As filed with the Securities and Exchange Commission on September 28, 1999
Registration No. 333-37491
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3 [X]
GEORGIA DAILY MUNICIPAL INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5220
BERNADETTE N. FINN
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)
Copy to: MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
It is proposed that this filing will become effective: (check appropriate box)
[X ] immediately upon filing pursuant to paragraph (b)
[ ] on ( ) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
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GEORGIA DAILY MUNICIPAL 600 FIFTH AVENUE
INCOME FUND, INC. NEW YORK, N.Y. 10020
Class A Shares; Class B Shares (212) 830-5220
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PROSPECTUS
September 28, 1999
A 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 preservation of capital, maintenance of liquidity and
stability of principal.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
2 Risk/Return Summary: Investments, Risks, 6 Management, Organization
and Performance and Capital Structure
3 Fee Table 7 Shareholder Information
4 Investment Objectives, Principal Investment 15 Distribution Arrangements
Strategies and Related Risks 17 Financial Highlights
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I. RISK/RETURN SUMMARY: INVESTMENTS, RISKS, AND PERFORMANCE
Investment Objectives
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The Fund seeks 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 preservation of capital, maintenance of
liquidity, and stability of principal. There can be no assurance that the Fund
will achieve its investment objectives.
Principal Investment Strategies
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The Fund intends to achieve its investment objectives by investing
principally in short-term, high quality, debt obligations of:
(i) Georgia, and its political subdivisions;
(ii) Puerto Rico and other United States Territories, and their political
subdivisions; and
(iii) other states.
These debt obligations are collectively referred to throughout this
Prospectus as Municipal Obligations.
The Fund is a money market fund and seeks to maintain an investment
portfolio with a dollar-weighted average maturity of 90 days or less, to value
its investment portfolio at amortized cost and to maintain a net asset value of
$1.00 per share.
The Fund intends to concentrate (i.e. 25% or more of the Fund's total net
assets) in Georgia Municipal Obligations, including Participation Certificates
therein. Participation Certificates evidence ownership of an interest in the
underlying Municipal Obligations and are purchased from banks, insurance
companies or other financial institutions.
Principal Risks
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o Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund.
o The value of the Fund's shares and the securities held by the Fund can each
decline in value.
o The amount of income the Fund generates will vary with changes in
prevailing interest rates.
o An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other governmental agency.
o Because the Fund intends to concentrate in Georgia Municipal Obligations,
including Participation Certificates therein, investors should also
consider the greater risk of the Portfolio's concentration versus the
safety that comes with a less concentrated investment portfolio.
o Because the Fund invests in Participation Certificates, investors should
understand the characteristics of the banking industry and the risks that
such investments may entail.
o An investment in the Fund should be made with an understanding of the
risks that 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 payment obligations.
Unfavorable political and economic conditions within Georgia can affect
the credit quality of issuers located in that state. Risk factors
affecting the State of Georgia are described in "Georgia Risk Factors" in
the Statement of Additional Information.
Risk/Return Bar Chart and Table
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A bar chart and table will be available to track the Fund's performance
once the Fund has been in operation for a full calendar year. The current 7-day
yield of the Fund's two classes may be obtained by calling the Fund toll-free at
1-800-221-3079.
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FEE TABLE
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This table describes the fees and expenses that you may pay if you buy and hold
shares in the Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Class A Shares Class B Shares
Management Fees................................ 0.40% 0.40%
Distribution and Service (12b-1) Fees.......... 0.25% 0.00%
Other Expenses................................. 2.33% 2.33%
Administration Fees.......................... 0.21% _____ 0.21% _____
Total Annual Fund Operating Expenses........... 2.98% 2.73%
The Manager has voluntarily waived the entire Management Fee and Administration
Fee and reimbursed a portion of the Fund's "Other Expenses" with respect to
both Class A and B shares. The reimbursement of the Fund's "Other Expenses,"
with respect to both Class A and B shares was 1.58%. The actual Total Annual
Fund Operating Expenses for Class A were 0.79% and for Class B 0.54%. This fee
waiver and reimbursement arrangement may terminated at any time at the option of
the Manager.
Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
Assume that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. Also assume that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class A: $ 301 $ 921 $ 1,567 $ 3,299
Class B: $ 276 $ 847 $ 1,445 $ 3,061
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II. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objectives
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The Fund 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,
consistent with preserving capital, maintaining liquidity and stabilizing
principal.
The investment objectives of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund that would be affected by such a change.
Principal Investment Strategies
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Generally
The Fund will invest primarily (i.e., at least 80%) in short-term, high
quality, debt obligations which include:
(i) Georgia Municipal Obligations issued by or on behalf of the State of
Georgia or any Georgia local governments, or their instrumentalities,
authorities or districts;
(ii) Territorial Municipal Obligations issued by or on behalf of Puerto Rico
and the Virgin Islands or their instrumentalities, authorities, agencies
and political subdivisions; and
(iii) Municipal Obligations issued by or on behalf of other states, their
authorities, agencies, instrumentalities and political subdivisions.
The Fund will also invest in Participation Certificates in Municipal
Obligations. Participation Certificates represent the Fund's interest in a
Municipal Obligation that is held by another entity (i.e. banks, insurance
companies or other financial institutions). Instead of purchasing a Municipal
Obligation directly, the Fund purchases and holds an undivided interest in a
Municipal Obligation that is held by a third party. The Fund's interest in the
underlying municipal obligation is proportionate to the Fund's participation
interest. Ownership of the Participation Certificates cause the Fund to be
treated as the owner of the underlying Municipal Obligations for Federal income
tax purposes.
The Fund may invest more than 25% of its assets in Participation
Certificates and other Georgia Municipal Obligations.
Although the Fund will attempt to invest 100% of its total assets in
Municipal Obligations and Participation Certificates, the Fund reserves the
right to invest up to 20% of its total assets in taxable securities whose
interest income is subject to regular Federal, state and local income tax. The
kinds of taxable securities in which the Fund may invest are limited to
short-term, fixed income securities as more fully described in "Taxable
Securities" in the Statement of Additional Information.
Included in the same 20% of total assets in taxable securities, the Fund
may also purchase securities and participation certificates whose interest
income may be subject to the Federal alternative minimum taxes.
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 Georgia income taxes.
The Fund will invest at least 65% of its total assets in Georgia Municipal
Obligations, although the exact amount may vary from time to time. However, as a
temporary defensive measure the Fund may, from time to time, invest in
securities that are inconsistent with its principal investment strategies in an
attempt to respond to adverse market, economic, political or other conditions as
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determined by the Fund's investment advisor. These securities may cause the Fund
to distribute income subject to Federal and/or Georgia income taxes. Such a
temporary defensive position may cause the Fund to not achieve its investment
objectives.
With respect to 75% of its total assets, the Fund shall invest not more
than 5% of its total assets in Municipal Obligations or Participation
Certificates issued by a single issuer. The Fund shall not invest more than 5%
of its total assets in Municipal Securities or Participation Certificates issued
by a single issuer unless the Municipal Obligations are of the highest quality.
With respect to 75% of its total assets, the Fund shall invest not more
than 10% of its total assets in Municipal Obligations or Participation
Certificates backed by a demand feature or guarantee from the same institution.
The Fund's investments may also include "when-issued" Municipal Obligations
and stand-by commitments.
The Fund's investment manager considers the following factors when buying
and selling securities for the portfolio: (i) availability of cash, (ii)
redemption requests, (iii) yield management, and (iv) credit management.
In order to maintain a share price of $1.00, the Fund must comply with
certain industry regulations. The Fund will only invest in securities which are
denominated in United States dollars. Other requirements pertain to the maturity
and credit quality of the securities in which the Fund may invest. The Fund will
only invest in securities which have or are deemed to have a remaining maturity
of 397 days or less. Also, the average maturity for all securities contained in
the Fund, on a dollar-weighted basis, will be 90 days or less.
The Fund will only invest in either securities that have been rated (or
whose issuers have been rated) in the highest short-term rating category by
nationally recognized statistical rating organizations, or are unrated
securities but that have been determined by the Fund's Board of Directors to be
of comparable quality.
Subsequent to its purchase by the Fund, the quality of an investment may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. If this occurs, the Board of Directors of the Fund shall
reassess the security's credit risks and shall take such action as it determines
is in the best interest of the Fund and its shareholders. Reassessment is not
required, however, 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.
For a more detailed description of (i) the securities that the Fund will
invest in, (ii) fundamental investment restrictions, and (iii) industry
regulations governing credit quality and maturity, please refer to the Statement
of Additional Information.
Risks
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The Fund complies with industry-standard requirements on the quality,
maturity and diversification of its investments which are designed to help
maintain a $1.00 share price. A significant change in interest rates or a
default on the Fund's investments could cause its share price (and the value of
your investment) to change.
By investing in liquid, short-term, high quality investments that have high
quality credit support from banks, insurance companies or other financial
institutions (i.e. Participation Certificates and other variable rate demand
instruments), the Fund's management believes that it can protect the Fund
against credit risks that may exist on long-term Georgia Municipal Obligations.
The Fund may still be exposed to the credit risk of the institution providing
the investment. Changes in the credit quality of the provider could affect the
value of the security and your investment in the Fund.
Because of the Fund's concentration in investments in Georgia Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the financial strength of Georgia and its political subdivisions.
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The primary purpose of investing in a portfolio of Georgia Municipal
Obligations is the special tax treatment accorded Georgia resident individual
investors. Payment of interest and preservation of principal, however, 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. Unfavorable political and economic conditions within the state of
Georgia can affect the credit quality of issuers located in that state.
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.
Because the Fund may concentrate in Participation Certificates that may be
secured by bank letters of credit or guarantees, an investment in the Fund
should be made with an understanding of the characteristics of the banking
industry and the risks which such an investment may entail. These
characteristics and risks include extensive governmental regulations, changes in
the availability and cost of capital funds, and general economic conditions (see
"Variable Rate Demand Instruments and Participation Certificates" in the
Statement of Additional Information). These factors may limit both the amounts
and types of loans and other financial commitments that may be made and the
interest rates and fees that 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.
