Rule 497(c)
Registration No. 333-37491
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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, 2000
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.
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TABLE OF CONTENTS
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2 Risk/Return Summary: Investments, Risks 8 Management, Organization
and Performance and Capital Structure
5 Fee Table 9 Shareholder Information
6 Investment Objectives, Principal Investment 18 Distribution Arrangements
Strategies and Related Risks 20 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 may invest 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.
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Risk/Return Bar Chart and Table
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The following bar chart and table may assist you in your decision to invest
in the Fund. The bar chart shows the annual total returns of the Fund's Class A
shares for the last calendar year and will show the change in annual total
returns once the Fund has been in existence for more then one calendar year. The
table shows the Fund's average annual total returns for the last one year period
for the Class A shares, and since inception for both Classes. While analyzing
this information, please note that the Fund's past performance is not an
indicator of how the Fund will perform in the future. The current 7-day yield
for each Class may be obtained by calling the Fund toll-free at 1-800-221-3079.
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Georgia Daily Municipal Income Fund, Inc. - Class A (1)(2)(3)
[GRAPHIC OMITTED]
Calendar Year End % Total Return
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1999 2.61%
(1) The year-to-date return for the Class A shares as of June 30, 2000 was
1.65%.
(2) The Fund's highest quarterly return was 0.75% for the quarter ended
December 31, 1999; the lowest quarterly return was 0.54% for the quarter
ended March 31, 1999.
(3) Participating Organizations may charge a fee to investors for purchasing
and redeeming shares. Therefore, the net return to such investors may be
less than the net return by investing in the Fund directly.
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AVERAGE ANNUAL TOTAL RETURNS - FOR THE PERIODS ENDED DECEMBER 31, 1999
Class A Class B
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One Year 2.61% N/A
Since Inception* 2.62% 2.82%
* The inception date for the Class A shares was July 14, 1998 and for the
Class B shares was January 14, 1999.
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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.
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Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Class A Shares Class B Shares
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Management Fees............................... 0.40% 0.40%
Distribution and Service (12b-1) Fees......... 0.25% 0.00%
Other Expenses................................ 1.15% 1.15%
Administration Fees....................... 0.21% _____ 0.21% _____
Total Annual Fund Operating Expenses.......... 1.80% 1.55%
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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 0.44%. The actual Total Annual Fund
Operating Expenses for Class A shares were 0.75% and for Class B shares were
0.50%. This fee waiver and reimbursement arrangement may be terminated at any
time at the option of the Manager.
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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
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Class A: $183 $567 $975 $2,116
Class B: $158 $490 $846 $1,847
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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,
Guam 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 may also invest in Participation Certificates in Municipal
Obligations. Participation Certificates represent the Fund's interest in a
Municipal Obligation that is held by another entity (i.e. banks, insurance
companies or other financial institutions). Instead of purchasing a Municipal
Obligation directly, the Fund purchases and holds an undivided interest in a
Municipal Obligation that is held by a third party. The Fund's interest in the
underlying municipal obligation is proportionate to the Fund's participation
interest. Ownership of the Participation Certificates 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 "Description of
the Fund and Its Investments and Risks - 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.
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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
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.
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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.
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.
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, 2000 the Manager was the investment
manager, advisor or supervisor with respect to assets aggregating in excess of
$13.7 billion. The Manager has been an investment adviser since 1970 and
currently is manager of seventeen 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
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Manager a fee equal to .40% per annum of the Fund's average daily net assets for
managing the Fund's investment portfolio and performing related services. For
the fiscal year ended May 31, 2000, the Manager waived its fee.
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. For the fiscal year ended
May 31, 2000, the Manager waived its fee.
The Manager, at its discretion, may voluntarily waive all or a portion of
the investment management and the administrative services fees. Any portion of
the total fees received by the
Manager may be used to provide shareholder services and for distribution of Fund
shares.
In addition, Reich & Tang Distributors, Inc., the Distributor, receives a
servicing fee equal to .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 Investment Company Act of
1940 (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
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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.
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 (i) the 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
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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 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:
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State Street Kansas City
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:
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
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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:
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
13
<PAGE>
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 of 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 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'
14
<PAGE>
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
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 to fairly 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 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 the 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.
15
<PAGE>
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 that retain Reich & Tang Asset Management L.P. as
investment adviser and that participate in the exchange privilege program with
the Fund. If only one Class of shares is available in a particular exchange
fund, the shareholder of the Fund is entitled to exchange its 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, and Short Term Income
Fund, Inc. In the future, the exchange privilege program may be extended to
other investment companies that 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 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.
