Registration No. 333-37491
Rule 497(c)
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GEORGIA DAILY MUNICIPAL INCOME FUND, INC. 600 FIFTH AVENUE
NEW YORK, N.Y. 10020
(212) 830-5220
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PROSPECTUS
JULY 1, 1998
Georgia Daily Municipal Income Fund, Inc. (the "Fund") is an open-end management
investment company that is a short-term, tax-exempt, money market fund whose
investment objectives are to seek as high a level of current income exempt from
regular Federal income taxes and to the extent possible from Georgia income
taxes, as is believed to be consistent with preservation of capital, maintenance
of liquidity and stability of principal. The Fund is concentrated in the
securities issued by Georgia or entities within Georgia and the Fund may invest
a significant percentage of its assets in a single issuer. Therefore any
investment in the Fund may be riskier than an investment in other types of money
market funds. No assurance can be given that those objectives will be achieved.
The Fund offers two classes of shares to the general public. The Class A shares
of the Fund are subject to a service fee pursuant to the Fund's Rule 12b-1
Distribution and Service Plan and are sold through financial intermediaries who
provide servicing to Class A shareholders for which they receive compensation
from the Manager and/or the Distributor. The Class B shares of the Fund are not
subject to a service fee and either are sold directly to the public or are sold
through financial intermediaries that do not receive compensation from the
Manager or Distributor. In all other respects, the Class A and Class B shares
represent the same interests in the income and assets of the Fund.
This Prospectus sets forth concisely the information about the Fund a
prospective investor should know before investing in the Fund. Additional
information about the Fund has been filed with the Securities and Exchange
Commission (the "SEC") and is available upon request and without charge by
calling or writing the Fund at the above address. The Statement of Additional
Information bears the same date as this Prospectus and is incorporated by
reference into this Prospectus in its entirety. The SEC maintains a website
(http://www.sec.gov) that contains the Statement of Additional Information and
other reports and information regarding the Fund which have been filed
electronically with the SEC.
Reich & Tang Asset Management L.P. is a registered investment adviser and acts
as Manager of the Fund. Reich & Tang Distributors, Inc. acts as distributor of
the Fund's shares and is a registered broker-dealer and member of the National
Association of Securities Dealers, Inc.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES
GOVERNMENT. THE FUND INTENDS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE ALTHOUGH THERE CAN BE NO ASSURANCE THAT THIS VALUE WILL BE MAINTAINED.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT 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 SEC OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC 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.
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TABLE OF FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A SHARES CLASS B SHARES
Management Fees (after fee waiver) 0.04% 0.04%
12b-1 Fees 0.25% 0.00%
Other Expenses 0.41% 0.41%
Administration Fees 0.21% 0.21%
----- ------
Total Fund Operating Expenses
(after fee waiver) 0.70% 0.45%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
You would pay the following on a $1,000 investment, assuming 5% annual return
(cumulative through the end of each year):
CLASS A $7 $22
CLASS B $5 $14
</TABLE>
The purpose of the above fee table is to assist an investor in understanding the
various costs and expenses an investor in the Fund will bear directly or
indirectly. The Manager at its discretion may voluntarily waive all or a portion
of the Management Fees and the Administration Fees with respect to both Class A
and Class B shares. The Distributor at its discretion, may voluntarily waive all
or a portion of the 12b-1 Fee. Absent the estimated waiver, the Management Fee
would have been 0.40% of the average daily net assets of the Class A and Class B
Shares. In addition, absent such estimated waiver, Total Fund Operating Expenses
would be 1.06% and 0.81% of the average daily assets of the Class A and Class B
shares, respectively. The expenses shown are at the levels anticipated for the
current year. Investors purchasing or redeeming shares through Participating
Organizations may be charged a fee in connection with service by such
Participating Organization. For a further discussion of these fees see
"Management of the Fund" and "Distribution and Service Plan" herein.
THE FIGURES REFLECTED IN THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN ABOVE.
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INTRODUCTION
Georgia Daily Municipal Income Fund, Inc. (the "Fund") is an open-end,
management investment company that is a short-term, tax-exempt money market fund
whose investment objectives are to seek as high a level of current income exempt
under current law, in the opinion of bond counsel to the issuer at the date of
issuance, from regular Federal income tax, and, to the extent possible, from
Georgia income taxes, as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal by investing
principally in short-term, high quality debt obligations of the State of
Georgia, its political subdivisions, and certain possessions and territories of
the United States as described under "Investment Objectives, Policies and Risks"
herein. The Fund also may invest in municipal securities of issuers located in
states other than Georgia, the interest income on which will be, in the opinion
of bond counsel to the issuer at the date of issuance, exempt from regular
Federal income tax, but will be subject to Georgia income taxes for Georgia
residents. The Fund seeks to maintain an investment portfolio with a
dollar-weighted average maturity of 90 days or less, and to value its investment
portfolio at amortized cost and maintain a net asset value of $1.00 per share,
although there can be no assurance that this value will be maintained. The Fund
intends to invest all of its assets in tax-exempt obligations; however, it
reserves the right to invest up to 20% of its net assets in taxable obligations.
This is a summary of the Fund's fundamental investment policies which are set
forth in full under "Investment Objectives, Policies and Risks" herein and in
the Statement of Additional Information and may not be changed without approval
of a majority of the Fund's outstanding shares. Of course, no assurance can be
given that these objectives will be achieved.
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"), which is a registered investment adviser and which currently acts as
investment manager or administrator to seventeen other open-end management
investment companies. The Fund's shares are distributed through Reich & Tang
Distributors, Inc. (the "Distributor"), with whom the Fund has entered into a
Distribution Agreement and a Shareholder Servicing Agreement (with respect to
the Class A shares of the Fund only) pursuant to the Fund'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, are open for trading ("Fund Business Day"),
investors may, without charge by the Fund, purchase and redeem shares of the
Fund's common stock at their net asset value next determined after receipt of
the order. An investor's purchase order will be accepted after the payment is
converted into Federal Funds, and shares will be issued as of the Fund's next
net asset value determination which is made as of 12 noon on each Fund Business
Day. (See "How to Purchase and Redeem Shares" and "Net Asset Value" herein).
Dividends from accumulated net income are declared by the Fund on each Fund
Business Day.
The Fund pays interest dividends monthly. Net capital gains, if any, will be
distributed at least annually, and in no event later than 60 days after the end
of the Fund's fiscal year. All dividends and distributions of capital gains are
automatically invested in additional shares of the same Class of the Fund unless
a shareholder has elected by written notice to the Fund to receive either of
such distributions in cash. (See "Dividends and Distributions" herein.)
The Fund intends that its investment portfolio will be concentrated in Georgia
Municipal Obligations and Participation Certificates as defined herein. A
summary of special risk factors affecting the State of Georgia is set forth
under "Investment Objectives, Policies and Risks" herein and "Georgia Risk
Factors" in the Statement of Additional Information. The Fund's Board of
Directors is authorized to divide the unissued
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shares into separate series of stock, one for each of the Fund's separate
investment portfolios that may be created in the future. Investment in the Fund
should be made with an understanding of the risks which an investment in Georgia
Municipal Obligations may entail. Payment of interest and preservation of
capital are dependent upon the continuing ability of Georgia issuers and/or
obligors of state, municipal and public authority debt obligations to meet their
obligations thereunder. Investors should also consider the greater risk of the
Portfolio's concentration versus the safety that comes with a less concentrated
investment portfolio.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The Fund is an open-end, management investment company that is a short-term,
tax-exempt money market fund whose investment objectives are to seek as high a
level of current income exempt from regular Federal income tax and, to the
extent possible, from Georgia income taxes, as is believed to be consistent with
the preservation of capital, maintenance of liquidity and stability of
principal. There can be no assurance that the Fund will achieve its investment
objectives.
The Fund's assets will be invested primarily (i.e., at least 80%) in high
quality debt obligations issued by or on behalf of the State of Georgia, other
states, territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which
is, in the opinion of bond counsel to the issuer at the date of issuance,
currently exempt from regular Federal income taxation ("Municipal Obligations")
and in participation certificates (which, in the opinion of Battle Fowler LLP,
counsel to the Fund, cause the Fund to be treated as the owner of the underlying
Municipal Obligations for Federal income tax purposes) in Municipal Obligations
purchased from banks, insurance companies or other financial institutions
("Participation Certificates"). Dividends paid by the Fund which are
"exempt-interest dividends" by virtue of being properly designated by the Fund
as derived from Municipal Obligations and Participation Certificates will be
exempt from regular Federal income tax provided the Fund complies with Section
852(b)(5) of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code").
Although the Supreme Court has determined that Congress has the authority to
subject the interest on bonds such as the Municipal Obligations to Federal
income taxation, existing law excludes such interest from regular Federal income
tax. However, "exempt-interest dividends" may be subject to the Federal
alternative minimum tax. Securities, the interest income on which may be subject
to the Federal alternative minimum tax (including participation certificates in
such securities), may be purchased by the Fund without limit. Securities, the
interest income on which is subject to regular Federal, state and local income
tax, will not exceed 20% of the value of the Fund's net assets. (See "Federal
Income Taxes" herein.) Exempt-interest dividends paid by the Fund correctly
identified by the Fund as derived from obligations issued by or on behalf of the
State of Georgia or any Georgia local governments, or their instrumentalities,
authorities or districts ("Georgia Municipal Obligations") will be exempt from
the Georgia Income Tax. Exempt-interest dividends correctly identified by the
Fund as derived from obligations of Puerto Rico and the Virgin Islands, as well
as other types of obligations that Georgia is prohibited from taxing under the
Constitution, the laws of the United States of America or the laws of the
Georgia Constitution ("Territorial Municipal Obligations") also should be exempt
from the Georgia Income Tax provided the Fund complies with Georgia law. (See
"Georgia Income Taxes" herein.) To the extent suitable Georgia Municipal
Obligations are not available for investment by the Fund, the Fund may purchase
Municipal Obligations issued by other states, their agencies and
instrumentalities, the dividends on which will be designated by the Fund as
derived from interest income which will be, in the opinion of bond counsel to
the issuer at the date of issuance, exempt from regular Federal income tax but
will be subject to the Georgia Income Tax.
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However, only as a temporary defensive measure during periods of adverse market
conditions as determined by the Manager, the Fund will invest less than 65% of
its total assets in Georgia Municipal Obligations, although the exact amount of
the Fund's assets invested in such securities will vary from time to time. As a
temporary defensive measure the Fund may also invest in any security that would
otherwise be permissible for inclusion in the portfolio of the Fund without
limitation. The Fund's investments may include "when-issued" Municipal
Obligations, stand-by commitments and taxable repurchase agreements. Although
the Fund will attempt to invest 100% of its assets in Municipal Obligations and
in Participation Certificates, the Fund reserves the right to invest up to 20%
of the value of its net assets in securities the interest income on which is
subject to Federal, state and local income tax. The Fund will invest more than
25% of its assets in Participation Certificates in Georgia Municipal Obligations
and other Georgia Municipal Obligations. The investment objectives of the Fund
described in the preceding paragraphs of this section may not be changed unless
approved by the holders of a majority of the outstanding shares of the Fund that
would be affected by such a change. As used in this Prospectus, the term
"majority of the outstanding shares" of the Fund means, respectively, the vote
of the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy or (ii) more than 50% of the outstanding shares
of the Fund.
In view of the concentration of the Fund in Participation Certificates in
Georgia Municipal Obligations, which may be secured by bank letters of credit or
guarantees, an investment in the Fund should be made with an understanding of
the characteristics of the banking industry and the risks which such an
investment may entail which include extensive governmental regulations, changes
in the availability and cost of capital funds, and general economic conditions
(see "Variable Rate Demand Instruments and Participation Certificates" in the
Statement of Additional Information) which may limit both the amounts and types
of loans and other financial commitments which may be made and interest rates
and fees which may be charged. The profitability of this industry is largely
dependent upon the availability and cost of capital funds for the purpose of
financing lending operations under prevailing money market conditions. Also,
general economic conditions play an important part in the operations of this
industry and exposure to credit losses arising from possible financial
difficulties of borrowers might affect a bank's ability to meet its obligations
under a letter of credit. The Fund may invest 25% or more of the net assets of
the Fund in securities that are related in such a way that an economic, business
or political development or change affecting one of the securities would also
affect the other securities including, for example, securities the interest upon
which is paid from revenues of similar type projects.
The Fund may only purchase securities that have been determined by the Fund's
Board of Directors to present minimal credit risks and that are Eligible
Securities at the time of acquisition. The term Eligible Securities means (i)
Municipal Obligations with remaining maturities of 397 days or less and rated in
the two highest short-term rating categories by any two nationally recognized
statistical rating organizations ("NRSROs") or in such categories by the only
NRSRO that has rated the Municipal Obligations (collectively, the "Requisite
NRSROs"); (ii) unrated Municipal Obligations determined by the Fund's Board of
Directors to be of comparable quality; and (iii) Municipal Obligations which are
subject to a Demand Feature or Guarantee (as such terms are defined in Rule 2a-7
of the 1940 Act) and also meet the criteria set forth in the above clauses (i)
and (ii). A determination of comparability by the Board of Directors is made on
the basis of its credit evaluation of the issuer, which may include an
evaluation of a letter of credit, guarantee, insurance or other credit facility
issued in support of the Municipal Obligations or Participation Certificates.
(See "Variable Rate Demand Instruments and Participation Certificates" in the
Statement of Additional Information.) While there
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are several organizations that currently qualify as NRSROs, two examples of
NRSROs are Standard & Poor's Rating Services, a Division of The McGraw-Hill
Companies ("S&P") and Moody's Investors Service, Inc. ("Moody's"). The two
highest ratings by S&P and Moody's are "AAA" and "AA" by S&P in the case of
long-term bonds or notes and "Aaa" and "Aa" by Moody's in the case of bonds;
"SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the case of notes;
"A-1" and "A-2" by S&P and "Prime-1" and "Prime-2" by Moody's in the case of
tax-exempt commercial paper. The highest rating in the case of variable and
floating demand notes is "SP-1 AA" by S&P and "VMIG-1" by Moody's. Such
instruments may produce a lower yield than would be available from less highly
rated instruments.
Subsequent to its purchase by the Fund, the quality of an investment may cease
to be rated or its rating may be reduced such that the investment is no longer a
First Tier Security or is rated below the minimum required for purchase by the
Fund. If this occurs, the Board of Directors of the Fund shall reassess promptly
whether the security presents minimal credit risks and shall cause the Fund to
take such action as the Board of Directors determines is in the best interest of
the Fund and its shareholders. However, reassessment is not required if the
security is disposed of or matures within five business days of the Manager
becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Manager's actions. The term First Tier
Security means any Eligible Security that: (i) is a rated security that has
received a short-term rating from the Requisite NRSROs in the highest short-term
rating category for debt obligations; (ii) is an unrated security that is, as
determined by the Fund's Board of Directors, to be of comparable quality; (iii)
is a security issued by a registered investment company that is a money market
fund; or (iv) is a government security.
