As filed with the Securities and Exchange Commission on August 18,
1997 Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
BACK BAY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5220
BERNADETTE N. FINN
Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)
Copy to: MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (Date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
The Registrant declares that an indefinite amount of its shares of beneficial
interest is being registered by this Registration Statement pursuant to Section
24(f) under the Investment Company Act of 1940, as amended, and Rule 24f-2
thereunder.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may declare.
619920.2
<PAGE>
BACK BAY FUNDS, INC.
Registration Statement on Form N-1A
-----------------------
CROSS REFERENCE SHEET -
Pursuant to Rule 404(c)
-----------------------
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C> <C>
1. Cover Page........................ Cover Page
2. Synopsis.......................... Prospectus Summary; Table of Fees and Expenses
3. Condensed Financial
Information....................... Financial Highlights
4. General Description of
Registrant........................ General Information; Investment Objectives, Policies and
Risks
5. Management of the Fund............ Distribution and Service Plan; Management of the Fund;
Custodian and Transfer Agent
5a. Management's Discussion of
Fund Performance.................. Not Applicable
6. Capital Stock and Other
Securities........................ Description of Shares; How to Purchase and Redeem
Shares; General Information; Dividends, Distributions and
Taxes
7. Purchase of Securities Being
Offered........................... How to Purchase and Redeem Shares; Distribution and
Service Plan; Net Asset Value
8. Redemption or Repurchase.......... How to Purchase and Redeem Shares
9. Legal Proceedings................. Not Applicable
</TABLE>
-2-
619920.2
<PAGE>
<TABLE>
<CAPTION>
Part B
Item No. Caption in Statement of Additional Information
- ------- ----------------------------------------------
<S> <C> <C>
10. Cover Page........................ Cover Page
11. Table of Contents................. Table of Contents
12. General Information and
History........................... Manager; Management of the Fund
13. Investment Objectives and
Policies.......................... Investment Objectives, Policies and Risks
14. Management of the Registrant...... Manager; Management of the Fund
15. Control Persons and
Principal Holders of
Securities........................ Management of the Fund; Description of Shares
16. Investment Advisory and
Other Services.................... Manager; Expense Limitation, Management of the Fund;
Distribution and Service Plan; Custodian and Transfer
Agent
17. Brokerage Allocation.............. Portfolio Transactions
18. Capital Stock and Other
Securities........................ Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered..................... How to Purchase and Redeem Shares; Net Asset Value
20. Tax Status........................ Dividends, Distributions and Taxes
21. Underwriters...................... Distribution and Service Plan
22. Calculations of Yield............. Performance Information
23. Financial Statements.............. Independent Auditor's Report; Statement of Net Assets;
Statement of Operations; Statement of Changes in Net
Assets; Notes to Financial Statements
</TABLE>
-3-
619920.2
<PAGE>
Subject to Completion Dated August 18, 1997
- ------------------------------------------------------------------------------
BACK BAY FUNDS, INC. 600 FIFTH AVENUE
NEW YORK, N.Y. 10020
[212-830-5200]
PROSPECTUS
[August __, 1997]
- -------------------------------------------------------------------------------
Back Bay Funds Inc. (the "Fund") is an open-end, diversified management
investment company currently comprised of the Total Return Portfolio (the
"Portfolio"). The Portfolio's investment objective is to seek to maximize total
return. The generation of income is a secondary objective. The Portfolio will
seek to achieve its objectives by investing primarily in higher quality, fixed
and floating-rate debt instruments. There is no assurance that these objectives
will be achieved. There are no sales loads or redemption fees associated with
the Portfolio.
The Portfolio offers three classes of shares to retirement plan investors.
The Class A shares of the Portfolio are available to corporate, institutional
and individual investors ("Institutional Investors") and either are sold
directly to Institutional Investors or are sold through financial intermediaries
that do not receive compensation from the Manager or Distributor. The Class B
shares of the Portfolio are subject to a service fee pursuant to the Portfolio's
Rule 12b-1 Distribution and Service Plan and are sold through financial
intermediaries who provide servicing to Class B shareholders for which they
receive compensation from the Manager or the Distributor. The Class C shares of
the Portfolio are available to qualified retirement plan clients of life
insurance companies ("Insurance Company Investors") and, as are the Class A
shares, [the Class C shares are not subject to a service fee and either are sold
directly to Insurance Company Investors or are sold through financial
intermediaries that do not receive compensation from the Manager or
Distributor]. In all other respects, the Class A, Class B and Class C shares
represent the same interest in the income and assets of the Portfolio. See
"Description of Shares."
This Prospectus sets forth concisely the information about the Portfolio
that prospective investors will find helpful in making their investment
decisions. Additional information about the Portfolio, including additional
information concerning risk factors relating to an investment in the Portfolio,
has been filed with the Securities and Exchange Commission ("SEC") and is
available upon request and without charge by calling or writing the Portfolio at
the above address. The "Statement of Additional Information" bears the same date
as this Prospectus and is incorporated by referenced into this Prospectus in its
entirety. The SEC maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information and other reports and information regarding
the Portfolio which have been filed electronically with the SEC.
Back Bay Advisors, L.P. acts as Manager of the Portfolio and Reich & Tang
Distributors L.P. acts as Distributor of the Fund's shares. Back Bay Advisors,
L.P. is a registered investment adviser. Reich & Tang Distributors L.P. is a
registered broker-dealer and member of the National Association of Securities
Dealers, Inc.
MINIMUM INITIAL PURCHASE $1,000,000
Shares in the Portfolio are not deposits or obligations of, or guaranteed
or endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
This Prospectus should be read and retained by investors for future reference.
---------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT BEING OFFERED VIA THE INTERNET
TO RESIDENTS OF PARTICULAR STATES.
---------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SAID OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
613115.6
<PAGE>
TABLE OF FEES AND EXPENSES
Estimated Annual Portfolio Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Total Return
Portfolio
-------------------------------------------------------------
<S> <C> <C> <C>
Class A Class B Class C
Management Fees - After fee waiver [.__%] [.__%] [.__%]
12b-1 Fees [None] [.25%] [.__%]
Other Expenses [.__%] [.__%] [.__%]
Administration Fees [.15%] [.15%] [.15%]
Total Portfolio Operating Expenses - After fee waivers [.40%] [.__%] [.__%]
Total Return Portfolio
--------------------------------------
Class A Class B Class C
EXAMPLE
You would pay the following expenses on a $1,000 investment, 1 year [_] [_] [_]
assuming 5% annual return and redemption at the end of each time 3 years [_] [_] [_]
period:
</TABLE>
The purpose of the above fee table is to assist an investor in understanding
the various costs and expenses that an investor in the Portfolio will bear
both directly or indirectly. The Manager and the Administrator at their
discretion may voluntarily waive all or a portion of the Management Fees and
Administration Fees and to voluntarily reimburse the Portfolio's other
operating expenses to the extent necessary to maintain the Total Portfolio
Operating Expenses at not more than [.40%] of the Portfolio's average net
assets with respect to the Class A shares. However, waivers of management and
other class expenses, if any, will be made in the same proportion for all
classes of the Portfolio. The Distributor at its discretion may voluntarily
waive all or a portion of the 12b-1 Fee. Absent such waivers, the Management
Fee is anticipated to be [.35%] of average daily net assets and the Total
Portfolio Operating Expenses is anticipated to be [.__%], [.__%] and [.__%]
for classes A, B and C, respectively . The expenses shown are at the levels
anticipated for the current year. For a further discussion of these fees see:
"Management of the Portfolio" and "Distribution and Service Plan" herein.
The figures reflected in this example should not be considered to be a
representation of past or future expenses. Actual expenses may be greater or
less than those shown above.
PROSPECTUS SUMMARY
The Back Bay Funds Inc. (the "Fund") is an open-end, diversified management
investment company currently comprised of the Total Return Portfolio (the
"Portfolio"). The Portfolio's investment objective is to seek to maximize total
return. The generation of income is a secondary objective. Since the Fund is
created for tax-exempt retirement plans, the tax consequences of portfolio
activity are not an investment consideration. The Portfolio will seek to achieve
its objectives by investing primarily in higher quality, fixed and floating-rate
debt instruments. There is no assurance that these objectives will be achieved.
Since the Portfolio attempts to achieve its objectives by investing
primarily in higher quality, fixed and floating-rate debt instruments, at least
80% of its total assets will be invested in investment grade debt
613115.6
-2-
<PAGE>
instruments issued by corporations based in the United States and abroad,
(i.e., rated within the four highest ratings categories by a nationally
recognized statistical rating organization, e.g., BBB or higher by Standard &
Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. ("S&P") or
Baa or higher by Moody's Investor Services, Inc. ("Moody's") or BBB or higher by
Fitch Investors Services, Inc. ("Fitch") or Duff & Phelps Credit Rating Co.
("Duff & Phelps"). The lowest grade of the investment grade securities may have
speculative characteristics. With respect to the 80% of the Portfolio's total
assets which will be invested in investment grade debt instruments issued by
corporations based in the United States and abroad, no more than 10% of the
Portfolio's total assets may be invested in non-dollar denominated foreign
obligations issued by corporations and/or governments and agencies thereof.
No more than 20% of the total assets of the Portfolio may be invested in
instruments which are below investment grade quality. With respect to the
investment allocation of the below investment grade quality securities of the
Portfolio, as a percentage of the total net assets, at least 15% of the total
assets of the Portfolio must be invested in instruments which are rated with the
highest below investment grade rating ("BB" or "Ba", respectively). Further, no
more than 5% of the total assets may have a split rating of "BB/B" or Ba/B".
Additionally, no more than 5% of the total assets may be invested in dollar
denominated emerging market debt.
The Portfolio may invest in preferred stock, convertible securities, Rule 144A
debt, U.S. Government Securities and securities issued or guaranteed by foreign
governments (including their political subdivisions, agencies, authorities
and/or instrumentalities) ("Foreign Government Securities") and securities
issued by supranational agencies. The Portfolio may also invest in mortgage pass
through securities including, collateralized mortgage obligations, adjustable
rate mortgages, commercial mortgage backed securities, and "stripped" securities
evidencing individual ownership interests in interest payments or principal
payments, or both. If an investment rated BBB or Baa is downgraded by a major
rating agency, the Portfolio's Manager will consider whether the investment
remains appropriate for the Portfolio. The Portfolio may invest in securities of
any maturity and the Portfolio may invest in zero coupon securities.
The Fund's investment manager is Back Bay Advisors, L.P. (the "Manager"), a
registered investment adviser. (See "Management of the Fund" herein.) The
Portfolio's shares are distributed through [Reich & Tang Distributors L.P.] (the
"Distributor"), with whom the Portfolio has entered into a Distribution
Agreement and Shareholder Servicing Agreement (with respect to Class B shares of
the Portfolio only) pursuant to the Portfolio's distribution and service plan
adopted under Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act"). (See "Distribution and Service Plan" herein.)
On any day on which the New York Stock Exchange, Inc. and Investors Fiduciary
Trust Company, the Fund's custodian, is open for trading ("Fund Business Day"),
investors may initiate purchases and redemptions of shares of the Portfolio's
common stock at their net asset value, which will be determined daily. (See "How
to Purchase and Redeem Shares" and "Net Asset Value" herein.) Shares of the
Portfolio may be purchased only in those states where they may lawfully be sold.
The Portfolio currently intends to pay dividends, if any, monthly. Net capital
gains, if any, will be distributed annually, and in no event later than within
60 days after the end of the Fund's fiscal year. All dividends and distributions
of capital gains are automatically invested in additional shares of the same
class of the Portfolio unless a shareholder has elected by written notice to the
Fund to receive either of such distributions in cash. (See "Dividends,
Distributions and Taxes" herein.)
The Fund currently has one Portfolio. The Board of Directors of the Portfolio
may in the future determine to establish additional portfolios. Set forth below
are the Portfolio's investment policies. The investment policies for the
Portfolio, as well as for any portfolios which the Board of Directors may
determine to establish in the future, may be changed by the Board of Directors
of the Portfolio without shareholder approval. The investment objectives for the
Portfolio may not be changed without shareholder approval.
An investment in the Portfolio of the Fund entails certain risks, including
risks associated with the purchase of restricted securities, non-rated and
lower-rated bonds, when-issued securities, foreign securities, mortgage-related
securities and "stripped securities." The Portfolio may invest in securities
with a below investment grade rating which are considered to be speculative
investments. In addition, the Portfolio may
613115.6
-3-
<PAGE>
use various investment management techniques that also involve special
consideration, including options, futures swap contracts and currency
transactions. Risk factors for the Portfolio are further described under "Risk
Factors and Additional Investment Information" herein.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
Total Return Portfolio
The Fund is an open-end, diversified management investment company currently
comprised of the Total Return Portfolio (the "Portfolio"). The Portfolio's
investment objective is to seek to maximize total return. The generation of
income is a secondary objective. Since the Fund is created for tax-exempt
retirement plans, the tax consequences of portfolio activity are not an
investment consideration. The Portfolio will seek to achieve its objectives by
investing primarily in higher quality, fixed and floating-rate debt instruments.
There is no assurance that these objectives will be achieved. The investment
objective of the Portfolio, which is described herein, is fundamental and may
not be changed without shareholder approval.
Since the Portfolio attempts to achieve its objectives by investing primarily in
higher quality, fixed and floating-rate debt instruments, at least 80% of its
total assets will be invested in investment grade debt instruments issued by
corporations based in the United States and abroad, (i.e., rated within the four
highest ratings categories by a nationally recognized statistical rating
organization, e.g., BBB or higher by Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc. ("S&P") or Baa or higher by Moody's
Investor Services, Inc. ("Moody's") or BBB or higher by Fitch Investors
Services, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff & Phelps").
The lowest grade of the investment grade securities may have speculative
characteristics. With respect to the 80% of the Portfolio's total assets which
will be invested in investment grade debt instruments issued by corporations
based in the United States and abroad, no more than 10% of the Portfolio's total
assets may be invested in non-dollar denominated foreign obligations issued by
corporations and/or governments and agencies thereof.
No more than 20% of the total assets of the Portfolio may be invested in
instruments which are below investment grade quality. With respect to the
investment allocation of the below investment grade quality securities of the
Portfolio, as a percentage of the total net assets, at least 15% of the total
assets of the Portfolio must be invested in instruments which are rated with the
highest below investment grade rating ("BB" or "Ba", respectively). Further, no
more than 5% of the total assets may have a split rating of "BB/B" or Ba/B."
Additionally, no more than 5% of the total net assets may be invested in dollar
denominated emerging market debt.
The Portfolio may invest in preferred stock, convertible securities, Rule 144A
debt, U.S. Government Securities and securities issued or guaranteed by foreign
governments (including their political subdivisions, agencies, authorities
and/or instrumentalities) ("Foreign Government Securities") and securities
issued by supranational agencies. The Portfolio may also invest in mortgage pass
through securities including, collateralized mortgage obligations, adjustable
rate mortgages, commercial mortgage backed securities, and "stripped" securities
evidencing individual ownership interests in interest payments or principal
payments, or both. If an investment rated BBB or Baa is downgraded by a major
rating agency, the Portfolio's Manager will consider whether the investment
remains appropriate for the Portfolio. The Portfolio may invest in securities of
any maturity and the Portfolio may invest in zero coupon securities.
The Portfolio may engage in a variety of options and futures transactions with
respect to U.S. or Foreign Government Securities and corporate fixed-income
securities. See "Risk Factors and Additional Investment Information - Options,
Futures, Swap Contracts and Currency Transactions" for information about these
kinds of transactions.
Risk Factors and Additional Investment Information
Fixed Income Securities: The Portfolio invests principally in fixed-income
securities. Because interest rates vary, it is impossible to predict the income
of the Portfolio for any particular period. The net asset value
613115.6
-4-
<PAGE>
of the Portfolio shares will vary as a result of changes in the value of the
bonds and other securities in the Portfolio.
Fixed-income securities include a broad array of short, medium and long term
obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of various
types. Some fixed-income securities represent uncollateralized obligations of
their issuers; in other cases, the securities may be backed by specific assets
(such as mortgages or other receivables) that have been set aside as collateral
for the issuer's obligation. Fixed-income securities generally involve an
obligation of the issuer to pay interest or dividends on either a current basis
or at the maturity of the securities, as well as the obligation to repay the
principal amount of the security at maturity.
Fixed-income securities are subject to market and credit risk. Credit risk
relates to the ability of the issuer to make payments of principal and interest.
In the case of municipal bonds, the issuer may make these payments from money
raised through a variety of sources, including (1) the issuer's general taxing
power, (2) a specific type of tax such as a property tax, or (3) a particular
facility or project such as a highway. The ability of an issuer of municipal
bonds to make these payments could be affected by litigation, legislation or
other political events, or the bankruptcy of the issuer. U.S. Government
Securities do not involve the credit risks associated with other types of
fixed-income securities; as a result, the yields available from U.S. Government
Securities are generally lower than the yields available from corporate
fixed-income securities. Market risk is the risk that the value of the security
will fall because of changes in market rates of interest. (Generally, the value
of fixed-income securities falls when market rates of interest are rising.) Some
fixed-income securities also involve prepayment or call risk. Prepayment or call
risk both involve the risk that the issuer will repay the Portfolio the
principal on the security before it is due, thus depriving the Portfolio of a
favorable stream of future interest payments.
Because interest rates vary, it is impossible to predict the income of a fund
that invests in fixed-income securities for any particular period. Fluctuations
in the value of the Portfolio's investments in fixed-income securities will also
cause the Portfolio's net asset value to increase or decrease.
Convertible Securities: The convertible securities in which the Portfolio may
invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time. Convertible securities generally have paid
dividends or interest at rates higher than common stocks but lower than
non-convertible securities. They usually participate to a lesser degree in the
appreciation or other depreciation of the underlying stock into which they are
convertible. Changes in economic conditions or other circumstances are more
likely to lead to weakened capacity to make principal and interest payments than
higher rated bonds.
United States and Foreign Government Securities: Short-term obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities. These include issues of the United States Treasury, such as
bills, certificates of indebtedness, notes and bonds, and issues of agencies and
instrumentalities established under the authority of an act of Congress. Some of
these securities are supported by the full faith and credit of the United States
Treasury, others are supported by the right of the issuer to borrow from the
Treasury, and still others are supported only by the credit of the agency or
instrumentality. Although obligations of federal agencies and instrumentalities
are not debts of the United States Treasury, in some cases payment of interest
and principal on such obligations is guaranteed by the United States Government,
e.g., obligations of the Federal Housing Administration, the Export-Import Bank
of the United States, the Small Business Administration, the Government National
Mortgage Association, the General Services Administration and the Maritime
Administration; in other cases payment of interest and principal is not
guaranteed, e.g., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank.
Obligations of foreign governmental entities include obligations issued or
guaranteed by governments with taxing power or by their agencies. Some Foreign
Government Securities are supported by the full faith and credit of a foreign
national government or political subdivision (such as a province of Canada) and
some are
613115.6
-5-
<PAGE>
not. For example, Foreign Government Securities include securities issued by
corporations which have been charged with a public purpose and a majority of
whose outstanding equity securities are owned by a foreign government or
government agency. Such Securities may be supported only by the credit of the
issuing corporation and not by that of the government or agency.
Foreign and Emerging Market Securities: Foreign Government Securities and
foreign corporate securities present risks not associated with investments in
U.S. Government or corporate securities.
Since most foreign securities are denominated in foreign currencies or traded
primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of a Fund may be affected favorably
or unfavorably by changes in currency exchange rates or exchange control
regulations. Because the Portfolio may purchase securities denominated in
foreign currencies, a change in the value of any such currency relative to the
U.S. dollar will result in a change in the U.S. dollar value of the Fund's
assets and the Fund's income available for distribution.
In addition, although the Portfolio's income may be received or realized in
foreign currencies, the Portfolio will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to the
U.S. dollar declines after the Portfolio's income has been earned in that
currency, translated into U.S. dollars and declared as a dividend, but before
payment of such dividend, the Portfolio could be required to liquidate portfolio
securities to pay such dividend. Similarly, if the value of a currency relative
to the U.S. dollar declines between the time the Portfolio incurs expenses in
U.S. dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in order to pay such expenses in U.S.
dollars will be greater than the equivalent amount in such currency of such
expenses at the time they were incurred.
There may be less information publicly available about a foreign corporate or
government issuer than about an U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commission and other fees in some
circumstances may be higher than in the United States. With respect to certain
foreign countries, there is a possibility of expropriation of assets,
confiscatory taxation, political or financial instability and diplomatic
developments that could affect the value of investments in those countries. The
receipt of interest on foreign government securities may depend on the
availability of tax or other revenues to satisfy the issuer's obligations. The
Portfolio may have limited legal recourse should a foreign government be
unwilling or unable to repay the principal or interest owed.