16
<PAGE>
Tax Consequences
--------------------------------------------------------------------------------
Federal Income Taxes
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.
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 Shareholders that are Social Security recipients, interest on
tax-exempt bonds, including exempt interest dividends paid by the Fund, is to be
added to the Shareholder's adjusted gross income to determine the amount of
Social Security benefits includible in their 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 any
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 should be treated for Federal income tax purposes
as the owner of an interest in the underlying Municipal Obligations and the
interest thereon will be exempt from regular Federal income taxes to the Fund to
the same extent as the interest on the underlying Municipal Obligations.
The United States Supreme Court has held that there is no constitutional
prohibition against the Federal government's taxing the interest earned on state
or other municipal bonds. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Municipal Obligations. The
Internal Revenue Service has announced it will not ordinarily issue advance
rulings on the question of ownership of securities or participation interests
therein subject to a put and could reach a different conclusion then the one set
forth herein.
17
<PAGE>
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.
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
18
<PAGE>
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.
19
<PAGE>
VI. FINANCIAL HIGHLIGHTS
These financial highlights tables are intended to help you understand the Fund's
financial performance since inception. Certain information reflects financial
results for a single Fund share. The total returns in the tables represent the
rate that an investor would have earned on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, for the fiscal year ended May 31, 2000,
and by other auditors for the fiscal years prior to May 31, 2000. The report of
PricewaterhouseCoopers LLP, along with the Fund's financial statements, is
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
Year July 14, 1998
Class A Ended (Commencement of Operations)
------- May 31, 2000 May 31, 1999
------------ ------------
<S> <C> <C>
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.................................... 0.030 0.022
Less distributions:
Dividends from net investment income..................... ( 0.030 ) ( 0.022 )
------------ ------------
Net asset value, end of period.............................. $ 1.00 $ 1.00
============= =============
Total Return................................................ 3.00% 2.20%++
Ratios/Supplemental Data
Net assets, end of period (000)............................. $ 12,141 $ 6,583
Ratios to average net assets:
Expenses (net of fees waived and expenses reimbursed)+... 0.75% 0.79%*
Net investment income.................................... 2.99% 2.48%*
Management and administration fees waived................ 0.61% 0.61%*
Expenses reimbursed...................................... 0.44% 1.58%*
Expense offsets.......................................... 0.00% 0.04%*
</TABLE>
++ Not annualized
* Annualized
+ Includes expense offsets.
20
<PAGE>
VI. FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Year January 14, 1999
Class B Ended (Commencement of Sales)
------- May 31, 2000 May 31, 1999
------------ ------------
<S> <C> <C>
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.................................... 0.032 0.009
Less distributions:
Dividends from net investment income..................... ( 0.032 ) ( 0.009 )
------------ ------------
Net asset value, end of period.............................. $ 1.00 $ 1.00
============= =============
Total Return................................................ 3.26% 0.93%++
Ratios/Supplemental Data
Net assets, end of period (000)............................. $ 969 $ 240
Ratios to average net assets:
Expenses (net of fees waived and expenses reimbursed)+... 0.50% 0.54%*
Net investment income.................................... 3.12% 2.66%*
Management and administration fees waived................ 0.61% 0.61%*
Expenses reimbursed...................................... 0.44% 1.58%*
Expense offsets.......................................... 0.00% 0.04%*
</TABLE>
++ Not annualized
* Annualized
+ Includes expense offsets.
21
<PAGE>
A Statement of Additional Information (SAI) dated September 28, 2000 includes
additional information about the Fund and its investments and is incorporated by
reference into this Prospectus. Further information about Fund investments is
available in the Annual and Semi-Annual shareholder reports. You may obtain the
SAI, the Annual and Semi-Annual reports 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 EDGAR database on the Securities and Exchange Commission's
Internet website (http://www.sec.gov) to view the SAI, material incorporated by
reference and other information. Copies of the information may be obtained,
after paying a duplicating fee, by sending an electronic request to
[email protected]. 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 1-202-942-8090. 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. 20549-0102.
GEORGIA
DAILY MUNICIPAL INCOME
FUND, INC.
