the Plans provides that all written agreements
relating to the Plans entered into between either the Fund or the Distributor
and Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Directors. In addition, the Plans require
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for servicing and distribution purposes
pursuant to the Plans and identifying the servicing and distribution activities
for which those expenditures were made.

The Plans were most recently approved on September 14, 2007, to continue in
effect until September 30, 2008. Thereafter, the Plans may continue in effect
for successive annual periods provided they are approved by the Class A and
Advantage shareholders, respectively, or by the Board of Directors, including a
majority of directors who are not interested persons of the Fund and who have no
direct or indirect interest in the operation of the Plans or in the agreements
related to the Plans. The Plans further provide that they may not be amended to
increase materially the costs which may be spent by the Fund pursuant to the
Plans without Class A and Advantage shareholder approval, and that other
material amendments must be approved by the directors, including a majority of
directors who are not interested persons of the Fund and who have no direct or
indirect interest in the operation of the Plans. Each Plan may be terminated at
any time by a vote of a majority of the disinterested directors of the Fund or
the Fund's Class A and Advantage shareholders, respectively.

Custodian and Transfer Agent

The Bank of New York Mellon, 2 Hanson Place - 7th Floor, Brooklyn, NY 11217, is
custodian for the Fund's cash and securities. Reich & Tang Services, Inc.
("Reich & Tang"), an affiliate of the Fund's Manager, located at 600 Fifth
Avenue, New York, NY 10020, is transfer agent and dividend agent for the shares
of the Fund. As transfer agent, Reich & Tang performs various functions
including the processing of shareholder purchase, redemption and exchange
transactions and the maintenance of shareholder records regarding such
transactions. As dividend agent, Reich & Tang makes dividend payments to Fund
shareholders on behalf of the Fund and performs certain recordkeeping and
reporting functions regarding such payments. Pursuant to the Transfer Agency
Agreement between Reich & Tang and the Fund, Reich & Tang, as transfer agent and
dividend agent, receives a fee of $17.40 per account per year or a minimum of
0.05% of the monthly average net assets of the Class A and B shares of the Fund.

                                       26
<PAGE>

For the year ended December 31, 2007 these fees amounted to:

<TABLE>
<CAPTION>
<S>                                                <C>                          <C>
                                                  Amount                         %
---------------------------------------- ------------------------------- -------------
           Class A Shares                        $93,939                        $0.05%
---------------------------------------- ------------------------------- -------------
           Class B Shares                        $ 9,974                        $0.05%
---------------------------------------- ------------------------------- -------------
           Total Transfer Agency Fees           $103,913                        $0
---------------------------------------- ------------------------------- -------------
</TABLE>

The custodian and transfer agents do not assist in, and are not responsible for,
investment decisions involving assets of the Fund.

Counsel and Independent Registered Public Accounting Firm

Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Paul, Hastings, Janofsky & Walker LLP, 75 East 55th Street, New
York, New York 10022. Matters in connection with California law are passed upon
by Paul, Hastings, Janofsky & Walker LLP, 515 South Flower Street, Los Angeles,
California 90071.

PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue,
New York, New York 10017, independent registered public accounting firm, have
been selected as the independent registered public accountants for the Fund.

VI.  BROKERAGE ALLOCATION AND OTHER PRACTICES

The Fund's purchases and sales of portfolio securities are usually principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Thus, the Fund will select a broker
for such a transaction based upon which broker can effect the trade at the best
price and execution available. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price.

Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.

Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.

No portfolio transactions are executed with the Manager or its affiliates acting
as principal to the extent prohibited by applicable law. In addition, the Fund
will not buy bankers' acceptances, certificates of deposit or commercial paper
from the Manager or its affiliates.

