As filed with the Securities and Exchange Commission on October 9, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
----
Post-Effective Amendment No. [ ]
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
----
TEXAS DAILY MUNICIPAL INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5220
BERNADETTE N. FINN
Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)
Copy to: MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (Date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
The Registrant declares that an indefinite amount of its shares of beneficial
interest is being registered by this Registration Statement pursuant to Section
24(f) under the Investment Company Act of 1940, as amended, and Rule 24f-2
thereunder.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may declare.
641155.1
<PAGE>
TEXAS DAILY MUNICIPAL INCOME FUND, INC.
Registration Statement on Form N-1A
-----------------------
CROSS REFERENCE SHEET -
Pursuant to Rule 404(c)
-----------------------
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
<S> <C>
1. Cover Page........................ Cover Page
2. Synopsis.......................... Introduction; Table of Fees and Expenses
3. Condensed Financial
Information....................... Financial Highlights
4. General Description of
Registrant........................ General Information; Investment Objectives, Policies and
Risks
5. Management of the Fund............ Distribution and Service Plan; Management of the Fund;
Custodian, Transfer Agent
5a. Management's Discussion of
Fund Performance.................. Not Applicable
6. Capital Stock and Other
Securities........................ Description of Common Stock; How to Purchase and
Redeem Shares; General Information; Dividends and
Distributions; Federal Income Taxes
7. Purchase of Securities Being
Offered........................... How to Purchase and Redeem Shares; Distribution and
Service Plan; Net Asset Value
8. Redemption or Repurchase.......... How to Purchase and Redeem Shares
9. Legal Proceedings................. Not Applicable
</TABLE>
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641155.1
<PAGE>
<TABLE>
<CAPTION>
Part B
Item No. Caption in Statement of Additional Information
<S> <C>
10. Cover Page........................ Cover Page
11. Table of Contents................. Contents
12. General Information and
History........................... Manager; Management of the Fund
13. Investment Objectives and
Policies.......................... Investment Objectives, Policies and Risks
14. Management of the Registrant...... Manager; Management of the Fund
15. Control Persons and
Principal Holders of
Securities........................ Management of the Fund; Description of Common Stock
16. Investment Advisory and
Other Services.................... Manager; Expense Limitation, Management of the Fund;
Distribution and Service Plan; Custodian, Transfer Agent
and Dividend Agent
17. Brokerage Allocation.............. Portfolio Transactions
18. Capital Stock and Other
Securities........................ Description of Common Stock
19. Purchase, Redemption and
Pricing of Securities
Being Offered..................... How to Purchase and Redeem Shares; Net Asset Value
20. Tax Status........................ Federal Income Taxes; Texas Taxes
21. Underwriters...................... Distribution and Service Plan
22. Calculations of Yield
Quotations of Money Market
Funds............................. Yield Quotations
23. Financial Statements.............. Independent Auditor's Report; Statement of Net Assets;
Statement of Operations; Statement of Changes in Net
Assets; Notes to Financial Statements
</TABLE>
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641155.1
<PAGE>
Subject to Completion Dated October 9, 1997
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TEXAS 600 FIFTH AVENUE
DAILY MUNICIPAL NEW YORK, NY 10020
INCOME FUND, INC. (212) 830-5200
================================================================================
PROSPECTUS
October __, 1997
Texas Daily Municipal Income Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company that is a short-term, tax-exempt, money
market fund whose investment objectives are to seek as high a level of current
income exempt from Federal income taxes and to the extent possible from Texas
income taxes, as is believed to be consistent with preservation of capital,
maintenance of liquidity and stability of principal. The Fund is concentrated in
the securities issued by Texas or entities within Texas and the Fund may invest
a significant percentage of its assets in a single issuer. Therefore any
investment in the Fund may be riskier than an investment in other types of Money
Market Funds. No assurance can be given that those objectives will be achieved.
The Fund offers two classes of shares to the general public. The Class A shares
of the Fund are subject to a service fee pursuant to the Fund's Rule 12b-1
Distribution and Service Plan and are sold through financial intermediaries who
provide servicing to Class A shareholders for which they receive compensation
from the Manager and/or the Distributor. The Class B shares of the Fund are not
subject to a service fee and either are sold directly to the public or are sold
through financial intermediaries that do not receive compensation from the
Manager or Distributor. In all other respects, the Class A and Class B shares
represent the same interests in the income and assets of the Fund.
This Prospectus sets forth concisely the information about the Fund that
prospective investors will find helpful in making their investment decisions.
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the "SEC") and is available upon request and without charge
by calling or writing the Fund at the above address. The Statement of Additional
Information bears the same date as this Prospectus and is incorporated by
reference into this Prospectus in its entirety. The SEC maintains a website
(http://www.sec.gov) that contains the Statement of Additional Information and
other reports and information regarding the Fund which have been filed
electronically with the SEC.
Reich & Tang Asset Management L.P. acts as Manager of the Fund and Reich & Tang
Distributors L.P. acts as Distributor of the Fund's shares. Reich & Tang Asset
Management L.P. is a registered investment adviser. Reich & Tang Distributors
L.P. is a registered broker-dealer and member of the National Association of
Securities Dealers, Inc.
An investment in the Fund is neither insured nor guaranteed by the United States
Government. The Fund intends to maintain a stable net asset value of $1.00 per
share although there can be no assurance that this value will be maintained.
Shares in the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency.
This Prospectus should be read and retained by investors for future reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT BEING OFFERED VIA THE
INTERNET TO RESIDENTS OF PARTICULAR STATES.
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these Securities has been filed with the SEC.
These Securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This prospectus shall not
constitute an offer to sell or solicitation of an offer to buy nor shall there
be any sale of these Securities in any state in which said offer,
631799.3
<PAGE>
- --------------------------------------------------------------------------------
solicitation or sale would be unlawful prior to the registration or
qualification under the Securities Laws of any state.
TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Class A shares Class B shares
<S> <C> <C>
Management Fees [0.40%] [0.40%]
12b-1 Fees [0.25%] [0.00%]
Other Expenses [0.__%] [0.21%]
Administration Fees [0.21%]_________ [0.21%]_________
Total Fund Operating Expenses [0.__%] [0.61%]
Example 1 year 3 years
- ------- ------ -------
</TABLE>
You would pay the following on a $1,000
investment, assuming 5% annual return
(cumulative through the end of each year):
Class A [0] [0]
Class B [0] [0]
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The purpose of the above fee table is to assist an investor in understanding the
various costs and expenses an investor in the Fund will bear directly or
indirectly. The Manager at its discretion may voluntarily waive all or a portion
of the Management Fees and the Administration Fees with respect to both Class A
and Class B shares. The Distributor at its discretion, may voluntarily waive all
or a portion of the 12b-1 Fee. The expenses shown are at the levels anticipated
for the current year. For a further discussion of these fees see "Management of
the Fund" and "Distribution and Service Plan" herein.
The figures reflected in this example should not be considered a representation
of past or future expenses. Actual expenses may be greater or lesser than those
shown above.
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631799.3
<PAGE>
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INTRODUCTION
Texas Daily Municipal Income Fund, Inc. (the "Fund") is a non-diversified,
open-end, management investment company that is a short-term, tax-exempt money
market fund whose investment objectives are to seek as high a level of current
income exempt under current law, in the opinion of bond counsel to the issuer at
the date of issuance, from Federal income tax, and, to the extent possible, from
Texas income taxes, as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal by investing
principally in short-term, high quality debt obligations of the State of Texas,
Puerto Rico and other United States territories, and their political
subdivisions as described under "Investment Objectives, Policies and Risks"
herein. The Fund also may invest in municipal securities of issuers located in
states other than Texas, the interest income on which will be, in the opinion of
bond counsel to the issuer at the date of issuance, exempt from Federal income
tax, but will be subject to Texas income taxes for Texas residents. The Fund
seeks to maintain an investment portfolio with a dollar-weighted average
maturity of 90 days or less, and to value its investment portfolio at amortized
cost and maintain a net asset value of $1.00 per share, although there can be no
assurance that this value will be maintained. The Fund intends to invest all of
its assets in tax-exempt obligations; however, it reserves the right to invest
up to 20% of its net assets in taxable obligations. This is a summary of the
Fund's fundamental investment policies which are set forth in full under
"Investment Objectives, Policies and Risks" herein and in the Statement of
Additional Information and may not be changed without approval of a majority of
the Fund's outstanding shares. Of course, no assurance can be given that these
objectives will be achieved.
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"), which is a registered investment adviser and which currently acts as
investment manager or administrator to thirteen other open-end management
investment companies. The Fund's shares are distributed through Reich & Tang
Distributors L.P. (the "Distributor"), with whom the Fund has entered into a
Distribution Agreement and a Shareholder Servicing Agreement (with respect to
the Class A shares of the Fund only) pursuant to the Fund's distribution and
service plan adopted under Rule 12b-1 under the Investment Company Act of 1940,
as amended (the 1940 "Act"). (See "Distribution and Service Plan" herein.)
On any day on which the New York Stock Exchange, Inc. and Investors Fiduciary
Trust Company, the Fund's custodian, are open for trading ("Fund Business Day"),
investors may, without charge by the Fund, purchase and redeem shares of the
Fund's common stock at their net asset value next determined after receipt of
the order. An investor's purchase order will be accepted after the payment is
converted into Federal Funds, and shares will be issued as of the Fund's next
net asset value determination which is made as of 12 noon on each Fund Business
Day. (See "How to Purchase and Redeem Shares" and "Net Asset Value" herein).
Dividends from accumulated net income are declared by the Fund on each Fund
Business Day.
The Fund generally pays interest dividends monthly. Net capital gains, if any,
will be distributed at least annually, and in no event later than 60 days after
the end of the Fund's fiscal year. All dividends and distributions of capital
gains are automatically invested in additional shares of the same Class of the
Fund unless a shareholder has elected by written
- --------------------------------------------------------------------------------
-3-
631799.3
<PAGE>
notice to the Fund to receive either of such distributions in cash. (See
"Dividends and Distributions" herein.)
The Fund intends that its investment portfolio will be concentrated in Texas
Municipal Obligations and bank participation certificates therein. A summary of
special risk factors affecting the State of Texas is set forth under "Investment
Objectives, Policies and Risks" herein and "Texas Risk Factors" in the Statement
of Additional Information. The Fund's Board of Directors is authorized to divide
the unissued shares into separate series of stock, one for each of the Fund's
separate investment portfolios that may be created in the future. Investment in
the Fund should be made with an understanding of the risks which an investment
in Texas Municipal Obligations may entail. Payment of interest and preservation
of capital are dependent upon the continuing ability of Texas issuers and/or
obligors of state, municipal and public authority debt obligations to meet their
obligations thereunder. Investors should also consider the greater risk of the
Portfolio's concentration versus the safety that comes with a less concentrated
investment portfolio.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The Fund is a non-diversified, open-end, management investment company that is a
short-term, tax-exempt money market fund whose investment objectives are to seek
as high a level of current income exempt from Federal income tax and, to the
extent possible, from Texas income taxes, as is believed to be consistent with
the preservation of capital, maintenance of liquidity and stability of
principal. There can be no assurance that the Fund will achieve its investment
objectives.
The Fund's assets will be invested primarily (i.e., at least 80%) in high
quality debt obligations issued by or on behalf of the State of Texas, other
states, territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which
is, in the opinion of bond counsel to the issuer at the date of issuance,
currently exempt from regular Federal income taxation ("Municipal Obligations")
and in participation certificates (which, in the opinion of Battle Fowler LLP,
counsel to the Fund, cause the Fund to be treated as the owner of the underlying
Municipal Obligations for Federal income tax purposes) in Municipal Obligations
purchased from banks, insurance companies or other financial institutions.
Dividends paid by the Fund which are "exempt-interest dividends" by virtue of
being properly designated by the Fund as derived from Municipal Obligations and
participation certificates in Municipal Obligations will be exempt from regular
Federal income tax provided the Fund complies with Section 852(b)(5) of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Although the Supreme Court has determined that Congress has the authority to
subject the interest on bonds such as the Municipal Obligations to regular
Federal income taxation, existing law excludes such interest from regular
Federal income tax. However, "exempt- interest dividends" may be subject to the
Federal alternative minimum tax. Securities, the interest income on which may be
subject to the Federal alternative minimum tax (including participation
certificates in such securities), may be purchased by the Fund without limit.