PROSPECTUS
September 28, 2000
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, NY 10020
(212) 830-5220
811-08425
GA2000P
<PAGE>
--------------------------------------------------------------------------------
GEORGIA
DAILY MUNICIPAL 600 Fifth Avenue, New York, NY 10020
INCOME FUND, INC. (212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
September 28, 2000
RELATING TO THE GEORGIA DAILY MUNICIPAL INCOME FUND, INC.
PROSPECTUS DATED SEPTEMBER 28, 2000
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,
2000, 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......................17
Description of the Fund and Its Investments...... Purchase, Redemption and Pricing of Shares..............18
and Risks.....................................2 Taxation of the Fund....................................18
Management of the Fund.........................12 Underwriters............................................20
Control Persons and Principal Holders of Calculation of Performance Data.........................21
Securities...................................13 Financial Statements....................................21
Investment Advisory and Other Services.........14 Description of Ratings..................................22
Brokerage Allocation and Other Practices.......17 Taxable Equivalent Yield Tables.........................23
</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 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 (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, Guam 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 may 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 possible
"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)
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unrated securities 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 Investment Company Act of 1940 (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.
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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.
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
--------------------------------------------------------------------------------
* 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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sell the Participation Certificate back to the institution. Where applicable,
the Fund can draw on the letter of credit or insurance after no more than 30
days notice either at any time or at specified intervals not exceeding 397 days
(depending on the terms of the participation), for all or any part of the full
principal amount of the Fund's participation interest in the security plus
accrued interest. The Fund intends to exercise the demand only (i) upon a
default under the terms of the bond documents, (ii) as needed to provide
liquidity to the Fund in order to make redemptions of Fund shares or (iii) to
maintain a high quality investment portfolio. The institutions issuing the
Participation Certificates will retain a service and letter of credit fee (where
applicable) and a fee for providing the demand repurchase feature, in an amount
equal to the excess of the interest paid on the instruments over the negotiated
yield at which the participations were purchased by the Fund. The total fees
generally range from 5% to 15% of the applicable prime rate or other interest
rate index. With respect to insurance, the Fund will attempt to have the issuer
of the Participation Certificate bear the cost of the insurance. However, the
Fund retains the option to purchase insurance if necessary, in which case the
cost of insurance will be an expense of the Fund 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 Fund's possible investment 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.
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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 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
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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.
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.
8
<PAGE>
The State of Georgia operates on a fiscal year beginning July 1 and ending June
30. For example, "fiscal 2000" refers to the year ended June 30, 2000. As of
August 31, 2000, the total principal indebtedness of the State of Georgia
consisting of general obligation debt and guaranteed revenue debt totaled
$5,440,480,000 and the highest aggregate annual payment for such debt equaled
4.23% of fiscal 2000 estimated State 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 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.
Based on data of the State of Georgia Department of Audits for fiscal 2000,
income tax receipts and sales tax receipts of the State for fiscal 2000 made up
approximately 47% and 32%, respectively, of the total State tax revenues.
The unemployment rate of the civilian labor force in the State of Georgia as of
June 2000 was 3.4% according to data provided by the State of Georgia Department
of Labor. In descending order, services, wholesale and retail trade,
manufacturing, government, transportation and public utilities, and construction
make up the largest sources of nonagricultural employment within the State of
Georgia.
Legal Proceedings
The State of Georgia from time to time is involved in certain legal proceedings
that may or may not have a material adverse impact on the financial position of
the State if decided in a manner adverse to the State's interests. Certain of
such lawsuits that could have a significant impact on the State's financial
position are summarized below.
Age International, Inc. v. State (two cases), Fulton Superior Court Civil Action
No. E-3793 and Fulton Superior Court Civil Action No. E-25073. These two cases
are suits for refund seeking about $153,000,000, including claimed interest,
plus additional interest, for liquor taxes allegedly paid by out-of-state
distillers. Plaintiffs are challenging the constitutionality of Georgia's import
tax on liquor, see Ga. Laws 1985, p. 665 (O.C.G.A.ss. 3-4-60), on Commerce
Clause and related grounds. Georgia's pre-1985 liquor tax statute was held by
the U.S. Supreme Court to violate the Commerce Clause. See James B. Beam
Distilling Co. v. Georgia, 501 U.S. 529 (1991). The trial court granted the
State's motions for summary judgment, and 12 of the 23 claimants have appealed.