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 Fund's investment advisor is in the process of working with
the Fund's service providers to prepare for the Year 2000. Based on information
currently available, the investment advisor does not expect that the Fund will
incur material costs to be Year 2000 compliant. Although the investment advisor
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 an
adverse impact on the Fund. The Year 2000 problem may also adversely affect
issuers of the securities contained in the Fund, to varying degrees based upon
various factors, and thus may have a corresponding adverse effect on the Fund's
performance. The investment advisor is unable to predict what effect, if any,
the Year 2000 problem will have on such issuers. At this time, however, it is
generally believed that municipal issuers may be more vulnerable to Year 2000
issues or problems than will other issuers.
III. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of August 31, 1999 the Manager was the investment
manager, advisor or supervisor with respect to assets aggregating in excess of
$14.1 billion. The Manager has been an investment adviser since 1970 and
currently is manager of eighteen other registered investment companies. The
Manager also advises pension trusts, profit-sharing trusts and endowments.
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. Pursuant to the Investment Management Contract, the Fund
pays the Manager a fee equal to .40% per annum of the Fund's average daily net
assets for managing the
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Fund's investment portfolio and performing related services.
Pursuant to the Administrative Services Contract, the Manager performs
clerical, accounting supervision and office service functions for the Fund. The
Manager provides the Fund with the personnel to perform all other clerical and
accounting type functions not performed by the Manager. For its services under
the Administrative Services Contract, the Fund pays the Manager a fee equal to
.21% per annum of the Fund's average daily net assets.
The Manager, at its discretion, may voluntarily waive all or a portion of
the investment management and the administrative services fee. Any portion of
the total fees received by the Manager may be used to provide shareholder
services and for distribution of Fund shares.
In addition, Reich & Tang Distributors Inc., the Distributor, receives a
servicing fee equal to .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.
IV. SHAREHOLDER INFORMATION
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, who
accepts orders for purchases and redemptions from Participating Organizations
(discussed herein) and from investors directly.
Pricing of Fund Shares
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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. Fund Business Day means
weekdays (Monday through Friday) except days on which the New York Stock
Exchange is closed for trading (i.e. national holidays). 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 intends to
maintain a stable net asset value at $1.00 per share although there can be no
assurance that this will be achieved.
The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost
valuation involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium. If fluctuating
interest rates 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.
Shares are issued as of the first determination of the Fund's net asset
value per share for each Class made after receipt of the investor's purchase
order. In order to maximize earnings on its portfolio, the Fund normally has its
assets as fully invested as is practicable. Many securities in which the Fund
invests require the immediate settlement in funds of Federal Reserve member
banks on deposit at a Federal Reserve Bank (commonly known as "Federal Funds").
Fund shares begin accruing income on the day the shares are issued to an
investor. The Fund reserves the right to reject any purchase order for its
shares. Certificates for Fund shares will not be issued to an investor.
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Purchase of Fund Shares
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The Fund does not accept a purchase order until an investor's payment has
been converted into Federal Funds and is received by the Fund's transfer agent.
Orders accompanied by Federal Funds and received after 12 noon, New York City
time, on a Fund Business Day will result in the issuance of shares on the
following Fund Business Day.
Investors purchasing shares through a Participating Organization with which
they have an account become Class A shareholders. All other investors, and
investors who have accounts with Participating Organizations but do not wish to
invest in the Fund through them, may invest in the Fund directly as Class B
shareholders of the Fund. Class B shareholders do not receive the benefit of the
servicing functions performed by a Participating Organization. Class B shares
may also be offered to investors who purchase their shares through Participating
Organizations who, as fiduciaries, may not be legally permitted to receive
compensation from the Distributor or the Manager.
The minimum initial investment in the Fund for both classes of shares is
(i) $1,000 for purchases through Participating Organizations - this may be
satisfied by initial investments aggregating $1,000 by a Participating
Organization on behalf of their customers whose initial investments are less
than $1,000, (ii) $1,000 for securities brokers, financial institutions and
other industry professionals that are not Participating Organizations, and (iii)
$5,000 for all other investors. Initial investments may be made in any amount in
excess of the applicable minimums. The minimum amount for subsequent investments
is $100 unless the investor is a client of a Participating Organization whose
clients have made aggregate subsequent investments of $100.
Each shareholder, except those purchasing through Participating
Organizations, will receive a personalized monthly statement from the Fund
listing the (i) total number of Fund shares owned as of the statement closing
date, (ii) purchase and redemptions of Fund shares, and (iii) dividends paid on
Fund shares (including dividends paid in cash or reinvested in additional Fund
shares).
Investments Through Participating
Organizations - Purchase of Class A Shares
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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 that have entered into shareholder servicing
agreements with the Distributor with respect to investment of their customer
accounts in the Fund. When instructed by its customer to purchase or redeem Fund
shares, the Participating Organization, on behalf of the customer, transmits to
the Fund's transfer agent a purchase or redemption order, and in the case of a
purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are
shareholders in the Fund ("Participant Investors") each purchase and redemption
of Fund shares for the customers' accounts. Also, Participating Organizations
may send periodic account statements to the Participant Investors showing the
(i) total number of Fund shares owned as of the statement closing date, (ii)
purchases and redemptions of Fund shares during the period covered by the
statement, and (iii) income earned by Fund shares during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such statements will receive them from the Fund directly.
Participating Organizations may charge Participant Investors a fee in
connection with their use of specialized purchase and redemption procedures. In
addition, Participating Organizations offering purchase and redemption
procedures similar to those offered to shareholders who invest in the Fund
directly, may impose charges, limitations, minimums and
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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 purchased and redeemed through the
Participating Organization.
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 only if 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 result in share issuance the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.
Initial Direct Purchases of Class B Shares
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Investors who wish to invest in the Fund directly 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 212-830-5220
Outside New York (TOLL FREE) 800-221-3079
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
will normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's purchase order 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 by
telephoning the Fund at 212-830-5220 (within New York) or at 800-221-3079
(outside New York) and then instruct a member commercial bank to wire money
immediately to:
Investors Fiduciary Trust Company
ABA # 101003621
Reich & Tang Funds
DDA # 890752-9554
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.
Investors planning to wire funds should instruct their bank 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 investor's bank for transmitting the money by
bank wire, and there also may be a charge for use of Federal Funds. The Fund
does not charge investors in the Fund for its receipt of wire transfers. Payment
in the form of a "bank wire" received prior to 12 noon, New York City time, on a
Fund Business Day will be treated as a Federal Funds payment received on that
day.
Personal Delivery
Deliver a check made payable to "Georgia Daily Municipal Income Fund, Inc."
along with a completed subscription order form to:
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Reich & Tang Mutual Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Electronic Funds Transfers (EFT), Pre-authorized Credit and Direct Deposit
Privilege
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You may purchase shares of the Fund (minimum of $100) by having salary,
dividend payments, interest payments or any other payments designated by you,
federal salary, social security, or certain veteran's, military or other
payments from the federal government, automatically deposited into your Fund
account. You can also have money debited from your checking account. To enroll
in any one of these programs, you must file with the Fund a completed EFT
Application, Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form
for each type of payment that you desire to include in the Privilege. The
appropriate form may be obtained from your broker or the Fund. You may elect at
any time to terminate your participation by notifying in writing the appropriate
depositing entity and/or federal agency. Death or legal incapacity will
automatically terminate your participation in the Privilege. Further, the Fund
may terminate your participation in the Privilege upon 30 days' notice to you.
Subsequent Purchases of Shares
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Subsequent purchases can be made 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
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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 upon receipt by the Fund's transfer agent of the redemption order (and any
supporting documentation that 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, which can take up to 15 days after
investment. Shares redeemed are not entitled to participate in dividends
declared on the day a redemption becomes effective.
A shareholder's original 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. It should be signed and guaranteed by
an eligible guarantor institution which includes a domestic bank, a domestic
savings and loan institution, a domestic credit union, a member bank of the
Federal Reserve system or a member firm of a national securities exchange,
pursuant to the Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written
request to the Fund addressed to:
10
<PAGE>
Georgia Daily Municipal Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
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 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 order form,
shareholders may request a supply of checks that may be used to effect
redemptions from the Class of shares of the Fund in which they invest. The
checks, which will be issued in the shareholder's name, are drawn on a special
account maintained by the Fund with the Fund's agent bank. Checks may be drawn
in any amount of $250 or more. When a check is presented to the Fund's agent
bank, it instructs the Fund's transfer agent to redeem a sufficient number of
full and fractional shares in the shareholder's account to cover the amount of
the check. The use of a check to make a withdrawal enables a shareholder in the
Fund to receive dividends on the shares to be redeemed up to the Fund Business
Day on which the check clears. Checks provided by the Fund may not be certified.
Investors who purchase Fund shares by check may not receive their redemption
proceeds 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 governing checking accounts.
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 and/or a post-dated check. The
Fund reserves the right to terminate or modify the check redemption procedure at
any time or to impose additional fees following notification to the Fund's
shareholders.
Corporations and other entities electing the checking option are required
to furnish a certified resolution or other evidence of authorization in
accordance with the Fund's normal practices. Individuals and joint tenants are
not required to furnish any supporting documentation. Appropriate authorization
forms will be sent by the Fund or its agents to corporations and other
shareholders who select this option. As soon as the authorization forms are
filed in good order with the Fund's agent bank, it will provide the shareholder
with a supply of checks.
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
11
<PAGE>
genuine, and will require that shareholders electing such option provide a form
of personal identification. Failure by the Fund to employ such reasonable
procedures may cause the Fund to be liable for the losses incurred by investors
due to unauthorized or fraudulent telephone redemptions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220 (outside New York 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. Proceeds are sent 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.
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 shareholders' 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. Additional exceptions
include any period during which an emergency (as determined by the SEC) exists
as a result of which disposal by the Fund of its portfolio securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Fund 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.
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. 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.
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 or quarterly
basis. The monthly or quarterly withdrawal payments of the specified amount are
made by the Fund on the 23rd day of the 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
12
<PAGE>
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
sending a signature guaranteed written request to the transfer agent. 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.