The Portfolio may also invest in the securities of emerging markets. Investments
in emerging markets include investments in countries whose economies and /or
securities markets are not yet highly developed. Special considerations
associated with these investments (in addition to the considerations regarding
foreign investments as discussed above) may include, among others, greater
political uncertainties, an economy's dependence on revenues from particular
commodities or on international aid or development assistance, currency transfer
restrictions, highly limited numbers of potential buyers for such securities and
delays and disruptions in security settlement procedures.
In addition, the Portfolio may invest in securities issued by supranational
agencies. Supranational agencies are those agencies whose member nations
determine to make capital contributions to support the agencies' activities, and
include such entities as the International Bank of Reconstruction and
Development (the World Bank), the Asian Development Bank, the European Coal and
Steel Community and the Inter-American Development Bank.
Portfolio securities which are listed on foreign exchanges may be traded on days
that the Portfolio does not value its securities, such as Saturdays and the
customary United States business holidays on which the New York Stock Exchange
("NYSE") is closed. As a result, the net asset value of the shares of the
Portfolio may be significantly affected on days when shareholders do not have
access to the Fund.
613115.6
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<PAGE>
In determining whether to invest in securities of foreign issuers, the Manager
will consider the likely effects of foreign taxes on the net yield available to
the Portfolio and its shareholders. Compliance with foreign tax law may reduce
the Portfolio's net income available for distribution to shareholders.
Foreign Currency Exchange Transactions: Since the Portfolio may invest in
securities that are denominated in foreign currencies or traded in foreign
markets, the Portfolio may engage in related foreign currency exchange
transactions to protect the value of specific portfolio positions or in
anticipation of changes in relative values of currencies in which current or
future portfolio holdings are denominated or quoted.
The Portfolio may also engage in transactions in currency forward contracts. A
currency forward contract is a contract that obligates parties to the contract
to exchange specified amounts of different currencies at a specified future
date. For example, a party may agree to deliver a specified number of French
francs, in exchange for a specified number of U.S. dollars on a certain date.
From time to time, a portion of the Portfolio's assets may invested in
securities that are denominated in foreign currencies or that are traded in
markets where purchase or sale transactions settle in a foreign currency.
Currency forward contracts may be used both (1) to facilitate settlement of the
Portfolio's transactions in these securities and (2) to hedge against possible
adverse changes in the relative values of the currencies in which the
Portfolio's holdings (or intended future holdings) are denominated.
Currency forward contracts involve transaction costs and the risk that the banks
with which a fund enters into such contracts will fail financially. The Manager
will, however, monitor the creditworthiness of these banks on an ongoing basis.
Successful use of currency forward contracts for hedging purposes also depends
on the accuracy of the Manager's forecasts as to future changes in the relative
values of currencies. The accuracy of such forecasts cannot be assured. The Fund
will set aside with its custodian certain assets to provide for satisfaction of
its obligations under currency forward contracts.
Although the Portfolio is permitted to use currency forward contracts, it is not
obligated to do so. Thus, the Portfolio will not necessarily be fully (or even
partially) hedged against the risk of adverse currency price movements at any
given time.
Foreign currency transaction involve costs and may result in losses. See the
Statement of Additional Information for more information.
Lower Rated Fixed-Income Securities: Fixed-income securities rated BB or lower
by S&P or Ba or lower by Moody's (and comparable unrated securities) are of
below "investment grade" quality. Lower quality fixed-income securities
generally provide higher yields, but are subject to greater credit and market
risk, than higher quality fixed-income securities, including U.S. Government and
many Foreign Government Securities. Lower quality fixed-income securities are
considered predominantly speculative with respect to the ability of the issuer
to meet principal and interest payments. Achievement of the investment objective
of a mutual fund investing in lower quality fixed-income securities may be more
dependent on the fund's adviser's or subadviser's own credit analysis than for a
fund investing in higher quality bonds. The market for lower quality
fixed-income securities may be more severely affected than some other financial
markets by economic recession or substantial interest rate increases, by
changing public perceptions of this market or by legislation that limits the
ability of certain categories of financial institutions to invest in these
securities. In addition, the secondary market may be less liquid for lower rated
fixed income securities. The lack of liquidity at certain times may affect the
valuation of these securities and may make the valuation and sale of these
securities more difficult. Securities of below investment grade quality are
considered high yield, high risk securities and are commonly known as "junk
bonds." For more information, including a detailed description of the ratings
assigned by S&P, Moody's, Fitch and Duff & Phelps, please refer to the Statement
of Additional Information's Appendix A - Description of Bond Ratings."
Mortgage-Related Securities: Mortgage-related securities, such as GNMA or FNMA
certificates, differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time because the
underlying
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mortgage loans generally may be prepaid at any time. As a result, if the
Portfolio purchases these assets at a premium, a faster-than-expected prepayment
rate will reduce yield to maturity, and a slower-thanexpected prepayment rate
will have the opposite effect of increasing yield to maturity. If the Portfolio
purchases mortgage-related securities at a discount, faster-than-expected
prepayments will increase, and slower-than-expected prepayments will reduce,
yield to maturity. Prepayments, and resulting amounts available for reinvestment
by the Portfolio, are likely to be greater during a period of declining interest
rates and, as a result, are likely to be reinvested at lower interest rates.
Accelerated prepayments on securities purchased at a premium may result in a
loss of principal if the premium has not been fully amortized at the time of
prepayment. Although these securities will decrease in value as a result of
increases in interest rates generally, they are likely to appreciate less than
other fixed-income securities when interest rates decline because of the risk of
prepayments. In addition, an increase in interest rates would also increase the
inherent volatility of the Portfolio by increasing the average life of the
portfolio securities.
An ARM, like a traditional mortgage security, is an interest in a pool of
mortgage loans that provides investors with payments consisting of both
principal and interest as mortgage loans in the underlying mortgage pool are
paid off by the borrowers. ARMs have interest rates that are reset at periodic
intervals, usually by reference to some interest rate index or market interest
rate. Although the rate adjustment feature may act as a buffer to reduce sharp
changes in the value of adjustable rate securities, these securities are still
subject to changes in value based on changes in market interest rates or changes
in the issuer's creditworthiness. Because the interest rates are reset only
periodically, changes in the interest rate on ARMs may lag behind changes in
prevailing market interest rates. Also, some ARMs (or the underlying mortgages)
are subject to caps or floors that limit the maximum change in interest rate
during a specified period or over the life of the security. As a result, changes
in the interest rate on an ARM may not fully reflect changes in prevailing
market interest rates during certain periods. Because of the resetting of
interest rates, ARMs are less likely than non-adjustable rate securities of
comparable quality and maturity to increase significantly in value when market
interest rates fall.
Collateralized Mortgage Obligations: A CMO is a security backed by a portfolio
of mortgages or mortgage securities held under an indenture. The underlying
mortgages or mortgage securities are issued or guaranteed by the U.S. Government
or an agency or instrumentality thereof. The issuer's obligation to make
interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage securities. CMOs are issued with a number of classes or
series which have different maturities and which may represent interests in some
or all of the interest or principal on the underlying collateral or a
combination thereof. CMOs of different classes are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid. In the event
of sufficient early prepayments on such mortgages, the class or series of CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by the Portfolio would
have the same effect as the prepayment of mortgages underlying a mortgage
pass-through security. CMOs may be considered derivative securities.
"Stripped" Securities: Stripped securities are usually structured with two or
more classes that receive different proportions of the interest and principal
distribution from a pool of U.S. or Foreign Government Securities or mortgage
assets. In some cases, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). Stripped securities commonly have
greater market volatility than other types of fixed-income securities. In the
case of stripped mortgage securities, if the underlying mortgage assets
experience greater than anticipated payments of principal, the Portfolio may
fail to recoup fully its investments in IOs. The staff of the SEC has indicated
that it views stripped mortgage securities as illiquid unless the securities are
issued by the U.S. Government or its agencies and are backed by fixed-rate
mortgages. The Portfolio intends to abide by the staff's position. Stripped
securities may be considered derivative securities.
Zero Coupon Securities: Zero coupon securities are issued at a significant
discount from face value and pay interest only at maturity, rather than at
intervals during the life of the security. The prices of zero coupon securities
may react more strongly to changes in interest rates than the prices of many
other securities. The Portfolio is required to accrue and distribute income from
zero coupon securities on a current basis, even though the Portfolio will not
receive the income currently in cash. Thus, the Portfolio may have to sell other
investments to obtain cash needed to make income distributions.
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Options, Futures, Swap Contracts and Currency Transactions: The Portfolio may
engage in a variety of transactions involving the use of exchange traded options
and futures with respect to U.S. or Foreign Government Securities, corporate
fixed-income securities or municipal bonds or indices thereof for purposes of
hedging against changes in interest rates.
The Portfolio may buy, sell or write options on securities, securities indexes,
currencies or futures contracts. The Portfolio may buy and sell futures
contracts on securities, securities indexes or currencies. The Portfolio may
also enter into swap contracts. The Portfolio may engage in these transactions
either for the purpose of enhancing investment return, or to hedge against
changes in the value of other assets that the Portfolio owns or intends to
acquire. The Portfolio may also conduct foreign currency exchange transactions
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market. Options, futures and swap contracts fall into the broad
category of financial instruments known as "derivatives" and involve special
risks. Use of options, futures or swaps for other than hedging purposes may be
considered a speculative activity, involving greater risks than are involved in
hedging.
Options can generally be classified as either "call" or "put" options. There are
two parties to a typical options transaction: the "writer" and the "buyer." A
call option gives the buyer the right to buy a security or other asset (such as
an amount of currency or a futures contract) from, and a put option the right to
sell a security or other asset to, the option writer at a specified price, on or
before a specified date. The buyer of an option pays a premium when purchasing
the option, which reduces the return on the underlying security or other asset
if the option is exercised, and results in a loss if the option expires
unexercised. The writer of an option receives a premium from writing an option,
which may increase its return if the option expires or is closed out at a
profit. If the Portfolio as the writer of an option is unable to close out an
unexpired option, it must continue to hold the underlying security or other
asset until the option expires, to "cover" its obligations under the option.
A futures contract creates an obligation by the seller to deliver and the buyer
to take delivery of the type of instrument or cash at the time and in the amount
specified in the contract. Although many futures contracts call for the delivery
(or acceptance) of the specified instrument, futures are usually closed out
before the settlement date through the purchase (or sale) of a comparable
contract. If the price of the sale of the futures contract by the Fund exceeds
(or is less than) the price of the offsetting purchase, the Portfolio will
realize a gain (or loss). The Portfolio may not purchase or sell futures
contracts or purchase related options if immediately thereafter the sum of the
amount of deposits for initial margin or premiums on the existing futures and
related options positions would exceed 5% of the market value of the Portfolio's
net assets. Transactions in futures and related options involve the risks of (1)
imperfect correlation between the price movement of the contracts and the
underlying securities, (2) significant price movement in one but not the other
market because of different hours, (3) the possible absence of a liquid
secondary market at any point in time. If the subadviser's prediction on
interest rates or other economic factors is inaccurate, the Fund may be worse
off than if it had not hedged. Futures transactions involve potentially
unlimited risk of loss.
The Portfolio may enter into interest rate, currency and securities index swaps.
The Portfolio will enter into these transactions primarily to seek to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique, or to
protect against an increase in the price of securities the Portfolio anticipates
purchasing at a later date. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or receive interest
(for example, an exchange of floating rate payments for fixed rate payments with
respect to a notional amount of principal). A currency swap is an agreement to
exchange cash flows on a notional amount based on changes in the relative values
of the specified currencies. An index swap is an agreement to make or receive
payments based on the different returns that would be achieved if a notional
amount were invested in a specified basket of securities (such as the Standard &
Poor's Composite Index of 500 Stocks [the "S&P 500"] or in some other investment
(such as U.S. Treasury securities).
The value of options purchased by the Portfolio, futures contracts held by the
Portfolio and the Portfolio's positions in swap contracts may fluctuate up or
down based on a variety of market and economic factors. In some cases, the
fluctuations may offset (or be offset by) changes in the value of securities
held in the Portfolio. All transactions in options, futures or swaps involve
costs and the possible risk of loss to the
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Portfolio of all or a significant part of the value of its investment. In some
cases, the risk of loss may exceed the amount of the Portfolio's investment. The
Portfolio will be required, however, to set aside with its custodian bank
certain assets in amounts sufficient at all times to satisfy its obligations
under options, futures and swap contracts.
The successful use of options, futures and swaps will usually depend on the
Manager's ability to forecast bond market, currency or other financial market
movements correctly. The Portfolio's ability to hedge against adverse changes in
the value of securities held in its portfolio through options, futures and swap
transactions also depends on the degree of correlation between the changes in
the value of futures, options or swap positions and changes in the values of the
portfolio securities. The successful use of futures and exchange traded options
also depends on the availability of a liquid secondary market to enable the
Portfolio to close its positions on a timely basis. There can be no assurance
that such a market will exist at any particular time. Trading hours for options
may differ from the trading hours for the underlying securities. Thus,
significant price movements may occur in the securities markets that are not
reflected in the options market. The foregoing may limit the effectiveness of
options as hedging devices. Certain provisions of the Code and certain
regulatory requirements may limit the Portfolio's ability to engage in futures,
options and swap transactions.
The options and futures markets of foreign countries are small compared to those
of the United States and consequently are characterized in most cases by less
liquidity than are the U.S. markets. In addition, foreign markets may be subject
to less detailed reporting requirements and regulatory controls than U.S.
markets. Furthermore, investments by the Portfolio in options and futures in
foreign markets are subject to many of the same risks as are the Fund's other
foreign investments. See "Foreign and Emerging Market Securities." For further
information, see "Futures, Options and Swap Contracts" in the Statement of
Additional Information.
When-Issued Securities: The Portfolio may purchase securities on a when-issued
basis. Certain municipal securities are sometimes offered on a "when-issued"
basis, that is, the date for delivery of and payment for the securities is not
fixed at the date of purchase, but is set after the securities are issued
(normally within forty-five days after the date of the transaction). The payment
obligation and the interest rate that will be received on the securities are
fixed at the time the buyer enters into the commitment. The Portfolio will only
make commitments to purchase such municipal securities with the intention of
actually acquiring such securities, but the Portfolio may sell these securities
before the settlement date if it is deemed advisable.
If the Portfolio purchases a when-issued security, the Portfolio will direct the
custodian to place cash or other high grade securities (including municipal
securities) in a separate account of the Portfolio in an amount equal to its
when-issued commitments. If the market value of such securities declines,
additional cash or securities will be placed in the account on a daily basis so
that the market value of the account will equal the amount of the Portfolio's
when-issued commitments. To the extent that funds are in a separate account,
they will not be available for new investment or to meet redemptions. Investment
in securities on a whenissued basis may increase the Portfolio's exposure to
market fluctuation; may increase the possibility that the Portfolio will incur a
short-term gain subject to federal taxation; or may increase the possibility
that the Portfolio will incur a short-term loss, if the Portfolio must engage in
portfolio transactions in order to honor a when-issued commitment. The Portfolio
will employ techniques designed to minimize these risks. No additional
when-issued commitments will be made if more than 10% of the Portfolio's net
assets become so committed.
Repurchase Agreements: When the Portfolio purchases securities, it may enter
into a repurchase agreement with the seller wherein the seller agrees, at the
time of sale, to repurchase the security at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's holding period. This
arrangement results in a fixed rate of return insulated from market fluctuations
during such period. The Portfolio may enter into repurchase agreements which are
collateralized by obligations issued or guaranteed by the U.S. Government and
the Portfolio may enter into repurchase agreements with member banks of the
Federal Reserve System and with broker-dealers who are recognized as primary
dealers in United States government securities by the Federal Reserve Bank of
New York whose creditworthiness has been reviewed and found to meet the
investment criteria of the Portfolio. The resale price will be in excess of the
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purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the security, and will not be
related to the coupon rate of the purchased security. At the time a Portfolio
enters into a repurchase agreement the value of the underlying security,
including accrued interest, will be equal to or exceed the value of the
repurchase agreement and, in the case of a repurchase agreement exceeding one
day, the seller will agree that the value of the underlying security, including
accrued interest, will at all times be equal to or exceed the value of the
repurchase agreement. The Portfolio may engage in a repurchase agreement with
respect to any security in which the Portfolio is authorized to invest, even
though the underlying security may mature in more than one year. The collateral
securing the seller's obligation must be of a credit quality at least equal to
the Fund's investment criteria for Portfolio securities and will be held by the
Fund's custodian or in the Federal Reserve Book Entry System. Nevertheless, if
the seller of a repurchase agreement fails to repurchase the obligation in
accordance with the terms of the agreement, the Portfolio may incur a loss to
the extent that the proceeds it realized on the sale of the underlying
obligation are less than the repurchase price. Repurchase agreements may be
considered loans to the seller of the underlying security. Income with respect
to repurchase agreements is not tax-exempt. If bankruptcy proceedings are
commenced with respect to the seller, the Fund's realization upon the collateral
may be delayed or limited. The Portfolio may invest no more than 15% of its net
assets in illiquid securities including repurchase agreements maturing in more
than seven days. See "Investment Restrictions" herein. A Portfolio may, however,
enter into "continuing contract" or "open" repurchase agreements under which the
seller is under a continuing obligation to repurchase the underlying obligation
from the Portfolio on demand and the effective interest rate is negotiated on a
daily basis.
Securities purchased pursuant to a repurchase agreement are held by the Fund's
custodian and (I) are recorded in the name of the Portfolio with the Federal
Reserve Book Entry System or (ii) the Portfolio receives daily written
confirmation of each purchase of a security and a receipt from the custodian.
The Portfolio purchases securities subject to a repurchase agreement only when
the purchase price of the security acquired is equal to or less than its market
price at the time of purchase.
Rule 144A Securities: The Portfolio may invest in securities issued as part of
privately negotiated transactions between an issuer and one or more purchasers.
Except with respect to certain commercial paper issued in reliance on the
exemption from regulations set forth in Section 4(2) of the Securities Act of
1933 (the "Securities Act") and securities subject to Rule 144A of the
Securities Act which are discussed below, these securities are typically not
readily marketable and are therefore considered illiquid securities. The price
the Portfolio paid for illiquid securities, and any price received upon resale,
may be lower than the price paid or received for similar securities with a more
liquid market. Accordingly, the valuation of privately placed securities
purchased by the Portfolio will reflect any limitations on their liquidity. As a
matter of policy, the Portfolio will not invest more than 15% of the market
value of the net assets of the Portfolio in repurchase agreements maturing in
over seven days and other illiquid investments.
The Portfolio may purchase securities that are not registered ("restricted
securities") under the Securities Act, but can be offered and sold to "qualified
institutional buyers" under Rule 144A of the Securities Act. The Portfolio may
also purchase certain commercial paper issued in reliance on the exemption from
regulations in Section 4(2) of the Securities Act ("4(2) Paper"). However, the
Portfolio will not invest more than 15% of its net assets in illiquid
investments, which include securities for which there is no readily available
market, securities subject to contractual restriction on resale, certain
investments in asset-backed and receivablebacked securities and restricted
securities (unless, with respect to these securities and 4(2) Paper, the Fund's
Directors continuously determine, based on the trading markets for the specific
restricted security, that it is liquid). The Directors may adopt guidelines and
delegate to the Manager the daily function of determining and monitoring
liquidity of restricted securities and 4(2) Paper. The Directors, however, will
retain sufficient oversight and be ultimately responsible for these
determinations.
PORTFOLIO TURNOVER
Purchases and sales are made for the Portfolio whenever necessary, in the
Manager's opinion, to meet the Portfolio's objective. The Manager expects that
the turnover of the Portfolio should not exceed 150%. Portfolio turnover may
involve the payment by the Portfolio of dealer spreads or underwriting
commissions, and other transactions costs, on the sale of securities, as well as
on the investment of the proceeds in other
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securities. The greater the portfolio turnover the greater the transaction costs
to the Portfolio which could have an effect on the Portfolio which could have an
effect on the Portfolio's total rate of return. In order to qualify as a
regulated investment company, less than 30% of the Portfolio's gross income must
be derived from the sale or other disposition of stock, securities or certain
other investments held for less than three months. Although increased portfolio
turnover (over 100% per year) may increase the likelihood of additional realized
capital gains for the Portfolio, the Portfolio expects to satisfy the 30% income
test.
INVESTMENT RESTRICTIONS
The Portfolio operates under the following investment restrictions which,
together with the investment objective of the Portfolio, may not be changed
without shareholder approval and which apply to the Portfolio.