The total amount (excluding claimed interest) of the refund claims by the 12
plaintiffs who did appeal now appears to be about $42,000,000; while the total
amount (excluding claimed interest) of the refund claims by the 11 plaintiffs
who did not appeal, which seem to be conclusively resolved in favor of the State
by virtue of the trial court's judgment, now appears to be about $54,000,000.
The Georgia Supreme Court has recently dismissed the appeal, but the time for
plaintiffs to seek further review has not yet expired.
9
<PAGE>
DeKalb County, et al. v. State, et al., Fulton Superior Court Civil Action No.
E-67520 (filed March 13, 1998). This suit, against the State of Georgia, the
Department of Revenue, the Governor (in his official capacity), and the
Commissioner of the Department of Revenue (in his personal and official
capacities), alleges improper collection and distribution by the State and its
agencies of the Homestead Option Sales and Use Tax, a local option sales tax in
effect in DeKalb County since July 1997. DeKalb County's complaint, as amended,
seeks damages of $27.7 million. Subsequently, DeKalb County has re-estimated its
alleged damages variously as $19, $15, and $12 million. DeKalb County's action
was dismissed by the trial court, and this dismissal was affirmed in part and
reversed in part by the Georgia Supreme Court in an order dated February 22,
1999. The Supreme Court's decision remands to the trial court the accounting
claim on the question of whether the Department of Revenue made reasonable
efforts to identify county tax proceeds that have been determined by the
Department to be unidentifiable to any county.
General Motors Acceptance Corp. v. Jackson, Fulton Superior Court Civil Action
No. 1999CV06252 ("GMAC"); Bank of America, N.A., as successor by merger to
NationsBank, N.A. v. Jackson, Fulton Superior Court Civil Action No.
1999CV10366; Chrysler Financial Co. LLC v. Jackson, Fulton Superior Court Civil
Action No. 1999CV10369; SunTrust Bank, Atlanta, et al. v. Jackson, Fulton
Superior Court Civil Action No. 1999CV10385; First Union Nat'l Bank v. Jackson,
Fulton Superior Court Civil Action No. 1999CV12508. These suits by financial
institutions seek refunds of sales taxes, based upon alleged bad debts on
installment sales contracts purchased from Georgia motor vehicle dealers, in the
approximate respective amounts of $300,000, $2,500,000, $2,000,000, $1,400,000,
and $459,000. The total amount (excluding claimed interest) of these and all
similar, pending administrative claims for refund (for the years 1991-1999) is
approximately $37,000,000. The four cases filed after the GMAC case have been
temporarily stayed pending the outcome of the GMAC case. After the filing of
cross-motions for summary judgment in the GMAC case, the Superior Court ruled in
favor of the Defendant State Revenue Commissioner. GMAC's appeal from the
decision of the Superior Court is pending in the Georgia Court of Appeals.
James Andrew Coleman v. United States of America, et al., Federal District Court
for the District of Columbia Case No. 1:98cv02559. This civil action was filed
against the United States, the "Executive Branch federal defendant," William
Jefferson Clinton, the State of Georgia, the State of Mississippi, and the State
of South Carolina. The suit alleges that the United States government's failure
to enforce the purported terms of surrender ending the Civil War have resulted
in the inclusion in the Georgia state flag of a Confederate battle flag,
allegedly in violation of those terms of surrender. The suit claims that said
failure of enforcement violates various federal constitutional and statutory
provisions. The suit prays for relief in the form of $40 billion in compensatory
damages and $40 billion in punitive damages against each named defendant. The
State believes it has good and valid defenses, including but not limited to
Eleventh Amendment immunity. The State has filed a motion to dismiss.
Niccie McClendon, et al. v. Georgia Department of Community Health, et al.,
United States District Court for the Northern District of Georgia Case No.
4:00CV-26:HLM. The complaint in the above-referenced case was filed on January
26, 2000. Plaintiffs in this case are alleged Medicaid recipients who have
allegedly suffered from smoking-related illnesses. They seek to recover for
themselves and others similarly situated a portion of the tobacco settlement
proceeds that they claim is owed to them under Medicaid's third party liability
program. In short, they claim that the proceeds from the tobacco settlement
exceed what is necessary for the State to recoup its Medicaid expenses and that,
under Federal law; the excess must be distributed to the Medicaid recipients.
The suit seeks unspecified monetary relief representing an amount they claim is
due them from the Medicaid recovery as well as a portion of future tobacco
settlement proceeds representing the same. The district court granted the
State's motion to dismiss the case in its entirety. The time for appeal has not
yet expired.