VII.  CAPITAL STOCK AND OTHER SECURITIES

The authorized capital stock of the Fund consists of twenty billion shares of
stock having a par value of one tenth of one cent ($.001) per share. The Fund's
Board of Directors is authorized to divide the shares into separate series of
stock, one for each of the portfolios that may be created. Each share of any
series of shares when issued will have equal dividend, distribution and
liquidation rights within the series for which it was issued and each fractional
share has those rights in proportion to the percentage that the fractional share
represents of a whole share. Shares of all series have identical voting rights,
except where, by law, certain matters must be approved by a majority of the
shares of the unaffected series. Shares will be voted in the aggregate. There
are no conversion or preemptive rights in connection with any shares of the
Fund. All shares, when issued in accordance with the terms of the offering, will
be fully paid and nonassessable. Shares are redeemable at net asset value, at
the option of the shareholder. The Fund is

                                       27
<PAGE>

subdivided into three classes of common stock, Class A, Class B and Advantage
Class of shares. Each share, regardless of class, will represent an interest in
the same portfolio of investments and will have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) the
Class A, Class B and Advantage shares will have different class designations;
(ii) only the Class A and Advantage shares will be assessed a service fee
pursuant to the Plans of the Fund of 0.20% and 0.25% of the average daily net
assets of Class A and Advantage shares, respectively; (iii) only the Advantage
shares will be assessed a distribution fee pursuant to its Plan of 0.45% of the
Advantage shares' average daily net assets; (iv) each Class will vote separately
on matters relating solely to that Class under the Plan and any related
agreements in accordance with provisions of Rule 12b-1; and (v) the exchange
privilege will permit stockholders to exchange their shares only for shares of
the same class of an investment company that participates in an exchange
privilege program with the Fund (except for the Advantage Class which does not
offer an exchange privilege). Payments that are made under the Plan will be
calculated and charged daily to the appropriate class prior to determining daily
net asset value per share and dividends/distributions.

Under its amended Articles of Incorporation, the Fund has the right to redeem
for cash shares of stock owned by any shareholder to the extent and at such
times as the Fund's Board of Directors determines to be necessary or appropriate
to prevent an undue concentration of stock ownership which would cause the Fund
to become a "personal holding company" for federal income tax purposes. In this
regard, the Fund may also exercise its right to reject purchase orders.

The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so. In
that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Unless specifically requested by an
investor, the Fund will not issue certificates evidencing Fund shares.

As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the Amended and Restated By-laws of the
Fund provide for annual or special meetings only (i) for the election (or
re-election) of directors, (ii) for approval of the revised investment advisory
contracts with respect to a particular class or series of stock, (iii) for
approval of the Fund's distribution agreement with respect to a particular class
or series of stock, and (iv) upon the written request of shareholders entitled
to cast not less than 25% of all the votes entitled to be cast at such meeting.
Annual and other meetings may be required with respect to such additional
matters relating to the Fund as may be required by the 1940 Act, including the
removal of Fund director(s) and communication among shareholders, any
registration of the Fund with the SEC or any state, or as the Directors may
consider necessary or desirable. Each Director serves until his successor is
elected or qualified, or until such Director sooner dies, resigns, retires or is
removed by the vote of the shareholders.

VIII.  PURCHASE, REDEMPTION AND PRICING OF SHARES

The material relating to the purchase, redemption and pricing of Fund shares for
each Class of shares is located in the Shareholder Information section of the
Prospectus and is hereby incorporated by reference.

Net Asset Value

The Fund does not determine net asset value per share on (i) any day in which
the New York Stock Exchange is closed for trading (i.e. New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas) and (ii) on Columbus Day and
Veterans' Day. However, on certain days that the New York Stock Exchange is
closed, the Fund, at the discretion of the Manager, may be open for purchases
and redemptions and will determine its net asset value.

The net asset value of the Fund's shares is determined as of 4:00 p.m., Eastern
time, on each Fund Business Day (as defined in the Prospectus). The Fund's net
asset value is computed by dividing the value of the Fund's net assets (i.e.,
the value of its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and surplus) by the
total number of shares outstanding.

The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. If fluctuating interest
rates or credit issues cause the market value of the Fund's portfolio to deviate
more than 1/2 of 1% from the value determined on the basis of amortized cost,
the Board of Directors will consider whether any action should be initiated, as
described in the following paragraph. Although the amortized cost method
provides certainty in valuation, it may result in periods during which the value
of an instrument is higher or lower than the price an investment company would
receive if the instrument were sold.