Dividends and Distributions
- --------------------------------------------------------------------------------
The Fund declares dividends equal to all its net investment income
(excluding long-term capital gains and losses, if any, and amortization of
market discount) on each Fund Business Day and pays dividends monthly. There is
no fixed dividend rate. In computing these dividends, interest earned and
expenses are accrued daily.
Net realized capital gains, if any, are distributed at least annually and
in no event later than 60 days after the end of the Fund's fiscal year.
All dividends and distributions of capital gains are automatically
invested, at no charge, in additional Fund shares of the same Class of shares
immediately upon payment thereof unless a shareholder has elected by written
notice to the Fund to receive either of such distributions in cash.
Because Class A shares bear the service fee under the Fund's 12b-1 Plan,
the net income of and the dividends payable to the Class A shares will be lower
than the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.
Exchange Privilege
- --------------------------------------------------------------------------------
Shareholders of the Fund are entitled to exchange some or all of their
Class of shares in the Fund for shares of the same Class of certain other
investment companies 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., 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., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc. and Virginia Daily Municipal 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 or manager.
There is no charge for the exchange privilege or limitation as to frequency
of exchange. The minimum amount for an exchange is $1,000. However, shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Each Class of shares is exchanged at its
respective net asset value.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their
13
<PAGE>
investment among different investment companies when they feel such a shift is
desirable. The exchange privilege is available to shareholders resident in any
state in which shares of the investment company being acquired may legally be
sold. Shares of the same Class may be exchanged only between investment company
accounts registered in identical names. Before making an exchange, the investor
should review the current prospectus of the investment company into which the
exchange is to be made.
Instructions for exchanges may be made by sending a signature guaranteed
written request to:
Georgia Daily Municipal Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
or, for shareholders who have elected that option, by telephoning the Fund at
212-830-5220 (within New York) or 800-221-3079 (outside New York). The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time.
Tax Consequences
- --------------------------------------------------------------------------------
The purchase of Fund shares will be the purchase of an asset. Dividends
paid by the Fund that are designated by the Fund and 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 the Internal
Revenue Code, but may be subject to Federal alternative minimum tax. These
dividends are referred to as exempt interest dividends.
The Fund may invest a portion of its assets in securities that generate
income that is not exempt from Federal or state income tax. Income exempt from
Federal income tax may be subject to state and local income tax. The Fund may
invest a portion of its assets in taxable securities the interest income on
which is subject to Federal, state and local income tax.
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 to determine the amount of Social Security benefits includible in gross
income.
Interest on certain personal private activity bonds will constitute an item
of tax preference subject to the individual alternative minimum tax.
Corporations will be required to include in alternative minimum taxable income
75% of the amount by which their adjusted current earnings (including tax-exempt
interest) exceeds their alternative minimum taxable income (determined without
this tax item). 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.
Dividends paid from taxable income, if any, and distributions of any
realized short-term capital gains (from tax-exempt or taxable obligations) are
taxable to shareholders as ordinary income, whether received in cash or
reinvested in additional shares of the Fund.
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.
The sale, exchange or redemption of shares will generally be the taxable
disposition of an asset that may result in a taxable gain or loss for the
shareholder if the shareholder receives more or less than it paid for its
shares. An exchange pursuant to the exchange privilege is treated as a sale on
which the shareholder may realize a taxable gain or loss.
With respect to variable rate demand instruments, including Participation
Certificates therein, the Fund 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
14
<PAGE>
owner of an interest in the underlying Municipal Obligations and that the
interest thereon will be exempt from regular Federal income taxes to the Fund to
the same extent as the interest on the underlying Municipal Obligations. Battle
Fowler LLP has pointed out that the Internal Revenue Service has announced 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.
The United States Supreme Court has held that there is no constitutional
prohibition against the Federal government's taxing the interest earned on state
or other municipal bonds. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Municipal Obligations.
Georgia 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.
V. DISTRIBUTION ARRANGEMENTS
Rule 12b-1 Fees
- --------------------------------------------------------------------------------
Investors do not pay a sales charge to purchase shares of the Fund.
However, the Fund pays fees in connection with the distribution of shares and
for services provided to the Class A shareholders. The Fund pays these fees from
its assets on an ongoing basis and therefore, over time, the payment of these
fees will increase the cost of your investment and may cost you more than paying
other types of sales charges.
The Fund's Board of Directors has adopted a Rule 12b-1 distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc. (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 serves as distributor of
the Fund's shares. For nominal consideration (i.e., $1.00) and as agent for the
Fund, the Distributor solicits orders for the purchase of the Fund's shares,
provided that any orders will not be binding on the Fund until accepted by the
Fund as principal.
15
<PAGE>
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. 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 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 fee and past profits for the
following purposes: (i) to defray costs, 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
Class A shares. The Distributor may also make payments from time to time from
its own resources, which may include the Shareholding Servicing Fee (with
respect to Class A shares) and past profits, for the purposes enumerated in (i)
above. The Distributor 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 in effect for that year or under the
Shareholder Servicing Agreement in effect for that year.
16
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by McGladrey and Pullen, LLP, whose report, along
with the Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
<S> <C> <C>
July 14, 1998 January 14, 1999
(Commencement of Operations) (Commencement of Sales) to
May 31, 1999 May 31, 1999
------------ ------------
Class A Class B
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period................ $ 1.00 $ 1.00
------------ ---------
Income from investment operations:
...............................Net investment income 0.022 0.009
Less distributions:
Dividends from net investment income (0.022) (0.009)
------------ ---------
Net asset value, end of period...................... $ 1.00 $ 1.00
============ =============
Total Return........................................ 2.50%* 2.47%*
Ratios/Supplemental Data
Net assets, end of period (000)..................... $ 6,583 $ 240
Ratios to average net assets:
Expenses (net of fees waived and expenses reimbursed)+ 0.79%* 0.54%*
Net investment income............................... 2.48%* 2.66%*
Management and administration fees waived........... 0.61%* 0.61%*
Expenses reimbursed................................. 1.58%* 1.58%*
Expense offsets..................................... 0.04%* 0.04%*
</TABLE>
* Annualized
+ Includes expense offsets.
17
<PAGE>
GEORGIA
DAILY MUNICIPAL INCOME
FUND, INC.
PROSPECTUS
September 28, 1999
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, NY 10020
(212) 830-5220
A Statement of Additional Information (SAI) dated September 28, 1999, and
the Fund's Annual and Semi-Annual Reports include additional information about
the Fund and its investments and are incorporated by reference into this
prospectus. You may obtain the SAI, the Annual and Semi-Annual Reports and
material incorporated by reference without charge by calling the Fund at
1-800-221-3079. To request other information, please call your financial
intermediary or the Fund.
================================================================================
===============================================================================
A current SAI has been filed with the Securities and Exchange Commission.
You may visit the Securities and Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material incorporated by reference and other
information. These materials can also be reviewed and copied at the Commission's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C.
20549-6009.
811-08425
GA999P
<PAGE>
GEORGIA
DAILY TAX FREE 600 Fifth Avenue, New York, NY 10020
INCOME FUND, INC. (212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
September 28, 1999
RELATING TO THE GEORGIA DAILY MUNICIPAL INCOME FUND, INC.
PROSPECTUS DATED SEPTEMBER 28, 1999
This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current Prospectus
of Georgia Daily Municipal Income Fund, Inc. (the "Fund"), dated September
28,1999, and should be read in conjunction with the Fund's Prospectus.
A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll-free at (800) 221-3079. The Financial Statements of the
Fund have been incorporated by reference to the Fund's Annual Report. The Annual
Report is available, without charge, upon request by calling the toll-free
number provided. The material relating to the purchase, redemption and pricing
of shares has been incorporated by reference to the Prospectus.
This Statement of Additional Information is incorporated by reference into the
Prospectus in its entirety.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Table of Contents
- -------------------------------------------------------------------------------------------------------------------
Fund History....................................2 Capital Stock and Other Securities......................18
Description of the Fund and its Investments...... Purchase, Redemption and Pricing of Shares..............19
and Risks.....................................2 Taxation of the Fund....................................20
Management of the Fund.........................13 Underwriters............................................22
Control Persons and Principal Holders of Calculation of Performance Data.........................22
Securities...................................14 Financial Statements....................................23
Investment Advisory and Other Services.........15 Description of Ratings..................................24
Brokerage Allocation and Other Practices.......18 Taxable Equivalent Yield Tables.........................25
</TABLE>
<PAGE>
I. FUND HISTORY
The Fund was incorporated on October 7, 1997 in the state of Maryland.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund is an open-end, management investment company that is a 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 from Georgia income taxes consistent with preserving capital,
maintaining liquidity and stabilizing 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 (i) 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 (ii) Participation Certificates in Municipal Obligations purchased from
banks, insurance companies or other financial institutions (which, in the
opinion of Battle Fowler LLP, counsel to the Fund, cause the Fund to be treated
as the owner of an interest in the underlying Municipal Obligations for Federal
income tax purposes). Dividends that are properly designated by the Fund as
derived from Municipal Obligations and Participation Certificates will be exempt
from regular Federal income tax provided the Fund qualifies as a regulated
investment company and complies with Section 852(b)(5) of the Internal Revenue
Code of 1986 (the "Code"). Although the Supreme Court has determined that
Congress has the authority to tax the interest on bonds such as the Municipal
Obligations, existing law excludes such interest from regular Federal income
tax. However, such interest, including "exempt-interest dividends" may be
subject to the Federal alternative minimum tax.