PTI, Inc., et al. v. Philip Morris, Inc., et al., United States District Court
for the Central District of California Case No. 99-08235NM(EX). The complaint in
this case, filed on August 13, 1999, requests declaratory, equitable,
injunctive, and other forms of relief as well as monetary damages. Among the
named defendants are the State of Georgia, Zell Miller (individually and
officially), former Governor of Georgia, and Thurbert Baker (individually and
officially), current Attorney General of Georgia, and T. Jerry Jackson
(officially), current State Revenue Commissioner. The claims against the State
and the official claims against Messrs. Miller, Baker, and Jackson are not
insured. The suit challenges the master settlement agreement between most of the
tobacco manufacturers and 46 states (plus other jurisdictions) and the validity
of subsequent legislation related thereto. Couched largely as an antitrust suit,
the plaintiffs seek, among other things, disgorgement of funds paid pursuant to
the agreement. Under the agreement, Georgia is to receive over $4.8 billion
between the years 2000 and 2025. The defendant states have collectively filed a
motion to dismiss. The State believes it has good and valid defenses on
jurisdictional and other grounds. The district court granted the states' motion
to dismiss the case in its entirety. The time for appeal has not yet expired.
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
10
<PAGE>
Georgia. Since Georgia Municipal Obligations in the Fund (other than general
obligation bonds issued by the State) are payable from revenue derived from a
specific source or authority, the impact of a pronounced decline in the national
economy or difficulties in significant industries within the State could result
in a decrease in the amount of revenues realized from such source or by such
authority and thus adversely affect the ability of the respective issuers of the
Georgia Municipal Obligations in the Fund to pay the debt service requirements
on the Georgia Municipal Obligations. Similarly, 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. They may
not be changed unless approved by a majority of the outstanding shares of the
Fund. The term "majority of the outstanding shares" of the Fund means the vote
of the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The Fund may not:
1. Make portfolio investments other than as described under "Description of the
Fund and its Investments and Risks". Any other form of Federal tax-exempt
investment must meet the Fund's high quality criteria, as determined by the
Board of Directors, and must 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
11
<PAGE>
Guarantee (as such terms are defined in Rule 2a-7 of the 1940 Act), with respect
to 75% of the total assets of the Fund, not more than 10% of the Fund's assets
may be invested in securities that are subject to a Guarantee or Demand Feature
from the same institution. However, the Fund may only invest more than 10% of
its assets in securities subject to a Guarantee or Demand Feature issued by a
Non-Controlled Person (as such term is defined in Rule 2a-7 of the 1940 Act).
11. Invest in securities of other investment companies. The Fund may purchase
unit investment trust securities where such unit trusts meet the investment
objectives of the Fund and then only up to 5% of the Fund's net assets, except
as they may be acquired as part of a merger, consolidation or acquisition of
assets.
12. Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with a permitted borrowing.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, employs Reich & Tang Asset Management L.P. ( the
"Manager") to serve as investment manager of the Fund. The Manager provides
persons satisfactory to the Fund's Board of Directors to serve as officers of
the Fund. Such officers, as well as certain other employees and directors of the
Fund, may be directors or officers of Reich & Tang Asset Management, Inc., the
sole general partner of the Manager, or employees of the Manager or its
affiliates. Due to the services performed by the Manager, the Fund currently has
no employees and its officers are not required to devote 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 the Manager.
Steven W. Duff, 46 - President and Director of the Fund, has been President of
the Mutual Funds Division of the Manager since September 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 Delafield Fund, Inc., and President and
Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.
Dr. W. Giles Mellon, 69 - 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 13 other funds in the Reich & Tang Fund Complex.
Robert Straniere, 59 - 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 13 other funds in the Reich & Tang Fund Complex, and
Director of Life Cycle Mutual Funds, Inc.
Dr. Yung Wong, 61 - 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 13 other funds in the Reich & Tang Fund
Complex, and is also a Trustee of Eclipse Financial Asset Trust.
Molly Flewharty, 49 - Vice President of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty is also
Vice President of 16 other funds in the Reich & Tang Fund Complex.
Lesley M. Jones, 52 - Vice President of the Fund, has been Senior Vice President
of the Mutual Funds Division of the Manager since September 1993. Ms. Jones is
also a Vice President of 12 other funds in the Reich & Tang Fund Complex.