The Portfolio may not:
(1) invest more than 5% of the total market value of the Portfolio's assets
(determined at the time of the proposed investment and giving effect
thereto) in the securities of any one issuer other than the United States
Government, its agencies or instrumentalities;
(2) invest more than 25% of the value of the Portfolio's total assets in
securities of companies in the same industry (excluding United States
government securities if the purchase would cause more than 25% of the value
of the Portfolio's total assets to be invested in companies in the same
industry (for the purpose of this restriction wholly-owned finance companies
are considered to be in the industry of their parents if their activities
are similarly related to financing the activities of their parents);
(3) acquire securities that are not readily marketable or repurchase agreements
calling for resale within more than seven days if, as a result thereof, more
than 15% of the value of its net assets would be invested in such illiquid
securities;
(4) make loans, except that the Fund may purchase for the Portfolio the debt
securities described above under "Investment Objectives, Policies and Risks"
and may enter into repurchase agreements as therein described;
(5) borrow money, unless (I) the borrowing does not exceed 15% of the total
market value of the assets of the Portfolio with respect to which the
borrowing is made (determined at the time of borrowing but without giving
effect thereto) and the money is borrowed from one or more banks as a
temporary measure for extraordinary or emergency purposes or to meet
unexpected redemption requests and furthermore the Portfolio will not make
additional investments when borrowings exceed 5% of the Portfolio's net
assets or (ii) as otherwise provided herein and permissible under the 1940
Act; and
(6) pledge, mortgage, assign or encumber any of the Portfolio's assets except to
the extent necessary to secure a borrowing permitted by clause (4) made with
respect to the Portfolio.
MANAGEMENT OF THE FUND
Management and Investment Management Contract
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed Back Bay Advisors, L.P. to serve as
the investment manager of the Fund under an Investment Management Contract. 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 full-time
to the affairs of the Fund. The Statement of Additional Information contains
general background information regarding each Director and principal officer of
the Fund.
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<PAGE>
The Manager is a [Delaware limited partnership] and a registered investment
adviser under the 1940 Act, with its principal office at 399 Boylston Street,
Boston Massachusetts 02116-3310. The Manager provides discretionary investment
management services to mutual funds and other institutional investors. Formed in
1986, the Manager now manages 14 mutual fund portfolios and as of June 30, 1997,
was investment manager, adviser or supervisor with respect to assets aggregating
in excess of $7 billion, primarily mutual fund and institutional fixed-income
portfolios. Ms. Catherine L. Bunting and Mr. Peter W. Palfrey are primarily
responsible for the day-to-day investment management of the Portfolio. Ms.
Bunting has served as Senior Vice President of the Manager since 1988. Mr.
Palfrey has served as Vice President of the Manager since 1993. Prior to 1993,
Mr. Palfrey was employed by Mutual of New York Capital Management as a Vice
President.
[The general partner of the Manager is a special purpose corporation that is an
indirect, wholly-owned subsidiary of New England Investment Companies ("NEIC").
NEIC's sole general partner, New England Investment Companies, Inc., is an
indirect, wholly-owned subsidiary of Metropolitan Life Insurance Company
("MetLife").] MetLife is a mutual life insurance company with $298 billion of
assets under management at December 31, 1996. It is the second largest life
insurance company in the United States in terms of total assets. MetLife
provides a wide range of insurance and investment products and service to
individuals and groups and is the leader among United States life insurance
companies in terms of total life insurance in force, which totaled $1.6 trillion
at December 31, 1996 for MetLife and its insurance affiliates. MetLife and its
affiliates provide insurance or other financial services to approximately 36
million people worldwide.
NEIC, a limited partnership with approximately $108 billion assets under
management, is a holding company offering a broad array of investment styles
across a wide range of asset categories through fourteen subsidiaries, divisions
and affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the Manager, include
AEW Capital Management, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Company, L.P., New England Funds, L.P.,
New England Investment Associates, Inc., Reich & Tang Capital Management, Reich
& Tang Funds, Synder Capital Management, L.P., Vaughan, Nelson, Scarborough &
McConnell, Inc., Westpeak Investment Advisors, L.P. and Capital Growth
Management. These affiliates in the aggregate are investment advisers or
managers to more than 80 other registered investment companies.
Pursuant to the Investment Management Contract for the Portfolio, the Manager
manages the Portfolio's portfolio of securities and makes the decisions with
respect to the purchase and sale of investments, subject to the general control
of the Board of Directors of the Portfolio. Under the Investment Management
Contract, the Portfolio will pay an annual management fee of .35% of the
Portfolio's average daily net assets. The management fees are accrued daily and
paid monthly. The Manager, at its discretion, may voluntarily waive all or a
portion of the Management Fee. Any portion of the total fees received by the
Manager and its past profits may be used to provide shareholder services and for
distribution of Portfolio Shares. (See "Distribution and Service Plan" herein.)
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.
The Manager or Administrator, at its discretion, may waive its rights to any
portion of the management fee or the administrative services fee, respectively,
and may use any portion of the management fee and the administrative services
fee 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 (see "Distribution and Service Plan" herein).
On August , 1997, the Board of Directors, including a majority of the Directors
who are not interested persons (as defined in the 1940 Act) of the Portfolio or
the Manager, approved the Investment Management Contract effective [ ], which
has a term which extends to [ ] and may be continued in force
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thereafter for successive twelve-month periods beginning each , provided that a
majority vote of the Portfolio's outstanding voting securities or by a majority
of the directors who are not parties to the Investment Management Contract or
interested persons of any such party, approve the continuation of the Investment
Management Contract by votes cast in person at a meeting called for the purpose
of voting on such matter. The Investment Management Contract was approved by the
sole shareholder of the Portfolio on [August , 1997].
Administrator and Administrative Services Contract
Reich & Tang Asset Management L.P. with its principal office at 600 Fifth
Avenue, New York, NY 10020 is the administrator of the Fund (the
"Administrator"). Pursuant to an Administrative Services Agreement for the
Portfolio, the Administrator performs clerical, accounting supervision and
office service functions for the Portfolio and provides the Portfolio with
personnel to (i) supervise the performance of bookkeeping and related services
by Investors Fiduciary Trust Company, the Fund's bookkeeping agent; (ii) prepare
reports to and filings with regulatory authorities; and (iii) perform such other
administrative services as the Portfolio may from time to time request of the
Administrator. The personnel rendering such services may be employees of the
Administrator or its affiliates. The Administrator, at its discretion, may
voluntarily waive all or a portion of the administrative services fee. For its
services under the Administrative Services Agreement, the Administrator receives
an annual fee equal to .15% of the Portfolio's average daily net assets up to
$100 million, .125% of such assets up to $250 million, .10% of such assets up to
$500 million and .075% of such assets over $500 million, with a minimum monthly
fee of $8,000. Any portion of the total fees received by the Administrator and
its past profits may be used to provide shareholder services and for
distribution of Portfolio shares. (See "Distribution and Service Plan " herein.)
The fees are accrued daily and paid monthly.
In addition, Reich & Tang Distributors L.P., the Distributor, receives a
servicing fee [equal to] .25% per annum of the average daily net assets of the
Class B shares (the "Shareholder Servicing Fee") of the Portfolio under the
Shareholder Servicing Agreement. The fees are accrued daily and paid monthly.
Investment management fees and operating expenses, which are attributable to all
Classes of shares of the Portfolio, will be allocated daily to each Class of
shares based on the percentage of shares outstanding for each Class at the end
of the day.
Fees
See "Expense Limitation" in the Statement of Additional Information.
DESCRIPTION OF SHARES
The Fund was incorporated in the State of Maryland on August __, 1997. The
authorized capital stock of the Fund consists of twenty billion shares of stock
having a par value of one tenth of one cent ($.001) per share. The Fund
currently has only one portfolio. Except as noted below, each share when issued
will have equal dividend, distribution and liquidation rights within the series
for which it was issued, and each fractional share has rights in proportion to
the percentage it represents of a whole share. Generally, all shares will be
voted in the aggregate, except if voting by Class is required by law or the
matter involved affects only one Class, in which case shares will be voted
separately by class. 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 affected series. There are no conversion or preemptive rights in connection
with any shares of the Portfolio. All shares when issued in accordance with the
terms of the offering will be fully paid and non-assessable. Shares of the Fund
are redeemable at net asset value, at the option of the shareholders. On [August
__, 1997], the Manager purchased $100,000 of the Fund's shares at an initial
subscription price of $1.00 per share.
The Portfolio is subdivided into three classes of common stock, Class A, Class B
and Class C. 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 Class C shares will have
613115.6
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different class designations; (ii) only the Class B shares will be assessed a
service fee of .25% of the average daily net assets of the Class B shares of the
Portfolio pursuant to the Rule 12b-1 Distribution and Service Plan of the
Portfolio; and (iii) only the holders of the Class B shares would be entitled to
vote on matters pertaining to the Plan and any related agreements in accordance
with provisions of Rule 12b-1. 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 dividend/distributions.
Under its Articles of Incorporation the Fund has the right to redeem, for cash,
shares of the Fund 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 any concentration of share 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, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. The Fund's By-laws provide the
holders of one-third of the outstanding shares of the Fund present at a meeting
in person or by proxy will constitute a quorum for the transaction of business
at all meetings.
HOW TO PURCHASE AND REDEEM SHARES
Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations in accordance with the procedures
established by the Participating Organizations. "Participating Organizations"
are securities brokers, banks and financial institutions or other industry
professionals or organizations which have entered into shareholder servicing
agreements with the Distributor with respect to investment of their customer
accounts in the Fund. Certain Participating Organizations are compensated by the
Distributor from its Shareholder Servicing Fee and by the Manager from its
management fee for the performance of these services. An investor who purchases
shares through a Participating Organization that receives payment from the
Manager or the Distributor will become a Class B shareholder. (See "Investments
Through Participating Organizations" herein.) All other investors, and investors
who have accounts with Participating Organizations but who do not wish to invest
in the Portfolio through their Participating Organizations, may invest in the
Portfolio directly as Class A or Class C shareholders of the Portfolio and not
receive the benefit of the servicing functions performed by a Participating
Organization. Class A and Class C shares may also be offered to investors who
purchase their shares through Participating Organizations who do not receive
compensation from the Distributor or the Manager because they may not be legally
permitted to receive such as fiduciaries. The Manager pays the expenses incurred
in the distribution of Class A and Class C shares. Participating Organizations
whose clients become Class A or Class C shareholders will not receive
compensation from the Manager or Distributor for the servicing they may provide
to their clients. (See "Direct Purchase and Redemption Procedures" herein.) With
respect to each Class of shares, the minimum initial investment in the Fund with
respect to the Portfolio is $1,000,000. The minimum amount for subsequent
investments is $10,000 for all shareholders.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from the Distributor and from
shareholders directly.
In order to maximize earnings on the Portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in Funds of Federal Reserve member banks on deposit
at a Federal Reserve bank (commonly known as "Federal Funds"). Accordingly, the
Fund does not accept a subscription or invest an investor's payment in portfolio
securities until the payment has been converted into Federal Funds.
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Shares will be issued as of the first determination of the Fund's net asset
value per share for each Class made after acceptance of the investor's purchase
order. An investor's funds will not be invested by the Fund during the period
before the Fund's receipt of Federal Funds and its issuance of Fund shares. The
Fund reserves the right to reject any purchase order to its shares.
Shares are issued as of 5:00 p.m., New York City time, on any Fund Business Day,
as defined herein, on which an order for the shares and accompanying Federal
Funds are received by the Fund's transfer agent before 5:00 p.m., New York City
time. Fund shares begin accruing income on the day after the shares are issued
to an investor.
There is no redemption charge, no minimum period of investment and no
restriction on frequency of withdrawals. Proceeds of redemptions are paid by
check or bank wire. 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 the
shares of the Fund he owns, all dividends credited to the shareholder through
the date of redemption are paid to the shareholder in addition to the proceeds
of the redemption.
The date of payment upon redemption may not be postponed for more than seven
days after shares are tendered for redemption, and the right of redemption may
not be suspended, except for any period during which the NYSE is closed (other
than customary weekend and holiday closings) or during which the SEC determines
that trading thereon is restricted, or for any period during which an emergency
(as determined by the SEC) exists as a result of which disposal by the Fund of
its securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or for such other period as the SEC may by order permit for the
protection of the shareholders of the Fund.
Redemption requests received by the Fund's transfer agent before 5:00 p.m., New
York City time, on any Fund Business Day become effective at 5:00 p.m. that day.
Shares redeemed are not entitled to participate in dividends declared on the day
or after the day a redemption becomes effective.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in his account after a withdrawal is
less than $250,000. Written notice of any such 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. During the notice period any shareholder who receives such a notice
may (without regard to the normal $10,000 requirement for an additional
investment) make a purchase of additional shares to increase his total net asset
value at least to the minimum amount and thereby avoid such mandatory
redemption.
The Fund has reserved the right to charge individual shareholder accounts for
expenses actually incurred by such account for wire transfers and certain other
shareholder expenses, as well as to impose a monthly service charge for accounts
whose net asset value falls below the minimum amount.
Investments Through Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks, financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Distributor with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
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 their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer
613115.6
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during the period covered by the statement and the income earned by Fund shares
of each customer 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 Portfolio directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. 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 Portfolio directly. 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.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 5:00 p.m., New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day provided that the Federal Funds required in connection with the orders
are received by the Fund's transfer agent before 5:00 p.m., New York City time,
on that day. Participating Organizations are responsible for instituting
procedures to insure that purchase orders by their respective clients are
processed expeditiously.
DIRECT PURCHASE AND
REDEMPTION PROCEDURES
The following purchase and redemption procedures apply to investors who wish to
invest in the Fund directly. Class B shares purchased by retirement plan
investors may be purchased by check or bank wire. Class A and Class C shares may
be purchased by bank wire only. These investors may obtain the subscription
order form necessary to open an account by telephoning the Fund at either
[212-830-5220] (within New York State) or at [800-241-3263] (toll free outside
New York State).
All shareholders will receive from the Fund a monthly statement listing the
total number of shares of the Portfolio owned as of the statement closing date,
purchases and redemptions of shares of the Portfolio during the month covered by
the statement and the dividends paid on shares of the Portfolio of each
shareholder during the statement period (including dividends paid in cash or
reinvested in additional shares of the Portfolio). Certificates for Fund shares
will not be issued to an investor.
Initial Purchase of Shares
Mail
Class B share investors may send a check made payable to the Fund along with a
completed subscription order form to:
Back Bay Funds, 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 bank of the Federal Reserve
System can 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 and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
613115.6
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Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, an investor should first obtain a new account number by telephoning
the Fund at either [212-830-5220] (within New York State) or at [800-241-3263]
(outside New York State) and then instruct a member commercial bank to wire
money immediately to:
Investors Fiduciary Trust Company
ABA #101003621
Reich & Tang Funds
DDA #890752-951-1
For Back Bay Funds, Inc.
Total Return Portfolio
Account of (Investor's Name)
Portfolio Account # ____________________
SS #/Tax I.D.# ____________________
The investor should then promptly complete and mail the subscription order form.
An investor planning to wire the Fund should instruct his bank early in the day
so the wire transfer can be accomplished the same day. 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 5:00 p.m., New York City time, on a Fund Business Day will be
treated as a Federal Funds payment received on that day.
Subsequent Purchases of Shares
Subsequent purchases can be made by personal delivery or by bank wire, as
indicated above, or by mailing a check to:
Back Bay Funds, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
There is a [$10,000] minimum for subsequent purchases of shares. All payments
should clearly indicate the shareholder's account number.
Provided that the information on the subscription order form on file with the
Fund is still applicable, a shareholder may reopen an account without filing a
new subscription order form 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 each
Class of the Portfolio following receipt by the Fund's transfer agent of the
redemption order. Normally payment for redeemed shares is made on the Fund
Business Day the redemption is effected, provided the redemption request is
received prior to 5:00 p.m., New York City time. However, redemption requests
will not be effected unless the check (including a certified or cashier's check)
used for investment has been cleared for payment by the investor's bank,
currently considered by the Fund to occur within 15 days after investment.
A shareholder's original subscription 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
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change the instructions indicated on his original subscription 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 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:
Back Bay Funds, 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 with
signature guaranteed. Normally the redemption proceeds are paid by check mailed
to the shareholder of record.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption will be sent to the
shareholder at his address or to his bank account as set forth in the
subscription order form or in a subsequent signature guaranteed written
authorization. Redemptions following an investment by check will not be effected
until the check has cleared, which could take up to 15 days after investment.
The Fund may accept telephone redemption instructions from any person with
respect to accounts of shareholders who elect this service, and thus
shareholders risk possible loss of dividends in the event of a telephone
redemption which was not authorized by them. Telephone requests to wire
redemption proceeds must be for amounts in excess of $10,000. 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. The failure by the Fund to employ such
reasonable procedures may cause the Fund to be liable for any losses incurred by
investors due to telephone redemptions based upon unauthorized or fraudulent
instructions. The telephone redemption option may be modified or discontinued at
any time upon 60 days written notice to shareholders.
A shareholder making a telephone withdrawal should call the Fund at
[212-830-5220]; outside New York State at [800-241-3263] and state (i) the name
of the shareholder appearing on the Fund's records, (ii) his account number with
the Fund, (iii) the amount to be withdrawn and (iv) the name of the person
requesting the redemption. Usually, the proceeds are sent to the investor on the
same Fund Business Day the redemption is effected, provided the redemption
request is received prior to 5:00 p.m., New York City time.
RETIREMENT PLANS
The Fund has available a form of Individual Retirement Account ("IRA") for
investment in Fund shares. Self-employed investors may purchase shares of the
Fund through tax-deductible contributions to existing retirement plans for
self-employed persons, known as Keogh or H.R. 10 plans. Fund shares may also be
a suitable investment for other types of qualified pension or profit-sharing
plans which are employer-sponsored, including deferred compensation or salary
reduction plans known as "401(k) Plans" which give participants the right to
defer portions of their compensation for investment on a tax-deferred basis
until distributions are made from the plans.
The minimum initial investment for all such retirement plans is [$1,000.] The
minimum for all subsequent investments is [$100.]
613115.6
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<PAGE>
Under the Internal Revenue Code of 1986, as amended (the "Code"), individuals
may make wholly or partly tax deductible IRA contributions of up to $2,000
annually, depending on whether they are active participants in an employer
sponsored retirement plan and on their income level. However, dividends and
distributions held in the account are not taxed until withdrawn in accordance
with the provisions of the Code. An individual with a non-working spouse may
establish a separate IRA for the spouse under the same conditions and contribute
a combined maximum of $4,000 annually to either or both IRAs provided that no
more than $2,000 may be contributed to the IRA of either spouse.
Investors should be aware that they may be subject to penalties or additional
tax on contributions or withdrawals from IRAs or other retirement plans which
are not permitted by the applicable provisions of the Code, and, prior to a
withdrawal, shareholders may be required to certify their age and awareness of
such restrictions in writing. Persons desiring information concerning
investments through IRAs or other retirement plans should write or telephone the
Distributor at [ ].
DISTRIBUTION AND SERVICE PLAN
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 Rule 12b-1.
Effective August ___, 1997, the Fund's Board of Directors and Class B
shareholders adopted a distribution and service plan (the "Plan") and, pursuant
to the Plan, the Portfolio and Reich & Tang Distributors L.P. (the
"Distributor") entered into a Distribution Agreement and a Shareholder Servicing
Agreement (with respect to the Class B shares of the Portfolio only).
Reich & Tang Asset Management, Inc. serves as the sole general partner for both
Reich & Tang Asset Management L.P. and Reich & Tang Distributors L.P., and Reich
& Tang Asset Management L.P. serves as the sole limited partner of the
Distributor.
Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares and, for nominal consideration and as agent for the Fund, 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 B shares, a service fee equal to .25% per annum of the
Class B shares' average daily net assets (the "Shareholder Servicing Fee") for
providing personal shareholder services and for the maintenance of shareholder
accounts. The fee is accrued daily and paid monthly and 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 B shares of the Portfolio. The
Class A and Class C shareholders do 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 Portfolio 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 B
shares and (ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Portfolio and preparing and printing subscription
application forms for shareholder accounts.
The Plan provides that the Manager and Administrator may make payments from time
to time from their own resources, which may include the management fee, the
administration fee and past profits for the following purposes: (i) to defray
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 B shares of the Portfolio; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the Class B shares; and (iii) to pay the costs of printing and
distributing the Portfolio's prospectus to prospective investors, and to defray
the cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
613115.6
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promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's Class B shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholder Servicing Fee (with respect to Class B shares)
and past profits, for the purposes enumerated in (i) 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 Portfolio is required to
pay to the Manager and Distributor for any fiscal year under either the
Investment Management Contract or the Shareholder Servicing Agreement in effect
for that year.
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. However, in the opinion of the
Manager 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 Plan 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.