In addition, in the event that a security (1) is in default, (2) ceases to be an
Eligible Security under Rule 2a-7 of the 1940 Act, or (3) is determined to no
longer present minimal credit risks, or an event of insolvency occurs with
respect to the issuer of a portfolio security or the provider of any Demand
Feature or Guarantee, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. In the event that the security
is disposed of it shall be disposed of as soon as practicable consistent with
achieving an orderly disposition by sale, exercise of any demand feature or
otherwise. In the event of a default with respect to a security which
immediately before default accounted for 1/2 of 1% or more of the Fund's total
assets, the Fund shall promptly notify the SEC of such fact and of the actions
that the Fund intends to take in response to the situation.
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
The Fund has adopted the following fundamental investment restrictions which may
not be changed unless approved by a majority of the outstanding shares of the
Fund's shares that would be affected by such a change. The Fund is subject to
further investment restrictions that are set forth in the Statement of
Additional Information. The Fund 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 Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets, the
Fund
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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. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may
purchase variable rate demand instruments which contain a demand feature.
The Fund will not invest in a repurchase agreement maturing in more than
seven days if any such investment together with securities that are not
readily marketable held by the Fund exceed 10% of the Fund's net assets.
4. Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that the Fund will invest more than 25% of its
assets in Participation Certificates and there shall be no limitation on
the purchase of those Municipal Obligations and other obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities. Immediately after the acquisition of any securities
subject to a Demand Feature or Guarantee (as such terms are defined in Rule
2a-7 of the 1940 Act), with respect to 75% of the total assets of the Fund,
not more than 10% of the Fund's assets may be invested in securities that
are subject to a Guarantee or Demand Feature from the same institution.
However, the Fund may only invest more than 10% of its assets in securities
subject to a Guarantee or Demand Feature issued by a Non-Controlled Person
(as such term is defined in Rule 2a-7 of the 1940 Act).
5. Invest in securities of other investment companies, except the Fund may
purchase unit investment trust securities where such unit trusts meet the
Investment Objectives of the Fund and then only up to 5% of the Fund's net
assets, except as they may be acquired as part of a merger, consolidation
or acquisition of assets.
The concentration in Municipal Obligations and Participation Certificates may
present greater risks than in the case of a more diversified fund. The Fund
intends to qualify as a "regulated investment company" under Subchapter M of the
Code. The Fund will be restricted in that at the close of each quarter of the
taxable year, at least 50% of the value of its total assets must be represented
by cash, government securities, investment company securities and other
securities limited in respect of any one issuer to not more than 5% in value of
the total assets of the Fund and to not more than 10% of the outstanding voting
securities of such issuer. In addition, at the close of each quarter of its
taxable year, not more than 25% in value of the Fund's total assets may be
invested in securities of one issuer other than Government securities. The
limitations described in this paragraph regarding qualification as a "regulated
investment company" are not fundamental policies and may be revised to the
extent applicable Federal income tax requirements are revised. (See "Federal
Income Taxes" herein.)
Because of the Fund's concentration in investments in Georgia Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the financial strength of Georgia and its political subdivisions. For
additional information, please refer to "Georgia Risk Factors" in the Statement
of Additional Information.
The primary purpose of investing in a portfolio of Georgia Municipal Obligations
is the special tax treatment accorded Georgia resident individual investors.
However, payment of interest and preservation of principal are dependent upon
the continuing ability of the Georgia issuers and/or obligors of state,
municipal and public authority debt obligations to meet their obligations
thereunder. Investors should consider the greater risk of the Fund's
concentration versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of Georgia issues
with those of more diversified portfolios including out-of-state issues before
making an investment decision. The Fund's management believes that by
maintaining the Fund's investment portfolio in liquid, short-
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term, high quality investments, including the Participation Certificates and
other variable rate demand instruments that have high quality credit support
from banks, insurance companies or other financial institutions, the Fund is
largely insulated from the credit risks that may exist on long-term Georgia
Municipal Obligations. A more complete discussion of special risk factors
affecting the State of Georgia is set forth under "Georgia Risk Factors" in the
Statement of Additional Information.
MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed Reich & Tang Asset Management L.P.
(the "Manager") to serve as investment manager of the Fund. The Manager provides
persons satisfactory to the Fund's Board of Directors to serve as officers of
the Fund. Such officers, as well as certain other employees and directors of the
Fund, may be directors or officers of Reich & Tang Asset Management, Inc., the
sole general partner of the Manager or employees of the Manager or its
affiliates. 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.
The Manager is a Delaware limited partnership with its principal office at 600
Fifth Avenue, New York, New York 10020. As of April 30, 1998, the Manager was
investment manager, adviser or supervisor with respect to assets aggregating in
excess of $11.51 billion. The Manager acts as manager or administrator of
seventeen other investment companies and also advises pension trusts, profit
sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager, due to a restructuring by New England
Investment Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998,
Nvest Companies, L.P. ("Nvest Companies"), due to a change in name of NEICOP,
replaced NEICOP as the limited partner and owner of a 99.5% interest in the
Manager. These changes did not result in a change in control of the Manager and
have no impact upon the Manager's performance of its responsibilities and
obligations.
Reich & Tang Asset Management, Inc. (a wholly owned subsidiary of Nvest
Companies) is the sole general partner and owner of the remaining 0.5% interest
of the Manager. Nvest Corporation, a Massachusetts Corporation (formerly known
as New England Investment Companies, Inc.), serves as the managing general
partner of Nvest Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
MetLife is a mutual life insurance company with assets of $297.6 billion 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 services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $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 is a holding company offering a broad array of investment styles across a
wide range of asset categories through thirteen subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its
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business units, in addition to the Manager, include AEW Capital Management,
L.P., Back Bay Advisors, L.P., Capital Growth 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., Nvest Associates, Inc., Snyder Capital
Management, L.P., Vaughan, Nelson, Scarborough & McConnell, L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 80 other registered investment companies.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. For its services under the Investment Management Contract, the Manager
receives from the Fund a fee equal to .40% per annum of the Fund's average daily
net assets (the "Management Fee") for managing the Fund's investment portfolio
and performing related services. The Manager, at its discretion, may voluntarily
waive all or a portion of the Management Fee.
Pursuant to the Administrative Services Contract for the Fund, the Manager
performs clerical, accounting supervision and office service functions for the
Fund and provides the Fund with the 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 services as the Fund may from time to
time request of the Manager. The personnel rendering such services may be
employees of the Manager or its affiliates. The Manager, at its discretion, may
voluntarily waive all or a portion of the administrative services fee. For its
services under the Administrative Services Contract, the Manager receives a fee
equal to .21% per annum of the Fund's average daily net assets. Any portion of
the total fees received by the Manager may be used to provide shareholder
services and for distribution of Fund shares (see "Distribution and Service
Plan" herein.)
In addition, Reich & Tang Distributors, Inc., the Distributor, receives a
servicing fee equal to .25% per annum of the average daily net assets of the
Class A shares of the Fund under the Shareholder Servicing Agreement. The fees
are accrued daily and paid monthly. Investment management fees and operating
expenses, which are attributable to both Classes of shares of the Fund, will be
allocated daily to each Class of shares based on the percentage of shares
outstanding for each Class at the end of the day.
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on October 7, 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 has 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 Fund. All shares when issued in accordance with the terms 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 June 8, 1998, the Manager purchased
$100,000 of the Fund's Class A shares at an initial subscription price of $1.00
per share.
The Fund is subdivided into two classes of common stock, Class A and Class B.
Each share, regardless of class, will represent an interest in the same
portfolio of investments and will have identical voting, dividend, liquidation
and other
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rights, preferences, powers, restrictions, limitations, qualifications,
designations and terms and conditions, except that: (i) the Class A and Class B
shares will have different class designations; (ii) only the Class A shares will
be assessed a service fee of .25% of the average daily net assets of the Class A
shares of the Fund pursuant to the Rule 12b-1 Distribution and Service Plan of
the Fund; (iii) only the holders of the Class A shares would be entitled to vote
on matters pertaining to the Plan and any related agreements in accordance with
provisions of Rule 12b-1; and (iv) the exchange privilege will permit
shareholders to exchange their shares only for shares of the same class of a
Fund that participates in an exchange privilege with the Fund. Payments that are
made under the Plans 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.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and pays dividends monthly. There is no fixed dividend rate.
In computing these dividends, interest earned and expenses are accrued daily.
Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year.
All dividends and distributions of capital gains are automatically invested in
additional Fund shares of the same Class immediately upon payment thereof unless
a shareholder has elected by written notice to the Fund to receive either of
such distributions in cash.
The Class A shares will bear the service fee under the Plan. As a result, the
net income of and the dividends payable to the Class A shares will be lower than
the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.
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. 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 A
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 Fund through their
Participating Organizations, may invest in the Fund directly as Class B
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<PAGE>
shareholders of the Fund and not receive the benefit of the servicing functions
performed by a Participating Organization. Class B shares may also be offered to
investors who purchase their shares through Participating Organizations who 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 B shares. Participating
Organizations whose clients become Class B 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.) The
minimum initial investment in the Fund by Participating Organizations is $1,000,
which may be satisfied by initial investments aggregating $1,000 by a
Participating Organization on behalf of customers whose initial investments are
less than $1,000. The minimum initial investment for securities brokers,
financial institutions and other industry professionals that are not
Participating Organizations is $1,000. The minimum initial investment for all
other investors is $5,000. Initial investments may be made in any amount in
excess of the applicable minimums. The minimum amount for subsequent investments
is $100 unless the investor is a client of a Participating Organization whose
clients have made aggregate subsequent investments of $100.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a 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 Participating Organizations
and from investors directly.
In order to maximize earnings on its portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require 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.
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 order at
the net asset value next determined after receipt of the order. Shares begin
accruing income dividends on the day they are purchased. The Fund reserves the
right to reject any purchase order for its shares. Certificates for Fund shares
will not be issued to an investor.
Shares are issued as of 12 noon, 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 12 noon. Orders
accompanied by Federal Funds and received after 12 noon, New York City time, on
a Fund Business Day will not result in share issuance until the following Fund
Business Day. Fund shares begin accruing income on the day the shares are issued
to an investor.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. 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 accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
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 portfolio securities is not reasonably practicable
or as a result of which it
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<PAGE>
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 12 noon, New
York City time, on any Fund Business Day become effective at 12 noon that day.
Shares redeemed are not entitled to participate in dividends declared on the day
a redemption becomes effective. A redemption request received after 12 noon, New
York City time, on any Fund Business Day becomes effective on the next Fund
Business Day.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization, and the Participating
Organization will be responsible for notifying the Participant Investor of the
proposed mandatory redemption. During the notice period a shareholder or
Participating Organization who receives such a notice may avoid mandatory
redemption by purchasing sufficient additional shares to increase his total net
asset value to the minimum amount and thereby avoid such mandatory redemption.
The redemption of shares may result in the investor's receipt of more or less
than he or she paid for his or her shares and, thus, in a taxable gain or loss
to the investor.
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 and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Manager 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 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 confirmations and statements will receive them from the Fund
directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures 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 Fund 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
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<PAGE>
purchased and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund
management'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
Manager for providing such services. However, this is an unsettled area of the
law and if a determination contrary to the Fund management's position is made by
a bank regulatory agency or court concerning shareholder servicing and
administration payments to banks from the Manager, any such payments will be
terminated and any shares registered in the banks' names, for their underlying
customers, will be reregistered in the name of the customers at no cost to the
Fund or its shareholders. 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 the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, 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 4:00 p.m., New York City time,
on that day. Orders for which Federal Funds are received after 4:00 p.m., New
York City time, will not result in share issuance until the following Fund
Business 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 and not through Participating Organizations. These
investors may obtain a current prospectus and the subscription order form
necessary to open an account by telephoning the Fund at the following numbers:
Within New York State 212-830-5220
Outside New York State (toll free) 800-221-3079
All shareholders, other than certain Participant Investors, will receive from
the Fund individual confirmations of each purchase and redemption of Fund shares
(other than draft check redemptions) and a monthly statement listing the total
number of Fund shares owned as of the statement closing date, purchase and
redemptions of Fund shares during the month covered by the statement and the
dividends paid on Fund shares of each shareholder during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Certificates for Fund shares will not be issued to an investor.
INITIAL PURCHASES OF SHARES
Mail
Investors may send a check made payable to "Georgia Daily Municipal Income Fund,
Inc." along with a completed subscription order form to:
Georgia Daily Municipal Income Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
can normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a nonmember bank may take substantially
longer to convert into Federal Funds. An investor's subscription will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number
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by telephoning the Fund at 212-830-5220 (within New York State) or at
800-221-3079 (outside New York State) and then instruct a member commercial bank
to wire money immediately to:
Investors Fiduciary Trust Company
ABA #101003621
DDA #8907529546
For Georgia Daily Municipal Income Fund, Inc.
Account of (Investor's Name)
Fund Account #
SS#/Tax ID#
The investor should then promptly complete and mail the subscription order form.
Investor's planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon, New York City time, on the
same day. There may be a charge by the investors 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 12 noon, 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:
Georgia Daily Municipal Income Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number.
Provided that the information on the subscription 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 following receipt by the Fund's transfer agent of the redemption order
(and any supporting documentation which it may require). Normally, payment for
redeemed shares is made on the same Fund Business Day after the redemption is
effected, provided the redemption request is received prior to 12 noon, New York
City time. However, redemption payments 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 up
to 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 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 signed and guaranteed by an eligible
guarantor institution which includes a domestic bank, a domestic savings and
loan institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund addressed to:
Georgia Daily Municipal Income Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
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All previously issued certificates submitted for redemption must be endorsed by
the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with the signature guaranteed. Normally the redemption
proceeds are paid by check and mailed to the shareholder of record.
Checks
By making the appropriate election on their subscription form, shareholders may
request a supply of checks which may be used to effect redemptions from the
Class of shares of the Fund in which they invest. The checks, which will be
issued in the shareholder's name, are drawn on a special account maintained by
the Fund with the Fund's agent bank. Checks may be drawn in any amount of $250
or more. When a check is presented to the Fund's agent bank, it instructs the
Fund's transfer agent to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. The use of
a check to make a withdrawal enables a shareholder in the Fund to receive
dividends on the shares to be redeemed up to the Fund Business Day on which the
check clears. Checks provided by the Fund may not be certified. Fund shares
purchased by check may not be redeemed by check, until the check has cleared,
which can take up to 15 days following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank. Checks drawn on a jointly owned
account may, at the shareholder's election, require only one signature. Checks
in amounts exceeding the value of the shareholder's account at the time the
check is presented for payment will not be honored. Since the dollar value of
the account changes daily, the total value of the account may not be determined
in advance and the account may not be entirely redeemed by check. In addition,
the Fund reserves the right to charge the shareholder's account a fee up to $20
for checks not honored as a result of an insufficient account value, a check
deemed not negotiable because it has been held longer than six months, an
unsigned check, a post-dated check and a check written for an amount below the
Fund minimum of $250. The Fund reserves the right to terminate or modify the
check redemption procedure at any time or to impose additional fees.