Dana E. Messina, 43 - 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 is also Vice
President of 13 other funds in the Reich & Tang Fund Complex.
Bernadette N. Finn, 52 - Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn is also
Secretary of 12 other funds in the Reich & Tang Fund Complex, and a Vice
President and Secretary of 4 funds in the Reich & Tang Fund Complex.
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<PAGE>
Richard De Sanctis, 44 - Treasurer of the Fund, has been Treasurer of the
Manager of the Manager since 1993. Mr. DeSanctis is also Treasurer of 15 other
funds in the Reich & Tang Fund Complex, and is Vice President and Treasurer of
Cortland Trust, Inc.
Rosanne Holtzer, 36 - 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 16
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, 2000, 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>
Compensation Table
<S> <C> <C> <C> <C>
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, 2000. 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, 2000 there were 11,660,698 Class A shares of the Fund outstanding,
and 1,422,017 Class B shares outstanding. As of August 31, 2000, 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,
2000:
<TABLE>
<CAPTION>
<S> <C> <C>
Nature of
Name and Address % of Class Ownership
Class A Shares
IJL Wachovia Securities 45.43% Record
For the exclusive benefit of customers
201 North Tryon Street
Charlotte, NC 28202
Class B Shares
Lewco Securities Corp. 92.35% Record
34 Exchange Place
New Jersey, NJ 07311
</TABLE>
13
<PAGE>
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, 2000, investment
manager, adviser, or supervisor with respect to assets aggregating in excess of
$13.7 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.
Nvest Companies, L.P. (Nvest Companies) is the limited partner and owner of a
99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (RTAM) is the
sole general partner and owner of the remaining 0.5% interest of the Manager, as
well as being an indirect wholly-owned subsidiary of Nvest Companies. Nvest
Companies is a publicly traded company of which approximately 13% of its
outstanding partnership interests is owned, directly and indirectly, by Reich &
Tang, Inc. The managing general partner of Nvest Companies is Nvest Corporation,
a Massachusetts corporation (formerly known as The New England Investment
Companies, Inc.).
Nvest, L.P., and its affiliated operating partnership, Nvest Companies, L.P.,
have entered into an agreement for CDC Asset Management to acquire all of their
outstanding partnership units. CDC Asset Management is the investment management
arm of France's Caisse des depots et Consignationes, which is a major
diversified financial institution. Nvest will be renamed CDC Asset
Management-North America and will continue to use the holding company structure.
Nvest affiliates, including the Manager will retain their investment
independence, brand names, management and operating autonomy. The transaction
will not affect daily operations of the Fund or the investment management
activities of the Manager.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies, L.P. Under the rules for mutual funds, the
transaction may result in a change of control for the Manager and, therefore, an
assignment of the Fund's investment advisory agreements with the Manager, which
generally is not permitted under the 1940 Act. Consequently, it is anticipated
that the Manager will seek approval of new agreements, which will be
substantially identical to the existing agreements, from the Fund's Board of
Directors and shareholders prior to consummation of the transaction. The
transaction is expected to close in the fourth quarter of 2000.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through 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 Limited Partnerships; Greystone Partners, L.P.; Harris Associates,
L.P.; Jurika & Voyles, L.P.; Kobrick Funds, LLP, Loomis, Sayles & Company, L.P.;
New England Funds, L.P.; Nvest Associates, Inc.; 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 to more than 80 other registered investment companies.
The Manager is also 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. MetLife is a stock life insurance company,
which is wholly owned by Metlife, Inc., a publicly traded corporation.
The Investment Management Contract has a term which extends to May 31, 2001 and
may be continued in force thereafter for successive twelve-month periods
beginning each June 1, provided that such continuance is specifically approved
annually by a majority vote of the Fund's outstanding voting securities or by
its Board of Directors, and in either case by a majority of the directors who
are not parties to the Investment Management Contract or interested persons of
any such party, by votes cast in person at a meeting called for the purpose of
voting on such matter.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Manager 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 Reich &
Tang Asset Management, Inc., 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.
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<PAGE>
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. For
the Fund's fiscal year ended May 31, 2000, the fee paid to the Manager under the
Investment Management Contract was $46,308 all of which was voluntarily waived.
The Fund's net assets at the close of business on May 31, 2000 totaled
$13,110,114. 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.
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 State Street Kansas City, 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, 2000, the Manager received a fee of $24,312 all of which was
voluntarily waived. For the Fund's fiscal year ended May 31, 1999, the Manager
received a fee of $7,049, all of which was voluntarily waived.