Securities, the interest income on which is subject to regular Federal, state
and local income
- --------------------------------------------------------------------------------
-4-
631799.3
<PAGE>
- --------------------------------------------------------------------------------
tax, will not exceed 20% of the value of the Fund's net assets. (See "Federal
Income Taxes" herein.) Exempt-interest dividends paid by the Fund correctly
identified by the Fund as derived from obligations issued by or on behalf of the
State of Texas or any Texas local governments, or their instrumentalities,
authorities or districts ("Texas Municipal Obligations") will be exempt from the
Texas Income Tax. Exempt-interest dividends correctly identified by the Fund as
derived from obligations of Puerto Rico and the Virgin Islands, as well as other
types of obligations that Texas is prohibited from taxing under the
Constitution, the laws of the United States of America or the laws of the Texas
Constitution ("Territorial Municipal Obligations") also should be exempt from
the Texas Income Tax provided the Fund complies with Texas law. (See "Texas
Income Taxes" herein.) To the extent suitable Texas Municipal Obligations are
not available for investment by the Fund, the Fund may purchase Municipal
Obligations issued by other states, their agencies and instrumentalities, the
dividends on which will be designated by the Fund as derived from interest
income which will be, in the opinion of bond counsel to the issuer at the date
of issuance, exempt from regular Federal income tax but will be subject to the
Texas Income Tax. However, only as a temporary defensive measure during periods
of adverse market conditions as determined by the Manager, will the Fund invest
less than 65% of its total assets in Texas Municipal Obligations, although the
exact amount of the Fund's assets invested in such securities will vary from
time to time. As a temporary defensive measure the Fund may invest in any
security that would otherwise be permissible for inclusion in the portfolio of
the Fund without limitation. The Fund's investments may include "when-issued"
Municipal Obligations, stand-by commitments and taxable repurchase agreements.
Although the Fund will attempt to invest 100% of its assets in Municipal
Obligations and in participation certificates in Municipal Obligations, the Fund
reserves the right to invest up to 20% of the value of its net assets in
securities the interest income on which is subject to Federal, state and local
income tax. The Fund will invest more than 25% of its assets in participation
certificates purchased from banks in industrial revenue bonds and other Texas
Municipal Obligations. The investment objectives of the Fund described in the
preceding paragraphs of this section may not be changed unless approved by the
holders of a majority of the outstanding shares of the Fund that would be
affected by such a change. As used in this Prospectus, the term "majority of the
outstanding shares" of the Fund means, respectively, the vote of the lesser of
(i) 67% or more of the shares of the Fund present at a meeting, if the holders
of more than 50% of the outstanding shares of the Fund are present or
represented by proxy or (ii) more than 50% of the outstanding shares of the
Fund.
In view of the concentration of the Fund in bank participation certificates in
Texas Municipal Obligations, which may be secured by bank letters of credit or
guarantees, an investment in the Fund should be made with an understanding of
the characteristics of the banking industry and the risks which such an
investment may entail which include extensive governmental regulations, changes
in the availability and cost of capital funds, and general economic conditions
(see "Variable Rate Demand Instruments and Participation Certificates" in the
Statement of Additional Information) which may limit both the amounts and types
of loans and other financial commitments which may be made and interest rates
and fees which may be charged. The profitability of this industry is largely
dependent upon the availability and cost of capital funds for the purpose of
financing lending operations under prevailing money market conditions. Also,
general economic conditions play an important part in the operations of this
industry and exposure to credit losses arising from possible financial
difficulties of borrowers
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-5-
631799.3
<PAGE>
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might affect a bank's ability to meet its obligations under a letter of credit.
The Fund may invest 25% or more of the net assets of the Fund in securities that
are related in such a way that an economic, business or political development or
change affecting one of the securities would also affect the other securities
including, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
The Fund may only purchase Municipal Obligations that have been determined by
the Fund's Board of Directors to present minimal credit risks and that are
Eligible Securities at the time of acquisition. The term Eligible Securities
means (i) Municipal Obligations with remaining maturities of 397 days or less
and rated in the two highest short-term rating categories by any two nationally
recognized statistical rating organizations ("NRSROs") or in such categories by
the only NRSRO that has rated the Municipal Obligations (collectively, the
"Requisite NRSROs") (acquisition in the latter situation must also be ratified
by the Board of Directors); (ii) Municipal Obligations with remaining maturities
of 397 days or less but that at the time of issuance were long-term securities
(i.e., with maturities greater than 366 days) and whose issuer has received from
the Requisite NRSROs a rating with respect to comparable short-term debt in the
two highest short-term rating categories; and (iii) unrated Municipal
Obligations determined by the Fund's Board of Directors to be of comparable
quality. Where the issuer of a long-term security with a remaining maturity
which would otherwise qualify it as an Eligible Security, does not have rated
short-term debt outstanding, the long-term security is treated as unrated but
may not be purchased if it has a long-term rating from any NRSRO that is below
the two highest long-term categories. A determination of comparability by the
Board of Directors is made on the basis of its credit evaluation of the issuer,
which may include an evaluation of a letter of credit, guarantee, insurance or
other credit facility issued in support of the Municipal Obligations or
participation certificates. (See "Variable Rate Demand Instruments and
Participation Certificates" in the Statement of Additional Information.) While
there are several organizations that currently qualify as NRSROs, two examples
of NRSROs are Standard & Poor's Rating Services a Division of The McGraw-Hill
Companies ("S&P") and Moody's Investors Service, Inc. ("Moody's"). The two
highest ratings by S&P and Moody's are "AAA" and "AA" by S&P in the case of
long-term bonds or notes and "Aaa" and "Aa" by Moody's in the case of bonds;
"SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the case of notes;
"A-1" and "A-2" by S&P and "Prime-1" and "Prime-2" by Moody's in the case of
tax-exempt commercial paper. The highest rating in the case of variable and
floating demand notes is "VMIG-1" by Moody's and "SP-1 AA" by S&P. Such
instruments may produce a lower yield than would be available from less highly
rated instruments. The Fund's Board of Directors has determined that obligations
which are backed by the credit of the Federal Government (the interest on which
is not exempt from Federal income taxation) will be considered to have a rating
equivalent to Moody's "Aaa."
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
promptly whether the security presents minimal credit risks and shall cause the
Fund to take such action as the Board of Directors determines is in the best
interest of the Fund and its shareholders. However, reassessment is not required
if the security is disposed of or matures within five business days
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631799.3
<PAGE>
- --------------------------------------------------------------------------------
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 (1) is in default, (2) ceases to be an
eligible investment under Rule 2a-7 of the 1940 Act, or (3) is determined to no
longer present minimal credit risks, the Fund will dispose of the security
absent a determination by the Fund's Board of Directors that disposal of the
security would not be in the best interests of the Fund. In the event that the
security is disposed of it shall be disposed of as soon as practicable
consistent with achieving an orderly disposition by sale, exercise of any demand
feature or otherwise. In the event of a default with respect to a security which
immediately before default accounted for 1/2 of 1% or more of the Fund's total
assets, the Fund shall promptly notify the SEC of such fact and of the actions
that the Fund intends to take in response to the situation.
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios and which may not be changed unless approved by a
majority of the outstanding shares of each series of the Fund's shares that
would be affected by such a change. The Fund is subject to further investment
restrictions that are set forth in the Statement of Additional Information. The
Fund may not:
1. Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any investments. Interest paid on borrowings will reduce
net income.
2. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
3. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may
purchase variable rate demand instruments which contain a demand feature.
The Fund will not invest in a repurchase agreement maturing in more than
seven days if any such investment together with securities that are not
readily marketable held by the Fund exceed 10% of the Fund's net assets.
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631799.3
<PAGE>
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4. Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that the Fund will invest more than 25% of its
assets in bank 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. With respect to 75% of the total amortized cost value of
the Fund's assets, not more than 5% of the Fund's assets may be invested in
securities that are subject to underlying puts from the same institution,
and no single bank shall issue its letter of credit and no single financial
institution shall issue a credit enhancement covering more than 5% of the
total assets of the Fund. However, if the puts are exercisable by the Fund
in the event of default on payment of principal and interest on the
underlying security, then the Fund may invest up to 10% of its assets in
securities underlying puts issued or guaranteed by the same institution;
additionally, a single bank can issue its letter of credit or a single
financial institution can issue a credit enhancement covering up to 10% of
the Fund's assets, where the puts offer the Fund such default protection.
5. Invest in securities of other investment companies, except the Fund may
purchase unit investment trust securities where such unit trusts meet the
Investment Objectives of the Fund and then only up to 5% of the Fund's net
assets, except as they may be acquired as part of a merger, consolidation
or acquisition of assets.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the 1940 Act with respect to investing its assets in
one or relatively few issuers. This non-diversification may present greater
risks than in the case of a diversified company. However, the Fund intends to
qualify as a "regulated investment company" under Subchapter M of the Code. The
Fund will be restricted in that at the close of each quarter of the taxable
year, at least 50% of the value of its total assets must be represented by cash,
government securities, investment company securities and other securities
limited in respect of any one issuer to not more than 5% in value of the total
assets of the Fund and to not more than 10% of the outstanding voting securities
of such issuer. In addition, at the close of each quarter of its taxable year,
not more than 25% in value of the Fund's total assets may be invested in
securities of one issuer other than Government securities. The limitations
described in this paragraph regarding qualification as a "regulated investment
company" are not fundamental policies and may be revised to the extent
applicable Federal income tax requirements are revised. (See "Federal Income
Taxes" herein.)
Because of the Fund's concentration in investments in Texas Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the financial strength of Texas and its political subdivisions. [Additional
Summary of Texas Risk Factors to follow.]
The primary purpose of investing in a portfolio of Texas Municipal Obligations
is the special tax treatment accorded Texas resident individual investors.
However, payment of interest and preservation of principal are dependent upon
the continuing ability of the Texas issuers and/or obligors of state, municipal
and public authority debt obligations to meet their obligations thereunder.
Investors should consider the greater risk of the Fund's concentration versus
the safety that comes with a less concentrated investment portfolio and should
compare yields
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631799.3
<PAGE>
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available on portfolios of Texas issues with those of more diversified
portfolios including out-of-state issues before making an investment decision.
The Fund's management believes that by maintaining the Fund's investment
portfolio in liquid, short-term, high quality investments, including the
participation certificates and other variable rate demand instruments that have
high quality credit support from banks, insurance companies or other financial
institutions, the Fund is largely insulated from the credit risks that may exist
on long-term Texas Municipal Obligations. A more complete discussion of special
risk factors affecting the State of Texas is set forth under "Texas Risk
Factors" in the Statement of Additional Information.
MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed Reich & Tang Asset Management L.P.
(the "Manager") to serve as investment manager of the Fund. The Manager provides
persons satisfactory to the Fund's Board of Directors to serve as officers of
the Fund. Such officers, as well as certain other employees and directors of the
Fund, may be directors or officers of Reich & Tang Asset Management, Inc., the
sole general partner of the Manager or employees of the Manager or its
affiliates. Due to the services performed by the Manager, the Fund currently has
no employees and its officers are not required to devote full-time to the
affairs of the Fund. The Statement of Additional Information contains general
background information regarding each director and principal officer of the
Fund.
The Manager is a Delaware limited partnership with its principal office at 600
Fifth Avenue, New York, New York 10020. The Manager was at July 31, 1997,
investment manager, adviser or supervisor with respect to assets aggregating in
excess of $10.67 billion. The Manager acts as manager or administrator of
thirteen other investment companies and also advises pension trusts, profit
sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and owner of the
remaining .5% interest of the Manager. New England Investment Companies, Inc.
("NEIC"), a Massachusetts corporation, serves as the sole general partner of
NEICLP.