Investors wishing to avail themselves of this method of redemption should elect
it on their subscription order form. Individuals and joint tenants are not
required to furnish any supporting documentation. Corporations and other
entities making this election, however, are required to furnish a certified
resolution or other evidence of authorization in accordance with the Fund's
normal practices. Appropriate authorization forms will be sent by the Fund or
its agents to corporations and other shareholders who select this option. As
soon as the authorization forms are filed in good order with the Fund's agent
bank, it will provide the shareholder with a supply of checks.
This checking service may be terminated or modified at any time.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option on their subscription order form. The proceeds of a telephone
redemption may be sent to the shareholders at their addresses or, if in excess
of $1,000, to their bank accounts, both as set forth in the subscription order
form or in a subsequent written authorization. The Fund may accept telephone
redemption instructions from any person with respect to accounts of shareholders
who elect this service and thus such shareholders risk possible loss of
principal and interest in the event of a telephone redemption not authorized by
them. The Fund will employ reasonable procedures to confirm that telephone
redemption instructions are genuine, and will require that shareholders electing
such option provide a form of personal identification. The failure by the Fund
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<PAGE>
to employ such reasonable procedures may cause the Fund to be liable for the
losses incurred by investors due to telephone redemptions based upon
unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220, outside New York State at 800-221-3079, and state: (i) the name of
the shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time and on the next Fund Business Day if the redemption
request is received after 12 noon, New York City time. The Fund reserves the
right to terminate or modify the telephone redemption service in whole or in
part at any time and will notify shareholders accordingly.
EXCHANGE PRIVILEGE
Shareholders of the Fund are entitled to exchange some or all of a Class of
shares in the Fund for shares of the same Class of certain other investment
companies which retain Reich & Tang Asset Management L.P. as investment adviser
and which participate in the exchange privilege program with the Fund. If only
one Class of shares is available in a particular exchange fund, the shareholder
of the Fund is entitled to exchange their shares for the shares available in
that exchange fund. Currently the exchange privilege program has been
established between the Fund and California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income 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. and Short Term Income
Fund, Inc. In the future, the exchange privilege program may be extended to
other investment companies which retain Reich & Tang Asset Management L.P. as
investment adviser, manager or administrator. An exchange of shares in the Fund
pursuant to the exchange privilege is, in effect, a redemption of Fund shares
(at net asset value) followed by the purchase of shares of the investment
company into which the exchange is made (at net asset value) and may result in a
shareholder realizing a taxable gain or loss for Federal income tax purposes.
There is no charge for the exchange privilege or limitation as to frequency of
exchange. The minimum amount for an exchange is $1,000, except that shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Each Class of shares is exchanged at its
respective net asset value.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares may be exchanged only between the
same Class of shares of investment company accounts registered in identical
names. Before making an exchange, the investor should review the current
prospectus of the investment company into which the exchange is to be made.
Prospectuses may be obtained by contacting the Distributor at the address or
telephone number set forth on the cover page of this Prospectus.
Instructions for exchanges may be made by sending a signature guaranteed written
request to:
Georgia Daily Municipal Income Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
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<PAGE>
or, for shareholders who have elected that option, by telephoning the Fund at
212-830-5220 (within New York) or 800-221-5079 (outside New York). The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time upon written notification to the shareholder.
SPECIFIED AMOUNT AUTOMATIC WITHDRAWAL PLAN
Shareholders may elect to withdraw shares and receive payment from the Fund of a
specified amount of $50 or more automatically on a monthly basis in an amount
approved and confirmed by the Manager. A specified amount plan payment is made
by the Fund on the 23rd day of each month. Whenever such 23rd day of a month is
not a Fund Business Day, the payment date is the Fund Business Day preceding the
23rd day of the month. In order to make a payment, a number of shares equal in
aggregate net asset value to the payment amount are redeemed at their net asset
value on the Fund Business Day immediately preceding the date of payment. To the
extent that the redemptions to make plan payments exceed the number of shares
purchased through reinvestment of dividends and distributions, the redemptions
reduce the number of shares purchased on original investment, and may ultimately
liquidate a shareholder's investment.
The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by the
participant. Because the withdrawal plan involves the redemption of Fund shares,
such withdrawals may constitute taxable events to the shareholder but the Fund
does not expect that there will be any realized capital gains.
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 the Rule. The
Fund's Board of Directors has adopted a Distribution and Service Plan (the
"Plan") and, pursuant to the Plan, the Fund and Reich & Tang Distributors L.P.
(the "Distributor") have entered into a Distribution Agreement and a Shareholder
Servicing Agreement (with respect to the Class A shares of the Fund only).
Under the Distribution Agreement, the Distributor, 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 only to the Class A shares a service fee equal to .25% per annum of the
Class A 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 A shares of the Fund. The Class B
shareholders will not receive the benefit of such services from Participating
Organizations and, therefore, will not be assessed a Shareholder Servicing Fee.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Distributor and Participating Organizations in carrying out their
obligations under the Shareholder Servicing Agreement with respect to Class A
shares and (ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the management
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<PAGE>
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 A shares of the Fund; (ii) to compensate
certain Participating Organizations for providing assistance in distributing the
Class A shares of the Fund; and (iii) to pay the costs of printing and
distributing the Fund'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
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholder Servicing Fee with respect to Class A 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 Fund is required to pay to
the Manager and Distributor for any fiscal year under either the Investment
Management Contract, the Shareholder Servicing Agreement or the Administrative
Services Contract in effect for that year.
FEDERAL INCOME TAXES
The Fund intends to elect to qualify under the Code as a regulated investment
company that distributes "exempt-interest dividends" as defined in the Code. The
Fund's policy is to distribute as dividends each year 100% (and in no event less
than 90%) of its tax-exempt interest income, net of certain deductions, and its
investment company taxable income (if any). If distributions are made in this
manner, dividends derived from the interest earned on Municipal Obligations are
"exempt-interest dividends" and are not subject to regular Federal income tax,
although as described below, such "exempt-interest dividends" may be subject to
Federal alternative minimum tax. Dividends paid from taxable income, if any, and
distributions of any realized short-term capital gains (whether from tax-exempt
or taxable obligations) are taxable to shareholders as ordinary income for
Federal income tax purposes, whether received in cash or reinvested in
additional shares of the Fund. The Fund does not expect to realize long-term
capital gains, and thus does not contemplate distributing "capital gain
dividends" or having undistributed capital gain income within the meaning of the
Code. The Fund will inform shareholders of the amount and nature of its income
and gains in a written notice mailed to shareholders not later than 60 days
after the close of the Fund's taxable year. For Social Security recipients,
interest on tax-exempt bonds, including tax-exempt interest dividends paid by
the Fund, is to be added to adjusted gross income for purposes of computing the
amount of Social Security benefits includible in gross income. Interest on
certain "private activity bonds" (generally, a bond issue in which more than 10%
of the proceeds are used for a non-governmental trade or business and which
meets the private security or payment test, or a bond issue which meets the
private loan financing test) issued after August 7, 1986 will constitute an item
of tax preference subject to the alternative minimum tax. Further, corporations
will be required to include in alternative minimum taxable income 75% of the
amount by which its adjusted current earnings (including generally, tax-exempt
interest) exceeds its alternative minimum taxable income (determined without
this tax item). In addition, in certain cases Subchapter S corporations with
accumulated earnings and profits from Subchapter C years will be subject to a
tax on "passive investment income", including tax-exempt interest. Although the
Fund intends to maintain a $1.00 per share net asset value, a shareholder may
realize taxable gain or loss upon the disposition of shares.
With respect to variable rate demand instruments, including Participation
Certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner of the underlying Municipal Obligations will be exempt
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<PAGE>
from regular Federal income taxes to the Fund. Counsel has pointed out that the
Internal Revenue Service has announced that it will not ordinarily issue advance
rulings on the question of the ownership of securities or participation
interests therein subject to a put and could reach a conclusion different from
that reached by counsel. (See "Federal Income Taxes" in the Statement of
Additional Information.)
In South Carolina v. Baker, the U.S. Supreme Court held that the Federal
government may constitutionally require states to register bonds they issue and
may subject the interest on such bonds to Federal tax if not registered, and the
Court further held that there is no constitutional prohibition against the
Federal government's taxing the interest earned on state or other municipal
bonds. The Supreme Court decision affirms the authority of the Federal
government to regulate and control bonds such as the Municipal Obligations and
to tax such bonds in the future. The decision does not, however, affect the
current exemption from taxation of the interest earned on the Municipal
Obligations in accordance with Section 103 of the Code.
GEORGIA INCOME TAXES
Under Section 48-7-27(b)(1)(A) of the Official Code of Georgia Annotated,
interest on obligations of the State of Georgia and its political subdivisions,
which is not otherwise included in federal adjusted gross income, is exempt from
the State of Georgia's individual income tax. Likewise, under Section
48-7-27(b)(2) of the Official Code of Georgia Annotated interest on exempt
obligations of the U.S. government, its territories and possessions (including
Puerto Rico, Guam, and the Virgin Islands), or of any authority, commission, or
instrumentality of the U.S. government is also exempt from the State of
Georgia's individual income tax. To the extent that distributions from the Fund
attributable to interest on obligations of the State of Georgia and its
political subdivisions are excluded from federal adjusted gross income,
therefore, they will likewise be excluded from the Georgia individual income
tax.
The stated position of the Georgia Department of Revenue is that the exempt
treatment for interest derived from such exempt obligations is also extended to
distributions of regulated investment companies, such as the Fund. Tax-exempt
treatment is generally not available for distributions attributable to income
earned on indirect U.S. government obligations (GNMAs, FNMAs, etc.), for
repurchase agreements collateralized by U.S. government obligations, or for
obligations of other states and their political subdivisions. To the extent such
investments are made by the Fund, such as for temporary or defensive purposes,
such distributions will generally be taxable on a pro rata basis.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are fully included in each individual shareholder's Georgia taxable
income as dividend income and long-term capital gain, respectively, and are
currently taxed at ordinary income tax rates. Ownership of Shares in the Fund
may also result in collateral Georgia tax consequences for certain taxpayers.
Prospective investors should consult their tax advisors as to the applicability
of any such collateral consequences.
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on October 7,
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 shareholders of
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<PAGE>
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.
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur significant
operating expenses or be required to incur material costs to be year 2000
compliant. Although the Manager does not anticipate that the year 2000 issue
will have a material impact on the Fund's ability to provide service at current
levels, there can be no assurance that steps taken in preparation for the year
2000 will be sufficient to avoid adverse impact on the Fund.
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,
including the exhibits thereto. The Registration Statement and the exhibits
thereto may be examined at the Commission and copies thereof may be obtained
upon payment of certain duplicating fees.
NET ASSET VALUE
The net asset value of each Class of the Fund's shares is determined as of 12
noon, New York City time, on each Fund Business Day. With regard to the
determination of net asset value only, Fund Business Day means weekdays (Monday
through Friday) except customary business holidays and Good Friday. The net
asset value of a Class is computed by dividing the value of the Fund's net
assets for such Class (i.e., the value of its securities and other assets less
its liabilities, including expenses payable or accrued but excluding capital
stock and surplus) by the total number of shares outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument is higher or lower
than the price an investment company would receive if the instrument were sold.
The Fund intends to maintain a stable net asset value at $1.00 per share
although there can be no assurance that this will be achieved.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri 64105
is custodian for the Fund's cash and securities. Reich & Tang Services, Inc.,
600 Fifth Avenue, New York, New York 10020 is 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.
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<PAGE>
TABLE OF CONTENTS
Table of Fees and Expenses...........................2
Introduction.........................................3
Investment Objectives,
Policies and Risks...............................4 Georgia
Management of the Fund...............................8 Daily Municipal
Description of Common Stock..........................9 Income Fund, Inc.
Dividends and Distributions..........................10
How to Purchase and Redeem Shares....................10
Investments Through
Participating Organizations.................12 Prospectus
Direct Purchase and July 1, 1998
Redemption Procedures..........................13
Initial Purchases of Shares......................13
Mail.............................................13
Bank Wire........................................13
Subsequent Purchases of Shares...................14
Redemption of Shares.............................14
Written Requests.................................14
Checks...........................................15
Telephone........................................15
Exchange Privilege...............................16
Specified Amount Automatic
Withdrawal Plan................................17
Distribution and Service Plan........................17
Federal Income Taxes.................................18
Georgia Income Taxes.................................19
General Information..................................19
Net Asset Value......................................20
Custodian and Transfer Agent.........................20
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Registration No. 333-37491
Rule 497(c)
================================================================================
GEORGIA DAILY
MUNICIPAL
INCOME FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 1998
This Statement of Additional Information, although not in itself a Prospectus,
expands upon and supplements the information contained in the current Prospectus
of Georgia Daily Municipal Income Fund, Inc. (the "Fund"), dated July 1, 1998
and should be read in conjunction with the Prospectus. The Fund's Prospectus may
be obtained, without charge, from any Participating Organization or by writing
or calling the Fund. This Statement of Additional Information is incorporated by
reference into the Prospectus in its entirety.