In accordance with Rule 12b-1, the Plan provides that all written agreements
relating to the Plan 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 Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
The Plan provides that it may continue in effect for successive annual periods
provided it is approved by the Fund's shareholders 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 Plan, or
agreements related to the Plan. The Plan was approved by a majority of its
shareholders on August __, 1997. The Plan further provides that it may not be
amended to increase materially the costs which may be spent by the Fund for
distribution pursuant to the Plan without shareholder approval, and the other
material amendments must be approved by the directors in the manner described in
the preceding sentence. The Plan may be terminated at any time by a vote of a
majority of the disinterested directors of the Fund or the Fund's shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each dividend and capital gains distribution, if any, declared by the Fund on
its outstanding shares will, at the election of each shareholder, be paid in
cash or in additional shares of the same Class shares of the Portfolio having an
aggregate net asset value as of the payment date of such dividend or
distribution equal to the cash amount of such dividend or distribution. Election
to receive dividends and distributions in cash or shares is made at the time
shares are subscribed for and may be changed by notifying the Fund in writing at
any time prior to the record date for a particular dividend or distribution. If
the shareholder makes no election, the Fund will make the distribution in
shares. There is no sales or other charge in connection with the reinvestment of
dividends and capital gains distributions.
While it is the intention of the Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by the Fund of income and capital gains
from investments. Except as described herein, the Portfolio's net investment
income (including net realized short-term capital gains, if any) will be
declared as a dividend on the Fund Business Day. The Fund declares dividends for
Saturdays, Sundays and holidays on the previous Fund Business Day. The Fund
generally pays dividends monthly after the close of business on the last
calendar day of each month or after the close of business on the previous Fund
Business Day if the last calendar day of each month is not a Fund Business Day.
Capital
613115.6
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gains distributions, if any, will be made at least annually, and in no event
later than 60 days after the end of the Fund's fiscal year. There is no fixed
dividend rate, and there can be no assurance that the Fund will pay any
dividends or realize any capital gains.
The Class B shares will bear the Shareholder Servicing Fee under the Plan. As a
result, the net income of and the dividends payable to the Class B shares will
be lower than the net income of and dividends payable to the Class A or Class C
shares of the Portfolio. 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 Shareholder Servicing Fee payable under the
Plan, will be determined in the same manner and paid in the same amounts.
The Fund intends to qualify for and elect special treatment applicable to a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, for the Portfolio. To qualify as a regulated investment company, the
Portfolio must meet certain complex tests concerning its investments and
distributions. For each year the Portfolio qualifies as a regulated investment
company, the Portfolio will not be subject to federal income tax on income
distributed to its shareholders in the form of dividends or capital gains
distributions. Additionally, the Portfolio will not be subject to a federal
excise tax if the Portfolio distributes at least 98% of its ordinary income and
98% of its capital gain income to its shareholders. Dividends of net ordinary
income and distributions of net short-term capital gains are taxable to the
recipient shareholders as ordinary income but will not be eligible, in the case
of corporate shareholders, for the dividend-received deduction.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions and redemptions) paid
to shareholder who have not complied with IRS regulations. In connection with
this withholding requirement, a shareholder will be asked to certify on his
application that the social security or tax identification number provided is
correct and that the shareholder is not subject to 31% backup withholding for
previous underreporting to the IRS.
Distributions that are derived from interest on certain obligations of the
United States Government and agencies thereof may be exempt from state and local
taxes in certain states. Investors should consult their own tax advisers
regarding specific questions as to Federal, state or local taxes.
PERFORMANCE INFORMATION
The Portfolio, on behalf of each Class, may from time to time include its yield,
total return, and average annual total return in advertisements or information
furnished to present or prospective shareholders. The Portfolio may also from
time to time include in advertisements the ranking of those performance figures
relative to such figures for groups of mutual funds categorized by the Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar Inc.,
Wiesenberger Investment Company Service, Barron's, Business Week, Changing
Times, Financial World, Forbes, Fortune, Money, Personal Investor, Bank Rate
Monitor, and The Wall Street Journal as having the same investment objectives.
The Manager may compare the performance of its Separate Bond Accounts ("SBA"),
retirement plan client accounts managed by the Manager since 1986 to which the
Manager has applied the same investment styles and techniques that the Manager
intends to apply to the management of the Portfolio and for which the Manager
has full discretionary authority to manage. This performance information relates
to the Manager's management of retirement plan accounts and should not be
interpreted as indicative of the future performance of the Portfolio.
Average annual total return is a measure of the average annual compounded rate
of return of [$1,000] invested at the maximum public offering price over a
specified period, which assumes that any dividends or capital gains
distributions are automatically reinvested in the Portfolio rather than paid to
the investor in cash. Total return is calculated with the same assumptions and
shows the aggregate return on an investment over a specified period.
613115.6
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The formula for total return used the Portfolio includes three steps: (1) adding
to the total number of shares purchased by the hypothetical investment in the
portfolio all additional shares that would have been purchased if all dividends
and distributions paid or distributed during the period had been automatically
reinvested; (2) calculating the value of the hypothetical initial investment as
of the end of the period by multiplying the total number of shares owned at the
end of the period by the net asset value per share on the last trading day of
the period; and (3) dividing this account value for the hypothetical investor by
the amount of the initial investment and annualizing the result for periods of
less than one year.
The Portfolio computes yield by annualizing net investment income in a
particular class per share for a recent 30-day period and dividing that amount
by a Portfolio's share's maximum public offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
trading day of that period. The Portfolio's yield will vary from time to time
depending upon market conditions, the composition of the Portfolio and operating
expenses of the Portfolio.
Total return and yield may be stated with or without giving effect to any
expense limitations in effect for the Portfolio.
The Fund's Annual Report to shareholders will contain information regarding the
Fund's Performance and, when available, will be provided without charge, upon
request.
NET ASSET VALUE
The Fund determines the net asset value of the shares of the Fund (computed
separately for each Class of shares) of the Fund as of 5:00 p.m., New York City
time, by dividing the value of each 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 number of shares
outstanding of the Fund at the time the determination is made. The Fund
determines its net asset value on each Fund Business Day. Fund Business Day for
this purpose means any day on which the Fund's custodian is open for trading.
Purchases and redemptions will be effected at the time of determination of net
asset value next following the receipt of any purchase or redemption order. (See
"Purchase and Redemption of Shares" and "Other Purchase and Redemption
Procedures" herein.)
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on August __,
1997 and it is registered with the SEC as a non-diversified, open-end,
management investment company.
The Fund prepares semi-annual unaudited and annual audited reports which include
a list of investment securities held by the Fund and which are sent to
shareholders.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of revised
investment advisory contracts with respect to a particular class or series of
stock, (c) for approval of revisions to the Fund's distribution agreement with
respect to a particular class or series of stock, and (d) upon the written
request of holders of shares 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 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 the
next meeting of the shareholders called for the purpose of considering the
election or reelection of such Director or of a successor to such Director, and
until the election and qualification of his or her successor, elected at such a
meeting, or until such Director sooner dies, resigns, retires or is removed by
the vote of the shareholders.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's Registration Statement filed with the SEC and
copies thereof may be obtained upon payment of certain duplicating fees.
613115.6
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<PAGE>
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is the custodian for the Fund's cash and securities. Reich & Tang
Services L.P., 600 Fifth Avenue, New York, New York 10020 is the transfer agent
and dividend agent for the shares of the Fund. The Fund's custodian and transfer
agent do not assist in, and are not responsible for, investment decisions
involving assets of the Fund.
613115.6
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<PAGE>
TABLE OF CONTENTS
BACK BAY FUNDS,
INC.
PROSPECTUS
August __, 1997
TABLE OF FEES AND EXPENSES.............................2
PROSPECTUS SUMMARY.....................................2
INVESTMENT OBJECTIVES, POLICIES
AND RISKS..............................................4
PORTFOLIO TURNOVER....................................11
INVESTMENT RESTRICTIONS...............................12
MANAGEMENT OF THE FUND................................12
Management and Investment
Management Contract.................12
Administrator and Administrative
Services Contract...................14
Fees ....................................14
DESCRIPTION OF SHARES.................................14
HOW TO PURCHASE AND REDEEM
SHARES................................................15
Investments Through Participating
Organizations.......................16
DIRECT PURCHASE AND
REDEMPTION PROCEDURES.................................17
Initial Purchase of Shares...................17
Subsequent Purchases of Shares...............18
Redemption of Shares.........................18
RETIREMENT PLANS......................................19
DISTRIBUTION AND SERVICE PLAN.........................20
DIVIDENDS, DISTRIBUTIONS AND TAXES
......................................................21
PERFORMANCE INFORMATION...............................22
NET ASSET VALUE.......................................23
GENERAL INFORMATION...................................23
CUSTODIAN AND TRANSFER AGENT..........................24
613115.6
<PAGE>
- -------------------------------------------------------------------------------
BACK BAY
FUNDS, INC.
600 Fifth Avenue, New York, NY 10020
[(212) 830-5200]
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
August , 1997
Back Bay Funds, Inc. (the "Fund") is an open-end, diversified management
investment company currently comprised of the Total Return Portfolio (the
"Portfolio"). The Portfolio's investment objective is to seek to maximize total
return.
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Fund's
prospectus dated August ____, 1997 (the "Prospectus"). This Statement of
Additional Information contains additional and expands upon information set
forth in the Prospectus and should be read in conjunction with the Prospectus.
Additional copies of the Prospectus may be obtained without charge by either
writing or telephoning the Fund at the address or telephone number set forth
above. Table of Contents
<TABLE>
<S> <C>
Investment Objectives, Policies and Risks............. Management of the Fund................................
Foreign and Emerging Market Securities............. Compensation Table.................................
Lower-Rated Securities............................. Counsel and Auditors...............................
Mortgage-Related Securities........................ Distribution and Service Plan.........................
Collateralized Mortgage Obligations................ The Glass-Steagall Act ...............................
Stripped Securities................................ Description of Shares.................................
Options, Futures, Swap Contracts and Dividends, Distributions and Taxes....................
Currency Transactions..............................
Investment Restrictions............................... Custodian and Transfer Agent..........................
Portfolio Transactions................................ Performance Information...............................
How to Purchase and Redeem Shares..................... Net Asset Value.......................................
Manager............................................... Description of Ratings................................
Expense Limitation................................. Independent Auditor's Report..........................
Financial Statements..................................
</TABLE>
621733.4
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
As stated in the Prospectus, the Fund is an open-end, diversified management
investment company currently comprised of the Total Return Portfolio (the
"Portfolio"). The Portfolio's investment objective is to seek to maximize total
return. The generation of income is a secondary objective. Since the Fund is
created for tax-exempt retirement plans, the tax consequences of portfolio
activity are not an investment consideration. The Portfolio will seek to achieve
its objectives by investing primarily in higher quality, fixed and floating-rate
debt instruments. There is no assurance that these objectives will be achieved.
The investment objective of the Portfolio, which is described herein, is
fundamental and may not be changed without shareholder approval.
Since the Portfolio attempts to achieve its objectives by investing primarily in
higher quality, fixed and floating-rate debt instruments, at least 80% of its
total assets will be invested in investment grade debt instruments issued by
corporations based in the United States and abroad, (i.e., rated within the four
highest ratings categories by a nationally recognized statistical rating
organization, e.g., BBB or higher by Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc. ("S&P") or Baa or higher by Moody's
Investor Services, Inc. ("Moody's") or BBB or higher by Fitch Investors
Services, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff & Phelps").
The lowest grade of the investment grade securities may have speculative
characteristics. With respect to the 80% of the Portfolio's total assets which
will be invested in investment grade debt instruments issued by corporations
based in the United States and abroad, no more than 10% of the Portfolio's total
assets may be invested in non-dollar denominated foreign obligations issued by
corporations and/or governments and agencies thereof.
No more than 20% of the total assets of the Portfolio may be invested in
instruments which are below investment grade quality. With respect to the
investment allocation of the below investment grade quality securities of the
Portfolio, as a percentage of the total net assets, at least 15% of the total
assets of the Portfolio must be invested in instruments which are rated with the
highest below investment grade rating "("BB" or "Ba", respectively). Further, no
more than 5% of the total assets may have a split rating of "BB/B" or Ba/B".
Additionally, no more than 5% of the total assets may be invested in dollar
denominated emerging market debt. The Portfolio may invest in preferred stock,
convertible securities, Rule 144A debt, U.S. Government Securities and
securities issued or guaranteed by foreign governments (including their
political subdivisions, agencies, authorities and/or instrumentalities)
("Foreign Government Securities") and securities issued by supranational
agencies.
The Portfolio may also invest in mortgage pass through securities including,
collateralized mortgage obligations, adjustable rate mortgages, commercial
mortgage backed securities, and "stripped" securities evidencing individual
ownership interests in interest payments or principal payments, or both. If an
investment rated BBB or Baa is downgraded by a major rating agency, the
Portfolio's Manager will consider whether the investment remains appropriate for
the Portfolio. The Portfolio may invest in securities of any maturity and the
Portfolio may invest in zero coupon securities.
The Portfolio may engage in a variety of options and futures transactions with
respect to U.S. or Foreign Government Securities and corporate fixed-income
securities. See "Risk Factors and Additional Investment Information - Options,
Futures, Swap Contracts and Currency Transactions" for information about these
kinds of transactions.
Risk Factors and Additional Investment Information
Foreign and Emerging Market Securities: Foreign Government Securities and
foreign corporate securities present risks not associated with investments in
U.S. Government or corporate securities.
621733.4
-2-
<PAGE>
Since most foreign securities are denominated in foreign currencies or traded
primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of a Fund may be affected favorably
or unfavorably by changes in currency exchange rates or exchange control
regulations. Because the Portfolio may purchase securities denominated in
foreign currencies, a change in the value of any such currency relative to the
U.S. dollar will result in a change in the U.S. dollar value of the Fund's
assets and the Fund's income available for distribution.
In addition, although the Portfolio's income may be received or realized in
foreign currencies, the Portfolio will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to the
U.S. dollar declines after the Portfolio's income has been earned in that
currency, translated into U.S. dollars and declared as a dividend, but before
payment of such dividend, the Portfolio could be required to liquidate portfolio
securities to pay such dividend. Similarly, if the value of a currency relative
to the U.S. dollar declines between the time the Portfolio incurs expenses in
U.S. dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in order to pay such expenses in U.S.
dollars will be greater than the equivalent amount in such currency of such
expenses at the time they were incurred.
There may be less information publicly available about a foreign corporate or
government issuer than about an U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commission and other fees in some
circumstances may be higher than in the United States. With respect to certain
foreign countries, there is a possibility of expropriation of assets,
confiscatory taxation, political or financial instability and diplomatic
developments that could affect the value of investments in those countries. The
receipt of interest on foreign government securities may depend on the
availability of tax or other revenues to satisfy the issuer's obligations. The
Portfolio may have limited legal recourse should a foreign government be
unwilling or unable to repay the principal or interest owed.
The Portfolio may also invest in the securities of emerging markets. Investments
in emerging markets include investments in countries whose economies and /or
securities markets are not yet highly developed. Special considerations
associated with these investments (in addition to the considerations regarding
foreign investments as discussed above) may include, among others, greater
political uncertainties, an economy's dependence on revenues from particular
commodities or on international aid or development assistance, currency transfer
restrictions, highly limited numbers of potential buyers for such securities and
delays and disruptions in security settlement procedures.
In addition, the Portfolio may invest in securities issued by supranational
agencies. Supranational agencies are those agencies whose member nations
determine to make capital contributions to support the agencies' activities, and
include such entities as the International Bank of Reconstruction and
Development (the World Bank), the Asian Development Bank, the European Coal and
Steel Community and the Inter-American Development Bank.
Portfolio securities which are listed on foreign exchanges may be traded on days
that the Portfolio does not value its securities, such as Saturdays and the
customary United States business holidays on which the New York Stock Exchange
("NYSE") is closed. As a result, the net asset value of the shares of the
Portfolio may be significantly affected on days when shareholders do not have
access to the Fund.
In determining whether to invest in securities of foreign issuers, the Manager
will consider the likely effects of foreign taxes on the net yield available to
the Portfolio and its shareholders. Compliance with foreign tax
621733.4
-3-
<PAGE>
law may reduce the Portfolio's net income available for distribution to
shareholders.
Lower Rated Securities: Fixed-income securities rated BB or lower by S&P or Ba
or lower by Moody's (and comparable unrated securities) are of below "investment
grade" quality. Lower quality fixed-income securities generally provide higher
yields, but are subject to greater credit and market risk, than higher quality
fixed-income securities, including U.S. Government and many Foreign Government
Securities. Lower quality fixed-income securities are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments. Achievement of the investment objective of a mutual fund
investing in lower quality fixed-income securities may be more dependent on the
fund's adviser's or subadviser's own credit analysis than for a fund investing
in higher quality bonds. The market for lower quality fixed-income securities
may be more severely affected than some other financial markets by economic
recession or substantial interest rate increases, by changing public perceptions
of this market or by legislation that limits the ability of certain categories
of financial institutions to invest in these securities. In addition, the
secondary market may be less liquid for lower rated fixed income securities. The
lack of liquidity at certain times may affect the valuation of these securities
and may make the valuation and sale of these securities more difficult.
Securities of below investment grade quality are considered high yield, high
risk securities and are commonly known as "junk bonds." For more information,
including a detailed description of the ratings assigned by S&P, Moody's, Fitch
and Duff & Phelps, please refer to the Statement of Additional Information's
Appendix A - Description of Bond Ratings."
Mortgage-Related Securities: Mortgage-related securities, such as GNMA or FNMA
certificates, differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a result, if
the Portfolio purchases these assets at a premium, a faster-than-expected
prepayment rate will reduce yield to maturity, and a slower-than-expected
prepayment rate will have the opposite effect of increasing yield to maturity.
If the Portfolio purchases mortgage-related securities at a discount,
faster-than-expected prepayments will increase, and slower-thanexpected
prepayments will reduce, yield to maturity. Prepayments, and resulting amounts
available for reinvestment by the Portfolio, are likely to be greater during a
period of declining interest rates and, as a result, are likely to be reinvested
at lower interest rates. Accelerated prepayments on securities purchased at a
premium may result in a loss of principal if the premium has not been fully
amortized at the time of prepayment. Although these securities will decrease in
value as a result of increases in interest rates generally, they are likely to
appreciate less than other fixed-income securities when interest rates decline
because of the risk of prepayments. In addition, an increase in interest rates
would also increase the inherent volatility of the Portfolio by increasing the
average life of the portfolio securities.
An ARM, like a traditional mortgage security, is an interest in a pool of
mortgage loans that provides investors with payments consisting of both
principal and interest as mortgage loans in the underlying mortgage pool are
paid off by the borrowers. ARMs have interest rates that are reset at periodic
intervals, usually by reference to some interest rate index or market interest
rate. Although the rate adjustment feature may act as a buffer to reduce sharp
changes in the value of adjustable rate securities, these securities are still
subject to changes in value based on changes in market interest rates or changes
in the issuer's creditworthiness. Because the interest rates are reset only
periodically, changes in the interest rate on ARMs may lag behind changes in
prevailing market interest rates. Also, some ARMs (or the underlying mortgages)
are subject to caps or floors that limit the maximum change in interest rate
during a specified period or over the life of the security. As a result, changes
in the interest rate on an ARM may not fully reflect changes in prevailing
market interest rates during certain periods. Because of the resetting of
interest rates, ARMs are less likely than non-adjustable rate securities of
comparable quality and maturity to increase significantly in value when market
interest rates fall.
Collateralized Mortgage Obligations: A CMO is a security backed by a portfolio
of mortgages or mortgage securities held under an indenture. The underlying
mortgages or mortgage securities are issued or
621733.4
-4-
<PAGE>
guaranteed by the U.S. Government or an agency or instrumentality thereof. The
issuer's obligation to make interest and principal payments is secured by the
underlying portfolio of mortgages or mortgage securities. CMOs are issued with a
number of classes or series which have different maturities and which may
represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of CMO first to mature generally will be retired prior to
its maturity. Thus, the early retirement of a particular class or series of CMO
held by the Portfolio would have the same effect as the prepayment of mortgages
underlying a mortgage pass-through security. CMOs may be considered derivative
securities.
In a CMO, a series of bonds or certificates are issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," may be issued with a specific
fixed or floating coupon rate and has a stated maturity or final scheduled
distribution date. Principal prepayments on the underlying Mortgage Assets may
cause the CMOs to be retired substantially earlier than their stated maturities
or final scheduled distribution dates. Interest is paid or accrues on CMOs on a
monthly, quarterly or semi-annual basis. The principal of, and interest on, the
Mortgage Assets may be allocated among the several classes of a CMO in many
ways. The general goal in allocating cash flows on Mortgage Assets to the
various classes of a CMO is to create certain tranches on which the expected
cash flows have a higher degree of predictability than the underlying Mortgage
Assets. As a general matter, the more predictable the cash flow is on a
particular CMO tranche, the lower the anticipated yield will be on that tranche
at the time of issuance relative to prevailing market yields on certain other
Mortgage-Backed Securities. As part of the process of creating more predictable
cash flows on certain tranches of a CMO, one or more tranches generally must be
created that absorb most of the changes in the cash flows on the underlying
Mortgage Assets. The yields on these tranches are generally higher than
prevailing market yields on Mortgage-Backed Securities with similar average
lives. Because of the uncertainty of the cash flows on these tranches, the
market prices of and yields on these tranches are more volatile. The Fund may
purchase CMOs that have been sold in public offerings registered under the
Securities Act of 1933 or in private placements. CMOs acquired in private
placements will be subject to certain restrictions on resale and accordingly
will have limited marketability.