On August 30, 1996, The New England Mutual Life Insurance Company ("The New
England") and Metropolitan Life Insurance Company ("MetLife") merged, with
MetLife being the continuing company. The Manager remains an indirect
wholly-owned subsidiary of NEICLP, but Reich & Tang Asset Management, Inc., its
sole general partner, is now an indirect subsidiary of MetLife. Also, MetLife
New England Holdings, Inc., a wholly-owned subsidiary of MetLife, owns
approximately 48.5% of the outstanding limited partnership interest of NEICLP
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc. owns
approximately 16% of the outstanding partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to
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individuals and groups and is the leader among United States life insurance
companies in terms of total life insurance in force, which exceeded $1.6
trillion at December 31, 1996 for MetLife and its insurance affiliates. MetLife
and its affiliates provide insurance or other financial services to
approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through thirteen subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the Manager, include
AEW Capital Management, L.P., Back Bay Advisors, L.P., Capital Growth
Management, L.P., Graystone Partners, L.P., Harris Associates, L.P., Jurika &
Voyles, L.P., Loomis, Sayles & Company, L.P., New England Funds, L.P., New
England Investment Associates, Inc., Snyder Capital Management, Inc., Vaughan,
Nelson, Scarborough & McConnell, L.P. and Westpeak Investment Advisors, L.P.
These affiliates in the aggregate are investment advisors or managers to 80
other registered investment companies.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. For its services under the Investment Management Contract, the Manager
receives from the Fund a fee equal to [.40%] per annum of the Fund's average
daily net assets (the "Management Fee") for managing the Fund's investment
portfolio and performing related services. The Manager, at its discretion, may
voluntarily waive all or a portion of the Management Fee.
Pursuant to the Administrative Services Contract for the Fund, the Manager
performs clerical, accounting supervision and office service functions for the
Fund and provides the Fund with the personnel to (i) supervise the performance
of bookkeeping and related services by Investors Fiduciary Trust Company, the
Fund's bookkeeping agent, (ii) prepare reports to and filings with regulatory
authorities and (iii) perform such other services as the Fund may from time to
time request of the Manager. The personnel rendering such services may be
employees of the Manager or its affiliates. The Manager, at its discretion, may
voluntarily waive all or a portion of the administrative services fee. For its
services under the Administrative Services Contract, the Manager receives a fee
equal to [.21%] per annum of the Fund's average daily net assets. Any portion of
the total fees received by the Manager may be used to provide shareholder
services and for distribution of Fund shares (see "Distribution and Service
Plan" herein.)
In addition, Reich & Tang Distributors L.P., 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.
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DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on , 1997. The authorized capital stock of
the Fund consists of twenty billion shares of stock having a par value of one
tenth of one cent ($.001) per share. The Fund currently has only one portfolio.
Except as noted below, each share when issued has equal dividend, distribution
and liquidation rights within the series for which it was issued, and each
fractional share has rights in proportion to the percentage it represents of a
whole share. Generally, all shares will be voted in the aggregate, except if
voting by Class is required by law or the matter involved affects only one
Class, in which case shares will be voted separately by class. Shares of all
series have identical voting rights, except where, by law, certain matters must
be approved by a majority of the shares of the affected series. There are no
conversion or preemptive rights in connection with any shares of the Fund. All
shares when issued in accordance with the terms offering will be fully paid and
non-assessable. Shares of the Fund are redeemable at net asset value, at the
option of the shareholders. On [October __, 1997], the Manager purchased
$100,000 of the Fund's shares at an initial subscription price of $1.00 per
share.
The Fund is subdivided into two classes of common stock, Class A and Class B.
Each share, regardless of class, will represent an interest in the same
portfolio of investments and will have identical voting, dividend, liquidation
and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) the
Class A and Class B shares will have different class designations; (ii) only the
Class A shares will be assessed a service fee of [.25%] of the average daily net
assets of the Class A shares of the Fund pursuant to the Rule 12b-1 Distribution
and Service Plan of the Fund; (iii) only the holders of the Class A shares would
be entitled to vote on matters pertaining to the Plan and any related agreements
in accordance with provisions of Rule 12b-1; and (iv) the exchange privilege
will permit shareholders to exchange their shares only for shares of the same
class of a Fund that participates in an exchange privilege with the Fund.
Payments that are made under the Plans will be calculated and charged daily to
the appropriate class prior to determining daily net asset value per share and
dividend/distributions.
Under its Articles of Incorporation the Fund has the right to redeem, for cash,
shares of the Fund owned by any shareholder to the extent and at such times as
the Fund's Board of Directors determines to be necessary or appropriate to
prevent any concentration of share ownership which would cause the Fund to
become a "personal holding company" for Federal income tax purposes. In this
regard, the Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. The Fund's By-laws provide the
holders of one-third of the outstanding shares of the Fund present at a meeting
in person or by proxy will constitute a quorum for the transaction of business
at all meetings.
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DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and generally pays dividends monthly. There is no fixed
dividend rate. In computing these dividends, interest earned and expenses are
accrued daily.
Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year.
All dividends and distributions of capital gains are automatically invested in
additional Fund shares of the same Class immediately upon payment thereof unless
a shareholder has elected by written notice to the Fund to receive either of
such distributions in cash.
The Class A shares will bear the service fee under the Plan. As a result, the
net income of and the dividends payable to the Class A shares will be lower than
the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.
HOW TO PURCHASE AND REDEEM SHARES
Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations in accordance with the procedures
established by the Participating Organizations. Certain Participating
Organizations are compensated by the Distributor from its shareholder servicing
fee and by the Manager from its management fee for the performance of these
services. An investor who purchases shares through a Participating Organization
that receives payment from the Manager or the Distributor will become a Class A
shareholder. See "Investments Through Participating Organizations" herein. All
other investors, and investors who have accounts with Participating
Organizations but who do not wish to invest in the Fund through their
Participating Organizations, may invest in the Fund directly as Class B
shareholders of the Fund and not receive the benefit of the servicing functions
performed by a Participating Organization. Class B shares may also be offered to
investors who purchase their shares through Participating Organizations who do
not receive compensation from the Distributor or the Manager because they may
not be legally permitted to receive such as fiduciaries. The Manager pays the
expenses incurred in the distribution of Class B shares. Participating
Organizations whose clients become Class B shareholders will not receive
compensation from the Manager or Distributor for the servicing they may provide
to their clients. (See "Direct Purchase and Redemption Procedures" herein.) The
minimum initial investment in the Fund by Participating Organizations is $1,000,
which may be satisfied by initial investments aggregating $1,000 by a
Participating Organization on behalf of customers whose initial investments are
less than $1,000. The minimum initial investment for securities brokers,
financial institutions and other industry professionals that are not
Participating Organizations is $1,000. The minimum initial investment for all
other investors is $5,000. Initial investments may be made in any amount in
excess of the applicable
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minimums. The minimum amount for subsequent investments is $100 unless the
investor is a client of a Participating Organization whose clients have made
aggregate subsequent investments of $100.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from Participating Organizations
and from investors directly.
In order to maximize earnings on its portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in funds of Federal Reserve member banks on deposit
at a Federal Reserve Bank (commonly known as "Federal Funds"). Accordingly, the
Fund does not accept a subscription or invest an investor's payment in portfolio
securities until the payment has been converted into Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share for each Class made after acceptance of the investor's order at
the net asset value next determined after receipt of the order. Shares begin
accruing income dividends on the day they are purchased. The Fund reserves the
right to reject any, purchase order for its shares. Certificates for Fund shares
will not be issued to an investor.
Shares are issued as of 12 noon, New York City time, on any Fund Business Day,
as defined herein, on which an order for the shares and accompanying Federal
Funds are received by the Fund's transfer agent before 12 noon. Orders
accompanied by Federal Funds and received after 12 noon, New York City time, on
a Fund Business Day will not result in share issuance until the following Fund
Business Day. Fund shares begin accruing income on the day the shares are issued
to an investor.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholder's address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted, or for any period during
which an emergency (as determined by the SEC) exists as a result of which
disposal by the Fund of its portfolio securities is not reasonably practicable
or as a result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or for such other period as the SEC may
by order permit for the protection of the shareholders of the Fund.
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Redemption requests received by the Fund's transfer agent before 12 noon, New
York City time, on any Fund Business Day become effective at 12 noon that day.
Shares redeemed are not entitled to participate in dividends declared on the day
a redemption becomes effective. A redemption request received after 12 noon, New
York City time, on any Fund Business Day becomes effective on the next Fund
Business Day.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization, and the Participating
Organization will be responsible for notifying the Participant Investor of the
proposed mandatory redemption. During the notice period a shareholder or
Participating Organization who receives such a notice may avoid mandatory
redemption by purchasing sufficient additional shares to increase his total net
asset value to the minimum amount and thereby avoid such mandatory redemption.
The redemption of shares may result in the investor's receipt of more or less
than he or she paid for his or her shares and, thus, in a taxable gain or loss
to the investor.
Investments Through Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Manager with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such confirmations and statements will receive them from the Fund
directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly
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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.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Manager for providing such services. However, this is an unsettled area of the
law and if a determination contrary to the Fund management's position is made by
a bank regulatory agency or court concerning shareholder servicing and
administration payments to banks from the Manager, any such payments will be
terminated and any shares registered in the banks' names, for their underlying
customers, will be reregistered in the name of the customers at no cost to the
Fund or its shareholders. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day provided that the Federal Funds required in connection with the orders
are received by the Fund's transfer agent before 4:00 p.m., New York City time,
on that day. Orders for which Federal Funds are received after 4:00 p.m., New
York City time, will not result in share issuance until the following Fund
Business Day. Participating Organizations are responsible for instituting
procedures to insure that purchase orders by their respective clients are
processed expeditiously.
Direct Purchase and Redemption Procedures
The following purchase and redemption procedures apply to investors who wish to
invest in the Fund directly and not through Participating Organizations. These
investors may obtain a current prospectus and the subscription order form
necessary to open an account by telephoning the Fund at the following numbers:
Within New York State 212-830-5220
Outside New York State (toll free) 800-221-3079
All shareholders, other than certain Participant Investors, will receive from
the Fund individual confirmations of each purchase and redemption of Fund shares
(other than draft check redemptions) and a monthly statement listing the total
number of Fund shares owned as of the statement closing date, purchase and
redemptions of Fund shares during the month covered by the statement and the
dividends paid on Fund shares of each shareholder during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Certificates for Fund shares will not be issued to an investor.
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Initial Purchases of Shares
Mail
Investors may send a check made payable to "Texas Daily Municipal Income Fund,
Inc." along with a completed subscription order form to:
Texas Daily Municipal Income Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
can normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a nonmember bank may take substantially
longer to convert into Federal Funds. An investor's subscription will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number by telephoning
the Fund at 212-830-5220 (within New York State) or at 800-221-3079 (outside New
York State) and then instruct a member commercial bank to wire money immediately
to:
Investors Fiduciary Trust Company
ABA #
DDA #
For Texas Daily Municipal Income Fund, Inc.
Account of (Investor's Name)
------------------------------
Fund Account #
---------------------------------------------
SS#/Tax ID#
-------------------------------------------------
The investor should then promptly complete and mail the subscription order form.
Investor's planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon, New York City time, on the
same day. There may be a charge by the investors bank for transmitting the money
by bank wire, and there also may be a charge for use of Federal Funds. The Fund
does not charge investors in the Fund for its receipt of wire transfers. Payment
in the form of a "bank wire" received prior to 12 noon, New York City time, on a
Fund Business Day will be treated as a Federal Funds payment received on that
day.
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Subsequent Purchases of Shares
Subsequent purchases can be made by personal delivery or by bank wire, as
indicated above or by mailing a check to:
Texas Daily Municipal Income Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number.
Provided that the information on the subscription form on file with the Fund is
still applicable, a shareholder may reopen an account without filing a new
subscription order form at any time during the year the shareholder's account is
closed or during the following calendar year.
Redemption of Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
Class following receipt by the Fund's transfer agent of the redemption order
(and any supporting documentation which it may require). Normally, payment for
redeemed shares is made on the same Fund Business Day after the redemption is
effected, provided the redemption request is received prior to 12 noon, New York
City time. However, redemption payments will not be effected unless the check
(including a certified or cashier's check) used for investment has been cleared
for payment by the investor's bank, currently considered by the Fund to occur up
to 15 days after investment.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and signed and guaranteed by an eligible
guarantor institution which includes a domestic bank, a domestic savings and
loan institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund addressed to:
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Texas Daily Municipal Income Fund, Inc.
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 the signature guaranteed. Normally the redemption
proceeds are paid by check and mailed to the shareholder of record.