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 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., (the "Distributor") a
Delaware corporation with principal offices 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 the Distributor, as distributor of the Fund's shares.
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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, 2000, the amount payable to the Distributor
under the Distribution and Service Plan and Shareholder Servicing Agreement,
totaled $25,004, none of which was waived. During the same period, the Manager
and Distributor made payments under the plan totaling $1,905 for printing
prospectuses and applications, $8,665 was utilized for compensation to sales
personnel, $25,590 on broker assistance, and $23 miscellaneous expenses. For the
fiscal year ended May 31, 2000, the total amount spent pursuant to the Plan for
Class A shares was 0.36% of the average daily net assets of the Class A shares,
0.25% 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 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 27, 2000 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 approval 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 that 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
State Street Kansas City, 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.
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Counsel and Independent Accountants
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Paul, Hastings, Janosky & Walker LLP, 399 Park Avenue, New York,
New York 10022.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, independent certified public accountants, has been selected as
independent accountants 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 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.
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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, redemption and pricing 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 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 and has qualified in the past under 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.
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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 the Code, although the amount of such interest will have to
be disclosed on the shareholder's Federal tax return. A shareholder should
consult its tax advisors with respect to whether exempt-interest dividends
retain the exclusion under the Code if such shareholder would be treated as a
"substantial user" or "related person" under 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 shareholders that are Social Security
recipients, interest on tax exempt bonds, including exempt-interest dividends
paid by the Fund, is to be added to the shareholder's adjusted gross income for
purposes of computing the amount of social security benefits includible in their
gross income. The amount of such interest received will have to be disclosed on
the shareholders' Federal income tax returns. 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.
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).
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 instead of the regular maximum tax rate of 39.6%.
Corresponding maximum rate and holding period rules apply with respect to
capital gains realized by a holder on the disposition of shares.
The Fund intends to distribute at least 90% of its investment company taxable
income (taxable income subject to certain adjustments exclusive of the excess of
its net long-term capital gain over its net short-term capital loss) for each
taxable year. The Fund will be subject to Federal income tax on any
undistributed investment company taxable income. 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.
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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 should 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. However, 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 described
herein.
The United States Supreme Court held that there is no constitutional prohibition
against the Federal government's taxing the interest earned on state or other
municipal bonds. The Supreme Court decision affirms the authority of the Federal
government to regulate and control bonds such as the Municipal Obligations and
to tax such bonds in the future. The decision does not, however, affect the
current exemption from taxation of the interest earned on the Municipal
Obligations.
The 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 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. On November 16, 1999,
President Clinton signed the Gramm-Leach-Bliley Act, repealing certain
provisions of the Glass-Steagall Act which have restricted affiliation between
banks and securities firms and amending the Bank Holding Company Act thereby
removing restrictions on banks and insurance companies. The new legislation
grants banks new authority to conduct certain authorized activity through
financial subsidiaries. In the opinion of the Manager, however, based on the
advice of counsel, these laws and regulations do not prohibit such depository
institutions from providing other services for investment companies such as the
shareholder servicing and related administrative functions referred to above.
The Fund's Board of Directors will consider appropriate modifications to the
Fund's operations, including discontinuance of any payments then being made
under the 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
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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.
The Fund's Class A shares' yield for the seven day period ended May 31, 2000 was
3.52%, which is equivalent to an effective yield of 3.58%. The Fund's Class B
shares' yield for the seven day period ended May 31, 2000 was 3.77%, which is
equivalent to an effective yield of 3.84%.
XII. FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended May 31,
2000 and the report therein of PricewaterhouseCoopers LLP, are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.
21
<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.
22
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective until December 31, 2000)
----------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
----------------- ----------------- ----------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Single $7,000- $26,251- $63,551- $132,601- $288,351
Return 26,250 63,550 132,600 288,350 and over
----------------- ----------------- ----------------- ----------------- ---------------- ------------------
Joint $10,000- $43,851- $105,951- $161,451- $288,351
Return 43,850 105,950 161,450 288,350 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.
23
<PAGE>
<TABLE>
<CAPTION>
CORPORATE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective until December 31, 2000)
------------------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
--------------- ------------ ------------ ------------- --------------- -------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
--------------- ------------ ------------ ------------- --------------- -------------- --------------- ---------------- ------------
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.
</TABLE>
24