                                       28
<PAGE>

The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset value at $1.00 per share. These procedures include a review of the
extent of any deviation of net asset value per share, based on available market
rates, from the Fund's $1.00 amortized cost per share. Should that deviation
exceed 1/2 of 1%, the Board will consider whether any action should be initiated
to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. The Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less, will not purchase any instrument with a remaining maturity
greater than 397 days, will limit portfolio investments, including repurchase
agreements, to those United States dollar-denominated instruments that the
Manager determines present minimal credit risks, and will comply with certain
reporting and record keeping procedures. The Fund has also established
procedures to ensure compliance with the requirement that portfolio securities
are Eligible Securities. (See "Description of the Fund and Its Investments and
Risks" herein.)

IX.  TAXATION OF THE FUND

The Fund has elected to qualify and intends to continue to qualify under the
Code and under California law as a regulated investment company that distributes
exempt-interest dividends. It intends to continue to qualify as long as
qualification is in the best interest of its shareholders, because qualification
relieves the Fund of liability for federal income taxes to the extent its
earnings are distributed in accordance with the applicable provisions of the
Code.

The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its net tax-exempt interest income. Exempt-interest dividends
are dividends paid by the Fund that are attributable to interest on obligations,
the interest on which is exempt from federal income tax, and designated by the
Fund as exempt-interest dividends in a written notice mailed to the Fund's
shareholders not later than 60 days after the close of its taxable year. The
percentage of the total dividends paid by the Fund during any taxable year that
qualifies as exempt-interest dividends will be the same for all shareholders
receiving dividends during the year.

Exempt-interest dividends are excludable from the Fund's shareholders' gross
income although the amount of that interest must be disclosed on the
shareholders' federal income tax returns. A shareholder should consult its tax
advisor with respect to whether exempt-interest dividends retain the exclusion
under Section 103(a) of the Code if such shareholder would be treated as a
substantial user or related person with respect to some or all of the private
activity bonds, if any, held by the Fund. If a shareholder receives an
exempt-interest dividend with respect to any share and such share has been held
for six months or less, then any loss on the sale or exchange of such share will
be disallowed to the extent of the amount of such exempt-interest dividend.
Interest on indebtedness incurred or continued to purchase or carry tax exempt
securities, such as shares of the Fund, is not deductible. Therefore, among
other consequences, a certain portion of interest on margin indebtedness may not
be deductible during the period an investor holds shares of the Fund. Interest
on tax-exempt bonds, including exempt-interest dividends paid by the Fund, is to
be added to adjusted gross income for purposes of computing the amount of Social
Security and Railroad Retirement benefits includable in gross income. Taxpayers
other than corporations are required to include as an item of tax preference for
purposes of the federal alternative minimum tax all tax-exempt interest on
private activity bonds (generally, a bond issue in which more than 10% of the
proceeds are used in a non-governmental trade or business) (other than qualified
Section 501(c)(3) bonds) issued after August 7, 1986 less any deductions (not
allowable in computing federal income tax) which would have been allowable if
such interest were includable in gross income. Thus, this provision will apply
to any exempt-interest dividends from the Fund's assets attributable to any
private activity bonds acquired by the Fund. Corporations are required to
increase their alternative minimum taxable income by 75% of the amount by which
the adjusted current earnings (which will include tax-exempt interest) of the
corporation exceeds the alternative minimum taxable income (determined without
this provision). In addition, in certain cases, Subchapter S corporations with
accumulated earnings and profits from Subchapter C years are subject to tax on
tax-exempt interest.