Checks
By making the appropriate election on their subscription form, shareholders may
request a supply of checks which may be used to effect redemptions from the
Class of shares of the Fund in which they invest. The checks, which will be
issued in the shareholder's name, are drawn on a special account maintained by
the Fund with the Fund's agent bank. Checks may be drawn in any amount of $250
or more. When a check is presented to the Fund's agent bank, it instructs the
Fund's transfer agent to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. The use of
a check to make a withdrawal enables a shareholder in the Fund to receive
dividends on the shares to be redeemed up to the Fund Business Day on which the
check clears. Checks provided by the Fund may not be certified. Fund shares
purchased by check may not be redeemed by check, until the check has cleared,
which can take up to 15 days following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank. Checks drawn on a jointly owned
account may, at the shareholder's election, require only one signature. Checks
in amounts exceeding the value of the shareholder's account at the time the
check is presented for payment will not be honored. Since the dollar value of
the account changes daily, the total value of the account may not be determined
in advance and the account may not be entirely redeemed by check. In addition,
the Fund reserves the right to charge the shareholder's account a fee up to $20
for checks not honored as a result of an insufficient account value, a check
deemed not negotiable because it has been held longer than six months, an
unsigned check, a post-dated check and a check written for an amount below the
Fund minimum of $250. The Fund reserves the right to terminate or modify the
check redemption procedure at any time or to impose additional fees.
Investors wishing to avail themselves of this method of redemption should elect
it on their subscription order form. Individuals and joint tenants are not
required to furnish any supporting documentation. Corporations and other
entities making this election, however, are
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required to furnish a certified resolution or other evidence of authorization in
accordance with the Fund's normal practices. Appropriate authorization forms
will be sent by the Fund or its agents to corporations and other shareholders
who select this option. As soon as the authorization forms are filed in good
order with the Fund's agent bank, it will provide the shareholder with a supply
of checks. This checking service may be terminated or modified at any time.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option on their subscription order form. The proceeds of a telephone
redemption may be sent to the shareholders at their addresses or, if in excess
of $1,000, to their bank accounts, both as set forth in the subscription order
form or in a subsequent written authorization. The Fund may accept telephone
redemption instructions from any person with respect to accounts of shareholders
who elect this service and thus such shareholders risk possible loss of
principal and interest in the event of a telephone redemption not authorized by
them. The Fund will employ reasonable procedures to confirm that telephone
redemption instructions are genuine, and will require that shareholders electing
such option provide a form of personal identification. The failure by the Fund
to employ such reasonable procedures may cause the Fund to be liable for the
losses incurred by investors due to telephone redemptions based upon
unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220, outside New York State at 800-221-3079, and state: (i) the name of
the shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time and on the next Fund Business Day if the redemption
request is received after 12 noon, New York City time. The Fund reserves the
right to terminate or modify the telephone redemption service in whole or in
part at any time and will notify shareholders accordingly.
Exchange Privilege
Shareholders of the Fund are entitled to exchange some or all of a Class of
shares in the Fund for shares of the same Class of certain other investment
companies which retain Reich & Tang Asset Management L.P. as investment adviser
and which participate in the exchange privilege program with the Fund. If only
one Class of shares is available in a particular exchange fund, the shareholder
of the Fund is entitled to exchange their shares for the shares available in
that exchange fund. [ Currently the exchange privilege program has been
established between the Fund and California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Florida Daily Municipal Income Fund, Michigan Daily Tax Free Income Fund, Inc.,
New Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income
Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
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Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc. and
Short Term Income Fund, Inc.] In the future, the exchange privilege program may
be extended to other investment companies which retain Reich & Tang Asset
Management L.P. as investment adviser, manager or administrator. An exchange of
shares in the Fund pursuant to the exchange privilege is, in effect, a
redemption of Fund shares (at net asset value) followed by the purchase of
shares of the investment company into which the exchange is made (at net asset
value) and may result in a shareholder realizing a taxable gain or loss for
Federal income tax purposes.
There is no charge for the exchange privilege or limitation as to frequency of
exchange. The minimum amount for an exchange is $1,000, except that shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Each Class of shares is exchanged at its
respective net asset value.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares may be exchanged only between the
same Class of shares of investment company accounts registered in identical
names. Before making an exchange, the investor should review the current
prospectus of the investment company into which the exchange is to be made.
Prospectuses may be obtained by contacting the Distributor at the address or
telephone number set forth on the cover page of this Prospectus.
Instructions for exchanges may be made by sending a signature guaranteed written
request to:
Texas Daily Municipal Income Fund, Inc.
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 800-221-5079 (outside New York). The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time upon written notification to the shareholder.
Specified Amount Automatic Withdrawal Plan
Shareholders may elect to withdraw shares and receive payment from the Fund of a
specified amount of $50 or more automatically on a monthly basis in an amount
approved and confirmed by the Manager. A specified amount plan payment is made
by the Fund on the 23rd day of each month. Whenever such 23rd day of a month is
not a Fund Business Day, the payment date is the Fund Business Day preceding the
23rd day of the month. In order to
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631799.3
<PAGE>
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make a payment, a number of shares equal in aggregate net asset value to the
payment amount are redeemed at their net asset value on the Fund Business Day
immediately preceding the date of payment. To the extent that the redemptions to
make plan payments exceed the number of shares purchased through reinvestment of
dividends and distributions, the redemptions reduce the number of shares
purchased on original investment, and may ultimately liquidate a shareholder's
investment.
The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by the
participant. Because the withdrawal plan involves the redemption of Fund shares,
such withdrawals may constitute taxable events to the shareholder but the Fund
does not expect that there will be any realized capital gains.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the SEC has required that an
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Fund's Board of Directors has adopted a Distribution and Service Plan (the
"Plan") and, pursuant to the Plan, the Fund and Reich & Tang Distributors L.P.
(the "Distributor") have entered into a Distribution Agreement and a Shareholder
Servicing Agreement (with respect to the Class A shares of the Fund only).
Reich & Tang Asset Management, Inc. serves as the sole general partner for both
Reich & Tang Distributors L.P. and Reich & Tang Asset Management L.P. and serves
as the sole limited partner of the Distributor.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any orders will not be binding on the Fund until accepted
by the Fund as principal.
Under the Shareholder Servicing Agreement, the Distributor receives, with
respect only to the Class A shares a service fee equal to [.25%] per annum of
the Class A shares' average daily net assets (the "Shareholder Servicing Fee")
for providing personal shareholder services and for the maintenance of
shareholder accounts. The fee is accrued daily and paid monthly and any portion
of the fee may be deemed to be used by the Distributor for payments to
Participating Organizations with respect to their provision of such services to
their clients or customers who are shareholders of the Class A shares of the
Fund. The Class B shareholders will not receive the benefit of such services
from Participating Organizations and, therefore, will not be assessed a
Shareholder Servicing Fee.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Distributor and Participating Organizations in carrying out their
obligations under the Shareholder Servicing Agreement with respect to Class A
shares and (ii) preparing, printing and delivering the Fund's prospectus to
existing
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631799.3
<PAGE>
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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 on behalf of the Class
A shares of the Fund; (ii) to compensate certain Participating Organizations for
providing assistance in distributing the Class A shares of the Fund; and (iii)
to pay the costs of printing and distributing the Fund's prospectus to
prospective investors, and to defray the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries and/or
commissions of sales personnel in connection with the distribution of the Fund's
shares. The Distributor may also make payments from time to time from its own
resources, which may include the Shareholder Servicing Fee with respect to Class
A shares) and past profits, for the purposes enumerated in (i) above. [The
Manager and Distributor may make payments to Participating Organizations for
providing certain of such services up to a maximum of (on an annualized basis)
.40% of the average daily net asset value of the Class A shares serviced through
the Participating Organizations.] The Distributor will determine the amount of
such payments made pursuant to the Plan, provided that such payments will not
increase the amount which the Fund is required to pay to the Manager and
Distributor for any fiscal year under either the Investment Management Contract,
the Shareholder Servicing Agreement or the Administrative Services Contract in
effect for that year.
FEDERAL INCOME TAXES
The Fund intends to elect to qualify under the Code as a regulated investment
company that distributes "exempt-interest dividends" as defined in the Code. The
Fund's policy is to distribute as dividends each year 100% (and in no event less
than 90%) of its tax-exempt interest income, net of certain deductions, and its
investment company taxable income (if any). If distributions are made in this
manner, dividends derived from the interest earned on Municipal Obligations are
"exempt-interest dividends" and are not subject to regular Federal income tax,
although as described below, such "exempt-interest dividends" may be subject to
Federal alternative minimum tax. Dividends paid from taxable income, if any, and
distributions of any realized short-term capital gains (whether from tax-exempt
or taxable obligations) are taxable to shareholders as ordinary income for
Federal income tax purposes, whether received in cash or reinvested in
additional shares of the Fund. The Fund does not expect to realize long-term
capital gains, and thus does not contemplate distributing "capital gain
dividends" or having undistributed capital gain income within the meaning of the
Code. The Fund will inform shareholders of the amount and nature of its income
and gains in a written notice mailed to shareholders not later than 60 days
after the close of the Fund's taxable year. For Social Security recipients,
interest on tax-exempt bonds, including tax-exempt interest dividends paid by
the Fund, is to be added to adjusted gross income for purposes of computing the
amount of Social Security benefits includible in gross income. Interest on
certain "private activity bonds" (generally, a bond issue in which more than 10%
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631799.3
<PAGE>
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of the proceeds are used for a non-governmental trade or business and which
meets the private security or payment test, or a bond issue which meets the
private loan financing test) issued after August 7, 1986 will constitute an item
of tax preference subject to the alternative minimum tax. Further, corporations
will be required to include in alternative minimum taxable income 75% of the
amount by which its adjusted current earnings (including generally, tax-exempt
interest) exceeds its alternative minimum taxable income (determined without
this tax item). In addition, in certain cases Subchapter S corporations with
accumulated earnings and profits from Subchapter C years will be subject to a
tax on "passive investment income", including tax-exempt interest. Although the
Fund intends to maintain a $1.00 per share net asset value, a shareholder may
realize taxable gain or loss upon the disposition of shares.
With respect to variable rate demand instruments, including participation
certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner thereof and that the interest on the underlying Municipal Obligations
will be exempt from regular Federal income taxes to the Fund. Counsel has
pointed out that the Internal Revenue Service has announced that it will not
ordinarily issue advance rulings on the question of the ownership of securities
or participation interests therein subject to a put and could reach a conclusion
different from that reached by counsel. (See "Federal Income Taxes" in the
Statement of Additional Information.)
TEXAS INCOME TAXES
[TO BE ADDED]
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on ___________
__, 1997 and it is registered with the SEC as a non-diversified, open-end,
management investment company.
The Fund prepares semi-annual unaudited and annual audited reports which include
a list of investment securities held by the Fund and which are sent to
shareholders.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of revised
investment advisory contracts with respect to a particular class or series of
stock, (c) for approval of revisions to the Fund's distribution agreement with
respect to a particular class or series of stock, and (d) upon the written
request of shareholders of shares entitled to cast not less than 25% of all the
votes entitled to be cast at such meeting. Annual and other meetings may be
required with respect to such additional matters relating to the Fund as may be
required by the Act including the removal of Fund director(s) and communication
among shareholders, any registration of the Fund with the SEC or any state, or
as the Directors may consider necessary or desirable. Each Director serves until
the next meeting of the shareholders called for the purpose of considering the
election or reelection of such Director or of a successor to such Director, and
until the
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631799.3
<PAGE>
- --------------------------------------------------------------------------------
election and qualification of his or her successor, elected at such a meeting,
or until such Director sooner dies, resigns, retires or is removed by the vote
of the shareholders.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's Registration Statement filed with the SEC,
including the exhibits thereto. The Registration Statement and the exhibits
thereto may be examined at the Commission and copies thereof may be obtained
upon payment of certain duplicating fees.
NET ASSET VALUE
The net asset value of each Class of the Fund's shares is determined as of 12
noon, New York City time, on each Fund Business Day. With regard to the
determination of net asset value only, Fund Business Day means weekdays (Monday
through Friday) except customary business holidays and Good Friday. The net
asset value of a Class is computed by dividing the value of the Fund's net
assets for such Class (i.e., the value of its securities and other assets less
its liabilities, including expenses payable or accrued but excluding capital
stock and surplus) by the total number of shares outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument is higher or lower
than the price an investment company would receive if the instrument were sold.
The Fund intends to maintain a stable net asset value at $1.00 per share
although there can be no assurance that this will be achieved.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105 is custodian for the Fund's cash and securities. Reich & Tang Services
L.P., 600 Fifth Avenue, New York, New York 10020 is transfer agent and dividend
agent for the shares of the Fund. The Fund's custodian and transfer agent do not
assist in, and are not responsible for, investment decisions involving assets of
the Fund.