Table of Contents
- -------------------------------------------------------------------------------
Investment Objectives, Policies and Risks..2 Manager........................14
Description of Municipal Obligations.......3 Expense Limitation...........16
Variable Rate Demand Instruments Management of the Fund..........16
and Participation Certificates.........5 Compensation Table...........18
When-Issued Securities...................6 Counsel and Auditors.........18
Stand-by Commitments.....................7 Distribution and Service Plan...18
Taxable Securities.........................8 Description of Common Stock.....19
Repurchase Agreements....................8 Federal Income Taxes............20
California Risk Factors....................8 Georgia Income Taxes............21
Investment Restrictions...................12 Custodian and Transfer Agent ...22
Portfolio Transactions....................13 Description of Ratings..........23
How to Purchase and Redeem Shares.........13 Tax Equivalent Yield Table......24
Net Asset Value...........................13 Independent Auditor's Report....25
Yield Quotations..........................14 Financial Statements............26
- -------------------------------------------------------------------------------
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
As stated in the Prospectus, the Fund is an open-end, management investment
company that is a short-term, tax-exempt money market fund. The Fund's
investment objectives are to seek as high a level of current income, exempt from
regular Federal tax and, to the extent possible, Georgia income taxes (the
"Georgia Income Tax"), as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal. No assurance can
be given that these objectives will be achieved. The following discussion
expands upon the description of the Fund's investment objectives and policies in
the Prospectus.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of Georgia, other states, territories and
possessions of the United States and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which is, in the
opinion of bond counsel to the issuer at the date of issuance, currently exempt
from regular Federal income taxation ("Municipal Obligations") and in
participation certificates (which, in the opinion of Battle Fowler LLP, counsel
to the Fund, causes the Fund to be treated as the owner of the underlying
Municipal Obligations for Federal income tax purposes) in Municipal Obligations
purchased from banks, insurance companies or other financial institutions
("Participation Certificates"). Dividends paid by the Fund which are
"exempt-interest dividends" by virtue of being properly designated by the Fund
as derived from Municipal Obligations and Participation Certificates will be
exempt from Federal income tax provided the Fund complies with Section 852(b)(5)
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Although the Supreme Court has determined that Congress has the authority to
subject the interest on bonds such as the Municipal Obligations to regular
Federal income taxation, existing law excludes such interest from Federal income
tax. However, "exempt-interest dividends" may be subject to the Federal
alternative minimum tax. Securities, the interest income on which may be subject
to the Federal alternative minimum tax (including participation certificates in
such securities), may be purchased by the Fund without limit. Securities, the
interest income on which is subject to regular Federal, state and local income
tax, will not exceed 20% of the value of the Fund's net assets. ("See "Federal
Income Taxes" herein.) Exempt-interest dividends paid by the Fund that are
correctly identified by the Fund as derived from obligations issued by or on
behalf of the State of Georgia or any Georgia local governments, or their
instrumentalities, authorities or districts ("Georgia Municipal Obligations")
will be exempt from the Georgia Income Tax. Exempt-interest dividends correctly
identified by the Fund as derived from obligations of Puerto Rico and the Virgin
Islands, as well as any other types of obligations that Georgia is prohibited
from taxing under the Constitution, the laws of the United States of America or
the Georgia Constitution ("Territorial Municipal Obligations"), also should be
exempt from Georgia Income Tax provided the Fund complies with Georgia laws.
(See "Georgia Income Taxes" herein.) To the extent that suitable Georgia
Municipal Obligations are not available for investment by the Fund, the Fund may
purchase Municipal Obligations issued by other states, their agencies and
instrumentalities, the dividends on which will be designated by the Fund as
derived from interest income which will be, in the opinion of bond counsel to
the issuer at the date of issuance, exempt from regular Federal income tax but
will be subject to the Georgia Income Tax. Except as a temporary defensive
measure during periods of adverse market conditions as determined by the
Manager, the Fund will invest at least 65% of its assets in Georgia Municipal
Obligations, although the exact amount of the Fund's assets invested in such
securities will vary from time to time. The Fund seeks to maintain an investment
portfolio with a dollar-weighted average maturity of 90 days or less and to
value its investment portfolio at amortized cost and maintain a net asset value
at a $1.00 per share of each Class. There can be no assurance that this value
will be maintained.
The Fund may hold uninvested cash reserves pending investment. The Fund's
investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements. Although the Fund will attempt to
invest 100% of its assets in Municipal Obligations (excluding securities, the
interest income on which may be subject to the Federal alternative minimum tax)
and in Participation Certificates), the Fund reserves the right to invest up to
20% of the value of its net assets in securities, the interest income on which
is subject to regular Federal, state and local income tax. The Fund will invest
more than 25% of its assets in participation certificates purchased from banks
in industrial revenue bonds and other Georgia Municipal Obligations. In view of
this concentration in bank participation certificates in Georgia Municipal
Obligations, an investment in Fund shares should be made with an understanding
of the characteristics of the banking industry and the risks which such an
investment may entail. (See "Variable Rate Demand Instruments and Participation
Certificates" herein.) The investment objectives of the Fund described in the
preceding paragraphs of this section may not be changed unless approved by the
holders of a majority of the outstanding shares of the Fund that would be
affected by such a change. As used herein, the term "majority of the outstanding
shares" of the Fund means, respectively, the vote of the lesser of (i) 67% or
more of the shares of the Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy or
(ii) more than 50% of the outstanding shares of the Fund.
The Fund may only purchase securities that have been determined by the Fund's
Board of Directors to present minimal credit risks and that are Eligible
Securities at the time of acquisition. The term Eligible Securities means (i)
Municipal Obligations with remaining maturities of 397 days or less and rated in
the two highest short-term rating categories by any two nationally recognized
statistical rating organizations ("NRSROs") or in such categories by the
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<PAGE>
only NRSRO that has rated the Municipal Obligations (collectively, the
"Requisite NRSRO"); (ii) Municipal Obligations which are subject to a Demand
Feature or Guarantee (as such terms are defined in Rule 2a-7 of the 1940 Act)
and which have received a rating from an NRSRO, or such guarantor has received a
rating from an NRSRO, with respect to a class of debt obligations (or any debt
obligation within that class) that is comparable in priority and security to the
Guarantee (unless, the guarantor, directly or indirectly, controls, is
controlled by or is under common control with the issuer of the security subject
to the Guarantee); and the issuer of the Demand Feature or Guarantee, or another
institution, has undertaken promptly to notify the holder of the security in the
event the Demand Feature or Guarantee is substituted with another Demand Feature
or Guarantee; or (iii) unrated Municipal Obligations determined by the Fund's
Board of Directors to be of comparable quality. In addition, Municipal
Obligations with remaining maturities of 397 days or less but that at the time
of issuance were long-term securities (i.e. with maturities greater than 366
days) are deemed unrated and may be purchased if such had received a long-term
rating from the Requisite NRSROs in one of the three highest rating categories.
Provided, however, that such may not be purchased if it (i) does not satisfy the
rating requirements set forth in the preceding sentence and (ii) has received a
long-term rating from any NRSRO that is not within the three highest long-term
rating categories. A determination of comparability by the Board of Directors is
made on the basis of its credit evaluation of the issuer, which may include an
evaluation of a letter of credit, guarantee, insurance or other credit facility
issued in support of the Municipal Obligations or participation certificates.
(See "Variable Rate Demand Instruments and Participation Certificates" herein).
While there are several organizations that currently qualify as NRSROs, two
examples of NRSROs are Standard & Poor's Rating Services a Division of The
McGraw-Hill Companies ("S&P") and Moody's Investors Service, Inc. ("Moody's").
The two highest ratings by S&P and Moody's are "AAA" and "AA" by S&P in the case
of long-term bonds or notes and "Aaa" and "Aa" by Moody's in the case of bonds;
"SP-1" and "SP-2" by S&P or"MIG-1" and "MIG-2" by Moody's in the case of notes;
"A-1" and "A-2" by S&P and "Prime-1" and "Prime-2" by Moody's in the case of
tax-exempt commercial paper. The highest rating in the case of variable and
floating demand notes is "SP-1 AA" by S&P and "VMIG-1" by Moody's. Such
instruments may produce a lower yield than would be available from less highly
rated instruments.
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
With respect to 75% of its total assets, the Fund shall invest not more than 5%
of its total assets in Municipal Obligations or Participation Certificates
issued by a single issuer. Provided, however, the Fund shall not invest more
than 5% of its total assets in Municipal Obligations or Participation
Certificates issued by a single issuer, unless Municipal Obligations are First
Tier Securities.
The Fund intends to qualify as a "regulated investment company" under Subchapter
M of the Internal Revenue Code. The Fund will be restricted in that at the close
of each quarter of the taxable year, at least 50% of the value of its total
assets must be represented by cash, government securities, investment company
securities and other securities limited in respect of any one issuer to not more
than 5% in value of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of such issuer. In addition, at the close of each
quarter of its taxable year, not more than 25% in value of the Fund's total
assets may be invested in securities of one issuer other than Government
securities. The limitations described in this paragraph regarding qualification
as a "regulated investment company" are not fundamental policies and may be
revised to the extent applicable Federal income tax requirements are revised.
(See "Federal Income Taxes" herein.)
DESCRIPTION OF MUNICIPAL OBLIGATIONS
As used herein, "Municipal Obligations" include the following as well as
"Variable Rate Demand Instruments and Participation Certificates".
1. Municipal Bonds with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition.
Municipal Bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally referred
to as "municipalities") which generally have a maturity at the time of
issue of one year or more and which are issued to raise funds for various
public purposes such as construction of a wide range of public facilities,
to refund outstanding obligations and to obtain funds for institutions and
facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities, towns and other governmental units. The principal of, and
interest on, revenue bonds are payable from the income of specific projects
or authorities and generally are not supported by the issuer's general
power to levy taxes. In some cases, revenues derived from specific taxes
are pledged to support payments on a revenue bond.
3
<PAGE>
In addition, certain kinds of "private activity bonds" are issued by public
authorities to provide funding for various privately operated industrial
facilities (hereinafter referred to as "industrial revenue bonds" or
"IRBs"). Interest on the IRBs is generally exempt, with certain exceptions,
from regular Federal income tax pursuant to Section 103(a) of the Code,
provided the issuer and corporate obligor thereof continue to meet certain
conditions. (See "Federal Income Taxes" herein.) IRBs are, in most cases,
revenue bonds and do not generally constitute the pledge of the credit of
the issuer of such bonds. The payment of the principal and interest on IRBs
usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations
and, in certain instances, the pledge of real and personal property as
security for payment. If there is no established secondary market for the
IRBs, the IRBs or the participation certificates in IRBs purchased by the
Fund will be supported by letters of credit, guarantees or insurance that
meet the definition of Eligible Securities at the time of acquisition and
provide the demand feature which may be exercised by the Fund at any time
to provide liquidity. Shareholders should note that the Fund may invest in
IRBs acquired in transactions involving a Participating Organization. In
accordance with Investment Restriction 6 herein, the Fund is permitted to
invest up to 10% of the portfolio in high quality, short-term Municipal
Obligations (including IRBs) meeting the definition of Eligible Securities
at the time of acquisition that may not be readily marketable or have a
liquidity feature.
2. Municipal Notes with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. The principal kinds of
Municipal Notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes and project notes. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality or agency. Project notes
are issued by local agencies and are guaranteed by the United States
Department of Housing and Urban Development. Project notes are also secured
by the full faith and credit of the United States. The Fund's investments
may be concentrated in Municipal Notes of Georgia issuers.
3. Municipal Commercial Paper that is an Eligible Security at the time of
acquisition. Issues of Municipal Commercial Paper typically represent very
short-term, unsecured, negotiable promissory notes. These obligations are
often issued to meet seasonal working capital needs of municipalities or to
provide interim construction financing and are paid from general revenues
of municipalities or are refinanced with long-term debt. In most cases
Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the
event of default by the issuer of the commercial paper.
4. Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications
equipment and other capital assets. Municipal Leases frequently have
special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance
limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has
no obligation to make future payments under the lease or contract unless
money is appropriated for such purpose by the appropriate legislative body
on a yearly or other periodic basis. To reduce this risk, the Fund will
only purchase Municipal Leases subject to a non-appropriation clause where
the payment of principal and accrued interest is backed by an unconditional
irrevocable letter of credit, a guarantee, insurance or other comparable
undertaking of an approved financial institution. These types of Municipal
Leases may be considered illiquid and subject to the 10% limitation of
investments in illiquid securities set forth under "Investment
Restrictions" contained herein. The Board of Directors may adopt guidelines
and delegate to the Manager the daily function of determining and
monitoring the liquidity of Municipal Leases. In making such determination,
the Board and the Manager may consider such factors as the frequency of
trades for the obligation, the number of dealers willing to purchase or
sell the obligations and the number of other potential buyers and the
nature of the marketplace for the obligations, including the time needed to
dispose of the obligations and the method of soliciting offers. If the
Board determines that any Municipal Leases are illiquid, such lease will be
subject to the 10% limitation on investments in illiquid securities. The
Fund has no intention to invest in Municipal Leases in the foreseeable
future and will amend this Statement of Additional Information in the event
that such an intention should develop in the future.
5. Any other Federal tax-exempt, and to the extent possible, Georgia Income
tax-exempt obligations issued by or on behalf of states and municipal
governments and their authorities, agencies, instrumentalities and
political subdivisions, whose inclusion in the Fund would be consistent
with the Fund's "Investment Objectives, Policies and Risks" and permissible
under Rule 2a-7 under the 1940 Act.
4
<PAGE>
Subsequent to its purchase by the Fund, the quality of an investment may cease
to be rated or its rating may be reduced such that the investment is no longer a
First Tier Security or is rated below the minimum required for purchase by the
Fund. If this occurs, the Board of Directors of the Fund shall reassess promptly
whether the security presents minimal credit risks and shall cause the Fund to
take such action as the Board of Directors determines is in the best interest of
the Fund and its shareholders. However, reassessment is not required if the
security is disposed of or matures within five business days of the Manager
becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Manager's actions. The term First Tier
Security means any Eligible Security that: (i) is a rated security that has
received a short-term rating from the Requisite NRSROs in the highest short-term
rating category for debt obligations; (ii) is an unrated security that is, as
determined by the fund's board of directors, to be of comparable quality; (iii)
is a security issued by a registered investment company that is a money market
fund; or (iv) is a government security.
In addition, in the event that a security (1) is in default, (2) ceases to be an
Eligible Security under Rule 2a-7 of the 1940 Act, or (3) is determined to no
longer present minimal credit risks, or an event of insolvency occurs with
respect to the issuer of a portfolio security or the provider of any Demand
Feature or Guarantee, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. In the event that the security
is disposed of it shall be disposed of as soon as practicable consistent with
achieving an orderly disposition by sale, exercise of any demand feature or
otherwise. In the event of a default with respect to a security which
immediately before default accounted for 1/2 of 1% or more of the Fund's total
assets, the Fund shall promptly notify the SEC of such fact and of the actions
that the Fund intends to take in response to the situation.
VARIABLE RATE DEMAND INSTRUMENTS AND PARTICIPATION CERTIFICATES
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations that provide for a periodic adjustment in the interest
rate paid on the instrument and permit the holder to demand payment of the
unpaid principal balance plus accrued interest at specified intervals upon a
specified number of days notice either from the issuer or by drawing on a bank
letter of credit, a guarantee or insurance issued with respect to such
instrument.