"Stripped" Securities: Stripped securities are usually structured with two or
more classes that receive different proportions of the interest and principal
distribution from a pool of U.S. or Foreign Government Securities or mortgage
assets. In some cases, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). Stripped securities commonly have
greater market volatility than other types of fixed-income securities. In the
case of stripped mortgage securities, if the underlying mortgage assets
experience greater than anticipated payments of principal, the Portfolio may
fail to recoup fully its investments in IOs. The staff of the SEC has indicated
that it views stripped mortgage securities as illiquid unless the securities are
issued by the U.S. Government or its agencies and are backed by fixed-rate
mortgages. The Portfolio intends to abide by the staff's position. Stripped
securities may be considered derivative securities.
Options, Futures, Swap Contracts and Currency Transactions: The Portfolio may
engage in a variety of transactions involving the use of exchange traded options
and futures with respect to U.S. or Foreign Government Securities, corporate
fixed-income securities or municipal bonds or indices thereof for purposes of
hedging against changes in interest rates.
The Portfolio may buy, sell or write options on securities, securities indexes,
currencies or futures contracts. The Portfolio may buy and sell futures
contracts on securities, securities indexes or currencies. The Portfolio may
also enter into swap contracts. The Portfolio may engage in these transactions
either for the purpose of enhancing investment return, or to hedge against
changes in the value of other assets that the Portfolio owns or intends to
acquire. The Portfolio may also conduct foreign currency exchange transactions
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market. Options, futures and
621733.4
-5-
<PAGE>
swap contracts fall into the broad category of financial instruments known as
"derivatives" and involve special risks. Use of options, futures or swaps for
other than hedging purposes may be considered a speculative activity, involving
greater risks than are involved in hedging.
Options can generally be classified as either "call" or "put" options. There are
two parties to a typical options transaction: the "writer" and the "buyer." A
call option gives the buyer the right to buy a security or other asset (such as
an amount of currency or a futures contract) from, and a put option the right to
sell a security or other asset to, the option writer at a specified price, on or
before a specified date. The buyer of an option pays a premium when purchasing
the option, which reduces the return on the underlying security or other asset
if the option is exercised, and results in a loss if the option expires
unexercised. The writer of an option receives a premium from writing an option,
which may increase its return if the option expires or is closed out at a
profit. If the Portfolio as the writer of an option is unable to close out an
unexpired option, it must continue to hold the underlying security or other
asset until the option expires, to "cover" its obligations under the option.
A futures contract creates an obligation by the seller to deliver and the buyer
to take delivery of the type of instrument or cash at the time and in the amount
specified in the contract. Although many futures contracts call for the delivery
(or acceptance) of the specified instrument, futures are usually closed out
before the settlement date through the purchase (or sale) of a comparable
contract. If the price of the sale of the futures contract by the Fund exceeds
(or is less than) the price of the offsetting purchase, the Portfolio will
realize a gain (or loss). The Portfolio may not purchase or sell futures
contracts or purchase related options if immediately thereafter the sum of the
amount of deposits for initial margin or premiums on the existing futures and
related options positions would exceed 5% of the market value of the Portfolio's
net assets. Transactions in futures and related options involve the risks of (1)
imperfect correlation between the price movement of the contracts and the
underlying securities, (2) significant price movement in one but not the other
market because of different hours, (3) the possible absence of a liquid
secondary market at any point in time. If the subadviser's prediction on
interest rates or other economic factors is inaccurate, the Fund may be worse
off than if it had not hedged. Futures transactions involve potentially
unlimited risk of loss.
The Portfolio may enter into interest rate, currency and securities index swaps.
The Portfolio will enter into these transactions primarily to seek to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique, or to
protect against an increase in the price of securities the Portfolio anticipates
purchasing at a later date. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or receive interest
(for example, an exchange of floating rate payments for fixed rate payments with
respect to a notional amount of principal). A currency swap is an agreement to
exchange cash flows on a notional amount based on changes in the relative values
of the specified currencies. An index swap is an agreement to make or receive
payments based on the different returns that would be achieved if a notional
amount were invested in a specified basket of securities (such as the Standard &
Poor's Composite Index of 500 Stocks [the "S&P 500"] or in some other investment
(such as U.S. Treasury securities).
The value of options purchased by the Portfolio, futures contracts held by the
Portfolio and the Portfolio's positions in swap contracts may fluctuate up or
down based on a variety of market and economic factors. In some cases, the
fluctuations may offset (or be offset by) changes in the value of securities
held in the Portfolio. All transactions in options, futures or swaps involve
costs and the possible risk of loss to the Portfolio of all or a significant
part of the value of its investment. In some cases, the risk of loss may exceed
the amount of the Portfolio's investment. The Portfolio will be required,
however, to set aside with its custodian bank certain assets in amounts
sufficient at all times to satisfy its obligations under options, futures and
swap contracts.
The successful use of options, futures and swaps will usually depend on the
Manager's ability to forecast bond market, currency or other financial market
movements correctly. The Portfolio's ability to hedge against adverse changes in
the value of securities held in its portfolio through options, futures and swap
transactions
621733.4
-6-
<PAGE>
also depends on the degree of correlation between the changes in the value of
futures, options or swap positions and changes in the values of the portfolio
securities. The successful use of futures and exchange traded options also
depends on the availability of a liquid secondary market to enable the Portfolio
to close its positions on a timely basis. There can be no assurance that such a
market will exist at any particular time. Trading hours for options may differ
from the trading hours for the underlying securities. Thus, significant price
movements may occur in the securities markets that are not reflected in the
options market. The foregoing may limit the effectiveness of options as hedging
devices. Certain provisions of the Code and certain regulatory requirements may
limit the Portfolio's ability to engage in futures, options and swap
transactions.
The options and futures markets of foreign countries are small compared to those
of the United States and consequently are characterized in most cases by less
liquidity than are the U.S. markets. In addition, foreign markets may be subject
to less detailed reporting requirements and regulatory controls than U.S.
markets. Furthermore, investments by the Portfolio in options and futures in
foreign markets are subject to many of the same risks as are the Fund's other
foreign investments. See "Foreign Securities." For further information, see
"Futures, Options and Swap Contracts" in the Statement of Additional
Information.
INVESTMENT RESTRICTIONS
The Portfolio has adopted the following investment restrictions which are in
addition to those described in the Prospectus. Under the following restrictions,
which may not be changed without the approval of a majority of the Portfolio's
shareholders, the Portfolio may not:
(1) Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, including 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 Portfolio'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 Portfolio's total assets,
the Portfolio will not make any investments. Interest paid on borrowings
will reduce net income.
(2) 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.
(3) 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.
(4) Underwrite the securities of other issuers, except insofar as the Portfolio
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
(5) Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this
shall not prevent the Portfolio from investing in obligations secured by
real estate or interests in real estate.
(6) Make loans to others.
(7) Invest in companies for the purpose of exercising control.
(8) Invest more than 25% of it assets in the securities of "issuers" in any
single industry, provided that there shall be no limitation on the purchase
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
(9) Invest in securities of other investment companies, except the Portfolio
may purchase unit investment
621733.4
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<PAGE>
trust securities where such unit trusts meet the investment objectives of
the Portfolio and then only up to 5% of the Portfolio's net assets, except
as they may be acquired as part of a merger, consolidation or acquisition
of assets.
(10) Issue senior securities, except insofar as the Portfolio may be deemed to
have issued a senior security in connection with any 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 restrictions.
PORTFOLIO TRANSACTIONS
The Manager makes the Fund's portfolio decisions and determines the broker to be
used in each specific transaction with the objective of negotiating a
combination of the most favorable commission and the best price obtainable on
each transaction (generally defined as best execution). When consistent with the
objective of obtaining best execution, brokerage may be directed to persons or
firms supplying investment information to the Manager or portfolio transactions
may be effected by the Manager. Neither the Fund nor the Manager has entered
into agreements or understandings with any brokers regarding the placement of
securities transactions because of research services they provide. To the extent
that such persons or firms supply investment information to the Manager for use
in rendering investment advice to the Fund, such information may be supplied at
no cost to the Manager and, therefore, may have the effect of reducing the
expenses of the Manager in rendering advise to the Fund. While it is impossible
to place an actual dollar value on such investment information, its receipt by
the Manager probably does not reduce the overall expenses of the Manager to any
material extent. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking best execution,
the Manager may consider sales of shares of the Fund as a factor in the
selection of brokers to execute portfolio transactions for the Fund.
The investment information provided to the Manager is of the type described in
Section 28(e) of the Securities Exchange Act of 1934 and is designed to augment
the Manager's own internal research and investment strategy capabilities.
Research services furnished by brokers through which the Fund effects securities
transactions are used by the Manager in carrying out its investment management
responsibilities with respect to all its clients' accounts. There may be
occasions where the transaction cost charged by a broker may be greater than
that which another broker may charge if the Manager determines in good faith
that the amount of such transaction cost is reasonable in relation to the value
of brokerage and research services provided by the executing broker.
[The Fund may deal in some instances in securities which are not listed on a
national securities exchange but are traded in the over-the-counter market. It
may also purchase listed securities through the third market. Where transactions
are executed in the over-the-counter market or the third market, the Fund will
seek to deal with the primary market makers; but when necessary in order to
obtain best execution, it will utilize the services of others.] In all cases the
Fund will attempt to negotiate best execution.
[The Distributor may from time to time effect transactions in the Fund's
portfolio securities. In such instances, the placement of orders with the
Distributor would be consistent with the Fund's objective of obtaining best
execution. With respect to orders placed with the Distributor for execution on a
national securities exchange, commissions received must conform to Section
17(e)(2)(A) of the Investment Company Act of 1940 (the "1940 Act"), as amended,
and Rule 17e-1 thereunder, which permit an affiliated person of a registered
investment company (such as the Fund) to receive brokerage commissions from such
registered investment company provided that such commissions are reasonable and
fair compared to commissions received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time.
621733.4
-8-
<PAGE>
In addition, pursuant to Section 11(a) of the Securities Exchange Act of 1934,
the Distributor is restricted as to the nature and extent of the brokerage
services it may perform for the Fund. The Securities and Exchange Commission has
adopted rules under Section 11(a) which permit a distributor to a registered
investment company to receive compensation for effecting, on a national
securities exchange, transactions in portfolio securities of such investment
company, including causing such transactions to be transmitted, executed,
cleared and settled and arranging for unaffiliated brokers to execute such
transactions. To the extent permitted by such rules, the Distributor may receive
compensation relating to transactions in portfolio securities of the Fund
provided that the Fund enters into a written agreement, as required by such
rules, with the Distributor authorizing it to retain compensation for such
services. Transactions in portfolio securities placed with the Distributor which
are executed on a national securities exchange must be effected in accordance
with procedures adopted by the Board of Directors of the Fund pursuant to Rule
17e-1.]
[No portfolio transactions are executed with the Manager or its affiliates
acting as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.]
HOW TO PURCHASE AND REDEEM SHARES
The material relating to the purchase and redemption of shares in the Prospectus
is herein incorporated by reference.
MANAGER
The material relating to the Manager in the Prospectus is herein incorporated by
reference.
Expense Limitation
[The Manager has agreed, pursuant to the Investment Management Contract, to
reimburse the Fund for its expenses (exclusive of interest, taxes, brokerage,
and extraordinary expenses) which, in any year, exceed the limits on investment
company expenses prescribed by any state in which the Fund's shares are
qualified for sale. For the purpose of this obligation to reimburse expenses,
the Fund's annual expenses are estimated and accrued daily, and any appropriate
estimated payments are made to it on a monthly basis. Subject to the obligations
of the Manager to reimburse the Fund for its excess expenses as described above,
the Fund has, under the Investment Management Contract, confirmed its obligation
for payment of all its other expenses, including taxes, brokerage fees and
commissions, commitment fees, certain insurance premiums, interest charges and
expenses of the custodian, transfer agent and dividend disbursing agent's fees,
tele communications expenses, auditing and legal expenses, bookkeeping agent
fees, costs of forming the corporation and maintaining corporate existence,
compensation of directors, officers and employees of the Fund and costs of other
personnel performing services for the Fund who are not officers of the general
partner of the Manager or its affiliates, costs of investor services,
shareholder reports and corporate meetings, Securities and Exchange Commission
registration fees and expenses, state securities laws registration fees and
expenses, expenses of preparing and printing the Fund's prospectus for delivery
to existing shareholders and of printing application forms for shareholder
accounts and the fees payable to the Manager under the Investment Management
Contract and the Administrative Services Contract and the Distributor under the
Shareholder Servicing Agreement.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations, as defined under "Distribution and Service Plan") as discussed
herein, and the management of the Fund intends to do so whenever it appears
advantageous to the Fund. The Fund's expenses for employees and for such
services are among the expenses subject to the
621733.4
-9-
<PAGE>
expense limitation described above. As a result of the recent passage of the
National Securities Markets Improvement Act of 1996, all state expense
limitations have been eliminated at this time.]
MANAGEMENT OF THE FUND
The directors and officers of the Fund, and their principal occupations for the
past five years, are listed below. The address of each such person, unless
otherwise indicated, is 600 Fifth Avenue, New York, New York 10020. Directors
deemed to be "interested persons" of the Fund for the purposes of the 1940 Act
are indicated by an asterisk.
[Edgar M. Reed -- office and bio to follow.]
Dr. W. Giles Mellon, 66 -- Director of the Fund, is Professor of Business
Administration and Area Chairman of Economics in the Graduate School of
Management, Rutgers University with which he has been associated since 1966. His
address is Rutgers University Graduate School of Management, 92 New Street,
Newark, New Jersey 07102. Dr. Mellon is also a Director of AEW Commercial
Mortgage Securities Fund, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Reich & Tang Equity Fund, Inc. and
Short Term Income Fund, Inc. and a Trustee of Florida Daily Municipal Income
Fund, Institutional Daily Income Fund, and Pennsylvania Daily Municipal Income
Fund.
Robert Straniere, 55 -- Director of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere & Straniere Law Firm since 1981.
His address is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is
also a Director of AEW Commercial Mortgage Securities Fund, Inc., California
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., LifeCycle Mutual Funds,
Inc., New Jersey Daily Municipal Income Fund Inc., North Carolina Daily
Municipal Income Fund, Inc., Reich & Tang Equity Fund, Inc. and Short Term
Income Fund, Inc. and a Trustee of Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, and Pennsylvania Daily Municipal Income Fund.
Dr. Yung Wong, 58 -- Director of the Fund, was director of Shaw Investment
Management (UK) Limited from October 1994 to October 1995, and formerly General
Partner of Abacus Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong has been a Director of Republic Telecom Systems
Corporation (provider of telecommunications equipment) since January 1989 and of
TelWatch, Inc. (provider of network management software) since August 1989. Dr.
Wong is a Director of AEW Commercial Mortgage Securities Fund, Inc., California
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., New Jersey Daily
Municipal Income Fund Inc., North Carolina Daily Municipal Income Fund, Inc.,
Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc. and a Trustee of
Florida Daily Municipal Income Fund, Institutional Daily Income Fund, and
Pennsylvania Daily Municipal Income Fund.
Molly Flewharty, 46 -- Vice President of the Fund, has been Vice President of
the Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, New Jersey Daily Municipal Income Fund Inc., New York Daily Tax Free
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
Lesley M. Jones, 48 -- Vice President of the Fund, has been Senior Vice
President of the Reich & Tang
621733.4
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<PAGE>
Mutual Funds Division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. which she was associated
with from April 1973 to September 1993. Ms. Jones is also a Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund, Reich & Tang Equity Fund, Inc. and Short Term Income Fund.
Dana E. Messina, 40 -- Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995, and
was Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. which she was associated with from December
1980 to September 1993. Ms. Messina is also Vice President of California Daily
Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Florida Daily Municipal Income Fund, Institutional Daily Income Fund, New Jersey
Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc.,
North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal
Income Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc. and
Tax Exempt Proceeds Fund, Inc.
Bernadette N. Finn, 49 -- Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn was formerly
Vice President and Assistant Secretary of Reich & Tang, Inc. which she was
associated with from September 1970 to September 1993. Ms. Finn is also
Secretary of AEW Commercial Mortgage Securities Fund, Inc., California Daily Tax
Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland
Trust, Inc., Daily Tax Free Income Fund, Inc., Florida Daily Municipal Income
Fund, New Jersey Daily Municipal Income Fund Inc., New York Daily Tax Free
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund and Tax Exempt Proceeds Fund, Inc. and
Vice President and Secretary of Delafield Fund, Inc., Institutional Daily Income
Fund, Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc.
Richard De Sanctis, 40 -- Treasurer of the Fund, has been Vice President and
Treasurer of the Manager since September 1993. Mr. De Sanctis was formerly
Controller of Reich & Tang, Inc. from January 1991 to September 1993 and Vice
President and Treasurer of Cortland Financial Group, Inc. and Vice President of
Cortland Distributors, Inc. from 1989 to December 1990. He is also Treasurer of
AEW Commercial Mortgage Securities Fund, Inc., California Daily Tax Free Income
Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income
Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc. and Vice
President and Treasurer of Cortland Trust, Inc.
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
621733.4
-11-
<PAGE>
DISTRIBUTION AND SERVICE PLAN
The material relating to the Manager in the Prospectus is herein incorporated by
reference.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The material relating to Dividends, Distribution and Taxes in the Prospectus is
herein incorporated by reference.
THE GLASS-STEAGALL ACT
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund's position
that banks are not prohibited from acting in other capacities for investment
companies, such as providing administrative and shareholder account maintenance
services and receiving compensation from the Distributor for providing such
services. However, this is an unsettled area of the law and if a determination
contrary to the Fund's position is made by a bank regulatory agency or court
concerning shareholder servicing and administration payments to banks from the
Distributor, any such payments will be terminated and any shares registered in
the banks' names, for their underlying customers, will be re-registered in the
name of the customers at no cost to the Portfolio or its shareholders. In
addition, state securities laws on this issue may differ from the interpretation
of federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
DESCRIPTION OF SHARES
The material relating to the description of shares in the Prospectus is herein
incorporated by reference.
CUSTODIAN AND TRANSFER AGENT
The material relating to the Custodian and Transfer Agent in the Prospectus is
herein incorporated by reference.
PERFORMANCE INFORMATION
The material relating to Performance Information in the Prospectus is herein
incorporated by reference.
NET ASSET VALUE
The Fund determines the net asset value of the shares of the Fund (computed
separately for each Class of shares) of the Fund as of 5:00 p.m., New York City
time, by dividing the value of each 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 number of shares
outstanding of the Fund at the time the determination is made. The Fund
determines its net asset value on each Fund Business Day. Fund Business Day for
this purpose means any day on which the Fund's custodian is open for trading.
Purchases and redemptions will be effected at the time of determination of net
asset value next following the receipt of any purchase or redemption order.
[For purposes of determining the Fund's net asset value per share, readily
marketable portfolio securities listed on the New York Stock Exchange are
valued, except as indicated below, at the last sale price reflected
621733.4
-12-
<PAGE>
on the consolidated tape at the close of the New York Stock Exchange on the
business day as of which such value is being determined. If there has been no
sale on such day, the securities are valued at the mean of the closing bid and
asked prices on such day. If no bid or asked prices are quoted on such day, then
the security is valued by such method as the Board of Directors shall determine
in good faith to reflect its fair market value. Readily marketable securities
not listed on the New York Stock Exchange but listed on other national
securities exchanges or admitted to trading on the National Association of
Securities Dealers Automated Quotations, Inc. ("NASDAQ") National List are
valued in like manner. Portfolio securities traded on more than one national
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by the Manager to be
over-the-counter but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Directors deems appropriate to reflect their fair market value.
The Fund's Board of Directors has determined that U.S. Government obligations
and other debt instruments having sixty days or less remaining until maturity
are stated at amortized cost. All other investment assets, including restricted
and not readily marketable securities, are valued under procedures established
by and under the general supervision and responsibility of the Fund's Board of
Directors designed to reflect in good faith the fair value of such securities.]
DESCRIPTION OF RATINGS*
Moody's Investors Service, Inc. ("Moody's")
Aaa: Bonds which are rated Aaa are judged to be 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 fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
- -----------------------------
* As described by the rating agencies.
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered
621733.4
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<PAGE>
as well assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Unrated: Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
An application for rating was not received or accepted.
1) The issue or issuer belongs to a group of securities that are not rated as
a matter of policy.
2) There is a lack of essential data pertaining to the issue or issuer.
3) The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa-1,
A-1, Baa-1 and B-1.