Although it is not intended, it is possible that the Fund may realize market
discount income and short-term or long-term capital gains or losses from its
portfolio transactions. The Fund may also realize short-term or long-term
capital gains upon the maturity or disposition of securities as well as from the
maturity or disposition of securities acquired at discounts resulting from
market fluctuations. Accrued market discount income and short-term capital gains
will be taxable to shareholders as ordinary income when they are distributed.
Any net capital gains (the excess of net realized long-term capital gain over
net realized short-term capital loss) will be distributed annually to the Fund's
shareholders. The Fund will have no tax liability with respect to distributed
net capital gains, and the distributions will be taxable to shareholders as
long-term capital gains regardless of how long the shareholders have held Fund
shares. However, Fund shareholders who at the time of such a net capital gain
distribution have not held their Fund shares for more than six months, and who
subsequently dispose of those shares at a loss, will be required to treat

                                       29
<PAGE>

such loss as a long-term capital loss to the extent of such net capital gain
distribution. Distributions of net capital gain will be designated as a capital
gain dividend in a written notice mailed to the Fund's shareholders not later
than 60 days after the close of the Fund's taxable year. Capital gains realized
by corporations are generally taxed at the same rate as ordinary income.
However, under current law, long-term capital gains are taxable at a maximum
rate of 15% to non-corporate shareholders rather than the regular maximum rate
of 35%. Corresponding maximum rate and holding period rules apply with respect
to capital gains realized by a shareholder on the disposition of shares.

The Fund intends to distribute at least 90% of its investment company taxable
income (taxable income subject to certain adjustments exclusive of the excess of
net long-term capital gain over net short-term capital loss) for each taxable
year. These distributions will be taxable to shareholders as ordinary income.
The Fund will be subject to federal income tax on any undistributed investment
company taxable income. Expenses paid or incurred by the Fund will be allocated
between tax-exempt and taxable income in the same proportion as the amount of
the Fund's tax-exempt income bears to the total of such exempt income and its
gross income (excluding from gross income the excess of capital gains over
capital losses). If the Fund does not distribute during the calendar year at
least 98% of its ordinary income determined on a calendar year basis, 98% of its
capital gain net income (generally determined on an October year end), and 100%
of any income not distributed or taxed in a prior year, the Fund will be subject
to a 4% excise tax on the excess of such amounts over the amounts actually
distributed.

If a shareholder (other than a corporation) fails to provide the Fund with a
current taxpayer identification number or the Fund otherwise is informed that
backup withholding applies, the Fund is generally required to withhold 28% of
taxable interest or dividend payments proceeds from the redemption of shares of
the Fund as backup withholding. Backup withholding is not an additional tax and
any amounts withheld may be credited against a shareholder's ultimate federal
income tax liability if proper documentation is supplied.

Dividends and distributions to shareholders will be treated in the same manner
for federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund.

With respect to variable rate demand instruments, including Participation
Certificates therein, the Fund will generally be treated for federal income tax
purposes as the owner of an interest in the underlying Municipal Obligations and
the interest thereon will be exempt from federal income taxes to the Fund and
its shareholders to the same extent as interest on the underlying Municipal
Obligations.

The U.S. Supreme Court held that there is no constitutional prohibition against
the federal government's taxing the interest earned on state or other municipal
bonds. The Supreme Court decision affirms the authority of the federal
government to regulate and control bonds such as the Municipal Obligations and
to tax the interest earned on such bonds in the future. The decision does not,
however, affect the current exemption from taxation of the interest earned on
the Municipal Obligations.

The U.S. Supreme Court has granted review and heard oral arguments in Kentucky
Department of Revenue v. Davis, where it is considering whether a state
unlawfully discriminates against interstate commerce by providing an exemption
from its income tax for interest income derived from bonds issued by the state
and its political subdivisions while treating income realized from bonds issued
by other states and their political subdivisions as subject to the state's
income tax. The Supreme Court's decision could affect the state and local income
and franchise tax treatment of distributions from the Fund as described herein.

Shareholders are urged to consult their tax advisers with respect to the
treatment of distributions from the Fund and ownership of shares of the Fund in
their own states and localities.

From time to time, proposals have been introduced before Congress to restrict or
eliminate the federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund would re-evaluate its investment objective and policies and
consider changes in the structure.