The variable rate demand instruments in which the Fund may invest are payable on
demand on not more than thirty calendar days' notice and may be exercised at any
time or at specified intervals not exceeding 397 days depending upon the terms
of the instrument. The terms of the instruments provide that interest rates are
adjustable to intervals ranging from daily to up to 397 days and the adjustments
are based upon the "prime rate"* of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The Fund will decide
which variable rate demand instruments it will purchase in accordance with
procedures prescribed by its Board of Directors to minimize Credit risks. A Fund
utilizing the amortized cost method1 of valuation under 2A-7 if the 1940 Act may
only purchase variable rate demand instruments only if (I) the instruments is
subject to an unconditional demand feature, exercisable by the Fund in the event
of a default in the payment of principal or interest on the underlying
securities, that is an Eligible Security, or (ii) the instrument is not subject
to an unconditional demand feature but does qualify as an Eligible Security and
has a long-term rating by the Requisite NRSROs in one of the two highest rating
categories, or if unrated, is determined to be of comparable quality by the
Fund's Board of Directors. The Fund's Board of Directors may determine that an
unrated variable rate demand instrument meets the Fund's high quality criteria
if it is backed by a letter if guarantee or is insured by an insurer that meets
the quality criteria for the Fund stated herein or on the basis of a credit
evaluation of the underlying obligor. If an instrument is ever not deemed to be
an Eligible Security, the Fund either will sell it in the market or exercise the
demand feature.
The variable rate demand instruments that the Fund may invest in include
Participation Certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Obligations (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations. The Fund will not purchase Participation Certificates
in fixed rate tax-exempt Municipal Obligations without obtaining an opinion of
counsel that the Fund will be treated as the owner thereof for Federal income
tax purposes. A participation certificate gives the Fund an undivided interest
in the Municipal Obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the Municipal Obligation and
provides the demand repurchase feature described below. Where the institution
issuing the participation does not meet the Fund's eligibility criteria, the
participation is backed by an irrevocable letter of credit or guaranty of a bank
(which may be the bank issuing the participation certificate, a bank issuing a
confirming letter of credit to that of the issuing bank, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
certificate of participation) or insurance policy of an insurance company that
the Board of Directors of the Fund has determined meets the prescribed quality
standards for the Fund. The Fund has the right to sell the participation
certificate back to the institution and, where applicable, draw on the letter of
credit or insurance after no more than 30 days notice either at any time or at
specified intervals not exceeding 397 days (depending on the terms of
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* The prime rate is generally the rate charged by a bank to its most
creditworthy customers for short-term loans. The prime rate of a particular
bank may differ from other banks and will be the rate announced by each bank
on a particular day. Changes in the prime rate may occur with great
frequency and generally become effective on the date announced.
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the participation), for all or any part of the full principal amount of the
Fund's participation interest in the security plus accrued interest. The Fund
intends to exercise the demand only (1) upon a default under the terms of the
bond documents, (2) as needed to provide liquidity to the Fund in order to make
redemptions of Fund shares or (3) to maintain a high quality investment
portfolio. The institutions issuing the Participation Certificates will retain a
service and letter of credit fee (where applicable) and a fee for providing the
demand repurchase feature, in an amount equal to the excess of the interest paid
on the instruments over the negotiated yield at which the participations were
purchased by the Fund. The total fees generally range from 5% to 15% of the
applicable prime rate or other interest rate index. With respect to insurance,
the Fund will attempt to have the issuer of the participation certificate bear
the cost of the insurance, although the Fund retains the option to purchase
insurance if necessary, in which case the cost of insurance will be an expense
of the Fund subject to the expense limitation (see "Expense Limitation" herein).
The Manager has been instructed by the Fund's Board of Directors to continually
monitor the pricing, quality and liquidity of the variable rate demand
instruments held by the Fund, including the Participation Certificates, on the
basis of published financial information and reports of the rating agencies and
other bank analytical services to which the Fund may subscribe. Although these
instruments may be sold by the Fund, the Fund intends to hold them until
maturity, except under the circumstances stated above. (See "Federal Income
Taxes" herein.)
In view of the concentration of the Fund in Participation Certificates in
Georgia Municipal Obligations, which may be secured by bank letters of credit or
guarantees, an investment in the Fund should be made with an understanding of
the characteristics of the banking industry and the risks which such an
investment may entail. Banks are subject to extensive governmental regulations
which may limit both the amounts and types of loans and other financial
commitments which may be made and interest rates and fees which may be charged.
The profitability of this industry is largely dependent upon the availability
and cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit. The Fund may invest
25% or more of the net assets of any portfolio in securities that are related in
such a way that an economic, business or political development or change
affecting one of the securities would also affect the other securities
including, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The portfolio may contain variable maximum rates set by state law,
limit the degree to which interest on such variable rate demand instruments may
fluctuate; to the extent it does, increases or decreases in value may be
somewhat greater than would be the case without such limits. Additionally, the
portfolio may contain variable rate demand Participation Certificates in fixed
rate Municipal Obligations. The fixed rate of interest on these Municipal
Obligations will be a ceiling on the variable rate of the participation
certificate. In the event that interest rates increased so that the variable
rate exceeded the fixed rate on the Municipal Obligations, the Municipal
Obligations could no longer be valued at par and may cause the Fund to take
corrective action, including the elimination of the instruments from the
portfolio. Because the adjustment of interest rates on the variable rate demand
instruments is made in relation to movements of the applicable banks' "prime
rates", or other interest rate adjustment index, the variable rate demand
instruments are not comparable to long-term fixed rate securities. Accordingly,
interest rates on the variable rate demand instruments may be higher or lower
than current market rates for fixed rate obligations of comparable quality with
similar maturities.
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (1) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment. The maturity of a variable rate demand instrument will be determined
in the same manner for purposes of computing the Fund's dollar-weighted average
portfolio maturity. If a variable rate demand instrument ceases to be an
Eligible Security it will be sold in the market or through exercise of the
repurchase demand feature to the issuer.
WHEN-ISSUED SECURITIES
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on the Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date
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of the Fund's commitment to purchase. Although the Fund will only make
commitments to purchase when-issued Municipal Obligations with the intention of
actually acquiring them, the Fund may sell these securities before the
settlement date if deemed advisable by the Manager.
Municipal Obligations purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way, that is, both experiencing appreciation when interest rates
decline and depreciation when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
income tax.
STAND-BY COMMITMENTS
When the Fund purchases Municipal Obligations it may also acquire stand-by
commitments from banks and other financial institutions with respect to such
Municipal Obligations. Under a stand-by commitment, a bank or broker-dealer
agrees to purchase at the Fund's option a specified Municipal Obligation at a
specified price with same day settlement. A stand-by commitment is the
equivalent of a "put" option acquired by the Fund with respect to a particular
Municipal Obligation held in its portfolio.
The amount payable to the Fund upon its exercise of a stand-by commitment
normally would be (1) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (2) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank or dealer during the
time a stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment would be unconditional and
unqualified. A stand-by commitment would not be transferable by the Fund,
although it could sell the underlying Municipal Obligation to a third party at
any time.
The Fund expects that stand-by commitments generally will be available without
the payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio would not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after each stand-by
commitment was acquired.
The Fund would enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks and, where the issuer of the Municipal Obligation does not meet the
eligibility criteria, only where the issuer of the stand-by commitment has
received a rating which meets the eligibility criteria or, if not rated,
presents a minimal risk of default as determined by the Board of Directors. The
Fund's reliance upon the credit of these banks and broker-dealers would be
supported by the value of the underlying Municipal Obligations held by the Fund
that were subject to the commitment.
The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income taxes
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment. The acquisition
of a stand-by commitment would not affect the valuation or assumed maturity of
the underlying Municipal Obligations which will continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund would be valued at zero in determining net asset value. In those cases in
which the Fund paid directly or indirectly for a stand-by commitment, its cost
would be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund. Stand-by commitments would not affect the
dollar-weighted average maturity of the Fund's portfolio. The maturity of a
security subject to a stand-by commitment is longer than the stand-by repurchase
date.
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The stand-by commitments that the Fund may enter into are subject to certain
risks, which include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.
In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by commitments will be exempt from Federal income taxation (see
"Federal Income Taxes" herein). In the absence of a favorable tax ruling or
opinion of counsel, the Fund will not engage in the purchase of securities
subject to stand-by commitments.
TAXABLE SECURITIES
Although the Fund will attempt to invest 100% of its net assets in tax-exempt
Municipal Obligations, the Fund may invest up to 20% of the value of its net
assets in securities of the kind described below, the interest income on which
is subject to regular Federal income tax, under any one or more of the following
circumstances: (a) pending investment of proceeds of sales of Fund shares or of
portfolio securities, (b) pending settlement of purchases of portfolio
securities and (c) to maintain liquidity for the purpose of meeting anticipated
redemptions. In addition, the Fund may temporarily invest more than 20% in such
taxable securities when, in the opinion of the Manager, it is advisable to do so
because of adverse market conditions affecting the market for Municipal
Obligations. The kinds of taxable securities in which the Fund may invest are
limited to the following short-term, fixed-income securities (maturing in 397
days or less from the time of purchase): (1) obligations of the United States
Government or its agencies, instrumentalities or authorities; (2) commercial
paper meeting the definition of Eligible Securities at the time of acquisition;
(3) certificates of deposit of domestic banks with assets of $1 billion or more;
and (4) repurchase agreements with respect to any Municipal Obligations or other
securities which the Fund is permitted to own. (See "Federal Income Taxes"
herein.)
REPURCHASE AGREEMENTS
The Fund may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Fund would acquire an underlying
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the Act. All repurchase agreements entered into
by the Fund shall be fully collateralized at all times during the period of the
agreement in that the value of the underlying security shall be at least equal
to the amount of the loan, including the accrued interest thereon, and the Fund
or its custodian shall have possession of the collateral, which the Fund's Board
believes will give it a valid, perfected security interest in the collateral. In
the event of default by the seller under a repurchase agreement construed to be
a collateralized loan, the underlying securities are not owned by the Fund but
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs in connection
with the disposition of the collateral. The Fund's Board believes that the
collateral underlying repurchase agreements may be more susceptible to claims of
the seller's creditors than would be the case with securities owned by the Fund.
It is expected that repurchase agreements will give rise to income which will
not qualify as tax-exempt income when distributed by the Fund. The Fund will not
invest in a repurchase agreement maturing in more than seven days if any such
investment together with illiquid securities held by the Fund exceed 10% of the
Fund's total net assets. (See Investment Restriction Number 6 herein.)
Repurchase agreements are subject to the same risks described herein for
stand-by commitments.
GEORGIA RISK FACTORS
The Georgia Constitution permits the issuance by the State of general obligation
debt and of certain guaranteed revenue debt. The State of Georgia may incur
guaranteed revenue debt by guaranteeing the payment of certain revenue
obligations issued by an instrumentality of the State. The Georgia Constitution
prohibits the incurring of any general obligation debt or guaranteed revenue
debt if the highest aggregate annual debt service requirement for the then
current year or any subsequent fiscal year for outstanding general obligation
debt and guaranteed revenue debt, including the proposed debt, exceed 10 percent
of the total revenue receipts, less refunds, of the State treasury in the fiscal
year immediately preceding the year in which any such debt is to be incurred.
The State of Georgia operates on a fiscal year beginning July 1 and ending June
30. For example, "fiscal 1997" refers to the year ended June 30, 1997. As of
October 31, 1997, the total principal indebtedness of the State of Georgia
consisting of general obligation debt and guaranteed revenue debt totaled
$4,841,865,000 and the highest aggregate annual payment for such debt equaled
5.03% of fiscal 1998 State estimated treasury receipts.
The Georgia Constitution also permits the State of Georgia to incur public debt
to supply a temporary deficit in the State treasury in any fiscal year created
by a delay in collecting the taxes of that year. Such debt must not exceed, in
the
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aggregate, 5% of the total revenue receipts, less refunds, of the State treasury
in the fiscal year immediately preceding the year in which such debt is
incurred. The debt incurred must be repaid on or before the last day of the
fiscal year in which it is to be incurred out of the taxes levied for that
fiscal year. No such debt may be incurred in any fiscal year if there is then
outstanding unpaid debt from any previous fiscal year that was incurred to
supply a temporary deficit in the State treasury. No such short-term debt has
been incurred under this provision since the inception of the constitutional
authority referred to in this paragraph.
Virtually all of the issues of long-term obligations issued by or on behalf of
the State of Georgia, counties, municipalities, and other political
subdivisions, and public authorities thereof are required by law to be validated
and confirmed in a judicial proceeding prior to issuance. The legal effect of an
approved validation in Georgia is to render incontestable the validity of the
pertinent bond issue and the security therefor.
Currently, Moody's Investors Service, Inc., rates Georgia general obligation
bonds Aaa, and Fitch IBCA, and Standard & Poor's Rating Services, a division of
The McGraw-Hill Companies, Inc., rate such bonds AAA. There can be no assurance
that the economic and political conditions on which these ratings are based will
continue or that particular bond issues may not be adversely affected by changes
in economic, political, or other conditions that do not affect the above
ratings.
ECONOMIC FACTORS
The following brief summary regarding the economy of Georgia is based upon
information drawn from the official statements of issuers located in Georgia,
other publicly available documents and oral statements from various federal and
State agencies. None of the information contained in such publicly available
documents has been independently verified.
The following discussion regarding the financial condition of the government of
the State of Georgia may not be relevant to general obligation or revenue bonds
issued by political subdivisions of and other issuers in Georgia. Such financial
information is based upon information about general financial conditions that
may or may not affect individual issuers of obligations within the State of
Georgia.
The financial condition of the State of Georgia is affected by various national,
economic, social, and environmental policies and conditions. Moreover,
Constitutional and statutory limitations imposed on the State of Georgia and its
local governments concerning taxes, bond indebtedness, and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Municipal Obligations to
satisfy their obligations.
Economic activity and employment levels have remained high in Georgia following
the end of the 1996 Olympic Games in Metropolitan Atlanta. Georgia is the site
of many military bases and defense cutbacks could have adverse effects on
statewide employment levels. Such possible effects should be weighed in light of
fiscal 1997 revenue collections of $11.9 billion, an increase of 6.62% over
collections for the previous fiscal year. According to estimates by the
Governor's chief economist, State revenue growth is expected to hold steady at
4.5% or better through fiscal 1999. The same growth rate was the basis for the
State's current budget, adopted last spring, but actual revenue collections are
up 5.9% in the first of half 1998, and the economist said he expects fiscal 1998
growth to be around 5.3%. He said Georgia's economy continues to out pace the
national economy, driven by strong performances in the services and retail
sections.
In January 1996 the Georgia General Assembly, at the urging of Governor Zell
Miller, repealed the State's 4% sales tax on groceries. The phased-in reduction
eliminated 2% of the food tax starting October 1, 1996, with another 1%
reduction starting October 1, 1997, and the elimination of the final 1% starting
the following October 1. State estimates are that this reduction schedule would
lead to $152 million less in revenues for Georgia in fiscal 1998, followed by
reductions of $129 million, and $44 million per year in the two fiscal years
following with the result that the cut in taxes would equal $500 million in
fiscal 2000. The Governor has indicated he would counter the lost revenue by
cutting excess jobs, privatizing certain state activities, and otherwise
eliminating inefficiencies in State government.