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 total
assets. Exempt-interest dividends 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 Georgia personal income
taxes. 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 personal income taxes provided the Fund complies with applicable Georgia
laws. 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 these will be designated by the Fund as derived from interest
income which will be, in the opinion of bond counsel to the issuer at the date
of issuance, exempt from regular Federal Income Tax but will be subject to
Georgia personal income taxes. 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 $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 and in Participation
Certificates, the Fund reserves the right to invest up to 20% of the value of
its total 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 United States dollar-denominated 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) securities which have or are deemed to have 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"); or (ii) unrated securities
2
<PAGE>
determined by the Fund's Board of Directors to be of comparable quality. In
addition, securities which have or are deemed to have remaining maturities of
397 days or less but that at the time of issuance were long-term securities
(i.e. with maturities greater than 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
securities. While there are several organizations that currently qualify as
NRSROs, two examples of NRSROs are Standard & Poor's Rating Services, a division
of The McGraw-Hill Companies, ("S&P") and Moody's Investors Service, Inc.
("Moody's"). The two highest ratings by S&P and Moody's are "AAA" and "AA" by
S&P in the case of long-term bonds and notes or "Aaa" and "Aa" by Moody's in the
case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the
case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's in
the case of tax-exempt commercial paper. The highest rating in the case of
variable and floating demand notes is "VMIG-1" by Moody's or "SP-1/AA" by S&P.
Such instruments may produce a lower yield than would be available from less
highly rated instruments.
Subsequent to its purchase by the Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Fund. If this occurs, the Board of Directors of the Fund shall promptly reassess
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.
In addition, in the event that a security (i) is in default, (ii) ceases to be
an Eligible Security under Rule 2a-7 of the 1940 Act or (iii) is determined to
no longer present minimal credit risks, or an event of insolvency occurs with
respect to the issues of a portfolio security or the provider of any Demand
Feature or Guarantee, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. Disposal of the security shall
occur as soon as practicable consistent with achieving an orderly disposition by
sale, exercise of 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.
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. 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 of the highest quality.
The Fund intends to qualify as a "regulated investment company" under 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, regulated investment company securities and other
securities which is 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 or regulated investment company 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"). They
generally have a maturity at the time of issue of one year or more and are
issued to raise funds for various public purposes such as construction of a
wide range of public facilities, to refund outstanding obligations and to
obtain funds for institutions and facilities.
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The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its faith, credit and taxing power for the payment
of principal and interest. Issuers of general obligation bonds include
states, counties, cities, towns and other governmental units. The principal
of and interest on revenue bonds are payable from the income of specific
projects or authorities and generally are not supported by the issuer's
general power to levy taxes. In some cases, revenues derived from specific
taxes are pledged to support payments on a revenue bond.
In addition, certain kinds of "private activity bonds" are issued by public
authorities to provide funding for various privately operated industrial
facilities (hereinafter referred to as "industrial revenue bonds" or
"IRBs"). Interest on IRBs is generally exempt, with certain exceptions,
from 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. They are paid from general revenues
of municipalities or are refinanced with long-term debt. In most cases
Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the
event of default by the issuer of the commercial paper.
4. Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications
equipment and other capital assets. Municipal Leases frequently have
special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to
the governmental issuer) have evolved as a means for governmental issuers
to acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance
limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses. These clauses provide that the
governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. To reduce
this risk, the Fund will only purchase Municipal Leases subject to a
non-appropriation clause where the payment of principal and accrued
interest is backed by an unconditional irrevocable letter of credit, a
guarantee, insurance or other comparable undertaking of an approved
financial institution. These types of Municipal Leases may be considered
illiquid and subject to the 10% limitation of investments in illiquid
securities set forth under "Investment Restrictions" contained herein. The
Board of Directors may adopt guidelines and delegate to the Manager the
daily function of determining and monitoring the liquidity of Municipal
Leases. In making such determination, the Board and the Manager may
consider such factors as the frequency of trades for the obligation, the
number of dealers willing to purchase or sell the obligations and the
number of other potential buyers and the nature of the marketplace for the
obligations, including the time needed to dispose of the obligations and
the method of soliciting offers. If the Board determines that any Municipal
Leases are illiquid, such lease will be subject to the 10% limitation on
investments in illiquid securities.
5. Any other Federal tax-exempt, and to the extent possible, Georgia gross
income tax-exempt obligations issued by or on behalf of states and
municipal governments and their authorities, agencies, instrumentalities
and political subdivisions whose inclusion in the Fund would be consistent
with the Fund's investment objectives, policies and risks described herein
and permissible under Rule 2a-7 under the 1940 Act.
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Subsequent to its purchase by the Fund, a rated Municipal Obligation may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. If this occurs, the Board of Directors of the Fund shall promptly
reassess whether the Municipal Obligation 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 Municipal Obligation is disposed of or matures within five
business days of the Manager becoming aware of the new rating and provided
further that the Board of Directors is subsequently notified of the Manager's
actions.
In addition, in the event that a Municipal Obligation (i) is in default, (ii)
ceases to be an Eligible Security under Rule 2a-7 of the 1940 Act or (iii) is
determined to no longer present minimal credit risks, or an event of insolvency
occurs with respect to the issues of a portfolio security or the provider of any
Demand Feature or Guarantee, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. Disposal of the security shall
occur as soon as practicable consistent with achieving an orderly disposition by
sale, exercise of 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. They provide for a periodic adjustment in the interest
rate paid on the instrument and permit the holder to demand payment of the
unpaid principal balance plus accrued interest at specified intervals upon a
specified number of days notice either from the 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. Variable rate demand instruments that can not be disposed of
properly within seven days in the ordinary course of business are illiquid
securities. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to 397 days. The adjustments
are based upon the "prime rate"* of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The Fund decides
which variable rate demand instruments it will purchase in accordance with
procedures prescribed by its Board of Directors to minimize credit risks. A fund
utilizing the amortized cost method of valuation under Rule 2a-7 of the 1940 Act
may purchase variable rate demand instruments only if (i) the instrument is
subject to an unconditional demand feature, exercisable by the Fund in the event
of a default in the payment of principal or interest on the underlying
securities, that is an Eligible Security or (ii) the instrument is not subject
to an unconditional demand feature but does qualify as an Eligible Security and
has a long-term rating by the Requisite NRSROs in one of the two highest rating
categories, or if unrated, is determined to be of comparable quality by the
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 of credit or guarantee or is insured by an insurer
that meets the quality criteria for the Fund stated herein or on the basis of a
credit evaluation of the underlying obligor. If an instrument is ever not deemed
to be an Eligible Security, the Fund either will sell it in the market or
exercise the demand feature.
The variable rate demand instruments 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. Where applicable, the Fund can draw on the
letter of credit or insurance after no more than 30 days notice either at any
time or at specified intervals not exceeding 397 days (depending on the terms of
the participation), for all or any part of the full principal amount of the
Fund's participation interest in the security plus accrued interest. The Fund
intends to exercise the demand only (i) upon a default under the terms of the
bond documents, (ii) as needed to provide liquidity to the Fund in order to make
redemptions of Fund shares or (iii) to maintain a high quality investment
portfolio. The institutions issuing the Participation Certificates will retain a
service and letter of credit fee (where applicable) and a fee for providing the
demand repurchase feature, in an amount equal to the excess of the interest paid
on the instruments over the negotiated yield at which the participations were
purchased by the Fund. The total fees
- --------------------------------------------------------------------------------
* 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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<PAGE>
generally range from 5% to 15% of the applicable prime rate or other interest
rate index. With respect to insurance, the Fund will attempt to have the issuer
of the Participation Certificate bear the cost of the insurance. However, the
Fund retains the option to purchase insurance if necessary, in which case the
cost of insurance will be an expense of the Fund 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. This
includes, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or 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,
which limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent state law contains such limits,
increases or decreases in value may be somewhat greater than would be the case
without such limits. Additionally, the 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
increase so that the variable rate exceeds the fixed rate on the Municipal
Obligations, the Municipal Obligations can no longer be valued at par and may
cause the Fund to take corrective action, including the elimination of the
instruments from the 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 (i) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (ii) the period remaining until the instrument's next interest
rate adjustment. The maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity. If a variable rate demand instrument
ceases to be an Eligible Security it will be sold in the market or through
exercise of the repurchase demand feature to the issuer.
When-Issued Securities
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate received on
these Municipal Obligations are each fixed at the time the buyer enters into the
commitment although delivery and payment of the Municipal Obligations normally
take place within 45 days after the date of the Fund's commitment to purchase.
Although the Fund only makes 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
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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 will 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. 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 will be (i) the acquisition cost of the Municipal Obligation (excluding
any accrued interest that the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the security, plus (ii) all interest accrued on the
security since the last interest payment date during the period the security was
owned by the Fund. Absent unusual circumstances relating to a change in market
value, the Fund will 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 will be substantially the same as the market
value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment will be unconditional and
unqualified. A stand-by commitment will not be transferable by the Fund,
although it can sell the underlying Municipal Obligation to a third party at any
time.
The Fund expects stand-by commitments to generally be available without the
payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio will not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after the
acquisition of each stand-by commitment.
The Fund will enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks. If the issuer of the Municipal Obligation does not meet the eligibility
criteria, the issuer of the stand-by commitment will have received a rating
which meets the eligibility criteria or, if not rated, will present a minimal
risk of default as determined by the Board of Directors. The Fund's reliance
upon the credit of these banks and broker-dealers will be supported by the value
of the underlying Municipal Obligations held by the Fund that were subject to
the commitment.
The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income tax
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment. The acquisition
of a stand-by commitment will not affect the valuation or assumed maturity of
the underlying Municipal Obligations which will continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund will be valued at zero in determining net asset value. In those cases in
which the Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund. Stand-by commitments will not affect the
dollar-weighted average maturity of the Fund's portfolio. The maturity of a
security subject to a stand-by commitment is longer than the stand-by repurchase
date.
The stand-by commitments the Fund may enter into are subject to certain risks.
These include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.
In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by commitments will be exempt from Federal income taxation (see
"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.