Standard & Poor's Rating Services, a division of the McGraw-Hill Companies
("S&P'")
AAA: Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the highest rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of this obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, they are
outweighed by large uncertainties of major risk exposures to adverse conditions.
621733.4
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<PAGE>
C1: The rating C1 is reserved for income bonds on which no interest is being
paid.
D: Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
Fitch Investors Service, Inc.
AAA: Securities in this category are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Securities in this category are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as securities rated
"AAA." As securities rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated "F-1+."
A: Securities in this category are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than securities with higher ratings.
BBB: Securities in this category are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment.
BB: Securities are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified, which could
assist the obligor in satisfying its debt service requirements.
B: Securities are considered highly speculative. While securities in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC: Securities have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Securities are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Securities are in imminent default in payment of interest or principal.
DDD, DD, and D: Securities are in default on interest and/or principal payments.
Such securities are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these securities, and "D"
represents the lowest potential for recovery.
Plus (+) or Minus (-): The ratings from AA to C (i.e. five categories below BBB)
may be modified by the addition of a plus or minus sign to indicate the relative
position of a credit within the rating category.
NR: Indicates that Fitch does not rate the specific issue.
621733.4
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<PAGE>
Conditional: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
Duff & Phelps Credit Rating Co.
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
A: Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
BBB: Below-average protection factors but within the definition of investment
grade securities but still considered sufficient for prudent investment.
Considerable variability in risk during economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP: Preferred stock with dividend arrearages.
Plus (+) or Minus (-): The ratings from AA to C (i.e. five categories below BBB)
may be modified by the addition of a plus or minus sign to indicate the relative
position of a credit within the rating category.
621733.4
-16-
<PAGE>
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
* (A) Financial Statements
Included in Prospectus Part A:
(1) Table of Fees and Expenses
Included in Statement of Additional Information Part B:
(1) Report of McGladrey & Pullen, LLP, independent accountants,
dated August __, 1997; and
(2) Statement of Net Assets (audited).
(B) Exhibits
(1) Articles of Incorporation of the Registrant.
(2) By-Laws of the Registrant.
(3) Not applicable.
(4) Not applicable.
* (5) Form of Investment Management Contract between the Registrant
and Back Bay Advisors, L.P.
* (6) See Distribution Agreement filed as Exhibit 15.2.
(7) Not applicable.
* (8) Custody Agreement between the Registrant and Investors
Fiduciary Trust Company.
* (9) Not Applicable.
* (9.1) Form of Administrative Services Agreement between the
Registrant and Reich & Tang Asset Management L.P.
* (10) Consent Opinion of Messrs. Battle Fowler LLP as to
the use of their name under the headings "Federal Income
Taxes" in the Prospectus and "Counsel and Auditors" in the
Statement of Additional Information.
* (11) Consent of Independent Accountants filed as Exhibit 11
herein.
* (12) Not Applicable.
* (13) Written assurance of Reich & Tang Asset Management L.P. that
its purchase of shares of the Registrant was for investment
purposes without any present intention of redeeming or
reselling.
- --------
* To be filed by Amendment
619920.2
C-1
<PAGE>
(14) Not Applicable.
* (15.1) Form of Distribution and Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940.
* (15.2) Form of Distribution Agreement between the Registrant and
Reich & Tang Distributors L.P.
* (15.3) Form of Shareholder Servicing Agreement between the
Registrant and Reich & Tang Distributors L.P.
(16) Not applicable.
* (17) Financial Data Schedule (For EDGAR Filing Only)
* (18) Form of Rule 18f-3 Plan.
Item 25. Persons controlled by or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of August , 1997
--------------- ----------------------
Common Stock
(par value $.0001)
Class A
Class B
Class C
Item 27. Indemnification.
In accordance with Section 2-418 of the General Corporation Law
of the State of Maryland, Article NINTH of the Registrant's Articles
of Incorporation provides as follows:
"NINTH: (a) The Corporation shall indemnify (i) its currently
acting and former directors and officers, whether serving the
Corporation or at its request any other entity, to the fullest extent
required or permitted by the General Laws of the State of Maryland
now or hereafter in force, including the advance of expenses under
the procedures and to the fullest extent permitted by law, and (ii)
other employees and agents to such extent as shall be authorized by
the Board of Directors or the By-Laws and as permitted by law.
Nothing contained herein shall be construed to protect any director
or officer of the Corporation against any liability to the
Corporation or its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking
indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions
and is expressly empowered to adopt, approve and amend from time to
time such by-laws, resolutions or contracts implementing such
provisions or such indemnification
- ----------
* To be filed by Amendment
619920.2
C-2
<PAGE>
arrangements as may be permitted by law. No amendment of the charter
of the Corporation or repeal of any of its provisions shall limit or
eliminate the right of indemnification provided hereunder with
respect to acts or omissions occurring prior to such amendment or
repeal.
(b) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company
Act of 1940, no director or officer of the Corporation shall be
personally liable to the Corporation or its stockholders for money
damages; provided, however, that nothing herein shall be construed to
protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his office. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit or
eliminate the limitation of liability provided to directors and
officers hereunder with respect to any act or omission occurring
prior to such amendment or repeal."
In Section 7 of the Distribution Agreement relating to the securities
being offered hereby, the Registrant agrees to indemnify Back Bay
Funds, Inc. and any person who controls Back Bay Funds, Inc., within
the meaning of the Securities Act of 1933, against certain types of
civil liabilities arising in connection with the Registration
Statement or Prospectus.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
a payment by the Registrant of expenses incurred or paid by a
director, officer or the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
Insofar as the Investment Company Act of 1940 may be concerned,
in the event that a claim for indemnification is asserted by a
director, officer or controlling person of the Registrant in
connection with the securities being registered, the Registrant will
not make such indemnification unless (i) the Registrant has
submitted, before a court or other body, the question of whether the
person to be indemnified was liable by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties, and has
obtained a final decision on the merits that such person was not
liable by reason of such conduct or (ii) in the absence of such
decision, the Registrant shall have obtained a reasonable
determination, based upon a review of the facts, that such person was
not liable by virtue of such conduct, by (a) the vote of a majority
of directors who are neither interested persons as such term is
defined in the Investment Company Act of 1940, nor parties to the
proceeding or (b) an independent legal counsel in a written opinion.
The Registrant will not advance attorneys' fees or other
expenses incurred by the person to be indemnified unless the
Registrant shall have received an undertaking by or on behalf of such
person to repay the advance unless it is ultimately determined that
such person is entitled to indemnification and one of the following
conditions shall have occurred: (x) such person shall provide
security for his undertaking, (y) the Registrant shall be insured
against losses arising by reason of any lawful advances or (z) a
majority of the disinterested, non-party directors of the Registrant,
or an independent legal counsel in a written opinion, shall have
determined that based on a review of readily available facts there is
reason to believe that such person ultimately will be found entitled
to indemnification.
619920.2
C-3
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
The description of the Back Bay Advisors, L.P. ("BBALLP") under the
caption "Management of the Fund" in the Prospectus and "Management and
Investment Management Contract" in the Statement of Additional Information
constituting parts A and B, respectively, of the Registration Statement are
incorporated herein by reference.
The Manager is a [Delaware limited partnership] and a registered
investment adviser under the 1940 Act, with its principal office at 399 Boylston
Street, Boston, Massachusetts 02116-3310. The Manager provides discretionary
investment management services to mutual funds and other institutional
investors. Formed in 1986, the Manager now manages 14 mutual fund portfolios and
as of June 30, 1997, was investment manager, adviser or supervisor with respect
to assets aggregating in excess of $7 billion, primarily mutual fund and
institutional fixed-income portfolios. Ms. Catherine L. Bunting and Mr. Peter W.
Palfrey are primarily responsible for the day-to-day investment management of
the Portfolio. Ms. Bunting has served as Senior Vice President of the Manager
since 1988. Mr. Palfrey has served as Vice President of the Manager since 1993.
Prior to 1993, Mr. Palfrey was employed by Mutual of New York Capital Management
as a Vice President.
New England Investment Companies, L.P. ("NEICLP") is the limited
partner and owner of 99.5% interest in Reich & Tang Asset Management L.P. (the
"Manager"). Reich & Tang Asset Management, Inc. (a wholly-owned subsidiary of
NEICLP) is the sole general partner of NEICLP. Reich & Tang Asset Management
L.P. serves as the sole general partner of Reich & Tang Distributors L.P. Reich
& Tang Asset Management, Inc. serves as the sole limited partner of Reich & Tang
Distributors L.P.
On August 30, 1996, The New England Mutual Life Insurance Company and
Metropolitan Life Insurance Company ("MetLife") merged, with MetLife being the
continuing company. The Manager remains a wholly-owned subsidiary of NEICLP, but
Reich & Tang Asset Management, Inc., its sole general partner, is now an
indirect subsidiary of MetLife. Also, MetLife New England Holding, Inc., a
wholly-owned subsidiary of MetLife, owns approximately 55.9% of the outstanding
limited partnership interest of NEICLP and may be deemed a "controlling person"
of the Manager. Reich & Tang, Inc. owns approximately 17.6% of the outstanding
partnership units of NEICLP.
Registrant's investment adviser, RTAMLP, is a registered investment
adviser. RTAMLP's investment advisory clients include California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust,
Inc., Daily Tax Free Income Fund, Inc., Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., Michigan Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily
Municipal Income Fund, Short Term Income Fund, Inc., and Tax Exempt Proceeds
Fund, Inc., registered investment companies whose addresses are 600 Fifth
Avenue, New York, New York 10020, which invest principally in money market
instruments, Delafield Fund, Inc. and Reich & Tang Equity Fund, Inc., registered
investment companies whose addresses are 600 Fifth Avenue, New York, New York
10020, which invest principally in equity securities. In addition, Reich & Tang
Asset Management L.P. is the sole general partner of Alpha Associates, August
Associates, Reich & Tang Minutus L.P., Reich & Tang Minutus II, L.P., Reich &
Tang Equity Partnerships L.P. and Tucek Partners, L.P., private investment
partnerships organized as limited partnerships.
Peter S. Voss, President, Chief Executive Officer and a Director of NEIC
since October 1992, Chairman of the Board of NEIC since December 1992, Group
Executive Vice President, Bank of America, responsible for the global asset
management private banking businesses, from April 1992 to October 1992,
Executive Vice President of Security Pacific Bank, and Chief Executive Officer
of Security Pacific Hoare Govett Companies, a wholly owned subsidiary of
Security Pacific Corporation, from April 1988 to April 1992, Director of The New
England since March 1993, Chairman of the Board of Directors of NEIC's
subsidiaries other than Loomis, Sayles & Company, Incorporated ("Loomis") and
Back Bay Advisors, Inc. ("Back Bay"), where he serves as a Director, and
Chairman of the Board of Trustees of all of the mutual funds in the TNE Fund
Group and the Zenith Funds. G. Neal Ryland, Executive Vice President, Treasurer
and Chief Financial Officer NEIC since July 1993, Executive Vice President and
Chief Financial Officer of The Boston Company, a diversified financial services
company, from March 1989 until July 1993; from September 1985 to December 1988,
Mr. Ryland was employed by Kenner Parker Toys, Inc. as Senior Vice President and
Chief Financial Officer. Edward N. Wadsworth, Executive Vice President, General
Counsel, Clerk and Secretary of NEIC since December 1989, Senior Vice President
and Associate General Counsel of The New England from 1984 until December 1992,
and Secretary of Westpeak and Draycott and the Treasurer of NEIC. Lorraine C.
Hysler has been Secretary of RTAM since July 1994, Assistant Secretary of NEIC
since September 1993, Vice President of the Mutual Funds Group of NEICLP from
619920.2
C-4
<PAGE>
September 1993 until July 1994, and Vice President of Reich & Tang Mutual Funds
since July 1994. Ms. Hysler joined Reich & Tang, Inc. in May 1977 and served as
Secretary from April 1987 until September 1993. Richard E. Smith, III has been a
Director of Reich & Tang Asset Management Inc. since July 1994, President and
Chief Operating Officer of the Capital Management Group of NEICLP from May 1994
until July 1994, President and Chief Operating Officer of the Reich & Tang
Capital Management Group since July 1994, Executive Vice President and Director
of Rhode Island Hospital Trust from March 1993 to May 1994, President, Chief
Executive Officer and Director of USF&G Review Management Corp. from January
1988 until September 1992. Steven W. Duff has been a Director of RTAM since
October 1994, President and Chief Executive Officer of Reich & Tang Funds since
August 1994, Senior Vice President of NationsBank from June 1981 until August
1994; Mr. Duff is President and a Director of California Daily Tax Free Income
Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income
Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc. and Short Term Income Fund, Inc.,
President and Trustee of Florida Daily Municipal Income Fund, Pennsylvania Daily
Municipal Income Fund, President and Chief Executive Officer of Tax Exempt
Proceeds Fund, Inc., and Executive Vice President of Reich & Tang Equity Fund,
Inc. Bernadette N. Finn has been Vice President - Compliance of RTAM since July
1994, Vice President of Mutual Funds Division of NEICLP from September 1993
until July 1994, Vice President of Reich & Tang Funds since July 1994. Ms. Finn
joined Reich & Tang, Inc. in September 1970 and served as Vice President from
September 1982 until May 1987 and as Vice President and Assistant Secretary from
May 1987 until September 1993. Ms. Finn is also Secretary of California Daily
Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Florida Daily Municipal
Income Fund, Michigan Daily Tax Free Income Funds, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund and Tax Exempt Proceeds Fund, Inc., a Vice President and Secretary of
Delafield Fund, Inc., Reich & Tang Equity Fund, Inc. and Short Term Income Fund,
Inc. Richard De Sanctis has been Vice President and Treasurer of RTAM since July
1994, Assistant Treasurer of NEIC since September 1993 and Treasurer of the
Mutual Funds Group of NEICLP from September 1993 until July 1994, Treasurer of
the Reich & Tang Funds since July 1994. Mr. De Sanctis joined Reich & Tang, Inc.
in December 1990 and served as Controller of Reich & Tang, Inc., from January
1991 to September 1993. Mr. De Sanctis was Vice President and Treasurer of
Cortland Financial Group, Inc. and Vice President of Cortland Distributors, Inc.
from 1989 to December 1990. Mr. De Sanctis is also Treasurer of AEW Commercial
Mortgage Securities Fund, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc.,
Reich & Tang Government Securities Trust, Tax Exempt Proceeds Fund, Inc. and
Short Term Income Fund, Inc. and is Vice President and Treasurer of Cortland
Trust, Inc.
Item 29. Principal Underwriters.
(a) Reich & Tang Distributors L.P., the Registrant's Distributor is
also distributor for California Daily Tax Free Income Fund, Inc., Connecticut
Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income
Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., North Carolina Daily Municipal Income,
Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc.,
Short Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
(b) The following are the directors and officers of Reich & Tang
Asset Management, Inc., the general partner of Reich & Tang Distributors L.P.
Reich & Tang Distributors L.P. does not have any officers. The principal
business address of Messrs. Voss, Ryland, and Wadsworth is 399 Boylston Street,
Boston, Massachusetts 02116. For all other persons the principal address is 600
Fifth Avenue, New York, New York 10020.
619920.2
C-5
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
With the General Partner Positions and Offices
Name of the Distributor With Registrant
<S> <C> <C>
Peter S. Voss Director None
G. Neal Ryland Director None
Edward N. Wadsworth Clerk None
Richard E. Smith III Director None
Steven W. Duff Director President and Director
Bernadette N. Finn Vice President - Compliance Secretary
and Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Vice President and Treasurer
Treasurer
Richard I. Weiner Vice President None
</TABLE>
(c) Not applicable
Item 30. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of Registrant at Reich &
Tang Asset Management L.P., 600 Fifth Avenue, New York, New York 10020 the
Registrant's Manager; Fundtech Services L.P., 3 University Plaza, Hackensack,
New Jersey 07601, the Registrant's transfer agent and dividend distributing
agent; and at Investors Fiduciary Trust Company, 127 West 10th Street, Kansas
City, Missouri 64104, the Registrant's custodian.
Item 31. Management Services.
Not Applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified, within
four to six months from the effective date of its Securities
Act Registration Statement.
619920.2
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York, and State of New York, on the 18th day of
August, 1997.
BACK BAY FUNDS, INC.
By: /s/ Bernadette N. Finn
-----------------------------
Bernadette N. Finn, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated below.
Signature Title Date
(1) Principal Executive Officer: Chairman and President
Steven W. Duff
August 18, 1997
By: /s/ Steven W. Duff
-----------------------
Steven W. Duff
(2) Majority of Directors
Steven W. Duff Director August 18, 1997
Bernadette N. Finn Director
By: /s/ Steven W. Duff
------------------------
Steven W. Duff
By: /s/ Bernadette N. Finn
------------------------
Bernadette N. Finn
619920.2
<PAGE>
Exhibit Index
(1) Articles of Incorporation of the Registrant.
(2) By-Laws of the Registrant.
(3) Not applicable.
(4) Not applicable.
* (5) Form of Investment Management Contract between the Registrant
and Back Bay Advisors, L.P.
* (6) See Distribution Agreement filed as Exhibit 15.2.
(7) Not applicable.
* (8) Custody Agreement between the Registrant and Investors
Fiduciary Trust Company.
* (9) Not Applicable.
* (9.1) Form of Administrative Services Agreement between the
Registrant and Reich & Tang Asset Management L.P.
* (10) Consent Opinion of Messrs. Battle Fowler LLP as to
the use of their name under the headings "Federal Income
Taxes" in the Prospectus and "Counsel and Auditors" in the
Statement of Additional Information.
* (11) Consent of Independent Accountants filed as Exhibit 11 herein.
* (12) Not Applicable.
* (13) Written assurance of Reich & Tang Asset Management L.P. that
its purchase of shares of the Registrant was for investment
purposes without any present intention of redeeming or
reselling.
(14) Not Applicable.
* (15.1) Form of Distribution and Service Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940.
* (15.2) Form of Distribution Agreement between the Registrant and
Reich & Tang Distributors L.P.
* (15.3) Form of Shareholder Servicing Agreement between the
Registrant and Reich & Tang Distributors L.P.
(16) Not applicable.
* (17) Financial Data Schedule (For EDGAR Filing Only)
* (18) Form of Rule 18f-3 Plan.
- --------
* To be filed by Amendment
619920.2
C-9
ARTICLES OF INCORPORATION
OF
BACK BAY FUNDS, INC.
FIRST: (1) The name of the incorporator is Amy McGuffin.
(2) The incorporator's post office address is 75 East 55th
Street, New York, New York 10022.
(3) The incorporator is over eighteen years of age.
(4) The incorporator is forming the corporation named in
these Articles of Incorporation under the General Corporation Law of the State
of Maryland.
SECOND: The name of the corporation (hereinafter called the
"Corporation") is Back Bay Funds, Inc.
THIRD: The purposes for which the Corporation is formed are:
(1) to conduct, operate and carry on the business of an
investment company;
(2) to subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign,
transfer, exchange, distribute or otherwise dispose of
notes, bills, bonds, debentures and other negotiable or
non-negotiable instruments, obligations and evidences
of indebtedness issued or guaranteed as to principal
and interest by the United States Government, or any
agency or instrumentality thereof, any State or local
government, or any agency or instrumentality thereof,
or any other securities of any kind issued by any
corporation or other issuer organized under the laws of
the United States or any State, territory or possession
thereof or any foreign country or any subdivision
thereof or otherwise, to pay for the same in cash or by
the issue of stock, including treasury stock, bonds and
notes of the Corporation or otherwise; and to exercise
any and all rights, powers and privileges of ownership
or interest in respect of any and all such investments
of every kind and description, including and without
limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more
persons, firms, associations or corporations to
exercise any of
619967.1
<PAGE>
said rights, powers and privileges in respect of any
said investments;
(3) to conduct research and investigations in respect of
securities, organizations, business and general
business and financial conditions in the United States
of America and elsewhere for the purpose of obtaining
information pertinent to the investment and employment
of the assets of the Corporation and to procure any and
all of the foregoing to be done by others as
independent contractors and to pay compensation
therefor;
(4) to borrow money or otherwise obtain credit and to
secure the same by mortgaging, pledging or otherwise
subjecting as security the assets of the Corporation,
and to endorse, guarantee or undertake the performance
of any obligation, contract or engagement of any other
person, firm, association or corporation;
(5) to issue, sell, distribute, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, dispose of,
transfer, and otherwise deal in, shares of stock of the
Corporation, including shares of stock of the
Corporation in fractional denominations, and to apply
to any such repurchase, redemption, retirement,
cancellation or acquisition of shares of stock of the
Corporation, any funds or property of the Corporation,
whether capital or surplus or otherwise, to the full
extent now or hereafter permitted by the laws of the
State of Maryland and by these Articles of
Incorporation;
(6) to conduct its business, promote its purposes, and
carry on its operations in any and all of its branches
and maintain offices both within and without the State
of Maryland, in any and all States of the United States
of America, in the District of Columbia, and in any or
all commonwealths, territories, dependencies, colonies,
possessions, agencies, or instrumentalities of the
United States of America and of foreign governments;
(7) to carry out all or any part of the foregoing purposes
or objects as principal or agent, or in conjunction
with any other person, firm, association, corporation
or other entity, or as a partner or member of a
partnership, syndicate or joint venture or otherwise,
and in any part of the world to the same extent and as
fully as natural persons might or could do;
-2-
619967.1
<PAGE>
(8) to have and exercise all of the powers and privileges
conferred by the laws of the State of Maryland upon
corporations formed under the laws of such State; and
(9) to do any and all such further acts and things and to
exercise any and all such further powers and privileges
as may be necessary, incidental, relative, conducive,
appropriate or desirable for the foregoing purposes.