The 1998 Georgia General Assembly approved a $20 million income tax cut proposal
that was signed into law by the Governor in January. The bill will take effect
January 1, 1999, and the State plans to use some of the $715 million surplus
from fiscal 1998 to offset the tax cut.
The fortunes of the economy in general, especially the retail sector, will be
boosted by the State's continuing growth in population. Georgia's population is
expected to reach 7,630,200 in July 1998. Georgia's population continues to grow
faster than that of any state outside the Rocky Mountain region, and at about
twice the national rate.
Based on data of the Georgia Department of Revenue for fiscal 1997, income tax
receipts and sales tax receipts of the State for fiscal 1997 made up
approximately 46% and 36.4%, respectively, of the total State tax revenues.
The unemployment rate of the civilian labor force in the State of Georgia as of
September 1997 was 4.5% according to data provided by the Georgia Department of
Labor. The Metropolitan Atlanta Area, which is the largest employment center in
the area comprising Georgia and its five bordering states and which accounts for
approximately 46% of the State's population, has for some time enjoyed a lower
rate of unemployment than the State of Georgia considered as a whole. In
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descending order, services, wholesale and retail trade, manufacturing,
government, and transportation make up the largest sources of employment within
the State of Georgia.
REVENUE COLLECTION INFORMATION SYSTEMS INTERNAL CONTROL REVIEW
Pursuant to a review of the Georgia Department of Revenue's revenue collection
information systems by the State Auditor, it was determined that from April 1995
to May 1996 the Department did not maintain an adequate accounting system to
determine the accuracy of the amounts of Local Option Sales Tax, Special Purpose
Local Option Sales Tax, and MARTA Sales Tax collected by the Department on
behalf of local governments and the disbursements of those taxes to local
governments imposing the sales-based taxes. The Department of Revenue during
this period estimated collections and disbursements to local governments by
reviewing the payment pattern to the local governments for the previous 24-month
period and followed that pattern, adjusting for known growth in sales tax
collections.
The Department ceased using estimates for making payments to local governments
in May 1996, and implemented temporary computer-based and manual processing
systems to permit disbursements based on actual collections. In August 1997, the
Department completed installation of a new computer-based accounting system that
contains enhanced internal controls and balancing functions and is expected to
account accurately for the various local sales tax collections, to allocate the
disbursements thereof to local governments, and to impose adequate internal
controls. The State Department of Audits is currently accessing the adequacy and
effectiveness of the system's controls and the accuracy of the financial data
processed in the new system.
YEAR 2000 COMPLIANCE
Like other large organizations, the State, its agencies, and many of its
political subdivisions and authorities are subject to the costs and risks
associated with what has come to be known as "Year 2000" compliance, which
arises because many computer programs accept only two-digit entries in date code
fields used for, among other things, calculation and report generation features.
Wherever the State and its agencies use information systems, the resulting
inability of such computer programs to distinguish between the years 1900 and
2000 presents a number of risks. Such risks include, for example, disruption of
the distribution of State funds with respect to transfer payments, taxes, State
payroll, and transfer to local government, and disruption of other information
processing with respect to preparation of tax assessment notices and calculation
of prisoner release date, as well as the inefficiencies and delays caused by
system-generated errors and potential litigation as a result of any of such
disruptions or delays.
Accordingly, the State offered its agencies the opportunity to participate in a
series of planning and assessment activities aimed at Year 2000 compliance,
which utilized the services of an independent consultant. This State-sponsored
consulting contract has produced a status assessment and developed estimated
costs of implementing remediation and replacement strategies to reduce and
eliminate Year 2000 risks for the participating agencies. The State's approach
to funding Year 2000 compliance has been to include such costs with those
related to the State's ongoing goal of modernization and standardization of
existing information systems. The State is in the process of determining
estimates of the total funding requirements (including for non-participating
State agencies submitting independently produced Year 2000 compliance and
systems modernization funding requirements); however, actual costs may vary from
the estimates and may be significantly higher.
The State and its agencies are currently continuing these remediation and
testing efforts in order that all information systems used by the State will
function properly before, during, and after the Year 2000, subject, however, to
the General Assembly of the State appropriating the requested funds. All of the
potential risks and costs associated with the failure to remediate, however,
cannot be accurately identified and quantified at this time, and no assurance
can be given that the General Assembly will appropriate adequate funds to assure
compliance, that other possible implementation delays or problems that may arise
can be resolved on a timely basis, or that the State will not be exposed to
potential claims resulting from Year 2000 non-compliance.
LEGAL PROCEEDINGS
The State of Georgia from time to time is involved in certain legal proceedings
that may or may not have a material adverse impact on the financial position of
the State if decided in a manner adverse to the State's interests. Certain of
such lawsuits that could have a significant impact on the State's financial
position are summarized below.
Age International, Inc. v. State (two cases). Two suits for refund of alcohol
taxes have been filed in state court against the State of Georgia by
out-of-state producers of alcoholic beverages. The first suit for refund seeks
$96 million in refunds, plus interest, imposed under Section 3-4-60 of the
Official Code of Georgia Annotated, as amended in 1985 after the decision of the
United States Supreme Court in Bacchus Imports, Ltd. v. Dias, 468 U.S. 263
(1984). These claims constitute 99% of all such taxes paid during the three
years preceding the claims. In addition, the claimants have filed a second suit
for refund for an additional $23 million, plus interest, for later time periods.
These two cases encompass all known or anticipated claims for refund of such
type within the apparently applicable statute of limitations for the years in
question, e.g., 1989 through January 1993. The cases are pending in the trial
court at the discovery stage.
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In Buskirk and Estill v. State of Georgia, et al., plaintiffs in this case filed
a civil action in the Superior Court of Fulton County, Georgia, (No. E-31547) on
behalf of all "classified employees of the State of Georgia or its agencies and
departments during all or part of fiscal years 1992 through 1995 who were
eligible to receive within grade pay increases and who would have received same
were it not for a freeze of within grade pay increases." Currently pending
before the court is the plaintiffs' motion for class certification, which is not
opposed by the State. Discovery as to liability issues has been completed, and
once the class has been certified and various local defendants have been added,
the parties will likely file cross motions for summary judgment on liability
issues. If the plaintiffs prevail, the parties will conduct separate discovery
on the issue of damages. Should the plaintiffs prevail in every aspect of their
claims, the liability of the State in this matter could be as much as
$295,000,000, based on best estimates currently available.
DeKalb County v. Schrenko. This suit, originally filed in Federal District Court
for the Northern District of Georgia, against the State School Superintendent
and the State of Georgia is based on a claim that the State's funding formula
for pupil transportation is unconstitutional and a local school board's claim
that the State should finance the major portion of the costs of its
desegregation program. The Plaintiffs are seeking approximately $67,500,000 in
restitution. The Federal District Court ruled that the State's funding formula
for pupil transportation is contrary to state law but ruled in the State's favor
on the school desegregation costs issue. Motions to reconsider and amend the
Court's judgment were filed by both parties. The State's motion was granted, in
part, which reduced the required state payment to approximately $28,000,000, as
of the date of decision. Notices of appeal and briefs to the Eleventh Circuit
Court of Appeals were filed by both sides, and oral arguments on appeal were
heard in October 1996. In April 1997, a three-judge panel of the Eleventh
Circuit Court of Appeals rendered a decision, affirming the trial court's
decision in the State's favor as to the school desegregation costs issue and
reversing the trial court's decision against the State as to the State's funding
formula for pupil transportation being contrary to state law, 109 F.3d 680 (11th
Cir. 1997). Thus, under the Eleventh Circuit panel's decision, the State has no
liability. On April 28, 1997, the Plaintiff's filed a motion for rehearing and
en banc consideration, and that motion is still pending. The State has stated
its intention to continue to defend the suit vigorously.
George Jackson, et al. v. Georgia Lottery Corporation. Plaintiffs seek a court
order declaring that two games sponsored by the Georgia Lottery Corporation,
"Quick Cash" and "Cash Three," are unconstitutional and enjoining the lottery
from further offering these games. Plaintiffs also seek the return of all monies
played on these games during a specified period, approximately $1,703,462,781.
As a preliminary matter, the Court has ruled that the plaintiffs would not be
legally entitled to the monies claimed. The plaintiffs have attempted to appeal.
Any judgment against the Georgia Lottery Corporation would not be satisfied from
the State's general fund. See O.C.G.A. Sec. 50-27-32(c).
Georgia Department of Administrative Services, et al. v. Abbensett, et al.,
Gwinnett Superior Court Civil Action No. 96A-0395-16. This case arises in the
context of a declaratory judgment action brought by the State of Georgia and
counterclaims filed by the defendants. A young professional woman and mother was
killed in an automobile accident when her car collided with another vehicle. The
other vehicle was a state-owned vehicle driven by an employee of a for-profit
corporation, which had contracted with Fulton County, Georgia, to provide a
transportation service. Fulton County had a contract with the Atlanta Regional
Commission concerning the transportation service program, and the Atlanta
Regional Commission, in turn, had a contract with the Georgia Department of
Human Resources. In June 1996, the Georgia Department of Human Resources and the
Georgia Department of Administrative Services brought declaratory judgment
actions against the decedent's estate and others to assert the absence of any
duty to insure the second driver. In August 1996, the estate and other parties
filed tort counter-claims for wrongful death. Under commonly-applied measures of
damages for wrongful death, a money judgment for the estate could be several
million dollars. However, the State has stated its belief that it has
substantial defenses to assert and its intention to defend the counterclaim
actions vigorously.
W.J. Luke, an individual, v. Georgia Department of Natural Resources, et al.,
Fulton Superior Court Civil Action No. E-62384. This civil action was filed in
October 1997, on behalf of W.J. Luke and all other contributors to the Georgia
Underground Storage Tank Trust Fund, established under the Georgia Underground
Storage Tank Act, O.C.G.A. ss. 12-13-1, et seq., for refund of all monies
collected under that Act, interest, and attorney's fees. From time of its
inception in 1988 to the present, the Fund has collected approximately $82
million. The State has stated its belief that it has substantial defenses to
assert and its intention to defend the case vigorously.
The foregoing information does not purport to be a complete or exhaustive
description of all conditions to which the issuers of Georgia Municipal
Obligations are subject. Many factors including national economic, social, and
environmental policies and conditions that are not within the control of the
issuers of Municipal Obligations could affect or could have an adverse impact on
the financial condition of the State and various agencies and political
subdivisions located in the State of Georgia. Since Georgia Municipal
Obligations in the Fund (other than general obligation bonds issued by the
State) are payable from revenue derived from a specific source or authority, the
impact of a pronounced decline in the national economy or difficulties in
significant industries within the State could result in a decrease in the amount
of revenues realized from such source or by such authority and thus adversely
affect the ability of the respective issuers of the Georgia Municipal
Obligations in the Fund to pay the debt service requirements on the Georgia
Municipal Obligations. Similarly,
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such adverse economic developments would result in a decrease in tax revenues
realized by the State and thus could adversely affect the ability of the State
to pay the debt service requirements of any Georgia general obligation bonds in
the Fund.
The information summarized above describes some of the more significant events
relating to the Fund. Sources of such information are the official statements of
the issuers located in the State of Georgia, as well as other publicly available
documents and information. While the Manager has not independently verified such
information, it has no reason to believe it is not correct in all material
respects.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios and which may not be changed unless approved by a
majority of the outstanding shares of each series of the Fund's shares that
would be affected by such a change. The Fund may not:
1. Make portfolio investments other than as described under "Investment
Objectives, Policies and Risks" or any other form of Federal tax-exempt
investment which meets the Fund's high quality criteria, as determined by
the Board of Directors and which is consistent with the Fund's objectives
and policies.
2. Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, 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 Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any investments. Interest paid on borrowings will reduce
net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options, except to the extent that securities subject to a demand
obligation and stand-by commitments may be purchased as set forth under
"Investment Objectives, Policies and Risks" herein.
5. Underwrite the securities of other issuers, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
6. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may
purchase variable rate demand instruments which contain a demand feature.
The Fund will not invest in a repurchase agreement maturing in more than
seven days if any such investment together with securities that are not
readily marketable held by the Fund exceed 10% of the Fund's net assets.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this
shall not prevent the Fund from investing in Municipal Obligations secured
by real estate or interests in real estate.
8. Make loans to others, except through the purchase of portfolio investments,
including repurchase agreements, as described under "Investment Objectives,
Policies and Risks" herein.
9. Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
10. Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that the Fund may invest more than 25% of its
assets in Participation Certificates and there shall be no limitation on
the purchase of those Municipal Obligations and other obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities. When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from those of
the government creating the issuing entity and a security is backed only by
the assets and revenues of the entity, the entity would be deemed to be the
sole issuer of the security. Similarly, in the case of an industrial
revenue bond, if that bond is backed only by the assets and revenues of the
non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. If, however, in either case, the creating government or
some other entity, such as an insurance company or other corporate obligor,
guarantees a security or a bank issues a letter of credit, such a guarantee
or letter of credit would be considered a separate security and would be
treated as an issue of such government, other entity or bank. Immediately
after the acquisition of any securities subject to a Demand Feature or
Guarantee (as such terms are defined in Rule 2a-7 of the Act of 1940), with
respect to 75% of the total assets of the Fund, not more than 10% of the
Fund's assets may be invested in securities that are subject to a Guarantee
or Demand Feature from the same institution. However, the Fund may only
invest more than 10% of its assets in securities subject to a Guarantee or
Demand Feature issued by a Non-Controlled Person (as such term is defined
in Rule 2a-7 of the 1940 Act).
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11. Invest in securities of other investment companies, except the Fund may
purchase unit investment trust securities where such unit trusts meet the
investment objectives of the Fund and then only up to 5% of the Fund's net
assets, except as they may be acquired as part of a merger, consolidation
or acquisition of assets.
12. Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with a permitted borrowing.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
PORTFOLIO TRANSACTIONS
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases Participation
Certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the participation certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. 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 of each Class in
the Prospectus is herein incorporated by reference.
NET ASSET VALUE
The Fund does not determine net asset value per share of each Class on the
following holidays: New Year's Day, Martin Luther King Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The net asset value of each Class of the Fund's shares is determined as of 12
noon, New York City time, on each Fund Business Day. The net asset value of a
Class is computed by dividing the value of the Fund's net assets for such Class
(i.e., the value of its securities and other assets less its liabilities,
including expenses payable or accrued but excluding capital stock and surplus)
by the total number of shares outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated, as
described in the following paragraph. Although the amortized cost method
provides certainty in valuation, it may result in periods during which the value
of an instrument is higher or lower than the price an investment company would
receive if the instrument were sold.