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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 total
assets in securities of the kind described below. The interest income from such
securities is subject to regular Federal or Georgia state income tax, under any
one or more of the following circumstances: (i) pending investment of proceeds
of sales of Fund shares or of portfolio securities, (ii) pending settlement of
purchases of portfolio securities, and (iii) to maintain liquidity for the
purpose of meeting anticipated redemptions. In addition, the Fund may
temporarily invest more than 20% in such taxable securities when, in the opinion
of the Manager, it is advisable to do so because of adverse market conditions
affecting the market for Municipal Obligations. The kinds of taxable securities
in which the Fund may invest are limited to the following short-term,
fixed-income securities (maturing in 397 days or less from the time of
purchase): (i) obligations of the United States Government or its agencies,
instrumentalities or authorities, (ii) commercial paper meeting the definition
of Eligible Securities at the time of acquisition, (iii) certificates of deposit
of domestic banks with assets of $1 billion or more; and (iv) repurchase
agreements with respect to any Municipal Obligations or other securities which
the Fund is permitted to own. (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 will acquire an underlying
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the 1940 Act. All repurchase agreements entered
into by the Fund shall be fully collateralized at all times during the period of
the agreement in that the value of the underlying security shall be at least
equal to the amount of the loan, including the accrued interest thereon.
Additionally, the Fund or its custodian shall have possession of the collateral,
which the Fund's Board believes will give it a valid, perfected security
interest in the collateral. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs in connection with the disposition of the
collateral. The Fund's Board believes that the collateral underlying repurchase
agreements may be more susceptible to claims of the seller's creditors than will
be the case with securities owned by the Fund. It is expected that repurchase
agreements will give rise to income which will not qualify as tax-exempt income
when distributed by the Fund. The Fund will not invest in a repurchase agreement
maturing in more than seven days if any such investment, together with illiquid
securities held by the Fund, exceeds 10% of the Fund's total net assets. (See
Investment Restriction Number 6 herein.) Repurchase agreements are subject to
the same risks described herein for stand-by commitments.
GEORGIA RISK FACTORS
Considerations Relating to Georgia Debt
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 1998" refers to the year ended June 30, 1998. As of
October 31, 1998, the total principal indebtedness of the State of Georgia
consisting of general obligation debt and guaranteed revenue debt totaled
$5,187,785,000 and the highest aggregate annual payment for such debt equaled
4.94% of fiscal 1999 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 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 debt 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
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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 Ratings 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 1998 revenue collections of $12.5 billion, an increase of 4.81% over
collections for the previous fiscal year.
Based on data of the State of Georgia, Department of Audits for fiscal 1998,
income tax receipts and sales tax receipts of the State for fiscal 1998 made up
approximately 49% and 32%, respectively, of the total State tax revenues.
The unemployment rate of the civilian labor force in the State of Georgia as of
April 1999 was 3.6% according to data provided by the Georgia Department of
Labor. In descending order, services, wholesale and retail trade, government,
manufacturing, and construction 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. In addition, the State's receipt of revenues from its
various revenue sources, both in the public
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and private sectors, could be adversely affected by Year 2000 compliance
problems experienced by such revenue sources.
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's 1998 Supplemental Budget authorized
the expenditure of approximately $152,000,000 to address Year 2000 compliance,
all of which has already been allocated to state agencies for their Year 2000
compliance efforts. The Department of Revenue has already received approximately
$51,000,000 of such funds. The State is in the process of estimating additional
funding requirements (including for non-participating State agencies submitting
independently produced Year 2000 compliance and system 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 and the
continued ability of the State to employ and retain sufficient information
technology professionals to plan and implement remediation and replacement
strategies. The Governor of the State has directed that all agencies of the
State will have fixed, replaced and performed testing on all mission critical
systems by March 31, 1999. In the event that an agency projects that it may not
meet the March 31, 1999 deadline with respect to its mission critical systems,
the Governor has directed that alternate business processes be defined by
October 1, 1998 with full contingency plans in place by December 1, 1998. No
assurance can be given at this time, however, that these efforts will be
successful prior to the Year 2000.
As discussed above, the State has taken and is continuing to take action to
assess, plan and implement remediation and replacement strategies to reduce and
eliminate Year 2000 risk. All of the potential risks and costs associated with
the failure to remediate, however, cannot be accurately identified and
quantified at this time. In particular, the adverse impact of the Year 2000
compliance problems on the revenues normally available to the State, both from
private and public sectors, cannot be accurately quantified. 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 noncompliance.
The State has established a Year 2000 website at
http://www.year2000.state.ga.us/ which provides information with respect to the
State's Year 2000 compliance efforts. No representation is made, however, that
the information in such website is accurate or includes all material information
with respect to the State's Year 2000 compliance efforts. Furthermore, the State
is under no obligation to update the website or to continue to make the website
available.
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.
Abbott Laboratories v. Georgia Department of Administrative Services, et al.,
Fulton Superior Court Civil Action No. E-65451. The plaintiff in this case is
seeking unspecified damages against the Department of Administrative Services
("DOAS") and the Department of Human Resources under breach of contract and
promissory estoppel theories. The case arises out of DOAS' issuance of a notice
of award to Abbott Laboratories, Ross Products Division in connection with the
WIC Infant Formula Rebate Program. The Director of State Purchasing subsequently
ordered cancellation of the notice of award and rebid because of conflicting
information that created a contradiction in the bidding specifications. The
damages sought are unspecified and speculative. Discovery is ongoing in this
matter. The State intends to file a motion for summary judgment at the close of
discovery.
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, i.e., 1989 through January 1993. The cases are pending in the trial
court at the discovery stage. The trial court has granted the State's motion for
summary judgment, and 12 of the 23 claimants have appealed to the Georgia
Supreme Court. The total principal amount of the claims for refund by the
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12 Plaintiffs who did appeal now appears to be approximately $42 million. The
total principal dollar amount of the claims for refund by the 11 Plaintiffs who
did not appeal, which claims appear to be conclusively resolved in favor of the
State by virtue of the trial court's judgment, now appears to be approximately
$54 million.
Cobb County, et al. v. Georgia et al., Fulton Superior Court Civil Action No.
E-67414 and DeKalb County, et al. v. Georgia, et al., Fulton Superior Court
Civil Action No. E-67520. In related cases, each County and certain of its
officials has sued the State of Georgia, the Department of Revenue, and various
state officials, and the Department of Audits (collectively "the State") in
connection with the State's collection and distribution of local option sales
taxes to the counties. In Cobb, the County sought an accounting, a writ of
mandamus, injunctive relief and additional relief based upon theories of unjust
enrichment and bailment. Cobb's claims related to the State's administration of
state and local option sales taxes from April 1, 1995 to the present. Cobb
sought $19 million in relief. In DeKalb, the County asserts similar grounds for
relief with the addition of a claim for declaratory relief. DeKalb's claims
relate to the State's administration of state and local option sales taxes from
July 1, 1997 to the present. DeKalb seeks unspecified monetary relief but
estimates a shortfall in distributions from the State of $15 million. The State
filed motions to dismiss in both cases and additionally, in Cobb, filed a
counterclaim against the County for $10.4 million. The trial court has granted
the State's motion to dismiss in both actions. DeKalb County has appealed this
ruling, claiming that certain of its claims were meritorious and seeking to
litigate those claims. The State believes that the period for Cobb County to
appeal has lapsed, although a motion by Cobb County remains pending in the trial
court. The State intends to contest all claims against it vigorously. The State
believes that the substance of Plaintiff's claims in both cases is
unsubstantiated. This appeal has been fully briefed and argued, and a decision
is awaited from the Supreme Court of Georgia.
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. On an interlocutory appeal, the Georgia
Court of Appeals ruled that the Lottery Corporation does not have sovereign
immunity but ruled for the Corporation on the merits. The Plaintiffs petitioned
for a writ of certiorari to the Supreme Court of Georgia, and the Supreme Court
denied the petition. The remittitur of the Court of Appeals has been returned to
the trial court. 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. The State's self-insurance program
and the State's vehicle insurer have settled with the decedent's estate in a
total amount of $675,000; the State's share was $175,000. The State has reached
a settlement of all remaining claims for a total of less than $200,000.
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 the time of its
inception in 1988 to the present, the Fund has collected approximately $82
million. The State has stated it belief that it has substantial defenses to
assert and its intention to defend the case vigorously. The State was granted a
motion to dismiss the action, on the grounds that no justiciable controversy
exists, and the Plaintiff has filed an appeal with the Georgia Supreme Court.
The State filed a motion to transfer the case to the Georgia Court of Appeals,
which was denied. The Supreme Court has heard oral arguments and a decision by
the Court is pending.
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
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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, such adverse economic developments
could 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.
Investment Restrictions
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios. They 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 term "majority of the outstanding shares" of the
Fund means the vote of the lesser of (i) 67% or more of the shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund. The Fund may not:
1. Make portfolio investments other than as described under "Description of
the Fund and its Investments and Risks". Any other form of Federal
tax-exempt investment must meet the Fund's high quality criteria, as
determined by the Board of Directors, and be consistent with the Fund's
objectives and policies.
2. Borrow money. This restriction shall not apply to borrowings from banks
for temporary or emergency (not leveraging) purposes. This includes the
meeting of redemption requests that might otherwise require the untimely
disposition of securities, in an amount up to 15% of the value of the
Fund's total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
was made. While borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not make any investments. Interest paid on borrowings
will reduce net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options. However, securities subject to a demand obligation and
stand-by commitments may be purchased as set forth under "Description of
the Fund and its Investments and Risks" 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. This
shall not prevent the Fund from investing in Municipal Obligations secured
by real estate or interests in real estate.
8. Make loans to others, except through the purchase of portfolio investments,
including repurchase agreements, as described under "Description of the
Fund and its Investments and Risks" 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. 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 will 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-government user,
then such non-government user will 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
will be considered a separate security and will be treated as an issue of
such government, other entity or bank. Immediately after the acquisition of
any securities subject to a Demand Feature or Guarantee (as such terms are
defined in Rule 2a-7 of the 1940 Act), with respect to 75% of the total
assets of the Fund, not more than 10% of the Fund's assets may be invested
in securities that are subject to a Guarantee or Demand Feature from the
same institution. However, the Fund may only invest more than 10% of its
assets in securities subject to a Guarantee or Demand Feature issued by a
Non-Controlled Person (as such term is defined in Rule 2a-7 of the 1940
Act).