California Income Taxes

The designation of all or a portion of a dividend paid by the Fund as an
"exempt-interest dividend" under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. Under California law, in order to pay "exempt-interest dividends," at
the end of each quarter of its tax year at least 50% of the "value" of the
Fund's assets must consist of obligations the interest on which, when held by an
individual, would be exempt from taxation by the State of California under the
Constitution or laws of the State of California or the United States. Assuming
compliance with this requirement and the California designation limitation
described below with respect to dividends treated for federal income tax
purposes as exempt-interest dividends that are paid by the Fund to a California
resident individual shareholder, amounts correctly designated as derived from
California Municipal Obligations and/or Territorial Municipal Obligations will
not be subject to the California Income Tax.

                                       30
<PAGE>

California also taxes capital gain dividends distributed to shareholders at
ordinary income rates for California income tax purposes. No tax is imposed on
undistributed amounts of net capital gains unless the shareholder chooses to
receive additional shares. Dividends that do not qualify as "exempt-interest
dividends" under California law will be includable in a California resident's
tax base for purposes of the California Income Tax.

Distributions from net investment income and capital gains, including exempt
interest dividends, will be subject to California corporate franchise tax if
received by a corporate shareholder subject to such tax and may be subject to
state taxes in states other than California and to local taxes imposed by
certain cities within California and outside California. Accordingly, investors
in the Fund including, in particular, corporate investors which may be subject
to the California corporate franchise tax, should consult their tax advisors
with respect to the application of such taxes to an investment in the Fund, to
the receipt of Fund dividends and as to their California tax situation in
general.

Shareholders are urged to consult their tax advisors with respect to the
treatment of distributions from the Fund in their own states and localities.

X.  UNDERWRITERS

The Fund sells and redeems its shares on a continuing basis at their net asset
value. The Fund does not impose a sales charge for either purchases or
redemptions, although there may be a fee imposed on certain wire redemption
requests. The Distributor does not receive an underwriting commission. In
effecting sales of Fund shares under the Distribution Agreements, the
Distributor, as agent for the Fund, will solicit orders for the purchase of the
Fund's shares, provided that any subscriptions and orders will not be binding on
the Fund until accepted by the Fund as principal. The Distribution Agreement
with respect to the Class A and B shares provides that the Distributor will
receive nominal consideration (i.e., $1.00) for providing such distribution
related services. Pursuant to the Distribution Agreement for the Advantage
shares, the Distributor receives a fee of 0.45% per annum of the Advantage
shares' average daily net assets for providing distribution related services and
for making payments to Oppenheimer & Co. Inc. for providing assistance in
distributing the Advantage shares. For the fiscal year ended December 31, 2007,
the Distributor received distribution fees from the Fund pursuant to the
Advantage Distribution Agreement in the amount of $227,112, of which $152,156
was waived.

The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. On November 16, 1999,
President Clinton signed the Gramm-Leach-Bliley Act (the "Act"), repealing
certain provisions of the Glass-Steagall Act which have restricted affiliation
between banks and securities firms and amending the Bank Holding Company Act
thereby removing restrictions on banks and insurance companies. The Act grants
banks authority to conduct certain authorized activity through financial
subsidiaries. In the opinion of the Manager, however, based on the advice of
counsel, these laws and regulations do not prohibit such depository institutions
from providing other services for investment companies such as the shareholder
servicing and related administrative functions referred to above. The Fund's
Board of Directors will consider appropriate modifications to the Fund's
operations, including discontinuance of any payments then being made under the
Plans to banks and other depository institutions, in the event of any future
change in such laws or regulations which may affect the ability of such
institutions to provide the above-mentioned services. It is not anticipated that
the discontinuance of payments to such an institution would result in loss to
shareholders or change in the Fund's net asset value. In addition, state
securities laws on this issue may differ from the interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.

XI.  FINANCIAL STATEMENTS

The audited financial statements for the Fund for the fiscal year ended December
31, 2007, and the report therein of PricewaterhouseCoopers LLP, are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.