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The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset value at $1.00 per share of each Class. These procedures include a
review of the extent of any deviation of net asset value per share, based on
available market rates, from the Fund's $1.00 amortized cost per share of each
Class. Should that deviation exceed 1/2 of 1%, the Board will consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redemption of shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
remaining maturity greater than 397 days, will limit portfolio investments,
including repurchase agreements, to those United States dollar-denominated
instruments that the Fund's Board of Directors determines present minimal credit
risks, and will comply with certain reporting and record keeping procedures. The
Fund has also established procedures to ensure compliance with the requirement
that portfolio securities are Eligible Securities. (See "Investment Objectives,
Policies and Risks" herein.)
YIELD QUOTATIONS
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the Securities and Exchange Commission. Under that
method, the Fund's yield figure, which is based on a chosen seven-day period, is
computed as follows: the Fund's return for the seven-day period (which is
obtained by dividing the net change in the value of a hypothetical account
having a balance of one share at the beginning of the period by the value of
such account at the beginning of the period (expected to always be $1.00) is
multiplied by (365/7) with the resulting annualized figure carried to the
nearest hundredth of one percent). For purposes of the foregoing computation,
the determination of the net change in account value during the seven-day period
reflects (i) dividends declared on the original share and on any additional
shares, including the value of any additional shares purchased with dividends
paid on the original share and (ii) fees charged to all shareholder accounts.
Realized capital gains or losses and unrealized appreciation or depreciation of
the Fund's portfolio securities are not included in the computation. Therefore
annualized yields may be different from effective yields quoted for the same
period.
The Fund's "effective yield" for each class is obtained by adjusting its
"current yield" to give effect to the compounding nature of the Fund's
portfolio, as follows: The unannualized base period return is compounded and
brought out to the nearest one hundredth of one percent by adding one to the
base period return, raising the sum to a power equal to 365 divided by 7, and
subtracting one from the result, i.e., effective yield = (base period return +
1) 365/7 - 1.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day. The Fund's yield for any given period is not an indication, or
representation by the Fund, of future yields or rates of return on the Fund's
shares, and may not provide a basis for comparison with bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors who
purchase the Fund's shares directly may realize a higher yield than Participant
Investors because they will not be subject to any fees or charges that may be
imposed by Participating Organizations.
The Fund may from time to time advertise its tax equivalent yield. The tax
equivalent yield for each class is computed based upon a 30-day (or one month)
period ended on the date of the most recent balance sheet included in this
Statement of Additional Information, computed by dividing that portion of the
yield of the Fund (as computed pursuant to the formulae previously discussed)
which is tax exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the yield of the Fund that is not tax exempt. The
tax equivalent yield for the Fund may also fluctuate daily and does not provide
a basis for determining future yields.
The Fund may from time to time advertise a taxable equivalent yield table which
shows the yield that an investor would need to receive from a taxable investment
in order to equal a tax-free yield from the Fund. (See "Taxable Equivalent Yield
Table" herein.)
MANAGER
The Manager is a Delaware limited partnership with its principal office at 600
Fifth Avenue, New York, New York 10020 (the "Manager"). As of April 30, 1998,
the Manager was investment manager, advisor or supervisor with respect to assets
aggregating in excess of $11.4 billion. The Manager acts as investment manager
or administrator of seventeen other investment companies and also advises
pension trusts, profit-sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager, due to a restructuring by New England
Investment Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998,
Nvest Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP,
replaced NEICOP as the limited partner and owner of a 99.5% interest in the
Manager. These changes did not result in a change in control of the Manager and
have no impact upon the Manager's performance of its responsibilities and
obligations.
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Reich & Tang Asset Management, Inc. (a wholly owned subsidiary of Nvest
Companies) is the sole general partner and owner of the remaining 0.5% interest
of the Manager. Nvest Corporation, a Massachusetts Corporation (formerly known
as New England Investment Companies, Inc.), serves as the managing general
partner of Nvest Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
MetLife is a mutual life insurance company with assets of $297.6 billion 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 services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $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 is a holding company offering a broad array of investment styles across a
wide range of asset categories through thirteen 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., Back Bay Advisors, L.P., Capital Growth
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., Nvest
Associates, Inc., Snyder Capital Management, L.P., Vaughan, Nelson, Scarborough
& McConnell, L.P., and Westpeak Investment Advisors, L.P. These affiliates in
the aggregate are investment advisors or managers to 80 other registered
investment companies.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. The Manager provides persons satisfactory to the Board of Directors of
the Fund to serve as officers of the Fund. Such officers, as well as certain
other employees and directors of the Fund, may be directors or officers of NEIC,
the sole general partner of the Manager, or employees of the Manager or its
affiliates. The Investment Management Contract was approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the Act) of the Fund or the Manager. The Investment Management
Contract was approved by the shareholders on June 8, 1998, and the Board of
Directors of the Fund on October 16, 1997.
The Investment Management Contract has a term which extends to May 31, 2000, and
may be continued in force thereafter for successive twelve-month periods
beginning each June1, provided that such continuance is specifically approved
annually by majority vote of the Fund's outstanding voting securities or by its
Board of Directors, and in either case by a majority of the directors who are
not parties to the Investment Management Contract or interested persons by any
such party, by votes cast in person at a meeting called for the purpose of
voting on such matter.
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.
For its services under the Investment Management Contract, the Manager receives
from the Fund a fee equal to .40% per annum of the Fund's average daily net
assets (the "Management Fee") for managing the Fund's investment portfolio and
performing related administrative and clerical services. The fees are accrued
daily and paid monthly. The Manager may waive its rights to any portion of the
Management Fee and may waive its rights to any portion of the Management Fee for
purposes of shareholder and administrative services and distribution of the
Fund's shares. Investment management fees and operating expenses which are
attributable to both Classes of the Fund will be allocated daily to each Class
based on the percentage of outstanding shares at the end of the day. Additional
shareholder services provided by Participating Organizations to Class A
shareholders pursuant to the Plan shall be compensated by the Distributor from
its shareholder servicing fee, the Manager from its management fee and the Fund
itself. Expenses incurred in the distribution of Class B shares and the
servicing of Class B shares shall be paid by the Manager.
Pursuant to the Administrative Services Contract with the Fund, the Manager
performs clerical, accounting, supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of accounting related services by Investors Fiduciary Trust Company,
the Fund's bookkeeping or recordkeeping agent, (ii) prepare reports to and
filings with regulatory authorities and (iii) perform such other services as the
Fund may from time to time request of the Manager. The personnel rendering such
services may be employees of the Manager, of its affiliates or of other
organizations. For its services under the Administrative Services Contract,
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the Manager receives from the Fund a fee equal to .21% per annum of the Fund's
average daily net assets. The Manager at its discretion may waive its rights to
any portion of the management fee or the administrative services fee and may use
any portion of the management fee for purposes of shareholder and administrative
services and distribution of the Fund's shares. (See "Distribution and Service
Plan" herein).
EXPENSE LIMITATION
The Manager has agreed 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 all operating expenses, 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,
telecommunications 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 Manager
or its affiliates, costs of investor services, shareholders' 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.
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 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 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 during
the past five years are set forth below. Unless otherwise specified, the address
of each of the following persons is 600 Fifth Avenue, New York, New York 10020.
Mr. Duff may be deemed an "interested person" of the Fund, as defined in the
1940 Act, on the basis of his affiliation with the Manager.
STEVEN W. DUFF, 44 - President of the Fund, has been President of the Mutual
Funds Division of the Manager since September 1994. Mr. Duff was formerly
Director of Mutual Fund Administration at NationsBank, with which he was
associated with from June 1981 to August 1994. Mr. Duff is President and a
Director of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, 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., Short Term Income Fund, Inc.,
and Virginia Daily Municipal Income Fund, Inc. President and a Trustee of
Florida Daily Municipal Income Fund, Institutional Daily Income Fund, and
Pennsylvania Daily Municipal Income Fund, President of Cortland Trust, Inc.,
Executive Vice President of Reich & Tang Equity Fund, Inc., and President and
Chief Executive Officer of Tax Exempt Proceeds Fund, Inc. and a Director of Pax
World Money Market Fund, Inc.
DR. W. GILES MELLON, 67 - Director of the Fund, has been Professor of Business
Administration 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 Back Bay Funds, Inc., California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Delafield Fund, Inc., Michigan Daily Tax Free Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Reich & Tang Equity Fund, Inc., Pax World Money
Market Fund, Inc., Short Term Income Fund, Inc., Virginia Daily Municipal Income
Fund, Inc., and a Trustee of Florida Daily Municipal Income Fund, Institutional
Daily Income Fund, and Pennsylvania Daily Municipal Income Fund.
ROBERT STRANIERE, 57 - 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., Life Cycle 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.
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DR. YUNG WONG, 59 - 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 Back Bay Funds, Inc., California Daily Tax Free Income
Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income
Fund, Inc., Delafield Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc.,
Virginia Daily Municipal Income Fund, Inc., and a Trustee of Florida Daily
Municipal Income Fund, Institutional Daily Income Fund, and Pennsylvania Daily
Municipal Income Fund.
MOLLY FLEWHARTY, 47 - 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 Back
Bay Funds, Inc.,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., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pax World Money Market Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc.
LESLEY M. JONES, 50 - Vice President of the Fund, has been Senior Vice President
of the Reich & Tang Mutual Funds Division of the Manager since September 1993.
Ms. Jones was formerly Senior Vice President of Reich & Tang, Inc. with which
she was associated from April 1973 to September 1993. Ms. Jones is also a Vice
President of Back Bay Funds, 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, 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., Pax World Money Market Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., and Virginia Daily Municipal Income Fund, Inc.
DANA E. MESSINA, 41 - 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. with which she was associated from December
1980 to September 1993. Ms. Messina is also Vice President of Back Bay Funds,
Inc., 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., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pax World Money Market Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc.
BERNADETTE N. FINN, 50 - 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. with which she was
associated from September 1970 to September 1993. Ms. Finn is also Secretary of
Back Bay Funds, 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, 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., Pax
World Money Market 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., Short
Term Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.
RICHARD DE SANCTIS, 41 - 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
Back Bay Funds, 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, 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., Pax World Money Market Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc., and Vice President and Treasurer of Cortland Trust,
Inc.
17
<PAGE>
ROSANNE HOLTZER, 33 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she was
associated with from June 1986. She is also Assistant Treasurer of Back Bay
Funds, 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, 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., Pax World Money Market
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc., and Virginia Daily Municipal Income Fund,
Inc. and is Vice President and Assistant Treasurer of Cortland Trust, Inc.
- --------------------------------------------------------------------------------
COMPENSATION TABLE
(Estimated for the year ended May 31, 1999)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
- ------------------------ ---------------------- ---------------------- ------------------ --------------------------
- ------------------------ ---------------------- ---------------------- ------------------ --------------------------
Name of Person, Aggregate Pension or Estimated Annual Total Compensation from
Position Compensation from Retirement Benefits Benefits upon Fund and Fund Complex
Registrant for Accrued as Part of Retirement Paid to Directors*
Fiscal Year Fund Expenses
- ------------------------ ---------------------- ---------------------- ------------------ --------------------------
- ------------------------ ---------------------- ---------------------- ------------------ --------------------------
W. Giles Mellon, $2,000 0 0 $55,550 (14 Funds)
Director
Robert Straniere, $2,000 0 0 $55,550 (14Funds)
Director
Yung Wong, $2,000 0 0 $55,550 (14 Funds)
Director
- ------------------------ ---------------------- ---------------------- ------------------ --------------------------
</TABLE>
* The total compensation paid to such persons by the Fund and Fund
Complex for the fiscal year ending May 31, 1999 (and, with respect to
certain of the funds in the Fund Complex, estimated to be paid during
the fiscal year ending May 31, 1999). The parenthetical number
represents the number of investment companies (including the Fund) from
which such person receives compensation that are considered part of the
same Fund complex as the Fund, because, among other things, they have a
common investment advisor.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Messrs. Battle Fowler LLP, 75 East 55th Street, New York, New
York 10022. Matters in connection with Georgia law are passed upon by Kilpatrick
Stockton LLP, Suite 2800, 1100 Peachtree Street, Atlanta, Georgia 30309.
McGladrey & Pullen LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 (the "Rule") under the 1940 Act, the SEC has required
that an investment company which bears any direct or indirect expense of
distributing its shares must do so only in accordance with a plan permitted by
the Rule. The Fund's Board of Directors has adopted a distribution and service
plan (the "Plan") and, pursuant to the Plan, the Fund has entered into a
Distribution Agreement and a Shareholder Servicing Agreement (with respect to
Class A shares only) with the Reich & Tang Distributors, Inc. (the
"Distributor"), as distributor of the Fund's shares.
The Class A shares will be offered to investors who desire certain additional
shareholder services from Participating Organizations that are compensated by
the Fund's Manager and Distributor for such services. For its services under the
Shareholder Servicing Agreement (with respect to the Class A shares only) the
Distributor receives from the Fund a fee equal to .25% per annum of the Fund's
average daily net assets of the Class A shares of the Fund (the "Shareholder
Servicing Fee"). 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 servicing their clients or customers
who are Class A shareholders of the Fund. The Class B shareholders will not
receive the benefit of such services from Participating Organizations and,
therefore, will not be assessed a Shareholder Servicing Fee.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Participating Organizations and Distributor in carrying out their
obligations under the Shareholder Servicing Agreement
18
<PAGE>
with respect to the Class A shares and (ii) preparing, printing and delivering
the Fund's prospectus to existing shareholders of the Fund and preparing and
printing subscription application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from
their own resources, which may include the Management 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 and related
administrative functions on behalf of the Class A shares of the Fund; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the Fund's shares; and (iii) to pay the costs of printing and
distributing the Fund'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
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholder Servicing Fee with respect to Class A shares
and past profits for the purpose 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 Fund is required to pay to
the Manager or the Distributor for any fiscal year under the Investment
Management Contract, the Administrative Services Contract or the Shareholder
Servicing Agreement in effect for that year.
In accordance with the Rule, 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 Class A 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 in the agreements related to the Plan. The shareholders approved the
Plan on June 8, 1998 and Board of Directors of the Fund approved the Plan on
October 16,1997 to be effective until May 31, 1999. 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 Class A shareholders.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Fund, which was incorporated on October 7,
1997 in Maryland, consists of twenty billion shares of stock having a par value
of one tenth of one cent ($.001) per share. The Fund's Board of Directors is
authorized to divide the shares into separate series of stock, one for each of
the portfolios that may be created. Each share of any series of shares when
issued will have equal dividend, distribution and liquidation rights within the
series for which it was issued and each fractional share has those rights in
proportion to the percentage that the fractional share represents of a whole
share. Shares of all series have identical voting rights, except where, by law,
certain matters must be approved by a majority of the shares of the unaffected
series. Shares will be voted in the aggregate. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares, when
issued in accordance with the terms of the offering, will be fully paid and
nonassessable. Shares are redeemable at net asset value, at the option of the
shareholder. The Fund is subdivided into two classes of common stock, Class A
and Class B. 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 and Class B shares will have different class designations; (ii) only the
Class A shares will be assessed a service fee pursuant to the Rule 12b-1
Distribution and Service Plan of the Fund of .25% of the Class A shares' average
daily net assets; (iii) only the holders of the Class A shares would be entitled
to vote on matters pertaining to the Plan and any related agreements in
accordance with provisions of Rule 12b-1; and (iv) the exchange privilege will
permit stockholders to exchange their shares only for shares of the same class
of an investment company that participates on an exchange privilege program with
the Fund. Payments that are made under the Plan will be calculated and charged
daily to the appropriate class prior to determining daily net asset value per
share and dividends/distributions. On June 8, 1998, the Manager purchased
$100,000 of the Fund's shares at an initial subscription price of $1.00 per
share.