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11. Invest in securities of other investment companies. The Fund may purchase
unit investment trust securities where such unit trusts meet the investment
objectives of the Fund and then only up to 5% of the Fund's net assets,
except as they may be acquired as part of a merger, consolidation or
acquisition of assets.
12. Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with a permitted borrowing.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, employs the Manager to serve as investment manager
of the Fund. The Manager provides persons satisfactory to the Fund's Board of
Directors to serve as officers of the Fund. 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 their full-time to the affairs 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 Reich & Tang Asset Management
L.P.
Steven W. Duff, 45 - President and Director 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 which he was
associated with from June 1981 to August 1994. Mr. Duff is President and a
Director/Trustee of 13 other funds in the Reich & Tang Fund Complex, President
of Back Bay Funds, Inc., Director of Pax World Money Market Fund, Inc.,
Executive Vice President of Reich & Tang Equity Fund, Inc., and President and
Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.
Dr. W. Giles Mellon, 68 - Director of the Fund, is Professor of Business
Administration in the Graduate School of Management, Rutgers University which he
has been associated with since 1966. His address is Rutgers University Graduate
School of Management, 92 New Street, Newark, New Jersey 07102. Dr. Mellon is
also a Director/Trustee of 15 other funds in the Reich & Tang Fund Complex.
Robert Straniere, 58 - Director of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director/Trustee of 15 other funds in the Reich & Tang Fund Complex, and
Director of Life Cycle Mutual Funds, Inc.
Dr. Yung Wong, 60 - Director of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly General Partner
of Abacus Partners 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 (a provider of telecommunications equipment) since January 1989 and
of TelWatch, Inc. (a provider of network management software) since August 1989.
Dr. Wong is also a Director/Trustee of 15 other funds in the Reich & Tang Fund
Complex, and is also a Trustee of Eclipse Financial Asset Trust.
Molly Flewharty, 48 - 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 18
other funds in the Reich & Tang Fund Complex.
Lesley M. Jones, 51 - Vice President of the Fund, has been Senior Vice President
of the Mutual Funds Division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. which she was associated
with from April 1973 to September 1993. Ms. Jones is also a Vice President of 14
other funds in the Reich & Tang Fund Complex.
Dana E. Messina, 42 - 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 with from
December 1980 to September 1993. Ms. Messina is also Vice President of 15 other
funds in the Reich & Tang Fund Complex.
Bernadette N. Finn, 51 - Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn was formerly
Vice President and Assistant Secretary of Reich & Tang, Inc. which she was
associated with from September 1970 to September 1993. Ms. Finn is also
Secretary of 13 other funds in the Reich & Tang Fund Complex, and a Vice
President and Secretary of 5 funds in the Reich & Tang Fund Complex.
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Richard DeSanctis, 42 - 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. Mr. De
Sanctis is also Treasurer of 17 other funds in the Reich & Tang Fund Complex,
and is Vice President and Treasurer of Cortland Trust, Inc.
Rosanne Holtzer, 35 - 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. Ms. Holtzer is also Assistant Treasurer of 18
other funds in the Reich & Tang Fund Complex.
The Fund paid an aggregate remuneration of $6,000 to its directors with respect
to the period ended May 31, 1999, all of which consisted of directors' fees paid
to the three disinterested directors, pursuant to the terms of the Investment
Management Contract (see "Manager" herein).
Directors of the Fund not affiliated with the Manager receive from the Fund an
annual retainer of $1,000 and a fee of $250 for each Board of Directors meeting
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Directors who are affiliated with the Manager do
not receive compensation from the Fund. (See "Compensation Table".)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Compensation Table
Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation From
Name of Person, From the Fund Benefits Accrued as Part Benefits Upon Retirement Fund and Fund Complex Paid
Position of Fund Expenses to Directors*
Dr. W. Giles Mellon, $2,000 0 0 $59,500 (16 Funds)
Director
Robert Straniere, $2,000 0 0 $59,500 (16 Funds)
Director
Dr. Yung Wong, $2,000 0 0 $59,500 (16 Funds)
Director
</TABLE>
*
The total compensation paid to such persons by the Fund and Fund Complex for 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.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On August 31, 1999 there were 11,501,136 Class A Shares of the Fund outstanding,
and 2,009,089 Class B Shares outstanding. As of August 31, 1999, the amount of
shares owned by all officers and directors of the Fund, as a group, was less
than 1% of the outstanding shares. Set forth below is certain information as to
persons who owned 5% or more of the Fund's outstanding shares as of August 31,
1999:
Nature of
Name and Address % of Class Ownership
Class A Shares
Reich & Tang LP 27.71% Beneficial
600 Fifth Avenue
New York, NY 10020
Interstate Tower 26.59% Beneficial
P.O. Box 1012
Charlotte, NC 28201
Gary and Ana Walker 8.00% Record
201 2nd Street
Macon, GA 31201
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Lillian R. Director 5.31% Record
7391 Hodgson Memorial Drive
Savannah, GA 31406
Donald R. Keough 5.05% Record
2500 Galleria Pkwy.
Atlanta, GA 30339
Class B Shares
Phyllis Mansour Crews 54.78% Beneficial
Morgan Stanley Dean Witter
440 South LaSalle
Chicago, IL 60605
Lewco Securities 24.91% Beneficial
34 Exchange Place
New Jersey, NJ
Lewco Securities 19.91% Beneficial
34 Exchange Place
New Jersey, NJ
V. INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020. The Manager was, as of August 31, 1999, investment
manager, adviser, or supervisor with respect to assets aggregating in excess of
$14.1 billion. In addition to the Fund, the Manager acts as investment manager
and administrator of eighteen 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.
Reich & Tang Asset Management, Inc. (an indirect 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"). 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 and 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. MetLife and its affiliates
provide insurance or other financial services to approximately 36 million people
worldwide.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through more than seventeen
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., Greystone Partners, L.P., Harris Associates,
L.P., Jurika & Voyles, L.P., Kobrick Funds, LLC, Loomis, Sayles & Company, L.P.,
New England Funds, L.P., Nvest Advisor Services, L.P., Nvest Associates, Inc.,
Nvest Retirement Services, Nvest Services Company, Snyder Capital Management,
L.P., Vaughan, Nelson, Scarborough & McCullough, L.P., and Westpeak Investment
Advisors, L.P. These affiliates in the aggregate are investment advisors or
managers of more than 80 other registered investment companies.
The recent name change did not result in a change of control of the Manager and
has no impact upon the Manager's performance of its responsibilities and
obligations.
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The Investment Management Contract was approved by the shareholders on June 8,
1998, and the Fund's Board of Directors on October 16, 1997. The Investment
Management Contract has a term which extends to May 31, 2000. It is continued in
force thereafter for successive twelve-month periods beginning each June 1,
provided that such majority vote of the Fund's outstanding voting securities or
by a majority of the directors who are not parties to the Investment Management
Contract or interested persons of any such party, by votes cast in person at a
meeting called for the purpose of voting on such matter.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Manager 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 is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Directors,
or by the Manager on sixty days written notice, and will automatically terminate
in the event of its assignment. The Investment Management Contract provides that
in the absence of willful misfeasance, bad faith or gross negligence on the part
of the Manager, or of reckless disregard of its obligations thereunder, the
Manager shall not be liable for any action or failure to act in accordance with
its duties thereunder.
Under the Investment Management Contract, the Manager receives from the Fund a
fee (the "Management Fee") equal to .40% per annum of the Fund's average daily
net assets. The fees are accrued daily and paid monthly. The Manager, at its
discretion, may voluntarily waive all or a portion of the Management Fee.
Pursuant to the Administrative Services Contract with the Fund, the Manager also
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of accounting related services by 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, the
Manager receives from the Fund a fee (the "Administrative Services Fee") equal
to .21% per annum of the Fund's average daily net assets. For the Fund's fiscal
year ended May 31, 1999 , the Manager received a fee of $7,049, all of which was
voluntarily waived.
For the Fund's fiscal year ended May 31, 1999, the fee paid to the Manager under
the Investment Management Contract was $13,426 all of which was voluntarily
waived. The Fund's net assets at the close of business on May 31, 1999 totaled
$6,822,631.
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. There can be no assurance that such fees will
be waived in the future (see "Distribution and Service Plan" herein).
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.
Expense Limitation
The Manager has agreed, pursuant to the Investment Management Contract, (See
"Distribution and Service Plan" herein), 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. This includes 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, SEC 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
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<PAGE>
application forms for shareholder accounts, and the fees and reimbursements
payable to the Manager under the Investment Management Contract and the
Distributor under the Shareholder Servicing Agreement.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein. 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.
Distribution And Service Plan
The Fund's distributor is Reich & Tang Distributors, Inc., a Delaware
corporation with principal officers at 600 Fifth Avenue, New York, New York
10020. Pursuant to Rule 12b-1 under the 1940 Act, the SEC requires 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 Reich & Tang Distributors, Inc., (the "Distributor"), as distributor
of the Fund's shares.
The Fund is currently subdivided into two classes of common stock, Class A and
Class B. 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 purposes
of distribution of the Fund's Class A shares and 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.
The following information applies only to the Class A shares of the Fund. For
the Fund's fiscal year ended May 31, 1999, the amount payable to the Distributor
under the Distribution and Service Plan and Shareholder Servicing Agreement
adopted thereunder pursuant to Rule 12b-1 under the 1940 Act, totaled $8,205,
none of which was waived. During the same period, the Manager and Distributor
made payments under the plan totaling $2,414 for printing prospectuses and
applications. For the fiscal year ended May 31, 1999, the total amount spent
pursuant to the Plan for Class A shares was 0.7% of the average daily net assets
of the Class A shares, all of which was paid by the Fund to the Distributor,
pursuant to the Shareholder Servicing Agreement.
Under the Distribution Agreement, the Distributor, for nominal consideration
(i.e., $1.00) 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 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 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 its
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
determines 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 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
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<PAGE>
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 was most recently approved on April 8, 1999 to continue in effect for
one year. Thereafter it may continue in effect for successive annual periods
provided it is approved by the Class A shareholders or by the Board of
Directors. This includes 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 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 Class A 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.