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631799.3
<PAGE>
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TABLE OF CONTENTS TEXAS
DAILY
MUNICIPAL
TABLE OF FEES AND EXPENSES................................ INCOME
FUND, INC.
INTRODUCTION..............................................
INVESTMENT OBJECTIVES, POLICIES PROSPECTUS
AND RISKS............................................. October ___ , 1997
MANAGEMENT OF THE FUND....................................
DESCRIPTION OF COMMON STOCK...............................
DIVIDENDS AND DISTRIBUTIONS...............................
HOW TO PURCHASE AND REDEEM
SHARES................................................
Investments Through Participating
Organizations.......................................
Direct Purchase and Redemption Procedures.............
Initial Purchases of Shares...........................
Mail..................................................
Bank Wire.............................................
Subsequent Purchases of Shares........................
Redemption of Shares..................................
Written Requests......................................
Checks................................................
Telephone.............................................
Exchange Privilege....................................
Specified Amount Automatic Withdrawal
Plan................................................
DISTRIBUTION AND SERVICE PLAN.............................
FEDERAL INCOME TAXES......................................
TEXAS INCOME TAXES........................................
GENERAL INFORMATION.......................................
NET ASSET VALUE...........................................
CUSTODIAN AND TRANSFER AGENT..............................
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631799.3
<PAGE>
- --------------------------------------------------------------------------------
TEXAS
DAILY MUNICIPAL
INCOME FUND, INC. 600 Fifth Avenue, New York, NY 10020
(212) 830-5200
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER __, 1997
This Statement of Additional Information, although not in itself a Prospectus,
expands upon and supplements the information contained in the current Prospectus
of Texas Daily Municipal Income Fund, Inc. (the "Fund"), dated October __, 1997
and should be read in conjunction with the Prospectus. The Fund's Prospectus may
be obtained from any Participating Organization or by writing or calling the
Fund. This Statement of Additional Information is incorporated by reference into
the Prospectus in its entirety.
Table of Contents
<TABLE>
<S> <C>
Investment Objectives, Policies and Risks................. Manager.................................................
Description of Municipal Obligations....................... Expense Limitation...................................
Variable Rate Demand Instruments Management of the Fund..................................
and Participation Certificates....................... Compensation Table...................................
When-Issued Securities.................................. Counsel and Auditors.................................
Stand-by Commitments.................................... Distribution and Service Plan...........................
Taxable Securities......................................... Description of Common Stock.............................
Repurchase Agreements................................... Federal Income Taxes....................................
Texas Risk Factors......................................... Texas Income Taxes......................................
Investment Restrictions.................................... Custodian and Transfer Agent............................
Portfolio Transactions..................................... Description of Ratings..................................
How to Purchase and Redeem Shares.......................... Tax Equivalent Yield Tables.............................
Net Asset Value............................................ Independent Auditor's Report............................
Yield Quotations........................................... Financial Statements....................................
</TABLE>
631807.3
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
As stated in the Prospectus, the Fund is a non-diversified, 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, Texas income taxes
(the "Texas Income Tax"), as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal. No assurance can
be given that these objectives will be achieved. The following discussion
expands upon the description of the Fund's investment objectives and policies in
the Prospectus.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of Texas, other states, territories and
possessions of the United States and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which is, in the
opinion of bond counsel to the issuer at the date of issuance, currently exempt
from regular Federal income taxation ("Municipal Obligations") and in
participation certificates (which, in the opinion of Baffle Fowler LLP, counsel
to the Fund, causes the Fund to be treated as the owner of the underlying
Municipal Obligations for Federal income tax purposes) in Municipal Obligations
purchased from banks, insurance companies or other financial institutions.
Dividends paid by the Fund which are "exempt-interest dividends" by virtue of
being properly designated by the Fund as derived from Municipal Obligations and
participation certificates in Municipal Obligations will be exempt from Federal
income tax provided the Fund complies with Section 852(b)(5) of Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). Although the Supreme
Court has determined that Congress has the authority to subject the interest on
bonds such as the Municipal Obligations to regular Federal income taxation,
existing law excludes such interest from regular Federal income tax. However,
"exempt-interest dividends" may be subject to the Federal alternative minimum
tax. Securities, the interest income on which may be subject to the Federal
alternative minimum tax (including participation certificates in such
securities), may be purchased by the Fund without limit. Securities, the
interest income on which is subject to regular Federal, state and local income
tax, will not exceed 20% of the value of the Fund's net assets. ("See "Federal
Income Taxes" herein.) Exempt-interest dividends paid by the Fund that are
correctly identified by the Fund as derived from obligations issued by or on
behalf of the State of Texas or any Texas local governments, or their
instrumentalities, authorities or districts ("Texas Municipal Obligations") will
be exempt from the Texas Income Tax. Exempt-interest dividends correctly
identified by the Fund as derived from obligations of Puerto Rico and the Virgin
Islands, as well as any other types of obligations that Texas is prohibited from
taxing under the Constitution, the laws of the United States of America or the
Texas Constitution ("Territorial Municipal Obligations"), also should be exempt
from Texas Income Tax provided the Fund complies with Texas laws. (See "Texas
Income Taxes" herein.) To the extent that suitable Texas Municipal Obligations
are not available for investment by the Fund, the Fund may purchase Municipal
Obligations issued by other states, their agencies and instrumentalities, the
dividends on which will be designated by the Fund as derived from interest
income which will be, in the opinion of bond counsel to the issuer at the date
of issuance, exempt from regular Federal income tax but will be subject to the
Texas
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631807.3
<PAGE>
Income Tax. Except as a temporary defensive measure during periods of adverse
market conditions as determined by the Manager, the Fund will invest at least
65% of its assets in Texas Municipal Obligations, although the exact amount of
the Fund's assets invested in such securities will vary from time to time. The
Fund seeks to maintain an investment portfolio with a dollar-weighted average
maturity of 90 days or less and to value its investment portfolio at amortized
cost and maintain a net asset value at a $1.00 per share of each Class. There
can be no assurance that this value will be maintained.
The Fund may hold uninvested cash reserves pending investment. The Fund's
investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements. Although the Fund will attempt to
invest 100% of its assets in Municipal Obligations and in participation
certificates in Municipal Obligations, the Fund reserves the right to invest up
to 20% of the value of its net assets in securities, the interest income on
which is subject to regular Federal, state and local income tax. The Fund will
invest more than 25% of its assets in participation certificates purchased from
banks in industrial revenue bonds and other Texas Municipal Obligations. In view
of this concentration in bank participation certificates in Texas 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 Municipal Obligations that have been determined by
the Fund's Board of Directors to present minimal credit risks and that are
Eligible Securities at the time of acquisition. The term Eligible Securities
means (i) Municipal Obligations with remaining maturities of 397 days or less
and rated in the two highest short-term rating categories by any two nationally
recognized statistical rating organizations ("NRSROs") or in such categories by
the only NRSRO that has rated the Municipal Obligations (collectively, the
"Requisite NRSRO") (acquisition in the latter situation must also be ratified by
the Board of Directors); (ii) Municipal Obligations with remaining maturities of
397 days or less but that at the time of issuance were long-term securities
(i.e., with maturities greater than 366 days) and whose issuer has received from
the Requisite NRSROs a rating with respect to comparable short-term debt in the
two highest short-term rating categories and (iii) unrated Municipal Obligations
determined by the Fund's Board of Directors to be of comparable quality. Where
the issuer of a long-term security with a remaining maturity which would
otherwise qualify it as an Eligible Security does not have rated short-term debt
outstanding, the long-term security is treated as unrated but may not be
purchased if it has a long-term rating from any NRSRO that is below the two
highest long-term 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
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631807.3
<PAGE>
letter of credit, guarantee, insurance or other credit facility issued in
support of the Municipal Obligations or participation certificates. (See
"Variable Rate Demand Instruments and Participation Certificates" herein). While
there are several organizations that currently qualify as NRSROs, two examples
of NRSROs are Standard & Poor's Rating Services a Division of The McGraw-Hill
Companies ("S&P") and Moody's Investors Service, Inc. ("Moody's"). The two
highest ratings by S&P and Moody's are "AAA" and "AA" by S&P in the case of
long-term bonds or notes and "Aaa" and "Aa" by Moody's in the case of bonds;
"SP-l" or "SP-2" by S&P or"MIG-l" and "MIG-2" by Moody's in the case of notes;
"A-l" and "A-2" by S&P and "Prime-l" 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-l" by Moody's and "SP-l AA" by S&P. Such
instruments may produce a lower yield than would be available from less highly
rated instruments. The Fund's Board of Directors has determined that Municipal
Obligations which are backed by the credit of the Federal Government (the
interest on which is not exempt from Federal income taxation) will be considered
to have a rating equivalent to Moody's "Aaa". (See "Description of Ratings"
herein.)
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.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the Investment Company Act of 1940 (the "1940 Act")
with respect to investing its assets in one or relatively few issuers. This
non-diversification may present greater risks than in the case of a diversified
company. However, the Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. The Fund will be
restricted in that at the close of each quarter of the taxable year, at least
50% of the value of its total assets must be represented by cash, government
securities, investment company securities and other securities limited in
respect of any one issuer to not more than 5% in value of the total assets of
the Fund and to not more than 10% of the outstanding voting securities of such
issuer. In addition, at the close of each quarter of its taxable year, not more
than 25% in value of the Fund's total assets may be invested in securities of
one issuer other than Government securities. The limitations described in this
paragraph regarding qualification as a "regulated investment company" are not
fundamental policies and may be revised to the extent applicable Federal income
tax requirements are revised. (See "Federal Income Taxes" herein.)
DESCRIPTION OF MUNICIPAL OBLIGATIONS
As used herein, "Municipal Obligations" include the following as well as
"Variable Rate Demand Instruments and Participation Certificates".
-4-
631807.3
<PAGE>
1. Municipal Bonds with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition.
Municipal Bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally referred
to as "municipalities") which generally have a maturity at the time of
issue of one year or more and which are issued to raise funds for various
public purposes such as construction of a wide range of public facilities,
to refund outstanding obligations and to obtain funds for institutions and
facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities, towns and other governmental units. The principal of, and
interest on, revenue bonds are payable from the income of specific projects
or authorities and generally are not supported by the issuer's general
power to levy taxes. In some cases, revenues derived from specific taxes
are pledged to support payments on a revenue bond.
In addition, certain kinds of "private activity bonds" are issued by public
authorities to provide funding for various privately operated industrial
facilities (hereinafter referred to as "industrial revenue bonds" or
"IRBs"). Interest on the IRBs is generally exempt, with certain exceptions,
from regular Federal income tax pursuant to Section 103(a) of the Code,
provided the issuer and corporate obligor thereof continue to meet certain
conditions. (See "Federal Income Taxes" herein.) IRBs are, in most cases,
revenue bonds and do not generally constitute the pledge of the credit of
the issuer of such bonds. The payment of the principal and interest on IRBs
usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations
and, in certain instances, the pledge of real and personal property as
security for payment. If there is no established secondary market for the
IRBs, the IRBs or the participation certificates in IRBs purchased by the
Fund will be supported by letters of credit, guarantees or insurance that
meet the definition of Eligible Securities at the time of acquisition and
provide the demand feature which may be exercised by the Fund at any time
to provide liquidity. Shareholders should note that the Fund may invest in
IRBs acquired in transactions involving a Participating Organization. In
accordance with Investment Restriction 6 herein, the Fund is permitted to
invest up to 10% of the portfolio in high quality, short-term Municipal
Obligations (including IRBs) meeting the definition of Eligible Securities
at the time of acquisition that may not be readily marketable or have a
liquidity feature.
2. Municipal Notes with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. The principal kinds of
Municipal Notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes and project notes. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality
-5-
631807.3
<PAGE>
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 Texas
issuers.
3. Municipal Commercial Paper that is an Eligible Security at the time of
acquisition. Issues of Municipal Commercial Paper typically represent very
short-term, unsecured, negotiable promissory notes. These obligations are
often issued to meet seasonal working capital needs of municipalities or to
provide interim construction financing and are paid from general revenues
of municipalities or are refinanced with long-term debt. In most cases
Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the
event of default by the issuer of the commercial paper.
4. Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications
equipment and other capital assets. Municipal Leases frequently have
special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance
limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has
no obligation to make future payments under the lease or contract unless
money is appropriated for such purpose by the appropriate legislative body
on a yearly or other periodic basis. To reduce this risk, the Fund will
only purchase Municipal Leases subject to a non-appropriation clause where
the payment of principal and accrued interest is backed by an unconditional
irrevocable letter of credit, a guarantee, insurance or other comparable
undertaking of an approved financial institution. These types of Municipal
Leases may be considered illiquid and subject to the 10% limitation of
investments in illiquid securities set forth under "Investment
Restrictions" contained herein. The Board of Directors may adopt guidelines
and delegate to the Manager the daily function of determining and
monitoring the liquidity of Municipal Leases. In making such determination,
the Board and the Manager may consider such factors as the frequency of
trades for the obligation, the number of dealers willing to purchase or
sell the obligations and the number of other potential buyers and the
nature of the marketplace for the obligations, including the time needed to
dispose of the obligations and the method of soliciting offers. If the
Board determines that any Municipal Leases are illiquid, such lease will be
subject to the 10% limitation on investments in illiquid securities. The
Fund has no intention to invest in Municipal Leases in the foreseeable
future
-6-
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<PAGE>
and will amend this Statement of Additional Information in the event that
such an intention should develop in the future.
5. Any other Federal tax-exempt, and to the extent possible, Texas Income
tax-exempt obligations issued by or on behalf of states and municipal
governments and their authorities, agencies, instrumentalities and
political subdivisions, whose inclusion in the Fund would be consistent
with the Fund's "Investment Objectives, Policies and Risks" and permissible
under Rule 2a-7 under the 1940 Act.
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 reassess
promptly whether the Municipal Obligation presents minimal credit risks and
shall cause the Fund to take such action as the Board of Directors determines 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 (1) is in default, (2)
ceases to be an Eligible Security or (3) there is a determination that it no
longer presents minimal credit risks, the Fund will dispose of the Municipal
Obligation absent a determination by the Fund's Board of Directors that disposal
of the Municipal Obligation would not be in the best interests of the Fund. In
the event that the Municipal Obligation is disposed of it shall be disposed of
as soon as practicable consistent with achieving an orderly disposition by sale,
exercise of any demand feature or otherwise. In the event of a default with
respect to a Municipal Obligation which immediately before default accounted for
1/2 of 1% or more of the Fund's total assets, the Fund shall promptly notify the
Securities and Exchange Commission of such fact and of the actions that the Fund
intends to take in response to the situation. Certain obligations issued by
instrumentalities of the United States Government are not backed by the full
faith and credit of the United States Treasury but only by the creditworthiness
of the instrumentality. The Fund's Board of Directors has determined that any
obligation that depends directly, or indirectly through a government insurance
program or other guarantee, on the full faith and credit of the United States
Government will be considered to have a rating in the highest category. Where
necessary to ensure that the Municipal Obligations are Eligible Securities or
where the obligations are not freely transferable, the Fund will require that
the obligation to pay the principal and accrued interest be backed by an
unconditional irrevocable bank letter of credit, a guarantee, insurance or other
comparable undertaking of an approved financial institution that would qualify
the investment as an Eligible Security.
Variable Rate Demand Instruments
and Participation Certificates
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations that provide for a periodic adjustment in the interest
rate paid on the
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<PAGE>
instrument and permit the holder to demand payment of the unpaid principal
balance plus accrued interest at specified intervals upon a specified number of
days notice either from the issuer or by drawing on a bank letter of credit, a
guarantee or insurance issued with respect to such instrument.
The variable rate demand instruments in which the Fund may invest are payable on
demand on not more than thirty calendar days' notice and may be exercised at any
time or at specified intervals not exceeding 397 days depending upon the terms
of the instrument. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to 397 days and the adjustments
are based upon the "prime rate"* of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The Fund will decide
which variable rate demand instruments it will purchase in accordance with
procedures prescribed by its Board of Directors to minimize credit risks. A fund
utilizing the amortized cost method of valuation under Rule 2a-7 of the 1940 Act
may only 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
- ------------------
* 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.
-8-
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<PAGE>
bank issuing a confirming letter of credit to that of the issuing bank, or a
bank serving as agent of the issuing bank with respect to the possible
repurchase of the certificate of participation) or insurance policy of an
insurance company that the Board of Directors of the Fund has determined meets
the prescribed quality standards for the Fund. The Fund has the right to sell
the participation certificate back to the institution and, where applicable,
draw on the letter of credit or insurance after no more than 30 days notice
either at any time or at specified intervals not exceeding 397 days (depending
on the terms of the participation), for all or any part of the full principal
amount of the Fund's participation interest in the security plus accrued
interest. The Fund intends to exercise the demand only (1) upon a default under
the terms of the bond documents, (2) as needed to provide liquidity to the Fund
in order to make redemptions of Fund shares or (3) to maintain a high quality
investment portfolio. The institutions issuing the participation certificates
will retain a service and letter of credit fee (where applicable) and a fee for
providing the demand repurchase feature, in an amount equal to the excess of the
interest paid on the instruments over the negotiated yield at which the
participations were purchased by the Fund. The total fees generally range from
5% to 15% of the applicable prime rate or other interest rate index. With
respect to insurance, the Fund will attempt to have the issuer of the
participation certificate bear the cost of the insurance, although the Fund
retains the option to purchase insurance if necessary, in which case the cost of
insurance will be an expense of the Fund subject to the expense limitation (see
"Expense Limitation" herein). The Manager has been instructed by the Fund's
Board of Directors to continually monitor the pricing, quality and liquidity of
the variable rate demand instruments held by the Fund, including the
participation certificates, on the basis of published financial information and
reports of the rating agencies and other bank analytical services to which the
Fund may subscribe. Although these instruments may be sold by the Fund, the Fund
intends to hold them until maturity, except under the circumstances stated
above. (See "Federal Income Taxes" herein.)
In view of the concentration of the Fund in bank participation certificates in
Texas Municipal Obligations, which may be secured by bank letters of credit or
guarantees, an investment in the Fund should be made with an understanding of
the characteristics of the banking industry and the risks which such an
investment may entail. Banks are subject to extensive governmental regulations
which may limit both the amounts and types of loans and other financial
commitments which may be made and interest rates and fees which may be charged.
The profitability of this industry is largely dependent upon the availability
and cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit. The Fund may invest
25% or more of the net assets of any portfolio in securities that are related in
such a way that an economic, business or political development or change
affecting one of the securities would also affect the other securities
including, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
-9-
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<PAGE>
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The portfolio may contain variable maximum rates set by state law,
limit the degree to which interest on such variable rate demand instruments may
fluctuate; to the extent it does, increases or decreases in value may be
somewhat greater than would be the case without such limits. Additionally, the
portfolio may contain variable rate demand participation certificates in fixed
rate Municipal Obligations. The fixed rate of interest on these Municipal
Obligations will be a ceiling on the variable rate of the participation
certificate. In the event that interest rates increased so that the variable
rate exceeded the fixed rate on the Municipal Obligations, the Municipal
Obligations could no longer be valued at par and may cause the Fund to take
corrective action, including the elimination of the instruments from the
portfolio. Because the adjustment of interest rates on the variable rate demand
instruments is made in relation to movements of the applicable banks' "prime
rates", or other interest rate adjustment index, the variable rate demand
instruments are not comparable to long-term fixed rate securities. Accordingly,
interest rates on the variable rate demand instruments may be higher or lower
than current market rates for fixed rate obligations of comparable quality with
similar maturities.
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (1) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment. The maturity of a variable rate demand instrument will be determined
in the same manner for purposes of computing the Fund's dollar-weighted average
portfolio maturity. If a variable rate demand instrument ceases to be an
Eligible Security it will be sold in the market or through exercise of the
repurchase demand feature to the issuer.
When-Issued Securities
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on the Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date of the Fund's
commitment to purchase. Although the Fund will only make commitments to purchase
when-issued Municipal Obligations with the intention of actually
-10-
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<PAGE>
acquiring them, the Fund may sell these securities before the settlement date if
deemed advisable by the Manager.
Municipal Obligations purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way, that is, both experiencing appreciation when interest rates
decline and depreciation when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
income tax.
Stand-by Commitments
When the Fund purchases Municipal Obligations it may also acquire stand-by
commitments from banks and other financial institutions with respect to such
Municipal Obligations. Under a stand-by commitment, a bank or broker-dealer
agrees to purchase at the Fund's option a specified Municipal Obligation at a
specified price with same day settlement. A stand-by commitment is the
equivalent of a "put" option acquired by the Fund with respect to a particular
Municipal Obligation held in its portfolio.
The amount payable to the Fund upon its exercise of a stand-by commitment
normally would be (1) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (2) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank or dealer during the
time a stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation.
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<PAGE>
The Fund's right to exercise a stand-by commitment would be unconditional and
unqualified. A stand-by commitment would not be transferable by the Fund,
although it could sell the underlying Municipal Obligation to a third party at
any time.
The Fund expects that stand-by commitments generally will be available without
the payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio would not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after each stand-by
commitment was acquired.
The Fund would enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks and, where the issuer of the Municipal Obligation does not meet the
eligibility criteria, only where the issuer of the stand-by commitment has
received a rating which meets the eligibility criteria or, if not rated,
presents a minimal risk of default as determined by the Board of Directors. The
Fund's reliance upon the credit of these banks and broker-dealers would be
supported by the value of the underlying Municipal Obligations held by the Fund
that were subject to the commitment.
The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income taxes
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment. The acquisition
of a stand-by commitment would not affect the valuation or assumed maturity of
the underlying Municipal Obligations which will continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund would be valued at zero in determining net asset value. In those cases in
which the Fund paid directly or indirectly for a stand-by commitment, its cost
would be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund. Stand-by commitments would not affect the
dollar-weighted average maturity of the Fund's portfolio. The maturity of a
security subject to a stand-by commitment is longer than the stand-by repurchase
date.
The stand-by commitments that the Fund may enter into are subject to certain
risks, which include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.
In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by
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<PAGE>
commitments will be exempt from Federal income taxation (see "Federal Income
Taxes" herein). In the absence of a favorable tax ruling or opinion of counsel,
the Fund will not engage in the purchase of securities subject to stand-by
commitments.
TAXABLE SECURITIES
Although the Fund will attempt to invest 100% of its net assets in tax-exempt
Municipal Obligations, the Fund may invest up to 20% of the value of its net
assets in securities of the kind described below, the interest income on which
is subject to regular Federal income tax, under any one or more of the following
circumstances: (a) pending investment of proceeds of sales of Fund shares or of
portfolio securities, (b) pending settlement of purchases of portfolio
securities and (c) to maintain liquidity for the purpose of meeting anticipated
redemptions. In addition, the Fund may temporarily invest more than 20% in such
taxable securities when, in the opinion of the Manager, it is advisable to do so
because of adverse market conditions affecting the market for Municipal
Obligations. The kinds of taxable securities in which the Fund may invest are
limited to the following short-term, fixed-income securities (maturing in 397
days or less from the time of purchase): (1) obligations of the United States
Government or its agencies, instrumentalities or authorities; (2) commercial
paper meeting the definition of Eligible Securities at the time of acquisition;
(3) certificates of deposit of domestic banks with assets of $1 billion or more;
and (4) repurchase agreements with respect to any Municipal Obligations or other
securities which the Fund is permitted to own. (See "Federal Income Taxes"
herein.)
Repurchase Agreements
The Fund may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Fund would acquire an underlying
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the Act. All repurchase agreements entered into
by the Fund shall be fully collateralized at all times during the period of the
agreement in that the value of the underlying security shall be at least equal
to the amount of the loan, including the accrued interest thereon, and the Fund
or its custodian shall have possession of the collateral, which the Fund's Board
believes will give it a valid, perfected security interest in the collateral. In
the event of default by the seller under a repurchase agreement construed to be
a collateralized loan, the underlying securities are not owned by the Fund but
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs in connection
with the disposition of the collateral. The Fund's Board believes that the
collateral underlying repurchase agreements may be more susceptible to claims of
the seller's creditors than would be the case with securities owned by the Fund.