Under its Articles of Incorporation the Fund has the right to redeem for cash
shares of stock owned by any shareholder to the extent and at such times as the
Fund's Board of Directors determines to be necessary or appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders.
19
<PAGE>
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.
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 the 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 shareholders entitled to cast not less than twenty-five percent 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 re-election 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.
FEDERAL INCOME TAXES
The Fund intends to elect to qualify under the Internal Revenue Code of 1986, as
amended (the "Code"), and under Georgia law as a "regulated investment company"
that distributes "exempt-interest dividends". The Fund intends to continue to
qualify for regulated investment company status so long as such qualification is
in the best interests of its shareholders. Such qualification relieves the Fund
of liability for Federal income taxes to the extent its earnings are distributed
in accordance with the applicable provisions of the Code.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its tax -exempt interest income, net of certain deductions.
Exempt-interest dividends, as defined in the Code, are dividends or any part
thereof (other than capital gain dividends) paid by the Fund that are
attributable to interest on obligations, the interest on which is exempt from
regular Federal income tax, and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders not later than
60 days after the close of its taxable year. The percentage of the total
dividends paid by the Fund during any taxable year that qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends during the year.
Exempt-interest dividends are to be treated by the Fund's shareholders as items
of interest excludible from their gross income under Section 103(a) of the Code.
However, a shareholder is advised to consult his tax advisors with respect to
whether exempt-interest dividends retain the exclusion under Section 103 of the
Code if such shareholder would be treated as a "substantial user" or "related
person" under Section 147(a) of the Code with respect to some or all of the
"private activity" bonds, if any, held by the Fund. If a shareholder receives an
exempt-interest dividend with respect to any share and such share has been held
for six months or less, then any loss on the sale or exchange of such share will
be disallowed to the extent of the amount of such exempt-interest dividend. The
Code provides that interest on indebtedness incurred, or continued, to purchase
or carry certain tax-exempt securities such as shares of the Fund is not
deductible. Therefore, among other consequences, a certain proportion of
interest on indebtedness incurred, or continued, to purchase or carry securities
on margin may not be deductible during the period an investor holds shares of
the Fund. For Social Security recipients, interest on tax exempt bonds,
including exempt-interest dividends paid by the Fund, is to be added to adjusted
gross income for purposes of computing the amount of social security benefits
includible in gross income. The amount of such interest received will have to be
disclosed on the shareholders' Federal income tax returns. Taxpayers other than
corporations are required to include as an item of tax preference for purposes
of the Federal alternative minimum tax all tax-exempt interest on "private
activity" bonds (generally, a bond issue in which more than 10% of the proceeds
are used in a non-governmental trade or business) (other than Section 501(c)(3)
bonds) issued after August 7, 1986. Thus, this provision will apply to the
portion of the exempt-interest dividends from the Fund's assets that are
attributable to such post-August 7, 1986 private activity bonds, if any of such
bonds are acquired by the Fund. Corporations are required to increase their
alternative minimum taxable income for purposes of calculating their alternative
minimum tax liability by 75% of the amount by which the adjusted current
earnings (which will include tax-exempt interest) of the corporation exceeds the
alternative minimum taxable income (determined without this item). In addition,
in certain cases, Subchapter S corporations with accumulated earnings and
profits from Subchapter C years are subject to a minimum tax on excess "passive
investment income" which includes tax-exempt interest.
Although it is not intended, it is possible that the Fund may realize short-term
or long-term capital gains or losses from its portfolio transactions. The Fund
may also realize short-term or long-term capital gains upon the maturity or
disposition of securities acquired at discounts resulting from market
fluctuations. Short-term capital gains will be taxable to shareholders as
ordinary income when they are distributed. Any net capital gains (the excess of
its net realized long-term capital gain over its net realized short-term capital
loss) will be distributed annually to the Fund's
20
<PAGE>
shareholders. The Fund will have no tax liability with respect to distributed
net capital gains and the distributions will be taxable to shareholders as
long-term capital gains regardless of how long the shareholders have held Fund
shares. However, Fund shareholders who at the time of such a net capital gain
distribution have not held their Fund shares for more than 6 months, and who
subsequently dispose of those shares at a loss, will be required to treat such
loss as a long-term capital loss to the extent of the net capital gain
distribution. Distributions of net capital gain will be designated as a "capital
gain dividend" in a written notice mailed to the Fund's shareholders not later
than 60 days after the close of the Fund's taxable year. Capital gains realized
by corporations are generally taxed at the same rate as ordinary income.
However, capital gains dividends are taxable at a maximum rate of 28% to
non-corporate shareholders if the Fund's holding period is more than 12 months
and 20% if the Fund's holding period is more than 18 months, without regard to
the length of time shares have been held by the holder. Corresponding maximum
rate and holding period rules apply with respect to capital gains realized by a
holder on the disposition of shares.
The Fund intends to distribute at least 90% of its investment company taxable
income (taxable income subject to certain adjustments exclusive of the excess of
its net long-term capital gain over its net short-term capital loss) for each
taxable year. The Fund will be subject to Federal income tax on any
undistributed investment company taxable income. To the extent such income is
distributed it will be taxable to shareholders as ordinary income. Expenses paid
or incurred by the Fund will be allocated between tax-exempt and taxable income
in the same proportion as the amount of the Fund's tax-exempt income bears to
the total of such exempt income and its gross income (excluding from gross
income the excess of capital gains over capital losses). If the Fund does not
distribute at least 98% of its ordinary income and 98% of its capital gain net
income for a taxable year, the Fund will be subject to a nondeductible 4% excise
tax on the excess of such amounts over the amounts actually distributed.
If a shareholder fails to provide the Fund with a current taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
interest, dividend payments, and proceeds from the redemption of shares of the
Fund.
Dividends and distributions to shareholders will be treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund.
With respect to the variable rate demand instruments, including Participation
Certificates therein, the Fund has obtained and is relying on the opinion of
Battle Fowler LLP, counsel to the Fund, that it will be treated for Federal
income tax purposes as the owner of the underlying Municipal Obligations and the
interest thereon will be exempt from regular federal income taxes to the Fund to
the same extent as interest on the underlying Municipal Obligations. Counsel has
pointed out that the Internal Revenue Service has announced that it will not
ordinarily issue advance rulings on the question of ownership of securities or
participation interests therein subject to a put and, as a result, the Internal
Revenue Service could reach a conclusion different from that reached by counsel.
The Code provides that the interest on indebtedness incurred or continued to
purchase or carry shares of the Fund is not deductible. Therefore, among other
consequences, a certain proportion of interest on indebtedness incurred, or
continued to purchase or carry securities may not be deductible during the
period an investor holds shares of the Fund. P.L. 99-514 expands the application
of this rule as it applies to financial institutions, effective with respect to
Fund shares acquired after December 31, 1986. The Clinton Administration's
Revenue Proposals for fiscal year 1999 would extend this provision to all
federal intermediaries effective for taxable years beginning after the date of
enactment with respect to obligations acquired on or after the date of first
committee action.
From time to time, proposals have been introduced before Congress to restrict or
eliminate the Federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund would reevaluate its investment objective and policies and consider
changes in the structure.
In South Carolina v. Baker, the United States Supreme Court held that the
Federal government may constitutionally require states to register bonds they
issue and may subject the interest on such bonds to Federal tax if not
registered, and that there is no constitutional prohibition against the Federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the Federal government to
regulate and control bonds such as the Municipal Obligations and to tax such
bonds in the future. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Municipal Obligations in
accordance with Section 103 of the Code.
GEORGIA INCOME TAXES
Under Section 48-7-27(b)(1)(A) of the Official Code of Georgia Annotated,
interest on obligations of the State of Georgia and its political subdivisions,
which is not otherwise included in federal adjusted gross income, is exempt from
the State of Georgia's individual income tax. Likewise, under Section
48-7-27(b)(2) of the Official Code of Georgia Annotated interest on exempt
obligations of the U.S. government, its territories and possessions (including
Puerto Rico, Guam, and the Virgin Islands), or of any authority, commission, or
instrumentality of the U.S. government is also exempt from
21
<PAGE>
the State of Georgia's individual income tax. To the extent that distributions
from the Fund attributable to interest on obligations of the State of Georgia
and its political subdivisions is excluded from federal adjusted gross income,
therefore, they will likewise be excluded from the Georgia individual income
tax.
The stated position of the Georgia Department of Revenue is that the exempt
treatment for interest derived from such exempt obligations is also extended to
distributions of regulated investment companies, such as the Fund. Tax-exempt
treatment is generally not available for distributions attributable to income
earned on indirect U.S. government obligations (GNMAs, FNMAs, etc.), for
repurchase agreements collateralized by U.S. government obligations, or for
obligations of other states and their political subdivisions. To the extent such
investments are made by the Fund, such as for temporary or defensive purposes,
such distributions will generally be taxable on a pro rata basis.
Any distributions of net short-term and net long-term capital gains earned by
the Fund are fully included in each individual shareholder's Georgia taxable
income as dividend income and long-term capital gain, respectively, and are
currently taxed at ordinary income tax rates. Ownership of Shares in the Fund
may also result in collateral Georgia tax consequences for certain taxpayers.
Prospective investors should consult their tax advisors as to the applicability
of any such collateral consequences.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri
64105, is custodian for the Fund's cash and securities and is the transfer agent
and dividend disbursing agent for shares of the Fund. The transfer agent and
custodian do not assist in, and are not responsible for, investment decisions
involving assets of the Fund.
22
<PAGE>
DESCRIPTION OF RATINGS*
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST MUNICIPAL BOND RATINGS
AAA: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
CON. ( ): Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC'S TWO HIGHEST RATINGS OF STATE AND
MUNICIPAL NOTES AND OTHER SHORT-TERM LOANS:
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
DESCRIPTION OF STANDARD & POOR'S RATING SERVICES' TWO HIGHEST DEBT RATINGS:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
PLUS ( + ) OR MINUS ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Standard & Poor's does not provide ratings for state and municipal notes.
DESCRIPTION OF STANDARD & POOR'S RATING SERVICES' TWO HIGHEST COMMERCIAL PAPER
RATINGS:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S TWO HIGHEST COMMERCIAL PAPER
RATINGS:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues Prime-1, highest
quality; Prime-2, higher quality.
- ---------------------------------------
* As described by the rating agencies.
23
<PAGE>
- -------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELD TABLE
- -------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- -------------------- ---------------- -------------- ----------------- ---------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Single $0- $25,351- $61,401- $128,101- $278,451
Return 25,350 61,400 128,100 278,450 and over
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
Joint $0- $42,351- $102,301- $155,951- $278,451
Return 42,350 102,300 155,950 278,450 and over
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- ------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ------------------------------------------------------------------------------------------------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
Federal
Tax Rate 15.00% 28.00% 31.00% 36.00% 39.60%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
State
Tax Rate 6.00% 6.00% 6.00% 6.00% 6.00%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
Combined
Tax Bracket 20.10% 32.32% 35.14% 39.84% 43.22%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
3. Now Compare Your Tax Free Income Yields
With Taxable Income Yields
Tax Exempt
Yield Equivalent Taxable Investment Yield
- -------------------- ---------------------------------------------------------------------------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
2.00% 2.50% 2.96% 3.08% 3.32% 3.52%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
2.50% 3.13% 3.69% 3.85% 4.16% 4.40%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
3.00% 3.75% 4.43% 4.63% 4.99% 5.28%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
3.50% 4.38% 5.17% 5.40% 5.82% 6.16%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
4.00% 5.01% 5.91% 6.17% 6.65% 7.05%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
4.50% 5.63% 6.65% 6.94% 7.48% 7.93%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
5.00% 6.26% 7.39% 7.71% 8.31% 8.81%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
5.50% 6.88% 8.13% 8.48% 9.14% 9.69%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
6.00% 7.51% 8.87% 9.25% 9.97% 10.57%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
6.50% 8.14% 9.60% 10.02% 10.80% 11.45%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
7.00% 8.76% 10.34% 10.79% 11.64% 12.33%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
</TABLE>
- -------------------------------------------------------------------------------
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
24
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Directors and Shareholder
Georgia Daily Municipal Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Georgia
Daily Municipal Income Fund, Inc. as of June 8, 1998. This financial statement
is the responsibility of the Fund's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the Georgia Daily Municipal
Income Fund, Inc. as of June 8, 1998, in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
New York, New York
June 8, 1998
25
<PAGE>
GEORGIA DAILY MUNICIPAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 8, 1998
ASSETS
Cash $100,000
Deferred organization expense 34,000
________
Total Assets 134,000
LIABILITIES
Payable for deferred organization expense 34,000
________
NET ASSETS
Net assets applicable to 100,000 shares of Class A
common stock outstanding, $.001 par value per share;
20,000,000,000 shares authorized $100,000
==========
Net asset value, offering and redemption price per share $ 1.00
==========
See Notes to Financial Statement.
26
<PAGE>
GEORGIA DAILY MUNICIPAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENT
Note 1. Georgia Daily Municipal Income Fund, Inc. (the "Fund") was incorporated
under the laws of the state of Maryland on October 7, 1997 and is
authorized to issue 20,000,000,000 shares of common stock, $.001 par value.
The Fund is subdivided into two classes of shares, Class A and Class B. The
Fund is registered under the Investment Company Act of 1940 as an open-end
management investment company and has had no operations to date other than
those relating to its organization and the sale and issuance of 100,000
shares of Class A common stock interest to Reich & Tang Asset Management
L.P., its Manager. The Investment Management Contract, the Administrative
Services Contract and the Shareholder Servicing Agreement are described
elsewhere in the Prospectus and Statement of Additional Information.
Note 2. Organizational expenses are being deferred and will be amortized on a
straight-line basis over a five year period. Organizational expenses
represent legal and audit fees and miscellaneous costs. During the
amortization period the proceeds of any redemption of initial shares by any
holder thereof will be reduced by a pro rata portion of any then
unamortized organization expense, based on the ratio of the shares redeemed
to the total initial shares outstanding immediately prior to the
redemption.
27