Custodian And Transfer Agent
Investors Fiduciary Trust Company, 801 Pennsylvania Avenue, Kansas City,
Missouri 64105, is custodian for the Fund's cash and securities. Reich & Tang
Services, Inc., an affiliate of the Fund's Manager, located at 600 Fifth Avenue,
New York, NY 10020, is transfer agent and dividend agent for the shares of the
Fund. The custodian and transfer agent do not assist in, and are not responsible
for, investment decisions involving assets of the Fund.
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
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.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
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. Thus, the Fund will select a broker
for such a transaction based upon which broker can effect the trade at the best
price and execution available. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. 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 are 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.
VII. CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Fund consists of twenty billion shares of
stock having a par value of one tenth of one cent ($.001) per share. The Fund's
Board of Directors is authorized to divide the shares into separate series of
stock, one for each of the portfolios that may be created. Each share of any
series of shares when issued has 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
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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,
represents an interest in the same portfolio of investments and has identical
voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except: (i) the Class A and Class B shares have different class
designations, (ii) only the Class A shares are 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, and (iii) only the holders of the Class A
shares are entitled to vote on matters pertaining to the Plan and any related
agreements in accordance with provisions of Rule 12b-1. The exchange privilege
permits 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.
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.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so. In
that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Unless specifically requested by an
investor, the Fund will not issue certificates evidencing Fund shares.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
or special meetings only (i) for the election (or re-election) of directors,
(ii) for approval of the revised investment advisory contracts with respect to a
particular class or series of stock, (iii) for approval of the Fund's
distribution agreement with respect to a particular class or series of stock,
and (iv) upon the written request of shareholders entitled to cast not less than
25% of all the votes entitled to be cast at such meeting. Annual and other
meetings may be required with respect to such additional matters relating to the
Fund as may be required by the 1940 Act, including the removal of Fund
director(s) and communication among shareholders, any registration of the Fund
with the SEC or any state, or as the Directors may consider necessary or
desirable. Each Director serves until his successor is elected or qualified or
until such Director sooner dies, resigns, retires or is removed by the vote of
the shareholders.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
The material relating to the purchase and redemption of shares is located in the
Shareholder Information section of the Prospectus and is hereby incorporated by
reference.
Net Asset Value
The Fund does not determine net asset value per share of each Class on any day
in which the New York Stock Exchange is closed for trading. Those days include:
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 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. 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.
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
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<PAGE>
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 "Description of the Fund and its Investments and Risks"
herein.)
IX. TAXATION OF THE FUND
Federal Income Taxes
The Fund has elected 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". It intends to continue to qualify
as long as qualification as a regulated investment company is in the best
interests of its shareholders because qualification relieves the Fund of
liability for Federal income taxes to the extent its earnings are distributed in
accordance with the applicable provisions of the Code.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its net tax-exempt interest income. Exempt-interest dividends
are dividends paid by the Fund that are attributable to interest on obligations,
the interest on which is exempt from 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 excludable from gross income by the Fund's
shareholders under Section 103(a) of the Code, although the amount of such
interest will have to be disclosed on the shareholders' Federal tax return. A
shareholder should consult its 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 any
exempt-interest dividends from the Fund's assets that are attributable to
private activity bonds acquired by the Fund, less any deductions attributable to
such income. 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 its 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 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 market discount income, short-term or long-term capital gains upon
the maturity or disposition of securities acquired at discounts resulting from
market fluctuations. Accrued market discount income and short-term capital gains
will be taxable to shareholders as ordinary income when they are distributed.
Any net capital gains (the excess of its net realized long-term capital gain
from sales of assets with a holding period of more than twelve months over its
net realized short-term capital loss) will be distributed annually to the Fund's
shareholders. The Fund will have no tax liability with respect to distributed
net capital gains and the distributions will be taxable to shareholders as
long-term capital gains regardless of how long the shareholders have held Fund
shares. However, Fund shareholders who at the time of such a net capital gain
distribution have not held their Fund shares for more than 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, long-term capital gains are taxable at a maximum rate of 20% to
non-corporate shareholders. Corresponding maximum rate and holding period rules
apply with respect to capital gains
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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. The Fund also intends to
distribute at least 90% of its net tax-exempt interest income for each taxable
year. These distributions 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 (other than a corporation) 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 an interest in the underlying Municipal
Obligations and the interest thereon will be exempt from regular federal income
taxes to the Fund and its shareholders to the same extent as interest on the
underlying Municipal Obligations. Battle Fowler LLP 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 tax-exempt bonds is not deductible by most taxpayers.
Therefore, a certain portion of interest on debt incurred, or continued to
purchase or carry securities may not be deductible during the period an investor
holds shares of the Fund. The Clinton Administration's Revenue Proposals for
fiscal year 2000 would extend this provision as it applies to financial
entities.
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.
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.
The exemption from Federal income tax of exempt-interest dividends does not
necessarily result in an exemption under the tax laws of any state or local
taxing authority. Shareholders are advised to consult with their tax advisors
concerning the application of state and local taxes to investments in the Fund,
which may differ from the Federal income tax consequences described above.
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 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
21
<PAGE>
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.
X. UNDERWRITERS
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge. The Distributor does not receive an
underwriting commission. In effecting sales of Fund shares under the
Distribution Agreement, the Distributor, for nominal consideration (i.e., $1.00)
and as agent for the Fund, solicits orders for the purchase of the Fund's
shares, provided that any subscriptions and orders are not binding on the Fund
until accepted by the Fund as principal.
The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. In the opinion of the Manager,
however, based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Directors will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution will result in loss to shareholders or change in
the Fund's net asset value. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register ad dealers pursuant to state
law.
XI. CALCULATION OF PERFORMANCE DATA
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the SEC. 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 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). This 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 current 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. It is computed by dividing that
portion of the yield of the Fund which is tax exempt (as computed pursuant to
the formulae previously discussed) by one minus a stated income tax rate and
adding the quotient to that portion, if any, of the yield of the Fund that is
not tax exempt. The tax equivalent yield 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 tax equivalent effective yield table
which shows the yield that an investor needs to receive from a taxable
investment in order to equal a tax-free yield from the Fund. This is calculated
by dividing that portion of the Fund's effective yield that is tax-exempt by 1
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's effective yield that is not tax-exempt. See "Taxable Equivalent
Yield Table" herein.
22
<PAGE>
The Fund's Class A shares' yield for the seven day period ended May 31, 1999 was
2.55%, which is equivalent to an effective yield of 2.58%. The Fund's Class B
shares' yield for the seven day period ended May 31, 1999 was 2.78%, which is
equivalent to an effective yield of 2.82%.
XII. FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended May 31,
1999 and the report therein of McGladrey & Pullen, LLP, are herein incorporated
by reference to the Fund's Annual Report. The Annual Report is available upon
request and without charge.
23
<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. ( c ) 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 (i) earnings of projects under construction, (ii) earnings of
projects unseasoned in operating experience, (iii) rentals which begin when
facilities are completed, or (iv) 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 are
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 are as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services Two Highest Debt Ratings:
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only to a small degree.
Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
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 ratings agencies.
24
<PAGE>
INDIVIDUAL EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective until December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELD TABLE
- ------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
Single $0- $25,751- $62,451 $130,251- $283,151
Return 25,750 62,450 -130,250 283,150 and over
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
Joint $0- $42,351- $104,051- $158,551- $283,151
Return 43,050 102,300 158,550 283,150 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%
- -------------------- ---------------- -------------- ----------------- ---------------- --------------
- ------------------------------------------------------------------------------------------------------
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.
25
<PAGE>
CORPORATE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective until December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
Corporate $0- $50,001- $75,001- $100,001- $335,001- $10,000,001- $15,000,001- $18,333,334
Return 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 and over
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
Federal
Tax Rate 15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
State
Tax Rate 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
Combined
Marginal
Tax Rate 20.10% 29.50% 37.96% 42.66% 37.96% 38.90% 38.90% 38.90%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------- --------------------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield
Yield Required to Match Tax Exempt Yield
- --------------- --------------------------------------------------------------------------------------------------------------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
2.00% 2.50% 2.84% 3.22% 3.49% 3.22% 3.27% 3.43% 3.27%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
2.50% 3.13% 3.55% 4.03% 4.36% 4.03% 4.09% 4.29% 4.09%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
3.00% 3.75% 4.26% 4.84% 5.23% 4.84% 4.91% 5.15% 4.91%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
3.50% 4.38% 4.96% 5.64% 6.10% 5.64% 5.73% 6.01% 5.73%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
4.00% 5.01% 5.67% 6.45% 6.98% 6.45% 6.55% 6.86% 6.55%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
4.50% 5.63% 6.38% 7.25% 7.85% 7.25% 7.36% 7.72% 7.36%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
5.00% 6.26% 7.09% 8.06% 8.72% 8.06% 8.18% 8.58% 8.18%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
5.50% 6.88% 7.80% 8.87% 9.59% 8.87% 9.00% 9.44% 9.00%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
6.00% 7.51% 8.51% 9.67% 10.46% 9.67% 9.82% 10.30% 9.82%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
6.50% 8.14% 9.22% 10.48% 11.34% 10.48% 10.64% 11.15% 10.64%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
7.00% 8.46% 9.93% 11.28% 12.21% 11.28% 11.46% 12.01% 11.46%
- --------------- ------------- ----------- ------------- --------------- -------------- --------------- ---------------- ------------
</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.
26
<PAGE>
PART C - OTHER INFORMATION
Item 23. Exhibits.
(a) Articles of Incorporation of the Registrant (filed with initial
Registration Statement No. 333.-37491 on October 9, 1997 and
incorporated by reference herein).
(b) By-laws of the Registrant (filed with initial Registration Statement
No. 333.-37491 on October 9, 1997 and incorporated by reference
herein).
(c) Not Applicable.