It is expected that repurchase
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<PAGE>
agreements will give rise to income which will not qualify as tax-exempt income
when distributed by the Fund. The Fund will not invest in a repurchase agreement
maturing in more than seven days if any such investment together with illiquid
securities held by the Fund exceed 10% of the Fund's total net assets. (See
Investment Restriction Number 6 herein.) Repurchase agreements are subject to
the same risks described herein for stand-by commitments.
TEXAS RISK FACTORS
[To be added.]
The information summarized above describes some of the more significant events
relating to the Fund. Sources of such information are the official statements of
the issuers located in the State of Texas, as well as other publicly available
documents and information. While the Manager has not independently verified such
information, it has no reason to believe it is not correct in all material
respects.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios and which may not be changed unless approved by a
majority of the outstanding shares of each series of the Fund's shares that
would be affected by such a change. The Fund may not:
1. Make portfolio investments other than as described under "Investment
Objectives, Policies and Risks" or any other form of Federal tax-exempt
investment which meets the Fund's high quality criteria, as determined by
the Board of Directors and which is consistent with the Fund's objectives
and policies.
2. Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any investments. Interest paid on borrowings will reduce
net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options, except to the extent that securities subject to a demand
obligation and stand-by commitments may be purchased as set forth under
"Investment Objectives, Policies and Risks" herein.
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<PAGE>
5. Underwrite the securities of other issuers, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
6. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may
purchase variable rate demand instruments which contain a demand feature.
The Fund will not invest in a repurchase agreement maturing in more than
seven days if any such investment together with securities that are not
readily marketable held by the Fund exceed 10% of the Fund's net assets.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this
shall not prevent the Fund from investing in Municipal Obligations secured
by real estate or interests in real estate.
8. Make loans to others, except through the purchase of portfolio investments,
including repurchase agreements, as described under "Investment Objectives,
Policies and Risks" herein.
9. Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
10. Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that the Fund may invest more than 25% of its
assets in bank participation certificates and there shall be no limitation
on the purchase of those Municipal Obligations and other obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities. When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from those of
the government creating the issuing entity and a security is backed only by
the assets and revenues of the entity, the entity would be deemed to be the
sole issuer of the security. Similarly, in the case of an industrial
revenue bond, if that bond is backed only by the assets and revenues of the
non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. If, however, in either case, the creating government or
some other entity, such as an insurance company or other corporate obligor,
guarantees a security or a bank issues a letter of credit, such a guarantee
or letter of credit would be considered a separate security and would be
treated as an issue of such government, other entity or bank. With respect
to 75% of the total amortized cost value of the Fund's assets, not more
than 5% of the Fund's assets may be invested in securities that are subject
to underlying puts from the same institution, and no single bank shall
issue its letter of credit and no single financial institution shall issue
a credit enhancement covering more than 5% of the total assets of the Fund.
However, if the puts are exercisable by the Fund in the event of default on
payment of principal and interest on the underlying security, then the Fund
may invest up to 10% of its assets in securities underlying puts issued or
guaranteed by the same
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<PAGE>
institution; additionally, a single bank can issue its letter of credit or
a single financial institution can issue a credit enhancement covering up
to 10% of the Fund's assets, where the puts offer the Fund such default
protection.
11. Invest in securities of other investment companies, except the Fund may
purchase unit investment trust securities where such unit trusts meet the
investment objectives of the Fund and then only up to 5% of the Fund's net
assets, except as they may be acquired as part of a merger, consolidation
or acquisition of assets.
12. Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with a permitted borrowing.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
PORTFOLIO TRANSACTIONS
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases participation
certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the participation certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In
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<PAGE>
some cases, this policy might adversely affect the price paid or received by the
Fund or the size of the position obtainable for the Fund. In addition, when
purchases or sales of the same security for the Fund and for other investment
companies managed by the Manager occur contemporaneously, the purchase or sale
orders may be aggregated in order to obtain any price advantage available to
large denomination purchasers or sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
HOW TO PURCHASE AND REDEEM SHARES
The material relating to the purchase and redemption of shares of each Class in
the Prospectus is herein incorporated by reference.
NET ASSET VALUE
The Fund does not determine net asset value per share of each Class on the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
The net asset value of each Class of the Fund's shares is determined as of 12
noon, New York City time, on each Fund Business Day. The net asset value of a
Class is computed by dividing the value of the Fund's net assets for such Class
(i.e., the value of its securities and other assets less its liabilities,
including expenses payable or accrued but excluding capital stock and surplus)
by the total number of shares outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated, as
described in the following paragraph. Although the amortized cost method
provides certainty in valuation, it may result in periods during which the value
of an instrument is higher or lower than the price an investment company would
receive if the instrument were sold.
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
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<PAGE>
available market quotations. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
remaining maturity greater than 397 days, will limit portfolio investments,
including repurchase agreements, to those United States dollar-denominated
instruments that the Fund's Board of Directors determines present minimal credit
risks, and will comply with certain reporting and record keeping procedures. The
Fund has also established procedures to ensure compliance with the requirement
that portfolio securities are Eligible Securities. (See "Investment Objectives,
Policies and Risks" herein.)
YIELD QUOTATIONS
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the Securities and Exchange Commission. Under that
method, the Fund's yield figure, which is based on a chosen seven-day period, is
computed as follows: the Fund's return for the seven-day period (which is
obtained by dividing the net change in the value of a hypothetical account
having a balance of one share at the beginning of the period by the value of
such account at the beginning of the period (expected to always be $1.00) is
multiplied by (365/7) with the resulting annualized figure carried to the
nearest hundredth of one percent). For purposes of the foregoing computation,
the determination of the net change in account value during the seven-day period
reflects (i) dividends declared on the original share and on any additional
shares, including the value of any additional shares purchased with dividends
paid on the original share and (ii) fees charged to all shareholder accounts.
Realized capital gains or losses and unrealized appreciation or depreciation of
the Fund's portfolio securities are not included in the computation. Therefore
annualized yields may be different from effective yields quoted for the same
period.
The Fund's "effective yield" is obtained by adjusting its "current yield" to
give effect to the compounding nature of the Fund's portfolio, as follows: The
unannualized base period return is compounded and brought out to the nearest one
hundredth of one percent by adding one to the base period return, raising the
sum to a power equal to 365 divided by 7, and subtracting one from the result,
i.e., effective yield = (base period return + 1) 365/7 - 1.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day. The Fund's yield for any given period is not an indication, or
representation by the Fund, of future yields or rates of return on the Fund's
shares, and may not provide a basis for comparison with bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors who
purchase the Fund's shares directly may realize a higher yield than Participant
Investors because they will not be subject to any fees or charges that may be
imposed by Participating Organizations.
The Fund may from time to time advertise its tax equivalent yield. The tax
equivalent yield is computed based upon a 30-day (or one month) period ended on
the date of the most recent balance sheet included in this Statement of
Additional Information, computed by dividing that portion of the yield of the
Fund (as computed pursuant to the formulae
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<PAGE>
previously discussed) which is tax exempt by one minus a stated income tax rate
and adding the product to that portion, if any, of the yield of the Fund that is
not tax exempt. The tax equivalent yield for the Fund may also fluctuate daily
and does not provide a basis for determining future yields.
The Fund may from time to time advertise a taxable equivalent yield table which
shows the yield that an investor would need to receive from a taxable investment
in order to equal a tax-free yield from the Fund. (See "Taxable Equivalent Yield
Table" herein.)
MANAGER
The 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 10920 (the "Manager"). The Manager was at July 31, 1997
investment manager, advisor or supervisor with respect to assets aggregating in
excess of $10.67 billion. In addition to the Fund, the Manager acts as
investment manager and administrator of thirteen other investment companies and
also advises pension trusts, profit-sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and owner of the
remaining .5% interest of the Manager.
On August 30, 1996, The New England Mutual Life Insurance Company ("The New
England") and Metropolitan Life Insurance Company ("MetLife") merged, with
MetLife being the continuing company. The Manager remains an indirect
wholly-owned subsidiary of NEICLP, but Reich & Tang Asset Management, Inc., its
sole general partner, is now an indirect subsidiary of MetLife. Also, MetLife
New England Holdings, Inc., a wholly-owned subsidiary of MetLife, owns
approximately 48.5% of the outstanding limited partnership interest of NEICLP
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc. owns
approximately 16% of the outstanding partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through thirteen subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the Manager, include
AEW Capital Management, L.P., Back Bay Advisors, L.P., Capital Growth
Management, L.P., Graystone Partners, L.P., Harris Associates, L.P., Jurika
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<PAGE>
& Voyles, L.P., Loomis, Sayles & Co., L.P., New England Funds, L.P., New England
Investment Associates, Inc., Snyder Capital Management, Inc, Vaughan, Nelson,
Scarborough & McConnell L.P., and Westpeak Investment Advisors, L.P. These
affiliates in the aggregate are investment advisors or managers to 80 other
registered investment companies.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. The Manager provides persons satisfactory to the Board of Directors of
the Fund to serve as officers of the Fund. Such officers, as well as certain
other employees and directors of the Fund, may be directors or officers of NEIC,
the sole general partner of the Manager, or employees of the Manager or its
affiliates. The Investment Management Contract was approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the Act) of the Fund or the Manager. The Investment Management
Contract was approved by the shareholders and the Board of Directors of the Fund
on October __, 1997.
The Investment Management Contract has a term which extends to , 1999, and may
be continued in force thereafter for successive twelve-month periods beginning
each 1, provided that such continuance is specifically approved annually by
majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by a majority of the directors who are not parties
to the Investment Management Contract or interested persons by any such party,
by votes cast in person at a meeting called for the purpose of voting on such
matter.
The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Directors,
or by the Manager on sixty days written notice, and will automatically terminate
in the event of its assignment. The Investment Management Contract provides that
in the absence of willful misfeasance, bad faith or gross negligence on the part
of the Manager, or of reckless disregard of its obligations thereunder, the
Manager shall not be liable for any action or failure to act in accordance with
its duties thereunder.
For its services under the Investment Management Contract, the Manager receives
from the Fund a fee equal to .40% per annum of the Fund's average daily net
assets (the "Management Fee") for managing the Fund's investment portfolio and
performing related administrative and clerical services. The fees are accrued
daily and paid monthly. The Manager may waive its rights to any portion of the
Management Fee and may waive its rights to any portion of the Management Fee for
purposes of shareholder and administrative services and distribution of the
Fund's shares. Investment management fees and operating expenses which are
attributable to both Classes of the Fund will be allocated daily to each Class
based on the percentage of outstanding shares at the end of the day. Additional
shareholder services provided by Participating Organizations to Class A
shareholders pursuant to the Plan shall be compensated by the Distributor from
its
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<PAGE>
shareholder servicing fee, the Manager from its management fee and the Fund
itself. Expenses incurred in the distribution of Class B shares and the
servicing of Class B shares shall be paid by the Manager.
Pursuant to the Administrative Services Contract with the Fund, the Manager
performs clerical, accounting, supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of accounting related services by Investors Fiduciary Trust Company,
the Fund's bookkeeping or recordkeeping agent, (ii) prepare reports to and
filings with regulatory authorities and (iii) perform such other services as the
Fund may from time to time request of the Manager. The personnel rendering such
services may be employees of the Manager, of its affiliates or of other
organizations. For its services under the Administrative Services Contract, the
Manager receives from the Fund a fee equal to .21% per annum of the Fund's
average daily net assets. The Manager at its discretion may waive its rights to
any portion of the management fee or the administrative services fee and may use
any portion of the management fee for purposes of shareholder and administrative
services and distribution of the Fund's shares. (See "Distribution and Service
Plan" herein).
Expense Limitation
The Manager has agreed to reimburse the Fund for its expenses (exclusive of
interest, taxes, brokerage, and extraordinary expenses) which in any year exceed
the limits on investment company expenses prescribed by any state in which the
Fund's shares are qualified for sale. For the purpose of this obligation to
reimburse expenses, the Fund's annual expenses are estimated and accrued daily,
and any appropriate estimated payments are made to it on a monthly basis.