The enumeration herein of the objects and purposes of the
Corporation shall be construed as powers as well as objects and purposes and
shall not be deemed to exclude by inference any powers, objects or purposes
which the Corporation is empowered to exercise, whether expressly by force of
the laws of the State of Maryland now or hereafter in effect, or impliedly by
the reasonable construction of the said law.
FOURTH: The post office address of the principal office
of the Corporation within the State of Maryland is 11 East Chase Street,
Baltimore City, Maryland 21202.
FIFTH: The resident agent of the Corporation in the State of
Maryland is CSC-Lawyers Incorporating Service Company, Maryland, at 11 East
Chase Street, Baltimore, Maryland 21202.
SIXTH: (1) The total number of shares of stock of all classes
and series which the Corporation initially has authority to issue is twenty
billion (20,000,000,000) shares of capital stock (par value of One Tenth of One
Cent $.001 per share), amounting in aggregate par value to $20,000,000. All of
such shares are classified as "Common Stock".
(2) The Board of Directors may classify or reclassify any
unissued shares of capital stock (whether or not such shares have been
previously classified or reclassified) from time to time by setting or changing
in any one or more respects the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such shares of stock.
(3) Unless otherwise prohibited by law, so long as the
Corporation is registered as an open-end management company under the Investment
Company Act of 1940, the Board of Directors shall have the power and authority,
without the approval of the holders of any outstanding shares, to increase or
decrease the number of shares of capital stock or the number of shares of
capital stock of any class or series that the Corporation has authority to
issue.
-3-
619967.1
<PAGE>
(4) Until such time as the Board of Directors shall provide
otherwise in accordance with Section (2) of this Article SIXTH four billion
(4,000,000,000) shares of the authorize shares of stock of the Corporation shall
be allocated to the following class of Common Stock: Total Return Portfolio
Common Stock. The balance of sixteen billion (16,000,000,000) shares of such
stock may be issued in this class, or in any new class or classes each
comprising such number of shares and having such designations, limitations and
restrictions thereof as shall be fixed and determined from time to time by
resolution or resolutions providing for the issuance of such stock adopted by
the Board of Directors.
(5) Any series of Common Stock shall be referred to herein
individually as a "Series" and collectively, together with any further series
from time to time established, as the "Series".
(6) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the shares
of Common Stock of the Corporation (unless provided otherwise by the Board of
Directors with respect to any such additional Series at the time it is
established and designated):
(a) Asset Belonging to Series. All consideration
received by the Corporation from the issue or sale of shares
of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings,
profits and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any investment or reinvestment
of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject
only to the rights of creditors, and shall be so recorded upon
the books of account of the Corporation. Such consideration,
assets, income, earnings, profits and proceeds, together with
any General Items allocated to that Series as provided in the
following sentence, are herein referred to collectively as
"assets belonging to" that Series. In the event that there are
any assets, income, earnings, profits or proceeds which are
not readily identifiable as belonging to any particular Series
(collectively, "General Items"), such General Items shall be
allocated by or under the supervision of the Board of
Directors to and among any one or more of the Series
established and designated from time to time in such manner
and on such basis as the Board of Directors, in its sole
discretion, deems fair and equitable; and any General
-4-
619967.1
<PAGE>
Items so allocated to a particular Series shall belong to that
Series. Each such allocation by the Board of Directors shall
be conclusive and binding for all purposes.
(b) Liabilities of Series. The assets belonging to
each particular Series shall be charged with the liabilities
of the Corporation in respect of that Series and all expenses,
costs, charges and reserves attributable to that Series, and
any general liabilities, expenses, costs, charges or reserves
of the Corporation which are not readily identifiable as
pertaining to any particular Series, shall be allocated and
charged by or under the supervision of the Board of Directors
to and among any one or more of the Series established and
designated from time to time in such manner and on such basis
as the Board of Directors, in its sole discretion, deems fair
and equitable. The liabilities, expenses, costs, charges and
reserves allocated and so charged to a Series are herein
referred to collectively as "liabilities of" that Series. Each
allocation of liabilities, expenses, costs, charges and
reserves by or under the supervision of the Board of Directors
shall be conclusive and binding for all purposes.
(c) Dividends and Distributions. Dividends and
capital gains distributions on shares of a particular Series
may be paid with such frequency, in such form and in such
amount as the Board of Directors may determine by resolution
adopted from time to time, or pursuant to a standing
resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine, after
providing for actual and accrued liabilities of that Series.
All dividends on shares of a particular Series shall be paid
only out of the income belonging to that Series and all
capital gains distributions on shares of a particular series
shall be paid only out of the capital gains belonging to that
Series. All dividends and distributions on shares of a
particular Series shall be distributed pro rata to the holders
of that Series in proportion to the number of shares of that
Series held by such holders at the date and time of record
established for the payment of such dividends or
distributions, except that in connection with any dividend or
distribution program or procedure, the Board of Directors may
determine that no dividend or distribution shall be payable on
shares as to which the stockholder's purchase order and/or
payment have not been received by the time or times
established by the Board of Directors under such program or
procedure.
-5-
619967.1
<PAGE>
Dividends and distributions may be paid in cash,
property or additional shares of the same or another Series,
or a combination thereof, as determined by the Board of
Directors or pursuant to any program that the Board of
Directors may have in effect at the time for the election by
stockholders of the form in which dividends or distributions
are to be paid. Any such dividend or distribution paid in
shares shall be paid at the current net asset value thereof.
(d) Voting. On each matter submitted to a vote of the
stockholders, each holder of shares shall be entitled to one
vote for each share standing in his name on the books of the
Corporation, irrespective of the Series thereof, and all
shares of all Series shall vote as a single class ("Single
Class Voting"); provided, however, that (i) as to any matter
with respect to which a separate vote of any Series is
required by the Investment Company Act of 1940 or by the
Maryland General Corporation Law, such requirement as to a
separate vote by that Series shall apply in lieu of Single
Class Voting; (ii) in the event that the separate vote
requirement referred to in clause (i) above applies with
respect to one or more Series, then, subject to clause (iii)
below, the shares of all other Series shall vote as a single
class; and (iii) as to any matter which does not affect the
interest of a particular Series, including liquidation of
another Series as described in subsection (7) below, only the
holders of shares of the one or more affected Series shall be
entitled to vote.
(e) Redemption by Stockholders. Each holder of shares
of a particular Series shall have the right at such times as
may be permitted by the Corporation to require the Corporation
to redeem all or any part of his shares of that Series, at a
redemption price per share equal to the net asset value per
share or that Series next determined after the shares are
properly tendered for redemption, less such redemption fee or
sales charge, if any, as may be established from time to time
by the Board of Directors in its sole discretion. Payment of
the redemption price shall be in cash; provided, however, that
if the Board of Directors determines, which determination
shall be conclusive, that conditions exist which make payment
wholly in cash unwise or undesirable, the Corporation may, to
the extent and in the manner permitted by the Investment
Company Act of 1940, make payment wholly or partly in
securities or other assets belonging to the Series of which
the shares being redeemed are a part,
-6-
619967.1
<PAGE>
at the value of such securities or assets used in such
determination of net asset value.
Payment by the Corporation for shares of stock of the
Corporation surrendered to it for redemption shall be made by
the Corporation within such period from surrender as may be
required under the Investment Company Act and the rules and
regulations thereunder. Notwithstanding the foregoing, the
Corporation may postpone payment of the redemption price and
may suspend the right of the holders of shares of any Series
to require the Corporation to redeem shares of that Series
during any period or at any time when and to the extent
permissible under the Investment Company Act of 1940.
(f) Redemption by Corporation. The Board of Directors
may cause the Corporation to redeem at their net asset value
the shares of any Series held in an account having, because of
redemptions or exchanges, a net asset value on the date of the
notice of redemption less than the Minimum Amount, as defined
below, in that Series specified by the Board of Directors from
time to time in its sole discretion, provided that at least 30
days prior written notice of the proposed redemption has been
given to the holder of any such account by first class mail,
postage prepaid, at the address contained in the books and
records of the Corporation and such holder has been given an
opportunity to purchase the required value of additional
shares.
(i) The term "Minimum Amount" when used
herein shall mean One Thousand Dollars ($1,000)
unless otherwise fixed by the Board of Directors from
time to time, provided that the Minimum Amount may
not in any event exceed Twenty-Five Thousand Dollars
($25,000). The Board of Directors may establish
differing Minimum Amounts for each class and series
of the Corporation's stock and for holders of shares
of each such class and series of stock based on such
criteria as the Board of Directors may deem
appropriate.
(ii) The Corporation shall be entitled but
not required to redeem shares of stock from any
stockholder or stockholders, as provided in this
subsection (6), to the extent and at such times as
the Board of Directors shall, in its absolute
discretion, determine to be necessary or advisable to
prevent the Corporation from qualifying as a
"personal holding company", within the meaning of
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the Internal Revenue Code of 1986, as amended from
time to time.
(g) Liquidation. In the event of the liquidation of a
particular Series, the stockholders of the Series that is
being liquidated shall be entitled to receive, as a class,
when and as declared by the Board of Directors, the excess of
the assets belonging to that Series over the liabilities of
that Series. The holders of shares of any particular Series
shall not be entitled thereby to any distribution upon
liquidation of any other Series. The assets so distributable
to the stockholders of any particular Series shall be
distributed among such stockholders in proportion to the
number of shares of that Series held by them and recorded on
the books of the Corporation. The liquidation of any
particular Series in which there are shares then outstanding
may be authorized by vote of a majority of the Board of
Directors then in office, subject to the approval of a
majority of the outstanding voting securities of that Series,
as defined in the Investment Company Act of 1940, and without
the vote of the holders of shares of any other Series. The
liquidation of a particular Series may be accomplished, in
whole or in part, by the transfer of assets of such Series to
another Series or by the exchange of shares of Series for the
shares of another Series.
(h) Net Asset Value Per Share. The net asset value
per share of any Series shall be the quotient obtained by
dividing the value of the net assets of that Series (being the
value of the assets belonging to that Series less the
liabilities of that Series) by the total number of shares of
that Series outstanding, all as determined by or under the
direction of the Board of Directors in accordance with
generally accepted accounting principles and the Investment
Company Act of 1940. Subject to the applicable provisions of
the Investment Company Act of 1940, the Board of Directors, in
its sole discretion, may prescribe and shall set forth in the
By-Laws of the Corporation or in a duly adopted resolution of
the Board of Directors such bases and times for determining
the value of the assets belonging to, and the net asset value
per share of outstanding shares of, each Series, or the net
income attributable to such shares, as the Board of Directors
deems necessary or desirable. The Board of Directors shall
have full discretion, to the extent not inconsistent with the
Maryland General Corporation Law and the Investment Company
Act of 1940, to determine which item shall be treated as
income and which items
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as capital and whether any item of expense shall be charged to
income or capital. Each such determination and allocation
shall be conclusive and binding for all purposes.
The Board of Directors may determine to maintain the
net asset value per share of any Series at a designated
constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the Investment Company Act of
1940 for the continuing declaration of income attributable to
that Series as dividends and for the handling of any losses
attributable to that Series. Such procedures may provide that
in the event of any loss, each stockholder shall be deemed to
have contributed to the capital of the Corporation
attributable to that Series his pro rata portion of the total
number of shares required to be canceled in order to permit
the net asset value per share of that Series to be maintained,
after reflecting such loss, at the designated constant dollar
amount. Each stockholder of the Corporation shall be deemed to
have agreed, by his investment in any Series with respect to
which the Board of Directors shall have adopted any such
procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
(i) Equality. All shares of each particular Series
shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities of that
Series), and each share of any particular Series shall be
equal to each other share of that Series. The Board of
Directors may from time to time divide or combine the shares
of any particular Series into a greater or lesser number of
shares of that series without thereby changing the
proportionate interest in the assets belonging to that Series
or in any way affecting the rights of holders of shares of any
other Series.
(j) Conversion or Exchange Rights. Subject to
compliance with the requirements of the Investment Company Act
of 1940, the Board of Directors shall have the authority to
provide that holders of shares of any Series shall have the
right to convert or exchange said shares into shares of one or
more other Series of shares in accordance with such
requirements and procedures as may be established by the Board
of Directors.
(7) The Board of Directors may, from time to time and
without stockholder action, classify shares of a particular
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Series into one or more additional classes of that Series, the voting, dividend,
liquidation and other rights of which shall differ from the classes of common
stock of that Series to the extent provided in Articles Supplementary for such
additional class, such Articles to be filed for record with the appropriate
authorities of the State of Maryland. Each class so created shall consist, until
further changed, of the lesser of (x) the number of shares classified in Section
(5) of this Article SIXTH or (y) the number of shares that could be issued by
issuing all of the shares of that Series currently or hereafter classified less
the total number of shares of all classes of such Series then issued and
outstanding. Any class of a Series of Common Stock shall be referred to herein
individually as a "Class" and collectively, together with any further class or
classes of such Series from time to time established, as the "Classes".
(8) All Classes of a particular Series of Common Stock of
the Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights with any other shares
of Common Stock of that Series; provided, however, that notwithstanding anything
in the charter of the Corporation to the contrary:
(a) Any class of shares may be subject to such sales
loads, contingent deferred sales charges, Rule 12b-1 fees,
administrative fees, service fees, or other fees, however
designated, in such amounts as may be established by the Board
of Directors from time to time in accordance with the
Investment Company Act of 1940.
(b) Expenses related solely to a particular Class of
a Series (including, without limitation, distribution expenses
under a Rule 12b-1 plan and administrative expenses under an
administration or service agreement, plan or other
arrangement, however designated) shall be borne by that Class
and shall be appropriately reflected (in the manner determined
by the Board of Directors) in the net asset value, dividends,
distributions and liquidation rights of the shares of that
Class.
(c) As to any matter with respect to which a separate
vote of any Class of a Series is required by the Investment
Company Act of 1940 or by the Maryland General Corporation Law
(including, without limitation, approval of any plan,
agreement or other arrangement referred to in subsection (b)
above), such requirement as to a separate vote by that Class
shall apply in lieu of Single Class Voting, and if permitted
by the Investment Company Act of 1940 or the Maryland General
Corporation Law, the Classes of more than one Series
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<PAGE>
shall vote together as a single class on any such matter which
shall have the same effect on each such Class. As to any
matter which does not affect the interest of a particular
Class of a Series, only the holders of shares of the affected
Classes of that Series shall be entitled to vote.
(9) The Corporation may issue and sell fractions of shares
of capital stock having pro rata all the rights of full shares, including,
without limitation, the right to vote and to receive dividends, and wherever the
words "share" or "shares" are used in the charter or By-Laws of the Corporation,
they shall be deemed to include fractions of shares where the context does not
clearly indicate that only full shares are intended.
(10) The Corporation shall not be obligated to issue
certificates representing shares of any Class or Series of capital stock. At the
time of issue or transfer of shares without certificates, the Corporation shall
provide the stockholder with such information as may be required under the
Maryland General Corporation Law.
(11) No holder of any shares of stock of the Corporation
shall be entitled as of right to subscribe for, purchase, or otherwise acquire
any such shares which the Corporation shall issue or propose to issue; and any
and all of the shares of stock of the Corporation, whether now or hereafter
authorized, may be issued, or may be reissued or transferred if the same have
been reacquired and have treasury status, by the Board of Directors to such
persons, firms, corporations and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine, without first offering same, or any thereof, to any said holder.
(12) All persons who shall acquire stock or other securities
of the Corporation shall acquire the same subject to the provisions of these
Articles of Incorporation, as from time to time amended.
SEVENTH: The number of directors of the Corporation, until
such number shall be increased pursuant to the By-Laws of the Corporation, shall
be two. The number of directors shall never be less than the number prescribed
by the General Corporation Law of the State of Maryland and shall never be more
than twenty. The names of the persons who shall act as directors of the
Corporation until their successors are duly chosen and qualify are Steven W.
Duff and Bernadette N. Finn.
EIGHTH: The following provisions are inserted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the Board
of Directors and stockholders.
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<PAGE>
(1) The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which shall have and may
exercise all powers of the Corporation except those powers which are by law, by
these Articles of Incorporation or by the By-Laws conferred upon or reserved to
the stockholders. In furtherance and not in limitation of the powers conferred
by law, the Board of Directors shall have power:
(a) to make, alter and repeal the By-Laws of the
Corporation;
(b) to issue and sell, from time to time, shares of
any class or series of the Corporation's stock in such amounts
and on such terms and conditions, and for such amount and kind
of consideration, as the Board of Directors shall determine,
provided that the consideration per share to be received by
the Corporation shall be not less than the greater of the net
asset value per share of that class of stock at such time
computed in accordance with Article SIXTH hereof or the par
value thereof;
(c) from time to time to set apart out of any
assets of the Corporation otherwise available for dividends a
reserve or reserves for working capital or for any other
proper purpose or purposes, and to reduce, abolish or add to
any such reserve or reserves from time to time as said Board
of Directors may deem to be in the best interests of the
Corporation; and to determine in its discretion what part of
the assets of the Corporation available for dividends in
excess of such reserve or reserves shall be declared in
dividends and paid to the stockholders of the Corporation; and
(d) from time to time to determine to what extent
and at what times and places and under what conditions and
regulations the accounts, books and records of the
Corporation, or any of them, shall be open to the inspection
of the stockholders; and no stockholder shall have any right
to inspect any account or book or document of the Corporation,
except as conferred by the laws of the State of Maryland,
unless and until authorized to do so by resolution of the
Board of Directors or of the stockholders of the Corporation.
(2) Notwithstanding any provision of the General Corporation
Law of the State of Maryland requiring a greater proportion than a majority of
the votes of all classes or of any class of the Corporation's stock entitled to
be cast in order to take or authorize any action, any such action may be taken
or authorized upon the concurrence of a majority of the aggregate number of
votes entitled to be cast thereon subject to any
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applicable requirements of the Investment Company Act of 1940, as from time to
time in effect, or rules or orders of the Securities and Exchange Commission or
any successor thereto.
(3) Except as may otherwise be expressly provided by
applicable statutes or regulatory requirements, the presence in person or by
proxy of the holders of one-third of the shares of stock of the Corporation
entitled to vote shall constitute a quorum at any meeting of the stockholders.
(4) Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted
accounting principles by or pursuant to the discretion of the Board of
Directors, as to the amount of the assets, debts, obligations, or liabilities of
the Corporation, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purposes for creating such reserves or
charges, as to the use, alteration or cancellation of any reserves or charges
(whether or not any debt, obligation or liability for which such reserves or
charges shall have been created shall have been paid or discharged or shall by
then or thereafter required to be paid or discharged), as to the value of or the
method of valuing any investment owned or held by the Corporation, as to the
market value or fair value of any investment or fair value of any other asset of
the Corporation, as to the allocation of any asset of the Corporation to a
particular class or classes of the Corporation's stock, as to the charging of
any liability of the Corporation to a particular class or classes of the
Corporation's stock, as to the number of shares of the Corporation outstanding,
as to the estimated expense to the Corporation in connection with purchases of
its shares, as to the ability to liquidate investments in orderly fashion, or as
to any other matters relating to the issue, sale, purchase and/or other
acquisition or disposition of investments or shares of the Corporation, shall be
final and conclusive and shall be binding upon the Corporation and all holders
of its shares, past, present and future, and shares of the Corporation are
issued and sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.
(5) Except to the extent prohibited by the Investment
Company Act of 1940, as amended, or rules, regulations or orders thereunder
promulgated by the Securities and Exchange Commission or any successor thereto
or by the By-Laws of the Corporation, a director, officer or employee of the
Corporation shall not be disqualified by his position from dealing or
contracting with the Corporation, nor shall any transaction or contract of the
Corporation be void or voidable by reason of the fact that any director, officer
or employee or any firm of which any director, officer or employee is a member
or any corporation of which any director, officer or employee is a stockholder,
officer or director, is in any way interested in such transaction or
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<PAGE>
contract; provided that in case a director, or a firm or corporation of which a
director is a member, stockholder, officer or director, is so interested, such
fact shall be disclosed to or shall have been known by the Board of Directors or
a majority thereof; and any director of the Corporation who is so interested, or
who is a member, stockholder, officer or director of such firm or corporation,
may be counted in determining the existence of a quorum at any meeting of the
Board of Directors of the Corporation which shall authorize any such transaction
or contract, with like force and effect as if he were not such director, or
member, stockholder, officer or director of such firm or corporation.