(d) Form of Investment Management Contract between the Registrant and
Reich & Tang Asset Management L.P. (filed as exhibit 5 with
Pre-Effective Amendment No. 1 on Form N-1A to Registration Statement
No. 333-37491 on June 8, 1998 and incorporated by reference herein).
(e) Form of Distribution Agreement between the Registrant and Reich & Tang
Distributors Inc. (filed as exhibit 15.2 with Pre-Effective Amendment
No. 1 on Form N-1A to Registration Statement No. 333-37491 on June 8,
1998 and incorporated by reference herein).
(f) Not applicable.
(g) Form of Custody Agreement between the Registrant and Investors
Fiduciary Trust Company (filed as exhibit 8 with Pre-Effective
Amendment No. 1 on Form N-1A to Registration Statement No. 333-37491 on
June 8, 1998 and incorporated by reference herein).
(h) Form of Administrative Services Contract between the Registrant and
Reich & Tang Asset Management L.P. (filed as exhibit 9.1 with
Pre-Effective Amendment No. 1 on Form N-1A to Registration Statement
No. 333-37491 on June 8, 1998 and incorporated by reference herein).
(i) Opinion of Messrs. Battle Fowler LLP, as to the legality of the
securities being registered, including their consent to the filing
thereof and to the use of their name under the headings "Federal Income
Taxes" in the Prospectus and Statement of Additional Information (filed
as exhibit 10.1 with Pre-Effective Amendment No. 1 on Form N-1A to
Registration Statement No. 333-37491 on June 8, 1998 and incorporated
by reference herein).
(i.1) Opinion of Kilpatrick & Stockton LLP (filed as exhibit 10.2 with
Pre-Effective Amendment No. 1 on Form N-1A to Registration Statement
No. 333-37491 on June 8, 1998 and incorporated by reference herein).
(j) Consent of Independent Auditors.
C-1
<PAGE>
(k) Audited Financial Statements for the fiscal year ended May 31, 1999
(filed with the Annual Report and incorporated by reference herein).
(l) Form of written assurance of Reich & Tang Asset Management L.P., that
its purchase of shares of the Registrant was for investment purposes
without any present intention of redeeming or reselling (filed as
exhibit 13 with Pre-Effective Amendment No. 1 on Form N-1A to
Registration Statement No. 333-37491 on June 8, 1998 and incorporated
by reference herein).
(m) Form of Distribution Plan Pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (filed as exhibit 15.1 with Pre-Effective Amendment
No. 1 on Form N-1A to Registration Statement No. 333-37491 on June 8,
1998 and incorporated by reference herein).
(m.1) Form of Distribution Agreement between Registrant and Reich & Tang
Distributors, Inc. (see exhibit (e) above).
(m.2) Form of Shareholder Servicing Agreement between the Registrant and
Reich & Tang Distributors, Inc. (filed as exhibit 15.3 with
Pre-Effective Amendment No. 1 on Form N-1A to Registration Statement
No. 333-37491 on June 8, 1998 and incorporated by reference herein).
(n) Financial Data Schedule (Filed for Edgar purposes only).
(o) Amendment No 2 to the Rule 18f-3 Plan for Multi-Class (filed as exhibit
18 with Pre-Effective Amendment No. 1 to on Form N-1A to Registration
Statement No. 333-37491 on June 8, 1998 and incorporated by reference
herein).
(p) Power of Attorney of principal officers and directors of the Registrant
(filed as exhibit 16 with Pre-Effective Amendment No. 1 to on Form N-1A
to Registration Statement No. 333-37491 on June 8, 1998 and
incorporated by reference herein).
Item 24. Persons Controlled by or Under Common Control with Registrant.
None.
Item 25. Indemnification.
Registrant incorporates by reference herein the response to Item 27 of
the Registration Statement No. 333-37491 filed with the Commission on October 9,
1997.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities &Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 26. Business and Other Connections of Investment Adviser.
The description of Reich & Tang Asset Management L.P. ("RTAMLP") under
the caption "Management, Organization and Capital Structure" in the Prospectus
and "Investment Advisory and Other Services" and "Management of the Fund" in the
Statement of Additional Information constituting parts A and B, respectively, of
this Post-Effective Amendment No. 1 to the Registration Statement are
incorporated herein by reference.
Registrant's investment advisor, RTAMLP, is a registered investment
advisor. Nvest Companies, L.P. (Nvest) is the limited partner and owner of a
99.5% interest in RTAMLP. Reich & Tang Asset Management, Inc.
C-2
<PAGE>
("RTAM")(an indirect wholly-owned subsidiary of Nvest) is the sole general
partner and owner of the remaining .05% interest in RTAMLP. RTAMLP's investment
advisory clients include more than twenty-one registered investment companies
which invest in money market instruments, equity securities and debt securities.
In addition, RTAMLP is the sole general partner of ten investment partnerships
organized as limited partnerships.
Peter S. Voss, President, has been Chief Executive Officer and a Director of
Nvest Corporation (formerly New England Investment Companies, Inc.) since
October 1992, Chairman of the Board of Nvest Corporation since December 1992,
Director of The New England since March 1993, Chairman of the Board of Directors
of NEIC's subsidiaries other than Loomis, Sayles & Company, L.P. ("Loomis") and
Back Bay Advisors, L.P. ("Back Bay"), where he serves as a Director, and
Chairman of the Board of Trustees of all of the mutual funds in the TNE Fund
Group and the Zenith Funds. G. Neil Ryland, Executive Vice President, Treasurer
and Chief Financial Officer Nvest Corporation since July 1993. Edward N.
Wadsworth, Executive Vice President, General Counsel, Clerk and Secretary of
Nvest Corporation since December 1989, and Secretary of Westpeak and Draycott
and the Treasurer of Nvest Corporation. Lorraine C. Hysler has been Secretary of
RTAM since July 1994, Assistant Secretary of NEIC since September 1993, and Vice
President of Reich & Tang Mutual Funds since July 1994. Richard E. Smith, III
has been a Director of RTAM since July 1994, and President and Director of RTAM
since July 1994, President and Chief Operating Officer of the Reich & Tang
Capital Management Group since July 1994. Steven W. Duff has been a Director of
RTAM since October 1994, and President and Chief Executive Officer of Reich &
Tang Mutual Funds since August 1994. Mr. Duff is President and a
Director/Trustee of 14 funds in the Reich & Tang Fund Complex, President of Back
Bay Funds, Inc., Director of Pax World Money Market Fund, Inc., President and
Chief Executive Officer of Tax Exempt Proceeds Fund, Inc., and Executive Vice
President of Reich & Tang Equity Fund, Inc. Bernadette N. Finn has been Vice
President/Compliance of RTAM since July 1994, and Vice President of Reich & Tang
Mutual Funds since July 1994. Ms. Finn is also Secretary of 14 funds in the
Reich & Tang Complex and a Vice President and Secretary of 5 funds in the Reich
& Tang Fund Complex. Richard DeSanctis has been Treasurer of RTAM since July
1994, Assistant Treasurer of NEIC since September 1993, Treasurer of the Reich &
Tang Mutual Funds since July 1994. Mr. DeSanctis is also Treasurer of 18 funds
in the Reich & Tang Fund Complex. and is Vice President and Treasurer of
Cortland Trust, Inc. Richard I. Weiner has been Vice President of RTAM since
July 1994, Vice President of NEIC since September 1993, and Vice President of
Reich & Tang Asset Management L.P. Capital Management Group since July 1994. Mr.
Weiner has served as a Vice President of Reich & Tang, Inc. since September
1982. Rosanne Holtzer 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, in
addition she is also Assistant Treasurer of 19 funds in the Reich & Tang Fund
Complex.
Item 27. Principal Underwriters.
(a) Reich & Tang Distributors, Inc., the Registrant's Distributor, is
also distributor for 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, 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.
(b) The following are the directors and officers of Reich & Tang
Distributors, Inc. The principal business address of Messrs. Voss, Ryland, and
Wadsworth is 399 Boylston Street, Boston, Massachusetts 02116. For all other
persons' the principal address is 600 Fifth Avenue, New York, New York 10020.
Positions and Offices Positions and Offices
Name with the Distributor with the Registrant
Peter S. Voss Director None
G. Neal Ryland Director None
Edward N. Wadsworth Executive Officer None
Richard E. Smith III President None
Peter DeMarco Executive Vice President None
Steven W. Duff Director President
Bernadette N. Finn Vice President Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Treasurer Treasurer
Richard I. Weiner Vice President None
(c) Not applicable.
C-3
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Item 28. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of the Registrant, at Reich
& Tang Asset Management L.P., 600 Fifth Avenue, New York, New York 10020, the
Registrant's Manager; Reich & Tang Services Inc., 600 Fifth Avenue, New York,
New York 10020, the Registrant's transfer agent and dividend disbursing agent
and Investors Fiduciary Trust Company, 801 Pennsylvania Avenue, Kansas City,
Missouri, 64104, the Registrant's custodian.
Item 29. Management Services.
Not applicable.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, and State of New York, on the 28th day of September, 1999.
GEORGIA DAILY MUNICIPAL INCOME FUND, INC.
By: /S/Steven W. Duff
Steven W. Duff, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
(1) Principal Executive Officer
President and Director September 28, 1999
/S/Steven W. Duff
Steven W. Duff
(2) Principal Financial and
Accounting Officer:
Treasurer September 28, 1999
/S/Richard De Sanctis
Richard De Sanctis
(3) Majority of Directors
W. Giles Mellon
Yung Wong
Robert Straniere
By: September 28, 1999
/S/Bernadette N. Finn
Bernadette N. Finn
Attorney-in-Fact*
Exhibit j
McGLADREY & PULLEN L.L.P.
Certified Public Accountants & Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated June 28, 1999, on the
financial statements referred to therein, which are incorporated by reference in
Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A, File
No. 333-37491, of Georgia Daily Municipal Income Fund, Inc., as filed with the
Securities and Exchange Commission.
We also consent to the reference to our Firm in the Prospectus under the
caption "Financial Highlights" and in the Statement of Additional Information
under the caption "Counsel and Auditors" and "Financial Statements".
/s/McGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
September 27, 1999