                                       31
<PAGE>

DESCRIPTION OF RATINGS*

Description of Moody's Investors Service, Inc.'s Two Highest 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 are generally 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.

Description of Moody's Investors Service, Inc.'s Two Highest Ratings of State
and Municipal Notes and Other Short-Term Loans:

Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:

MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.

MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.

Description of Standard & Poor's Rating Services Two Highest Debt Ratings:

AAA:  Debt  rated AAA has the  highest  rating  assigned  by  Standard & Poor's.
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 to a small degree.

Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.

Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.

Description of Standard & Poor's Rating  Services Two Highest  Commercial  Paper
Ratings:

A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.

A-1: An obligor rated A-1 has a strong capacity to meet its financial
commitments. Those issues determined to posses strong safety characteristics
will be denoted with a plus (+) sign designation.

A-2: An obligor rated A-2 has a satisfactory capacity to meet its financial
commitments. However, the relative degree of safety is not as high as for issues
designated A-1.

Description of Moody's Investors Service, Inc.'s Two Highest Commercial Paper
Ratings:

Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues: Prime-1, highest
quality; Prime-2, higher quality.

                                       32
<PAGE>

<TABLE>
<CAPTION>
<S>            <C>         <C>          <C>           <C>            <C>             <C>              <C>             <C>

                    CORPORATE TAXABLE EQUIVALENT YIELD TABLE*

        (BASED ON ESTIMATED TAX RATES EFFECTIVE UNTIL DECEMBER 31, 2008)

------------------------------------------------------------------------------------------------------------------------------------
                                          1. If Your Corporate Taxable Income Bracket Is . . .

------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 Corporate
 Return           $0-      $50,001-     $75,001-      $100,001-      $335,001-       $10,000,001-    $15,000,001-    $18,333,334
               50,000        75,000      100,000        335,000      10,000,000       15,000,000      18,333,333       and over
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
                       2. Then Your Combined Income Tax Bracket Is . . .
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 Federal
 Tax Rate       15.00%       25.00%       34.00%       39.00%          34.00%         35.00%            38.00%         35.00%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 State
 Tax Rate        8.84%        8.84%        8.84%        8.84%           8.84%          8.84%             8.84%          8.84%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 Combined
 Marginal
 Tax Rate       22.51%       31.63%       39.83%       44.39%          39.83%          40.75%            43.48%         40.75%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
                                  3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
Tax Exempt                              Equivalent Taxable Investment Yield
Yield                                   Required to Match Tax Exempt Yield
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 1.00%           1.29%        1.46%      1.66%          1.80%           1.66%           1.69%             1.77%          1.69%
-------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 1.50%           1.94%       2.19%       2.49%          2.70%           2.49%           2.53%             2.65%          2.53%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 2.00%           2.58%       2.93%       3.32%          3.60%           3.32%           3.38%             3.54%          3.38%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 2.50%           3.23%       3.66%       4.16%          4.50%           4.16%           4.22%             4.42%          4.22%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 3.00%           3.87%       4.39%       4.99%          5.39%           4.99%           5.06%             5.31%          5.06%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 3.50%           4.52%       5.12%       5.82%          6.29%           5.82%           5.91%             6.19%          5.91%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 4.00%           5.16%       5.85%       6.65%          7.19%           6.65%           6.75%             7.08%          6.75%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 4.50%           5.81%       6.58%       7.48%          8.09%           7.48%           7.59%             7.96%          7.59%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 5.00%           6.45%       7.31%       8.31%          8.99%           8.31%           8.44%             8.85%          8.44%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 5.50%           7.10%       8.04%       9.14%          9.89%           9.14%           9.28%             9.73%          9.28%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------
 6.00%           7.74%       8.78%       9.97%         10.79%           9.97%          10.13%            10.62%         10.13%
------------- ---------- ------------ ------------ --------------- -------------- ----------------- --------------- --------------


To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.