(6) Specifically and without limitation of the foregoing
subsection (e) but subject to the exception therein prescribed, the Corporation
may enter into management or advisory, underwriting, distribution and
administration contracts and other contracts, and may otherwise do business,
with Reich & Tang Asset Management L.P., and any parent, subsidiary, partner, or
affiliate of such firm or any affiliates of any such affiliate, or the
stockholders, directors, officers, partners and employees thereof, and may deal
freely with one another notwithstanding that the Board of Directors of the
Corporation may be composed in part of directors, officers, partners or
employees of such firm and/or its parents, subsidiaries or affiliates and that
officers of the Corporation may have been, be or become directors, officers, or
employees of such firm, and/or its parents, subsidiaries or affiliates, and
neither such management or advisory, underwriting, distribution or
administration contracts nor any other contract or transaction between the
Corporation and such firm and/or its parents, subsidiaries or affiliates shall
be invalidated or in any way affected thereby, nor shall any director or officer
of the Corporation be liable to the Corporation or to any stockholder or
creditor thereof or to any person for any loss incurred by it or him under or by
reason of such contract or transaction; provided that nothing herein shall
protect any director or officer of the Corporation against any liability to the
Corporation or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office; and provided always that
such contract or transaction shall have been on terms that were not unfair to
the Corporation at the time at which it was entered into.
NINTH: (1) The Corporation shall indemnify (i) its currently
acting and former directors and officers, whether serving the Corporation or at
its request any other entity, to the fullest extent required or permitted by the
General Laws of the State of Maryland now or hereafter in force, including the
advance of expenses under the procedures and to the fullest extent permitted by
law, and (ii) other employees and agents to
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such extent as shall be authorized by the Board of Directors or the By-Laws and
as permitted by law. Nothing contained herein shall be construed to protect any
director or officer of the Corporation against any liability to the Corporation
or its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such indemnification
arrangements as may be permitted by law. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit or eliminate the
right of indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.
(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company Act of
1940, no director or officer of the Corporation shall be personally liable to
the Corporation or its stockholders for money damages; provided, however, that
nothing herein shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. No amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of liability provided to
directors and officers hereunder with respect to any act or omission occurring
prior to such amendment or repeal.
TENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in these Articles of Incorporation or
in any amendment hereto in the manner now or hereafter prescribed by the laws of
the State of Maryland and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned, being the incorporator of
the Corporation, has adopted and signed these Articles of Incorporation for the
purpose of forming the corporation described herein pursuant to the General
Corporation
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law of the State of Maryland and does hereby acknowledge that said adoption and
signing are her act.
Amy McGuffin
Dated: August 15, 1997
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BY-LAWS
OF
BACK BAY FUNDS, INC.
a Maryland corporation
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The Corporation shall
have a principal office in the City of Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have offices
also at such other places within and without the State of Maryland as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders shall be
held at such place, either within the State of Maryland or at such other place
within the United States, as shall be fixed from time to time by the Board of
Directors.
Section 2. Annual Meetings. The Corporation shall not be
required to hold an annual meeting of its stockholders in any year in which none
of the following is required to be acted on by the holders of any class or
series of stock under the Investment Company Act of 1940: (a) election of the
directors, (b) approval of the Corporation's investment advisory agreement with
respect to a particular class or series; (c) ratification of the selection of
independent public accountants; and (d) approval of the Corporation's
distribution agreement with respect to a particular class or series. In the
event that the Corporation shall be required to hold an annual meeting of
stockholders by the Investment Company Act of 1940, such meeting of stockholders
shall be held on a date fixed from time to time by the Board of Directors not
less than ninety nor more than one hundred twenty days following the end of such
fiscal year of the Corporation.
Section 3. Notice of Annual Meeting. Written or printed notice
of an annual meeting, stating the place, date and hour thereof, shall be given
to each stockholder entitled to vote
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thereat not less than ten nor more than ninety days before the date of the
meeting.
Section 4. Special Meetings. Special meetings of stockholders
may be called by the chairman, the president or by the Board of Directors and
shall be called by the secretary upon the written request of holders of shares
entitled to cast not less than twenty-five percent of all the votes entitled to
be cast at such meeting. Such request shall state the purpose or purposes of
such meeting and the matters proposed to be acted on thereat. In the case of
such request for a special meeting, upon payment by such stockholders to the
Corporation of the estimated reasonable cost of preparing and mailing a notice
of such meeting, the secretary shall give the notice of such meeting. The
secretary shall not be required to call a special meeting to consider any matter
which is substantially the same as a matter acted upon at any special meeting of
stockholders held within the preceding twelve months unless requested to do so
by the holders of shares entitled to cast not less than a majority of all votes
entitled to be cast at such meeting.
Section 5. Notice of Special Meeting. Written or printed
notice of a special meeting of stockholders, stating the place, date, hour and
purpose thereof, shall be given by the secretary to each stockholder entitled to
vote thereat not less than ten nor more than ninety days before the date fixed
for the meeting.
Section 6. Business of Special Meetings. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice thereof.
Section 7. Quorum. Except as may otherwise be expressly
provided by applicable statutes or regulations, the holders of one-third of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business.
Section 8. Voting. When a quorum is present at any meeting,
the affirmative vote of a majority of the votes cast shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the Investment Company Act of 1940, as from time to time in effect,
or other statutes or rules or orders of the Securities and Exchange Commission
or any successor thereto or of the Articles of Incorporation, a different vote
is required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Proxies. Each stockholder shall at every meeting of
stockholders be entitled to one vote in person or by
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proxy for each share of the stock having voting power held by such stockholder,
but no proxy shall be voted after eleven months from its date, unless otherwise
provided in the proxy.
Section 10. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, to express consent to corporate action
in writing without a meeting, or to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date
which shall be not more than ninety days and, in the case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be taken. In lieu of
fixing a record date, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period, but not to exceed, in any case,
twenty days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days immediately
preceding such meeting. If no record date is fixed and the stock transfer books
are not closed for the determination of stockholders: (1) the record date for
the determination of stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on the day on which
notice of the meeting of stockholders is mailed or the day thirty days before
the meeting, whichever is the closer date to the meeting; and (2) the record
date for the determination of stockholders entitled to receive payment of a
dividend or an allotment of any rights shall be at the close of business on the
day on which the resolution of the Board of Directors, declaring the dividend or
allotment of rights, is adopted, provided that the payment or allotment date
shall not be more than ninety days after the date of the adoption of such
resolution.
Section 11. Inspectors of Election. The directors, in advance
of any meeting, may, but need not, appoint one or more inspectors to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his or her
ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power
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of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or her or them
and execute a certificate of any fact found by him or her or them.
Section 12. Informal Action by Stockholders. Except to the
extent prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of directors shall
be fixed at no less than two nor more than twenty. Within the limits specified
above, the number of directors shall be fixed from time to time by the Board of
Directors, but the tenure of office of a director in office at the time of any
decrease in the number of directors shall not be affected as a result thereof.
The directors shall be elected to hold office at the annual meeting of
stockholders, except as provided in Section 2 of this Article, and each director
shall hold office until the next annual meeting of stockholders or until his
successor is elected and qualified. Any director may resign at any time upon
written notice to the Corporation. Any director may be removed, either with or
without cause, at any meeting of stockholders duly called and at which a quorum
is present by the affirmative vote of the majority of the votes entitled to be
cast thereon, and the vacancy in the Board of Directors caused by such removal
may be filled by the stockholders at the time of such removal. Directors need
not be stockholders.
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Section 2. Vacancies and Newly Created Directorships. Any
vacancy occurring in the Board of Directors for any cause, including an increase
in the number of directors, may be filled by the stockholders or by a majority
of the remaining members of the Board of Directors even if such majority is less
than a quorum. So long as the Corporation is a registered investment company
under the Investment Company Act of 1940, vacancies in the Board of Directors
may be filled by a majority of the remaining members of the Board of Directors
only if, immediately after filing any such vacancy, at least two-thirds of the
directors then holding office shall have been elected to such office at a
meeting of stockholders. A director elected by the Board of Directors to fill a
vacancy shall be elected to hold office until the next annual meeting of
stockholders or until his successor is elected and qualifies.
Section 3. Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors which shall
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
By-Laws conferred upon or reserved to the stockholders.
Section 4. Annual Meeting. The first meeting of each newly
elected Board of Directors shall be held immediately following the adjournment
of the annual meeting of stockholders and at the place thereof. No notice of
such meeting to the directors shall be necessary in order legally to constitute
the meeting, provided a quorum shall be present. In the event such meeting is
not so held, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 5. Other Meetings. The Board of Directors of the
Corporation or any committee thereof may hold meetings, both regular and
special, either within or without the State of Maryland. Regular meetings of the
Board of Directors may be held without notice at such time and at such place as
shall from time to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the chairman, the president
or by two or more directors. Notice of special meetings of the Board of
Directors shall be given by the secretary to each director at least three days
before the meeting if by mail or at least 24 hours before the meeting if given
in person or by telephone or by telegraph. The notice need not specify the
business to be transacted.
Section 6. Quorum and Voting. At meetings of the Board of
Directors, two of the directors in office at the time, but in no event less than
one-third of the entire Board of Directors, shall constitute a quorum for the
transaction of business. When required pursuant to Section 15(c) under the
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Investment Company Act of 1940 or Rule 12b-1 thereunder a quorum shall also
require the presence in person of a majority of directors who are not parties to
a contract or agreement to be voted upon or interested persons of any such
party. The action of a majority of the directors present at a meeting at which a
quorum is present shall be the action of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 7. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, appoint from
among its members an executive committee and other committees of the Board of
Directors, each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may, to the extent provided in the
resolution, delegate to such committees, in the intervals between meetings of
the Board of Directors, any or all of the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except the power
to declare dividends, to issue stock, to recommend to stockholders any action
requiring stockholders' approval, to amend the By-Laws or to approve any merger
or share exchange which does not require stockholders' approval. Such committee
or committees shall have the name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless the Board of
Directors designates one or more directors as alternate members of any
committee, who may replace an absent or disqualified member at any meeting of
the committee, the members of any such committee present at any meeting and not
disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member of such committee. At
meetings of any such committee, a majority of the members or alternate members
of such committee shall constitute a quorum for the transaction of business and
the act of a majority of the members or alternate members present at any meeting
at which a quorum is present shall be the act of the committee.
Section 8. Minutes of Committee Meetings. The committees shall
keep regular minutes of their proceedings.
Section 9. Informal Action by Board of Directors and
Committees. Any action, except approving the Rule 12b-1 Plan and the Advisory
Agreement, required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if a
written consent thereto is signed by all members of the Board of Directors or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee.
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Section 10. Meetings by Conference Telephone. Except to the
extent prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, the members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and such participation shall constitute presence in person at such meeting.
Section 11. Fees and Expenses. The directors may be paid their
expenses of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and stockholders
mailed to them at their post office addresses appearing on the books of the
Corporation shall be deemed to be given at the time when deposited in the United
States mail.
Section 2. Waiver of Notice. Whenever any notice is required
to be given under the provisions of the statutes, of the Articles of
Incorporation or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed the equivalent of notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation
shall be chosen by the Board of Directors at its first meeting
after each annual meeting of stockholders and shall be a chairman
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of the Board of Directors, a president, a secretary and a treasurer. The Board
of Directors may also choose such vice presidents and additional officers or
assistant officers as it may deem advisable. Any number of offices, except the
offices of president and vice president, may be held by the same person. No
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law to be executed, acknowledged or
verified by two or more officers.
Section 2. Other Officers and Agents. The Board of Directors
may appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such power and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the Corporation
shall hold office at the pleasure of the Board of Directors. Each officer shall
hold his or her office until his or her successor is elected and qualifies or
until his or her earlier resignation or removal. Any officer may resign at any
time upon written notice to the Corporation. Any officer elected or appointed by
the Board of Directors may be removed at any time by the Board of Directors
when, in its judgment, the best interests of the Corporation will be served
thereby. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors.
Section 4. Chairman of the Board of Directors. The chairman of
the Board of Directors shall be the chief executive officer of the Corporation,
shall preside at all meetings of the stockholders and of the Board of Directors,
shall have general and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The chairman shall execute on behalf of the Corporation, and may
affix the seal or cause the seal to be affixed to, all instruments requiring
such execution except to the extent that signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
Section 5. President. The president shall, in the absence of
the chairman of the Board of Directors, preside at all meetings of the
stockholders or of the Board of Directors. The president shall have general and
active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. The
president shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
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Section 6. Vice Presidents. The vice presidents shall act
under the direction of the president and in the absence or disability of the
president shall perform the duties and exercise the power of the president. They
shall perform such other duties and have such other powers as the president or
the Board of Directors may from time to time prescribe. The Board of Directors
may designate one or more executive vice presidents or may otherwise specify the
order of seniority of the vice presidents and, in that event, the duties and
powers of the president shall descend to the vice presidents in the specified
order of seniority.
Section 7. Secretary. The secretary shall act under the
direction of the president. Subject to the direction of the president, the
secretary shall attend all meetings of the Board of Directors and all meetings
of stockholders and record the proceedings in a book to be kept for that purpose
and shall perform like duties for the committees designated by the Board of
Directors when required. The secretary shall give, or cause to be given, notice
of all meetings of stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the president or the
Board of Directors. The secretary shall keep in safe custody the seal of the
Corporation and shall affix the seal or cause it to be affixed to any instrument
requiring it.
Section 8. Assistant Secretaries. The assistant secretaries in
the order of their seniority, unless otherwise determined by the president or
the Board of Directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the president or the Board of
Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under the
direction of the president. Subject to the direction of the president he shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The treasurer shall disburse the funds of the
Corporation as may be ordered by the president or the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the president and
the Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his or her transactions as treasurer and of the
financial condition of the Corporation.
Section 10. Assistant Treasurers. The assistant treasurers in
the order of their seniority, unless otherwise determined by the president or
the Board of Directors, shall, in
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the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. They shall perform such other duties and have such
other powers as the president or the Board of Directors may from time to time
prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the Corporation
who has made full payment of the consideration for such stock shall be entitled
upon request to have a certificate, signed by, or in the name of the Corporation
by, the president or a vice president and countersigned by the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
Corporation, certifying the number and class of whole shares of stock owned by
such holder in the Corporation.
Section 2. Fractional Share Interests or Scrip. The
Corporation may, but shall not be obliged to, issue fractions of a share of
stock, arrange for the disposition of fractional interests by those entitled
thereto, pay in cash the fair value of fractions of a share of stock as of the
time when those entitled to receive such fractions are determined, or issue
scrip or other evidence of ownership which shall entitle the holder to receive a
certificate for a full share of stock upon the surrender of such scrip or other
evidence of ownership aggregating a full share. Fractional shares of stock shall
have proportionately to the respective fractions represented thereby all the
rights of whole shares, including the right to vote, the right to receive
dividends and distributions and the right to participate upon liquidation of the
Corporation, excluding, however, the right to receive a stock certificate
representing such fractional shares. The Board of Directors may cause such scrip
or evidence of ownership to be issued subject to the condition that it shall
become void if not exchanged for certificates representing full shares of stock
before a specified date or subject to the condition that the shares of stock for
which such scrip or evidence of ownership is exchangeable may be sold by the
Corporation and the proceeds thereof distributed to the holders of such scrip or
evidence of ownership, or subject to any other reasonable conditions which the
Board of Director shall deem advisable, including provision for forfeiture of
such proceeds to the Corporation if not claimed within a period of not less than
three years after the date of the original issuance of scrip certificates.
Section 3. Signatures on Certificates. Any of or all the
signatures on a certificate may be a facsimile. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
cease to be such officer before
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such certificate is issued, it may be issued with the same effect as if he or
she were such officer at the date of issue. The seal of the Corporation or a
facsimile thereof may, but need not, be affixed to certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The Board
of Directors may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Corporation alleged
to have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his or her legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the registered
owner of shares, and if a certificate has been issued to represent such shares
upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, subject to the Corporation's
rights to redeem or purchase such shares, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the By-Laws and of the law regarding the transfer of shares
have been duly complied with, to record the transactions upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be
entitled to recognize the person registered on its books as the owner of shares
to be the exclusive owner for all purposes including, redemption, voting and
dividends, and the Corporation shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of
any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their
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absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for repairing or maintaining any property of the Corporation,
or for the purchase of additional property, or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may modify or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock of the
Corporation may, subject to the provisions of the Articles of Incorporation and
of the provisions of applicable law, be declared by the Board of Directors at
any time. Dividends may be paid in cash, in property or in shares of the
Corporation's stock, subject to the provisions of the Articles of Incorporation
and of applicable law.
Section 3. Capital Gains Distributions. The amount and number
of capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.
Section 4. Checks. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 6. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words,
"Corporate Seal, Maryland". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in another manner reproduced.
Section 7. Filing of By-Laws. A certified copy of the
By-Laws, including all amendments, shall be kept at the principal
office of the Corporation in the State of Maryland.
Section 8. Annual Report. The books of account of the
Corporation shall be examined by an independent firm of public accountants at
the close of each annual fiscal period of the Corporation and at such other
times, if any, as may be directed by the Board of Directors of the Corporation.
Within one hundred and twenty days of the close of each annual fiscal period a
report based upon such examination at the close of that fiscal period shall be
mailed to each stockholder of the Corporation of record at the close of such
annual fiscal period, unless the Board of Directors shall set another record
date, at his address as the same appears on the books of the Corporation. Each
such
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report shall contain such information as is required to be set forth therein by
the Investment Company Act of 1940 and the rules and regulations promulgated by
the Securities and Exchange Commission thereunder. Such report shall also be
submitted at the annual meeting of the stockholders and filed within twenty days
thereafter at the principal office of the Corporation in the State of Maryland.
Section 9. Stock Ledger. The Corporation shall maintain at its
principal office outside of the State of Maryland an original or duplicate stock
ledger containing the names and addresses of all stockholders and the number of
shares of stock hold by each stockholder. Such stock ledger may be in written
form or in any other form capable of being converted into written form within a
reasonable time for visual inspection.
Section 10. Ratification of Accountants by Stockholders. At
every annual meeting of the stockholders of the Corporation otherwise called
there shall be submitted for ratification or rejection the name of the firm of
independent public accountants which has been selected for the current fiscal
year in which such annual meeting is held by a majority of those members of the
Board of Directors who are not investment advisers of, or interested person (as
defined in the Investment Company Act of 1940) of an investment adviser of, or
officers or employees of, the Corporation.
Section 11. Custodian. All securities and similar investments
owned by the Corporation shall be held by a custodian which shall be either a
trust company or a national bank of good standing, having a capital surplus and
undivided profits aggregating not less than two million dollars ($2,000,000), or
a member firm of the New York Stock Exchange, Inc. The terms of custody of such
securities and cash shall include such provisions required to be contained
therein by the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission.
Upon the resignation or inability to serve of any such
custodian the Corporation shall (a) use its best efforts to obtain a successor
custodian, (b) require the cash and securities of the Corporation held by the
custodian to be delivered directly to the successor custodian, and (c) in the
event that no successor custodian can be found, submit to the stockholders of
the Corporation, before permitting delivery of such cash and securities to
anyone other than a successor custodian, the question whether the Corporation
shall be dissolved or shall function without a custodian; provided, however,
that nothing herein contained shall prevent the termination of any agreement
between the Corporation and any such custodian by the affirmative vote of the
holders of a majority of all the stock of the Corporation at the time
outstanding and entitled to vote. Upon
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its resignation or inability to serve and pending action by the Corporation as
set forth in this section, the custodian may deliver any assets of the
Corporation held by it to a qualified bank or trust company in the City of New
York, or to a member firm of the New York Stock Exchange, Inc. selected by it,
such assets to be held subject to the terms of custody which governed such
retiring custodian.
Section 12. Investment Advisers. The Corporation may enter
into one or more management or advisory, underwriting, distribution or
administration contract with any person, firm, partnership, association or
corporation but such contract or contracts shall continue in effect only so long
as such continuance is specifically approved annually by a majority of the Board
of Directors or by vote of the holders of a majority of the voting securities of
the Corporation, and in either case by vote of a majority of the directors who
are not parties to such contracts or interested persons (as defined in the
Investment Company Act of 1940) of any such party cast in person at a meeting
called for the purpose of voting on such approval.
ARTICLE VIII
Amendments
The Board of Directors shall have the power, by a majority
vote of the entire Board of Directors at any meeting thereof, to make, alter and
repeal By-Laws of the Corporation.
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