<FN>
* For corporations subject to the California Franchise Tax rather than the
Corporation Income Tax, dividends paid by the Fund will not be exempt from
taxation, and this yield table is, therefore, inapplicable.
</FN>
</TABLE>


                                       33
<PAGE>

<TABLE>
<CAPTION>
<S>                <C>          <C>          <C>          <C>             <C>            <C>                 <C>            <C>
                              INDIVIDUAL TAX EQUIVALENT YIELD TABLE**

                  (Based on Estimated Tax Rates Effective Until December 31, 2008)

------------------------------------------------------------------------------------------------------------------------------------
                                               1. If Your Taxable Income Bracket Is . . .
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------
Single Return
                   $16,187      $25,547-     $32,551-     $35,464-        $44,819-       $78,851-          $164,551-      $357,701-
                   -25,546      32,550       35,463       44,818          78,850         164,550            357,700        and over
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------
Joint
Return             $32,373-     $51,093-     $65,101-     $70,927-        $89,637-       $131,451          $200,301       $357,701
                   51,092       65,100       70,926       89,636          131,450        200,300           357,700         and over
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------
                                            2. Then Your Combined Income Tax Bracket Is . . .
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------
Federal
Tax Rate           15.00%         15.00%        25.00%      25.00%         25.00%          28.00%           33.00%          35.00%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------
State
Tax Rate           4.00%           6.00%         6.00%       8.00%          9.30%           9.30%            9.30%           9.30%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------
Combined
Marginal
Tax Rate           18.40%         20.10%        29.50%      31.00%         31.98%          34.70%           39.23%          41.05%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------
                             3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------
                                 Tax Exempt Equivalent Taxable Investment Yield
                                       Yield Required to Match Tax Exempt Yield
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 1.00%              1.23%          1.25%         1.42%       1.45%          1.47%           1.53%            1.65%           1.70%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 1.50%              1.84%          1.88%         2.13%       2.17%          2.21%           2.30%            2.47%           2.54%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 2.00%              2.45%          2.50%         2.84%       2.90%          2.94%           3.06%            3.29%           3.39%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 2.50%              3.06%          3.13%         3.55%       3.62%          3.68%           3.83%            4.11%           4.24%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 3.00%              3.68%          3.75%         4.26%       4.35%          4.41%           4.59%            4.94%           5.09%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 3.50%              4.29%          4.38%         4.96%       5.07%          5.15%           5.36%            5.76%           5.94%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 4.00%              4.90%          5.01%         5.67%       5.80%          5.88%           6.13%            6.58%           6.78%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 4.50%              5.51%          5.63%         6.38%       6.52%          6.62%           6.89%            7.41%           7.63%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 5.00%              6.13%          6.26%         7.09%       7.25%          7.35%           7.66%            8.23%           8.48%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 5.50%              6.74%          6.88%         7.80%       7.97%          8.09%           8.42%            9.05%           9.33%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

 6.00%              7.35%          7.51%         8.51%       8.70%          8.82%           9.19%            9.87%           10.18%
------------------ ------------ ------------ ------------ --------------- -------------- ----------------- --------------- ---------

To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
<FN>

** An Investor's marginal tax rate may exceed the rates shown in the above table
due to the reduction, or possible elimination of the personal exemption
deduction for high-income taxpayers and an overall limit on itemized deductions.
For investors who pay federal alternative minimum tax, tax-free yields may be
equivalent to taxable yields lower than those shown above. Shareholders subject
to income taxation by states other than California will realize a lower
after-tax return than California shareholders. This table is a combination of
the federal and California taxable income brackets, which are adjusted annually
for inflation. The California taxable income brackets have not yet been adjusted
for 2008. The California taxable yields set forth in the above table presume
that taxpayers in each federal tax bracket are in the highest California tax
bracket corresponding to that federal bracket. The tax characteristics of the
Fund are described more fully elsewhere in the Prospectus. Consult your tax
adviser for further details. This chart is for illustrative purposes only and
cannot be taken as an indication of anticipated Fund performance.

</FN>
</TABLE>

*As described by the rating agencies.


                                       34
<PAGE>