Subject to the obligations of the Manager to reimburse the Fund for its excess
expenses as described above, the Fund has, under the Investment Management
Contract, confirmed its obligation for payment of all its other expenses,
including all operating expenses, taxes, brokerage fees and commissions,
commitment fees, certain insurance premiums, interest charges and expenses of
the custodian, transfer agent and dividend disbursing agent's fees,
telecommunications expenses, auditing and legal expenses, bookkeeping agent
fees, costs of forming the corporation and maintaining corporate existence,
compensation of directors, officers and employees of the Fund and costs of other
personnel performing services for the Fund who are not officers of the Manager
or its affiliates, costs of investor services, shareholders' reports and
corporate meetings, Securities and Exchange Commission registration fees and
expenses, state securities laws registration fees and expenses, expenses of
preparing and printing the Fund's prospectus for delivery to existing
shareholders and of printing application forms for shareholder accounts, and the
fees payable to the Manager under the Investment Management Contract.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein, and the management of the Fund intends to do
so whenever it appears advantageous to the Fund. The Fund's expenses for
employees and for such services are among the expenses subject to the expense
limitation described above. As a result of the
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<PAGE>
recent passage of the National Securities Markets Improvement Act of 1996, all
state expense limitations have been eliminated at this time.
MANAGEMENT OF THE FUND
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. Unless otherwise specified, the address
of each of the following persons is 600 Fifth Avenue, New York, New York 10020.
Mr. Duff may be deemed an "interested person" of the Fund, as defined in the
1940 Act, on the basis of his affiliation with the Manager.
Steven W. Duff, 43 - President of the Fund, has been President of the Mutual
Funds Division of the Manager since September 1994. Mr. Duff was formerly
Director of Mutual Fund Administration at NationsBank, with which he was
associated with from June 1981 to August 1994. Mr. Duff is President and a
Director of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc.,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc. and Short Term Income Fund, Inc., President and a
Trustee of Florida Daily Municipal Income Fund, Institutional Daily Income Fund,
and Pennsylvania Daily Municipal Income Fund, President of Cortland Trust, Inc.,
Executive Vice President of Reich & Tang Equity Fund, Inc., and President and
Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.
Dr. W. Giles Mellon, 66 - Director of the Fund, is Professor of Business
Administration and Area Chairman of Economics in the Graduate School of
Management, Rutgers University, with which he has been associated since 1966.
His address is Rutgers University Graduate School of Management, 92 New Street,
Newark, New Jersey 07102. Dr. Mellon is also a Director of AEW Commercial
Mortgage Securities Fund, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey
Daily Municipal Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Inc., Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc., and a
Trustee of Florida Daily Municipal Income Fund, Institutional Daily Income Fund,
and Pennsylvania Daily Municipal Income Fund.
Robert Straniere, 55 - Director of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere & Straniere Law Firm since 1981.
His address is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is
also a Director of AEW Commercial Mortgage Securities Fund, Inc., California
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Life Cycle Mutual Funds,
Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Reich & Tang Equity Fund, Inc. and Short Term
Income Fund, Inc., and a Trustee of Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, and Pennsylvania Daily Municipal Income Fund.
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<PAGE>
Dr. Yung Wong, 58 - Director of the Fund, was director of Shaw Investment
Management (UK) Limited from October 1994 to October 1995, and formerly General
Partner of Abacus Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong has been a Director of Republic Telecom Systems
Corporation (provider of telecommunications equipment) since January 1989 and of
TelWatch, Inc. (provider of network management software) since August 1989. Dr.
Wong is a Director of AEW Commercial Mortgage Securities Fund, Inc., California
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Michigan Daily Tax Free
Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina
Daily Municipal Income Fund, Inc., Reich & Tang Equity Fund, Inc. and Short Term
Income Fund, Inc. and a Trustee of Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, and Pennsylvania Daily Municipal Income Fund.
Molly Flewharty, 46 - Vice President of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal
Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina
Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund,
Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc. and Tax Exempt
Proceeds Fund, Inc.
Lesley M. Jones, 48 - Vice President of the Fund, has been Senior Vice President
of the Reich & Tang Mutual Funds Division of the Manager since September 1993.
Ms. Jones was formerly Senior Vice President of Reich & Tang, Inc. with which
she was associated from April 1973 to September 1993. Ms. Jones is also a Vice
President of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Florida Daily Municipal Income Fund, Institutional Daily Income Fund, Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., and Short Term Income Fund, Inc.
Dana E. Messina, 40 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995, and
was Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. with which she was associated from December
1980 to September 1993. Ms. Messina is also Vice President of California Daily
Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Florida Daily Municipal Income Fund, Institutional Daily Income Fund, 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
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<PAGE>
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich &
Tang Equity Fund, Inc., Short Term Income Fund, Inc. and Tax Exempt Proceeds
Fund, Inc.
Bernadette N. Finn, 49 - Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn was formerly
Vice President and Assistant Secretary of Reich & Tang, Inc. with which she was
associated from September 1970 to September 1993. Ms. Finn is also Secretary of
AEW Commercial Mortgage Securities Fund, Inc., California Daily Tax Free Income
Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc.,
Daily Tax Free Income Fund, Inc., Florida Daily Municipal Income Fund, 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 Tax Exempt Proceeds
Fund, Inc. and Vice President and Secretary of Delafield Fund, Inc.,
Institutional Daily Income Fund, Reich & Tang Equity Fund, Inc. and Short Term
Income Fund, Inc.
Richard De Sanctis, 40 - Treasurer of the Fund, has been Vice President and
Treasurer of the Manager since September 1993. Mr. De Sanctis was formerly
Controller of Reich & Tang, Inc., from January 1991 to September 1993 and Vice
President and Treasurer of Cortland Financial Group, Inc. and Vice President of
Cortland Distributors, Inc. from 1989 to December 1990. He is also Treasurer of
AEW Commercial Mortgage Securities Fund, Inc., California Daily Tax Free Income
Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income
Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily
Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund,
Inc. and Tax Exempt Proceeds Fund, Inc., and Vice President and Treasurer of
Cortland Trust, Inc.
The Fund paid an aggregate remuneration of [$_____] to its directors with
respect to the period ended [______ __, 1997], all of which consisted of
aggregate directors' fees paid to the three disinterested directors, pursuant to
the terms of the Investment Management Contract. (See "Manager" herein.) See
Compensation Table below.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Aggregate Pension or Retirement
Compensation from Benefits Accrued as Estimated Annual Total Compensation from
Name of Person, Registrant for Fiscal Part of Fund Benefits upon Fund and Fund Complex
Position Year Expenses Retirement Paid to Directors*
<S> <C> <C> <C> <C>
W. Giles Mellon, [$2,000] 0 0 $51,750 (13 Funds)
Director
Robert Straniere, [$2,000] 0 0 $51,750 (13 Funds)
Director
Yung Wong, [$2,000] 0 0 $51,750 (13 Funds)
Director
</TABLE>
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<PAGE>
* The total compensation paid to such persons by the Fund and Fund Complex
for the fiscal year ending ___________ __, 1997 (and, with respect to
certain of the funds in the Fund Complex, estimated to be paid during the
fiscal year ending ________ __, 1997). The parenthetical number represents
the number of investment companies (including the Fund) from which such
person receives compensation that are considered part of the same Fund
complex as the Fund, because, among other things, they have a common
investment advisor.
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Messrs. Battle Fowler LLP, 75 East 55th Street, New York, New
York 10022. Matters in connection with Texas law are passed upon by
[__________________ ].
McGladrey & Pullen LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 (the "Rule") under the 1940 Act, the Securities and
Exchange Commission has required that an investment company which bears any
direct or indirect expense of distributing its shares must do so only in
accordance with a plan permitted by the Rule. The Fund's Board of Directors has
adopted a distribution and service plan (the "Plan") and, pursuant to the Plan,
the Fund has entered into a Distribution Agreement and a Shareholder Servicing
Agreement (with respect to Class A shares only) with the Reich & Tang
Distributors L.P. (the "Distributor"), as distributor of the Fund's shares.
The Class A shares will be offered to investors who desire certain additional
shareholder services from Participating Organizations that are compensated by
the Fund's Manager and Distributor for such services. For its services under the
Shareholder Servicing Agreement (with respect to the Class A shares only) the
Distributor receives from the Fund a fee equal to .25% per annum of the Fund's
average daily net assets of the Class A shares of the Fund (the "Shareholder
Servicing Fee"). The fee is accrued daily and paid monthly and any portion of
the fee may be deemed to be used by the Distributor for payments to Partici
pating Organizations with respect to servicing their clients or customers who
are Class A shareholders of the Fund. The Class B shareholders will not receive
the benefit of such services from Participating Organizations and, therefore,
will not be assessed a Shareholder Servicing Fee.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Participating Organizations and Distributor in carrying out their
obligations under the Shareholder Servicing Agreement with respect to the Class
A shares and (ii) preparing, printing and delivering the Fund's
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<PAGE>
prospectus to existing shareholders of the Fund and preparing and printing
subscription application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from
their own resources, which may include the Management Fee, and past profits for
the following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements for performing shareholder servicing and related
administrative functions on behalf of the Class A shares of the Fund; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the Fund's shares; and (iii) to pay the costs of printing and
distributing the Fund's prospectus to prospective investors, and to defray the
cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholder Servicing Fee with respect to Class A shares
and past profits for the purpose enumerated in (i) above. The Distributor will
determine the amount of such payments made pursuant to the Plan, provided that
such payments will not increase the amount which the Fund is required to pay to
the Manager or the Distributor for any fiscal year under the Investment
Management Contract, the Administrative Services Contract or the Shareholder
Servicing Agreement in effect for that year.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Directors. In addition, the Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
The Plan provides that it may continue in effect for successive annual periods
provided it is approved by the Class A shareholders or by the Board of
Directors, including a majority of directors who are not interested persons of
the Fund and who have no direct or indirect interest in the operation of the
Plan or in the agreements related to the Plan. The shareholders and Board of
Directors of the Fund approved the Plan on October __, 1997 to be effective
until _________________, 1999. The Plan further provides that it may not be
amended to increase materially the costs which may be spent by the Fund for
distribution pursuant to the Plan without shareholder approval, and the other
material amendments must be approved by the directors in the manner described in
the preceding sentence. The Plan may be terminated at any time by a vote of a
majority of the disinterested directors of the Fund or the Fund's Class A
shareholders.
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<PAGE>
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Fund, which was incorporated on _______ __,
1997 in Maryland, consists of twenty billion shares of stock having a par value
of one tenth of one cent ($.001) per share. The Fund's Board of Directors is
authorized to divide the shares into separate series of stock, one for each of
the portfolios that may be created. Each share of any series of shares when
issued will have equal dividend, distribution and liquidation rights within the
series for which it was issued and each fractional share has those rights in
proportion to the percentage that the fractional share represents of a whole
share. Shares of all series have identical voting rights, except where, by law,
certain matters must be approved by a majority of the shares of the unaffected
series. Shares will be voted in the aggregate. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares, when
issued in accordance with the terms of the offering, will be fully paid and
nonassessable. Shares are redeemable at net asset value, at the option of the
shareholder. The Fund is subdivided into two classes of common stock, Class A
and Class B. Each share, regardless of class, will represent an interest in the
same portfolio of investments and will have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) the
Class A and Class B shares will have different class designations; (ii) only the
Class A shares will be assessed a service fee pursuant to the Rule 12b-1
Distribution and Service Plan of the Fund of .25% of the Class A shares' average
daily net assets; (iii) only the holders of the Class A shares would be entitled
to vote on matters pertaining to the Plan and any related agreements in
accordance with provisions of Rule 12b-1; and (iv) the exchange privilege will
permit stockholders to exchange their shares only for shares of the same class
of an investment company that participates on an exchange privilege program with
the Fund. Payments that are made under the Plan will be calculated and charged
daily to the appropriate class prior to determining daily net asset value per
share and dividends/distributions. On October __, 1997, the Manager purchased
$100,000 of the Fund's shares at an initial subscription price of $1.00 per
share.
Under its Articles of Incorporation the Fund has the right to redeem for cash
shares of stock owned by any shareholder to the extent and at such times as the
Fund's Board of Directors determines to be necessary or appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of the revised
investment advisory contracts
-27-
631807.3
<PAGE>
with respect to a particular class or series of stock, (c) for approval of
revisions to the Fund's distribution agreement with respect to a particular
class or series of stock, and (d) upon the written request of shareholders
entitled to cast not less than twenty-five percent of all the votes entitled to
be cast at such meeting. Annual and other meetings may be required with respect
to such additional matters relating to the Fund as may be required by the Act,
including the removal of Fund director(s) and communication among shareholders,
any registration of the Fund with the Securities and Exchange Commission or any
state, or as the Directors may consider necessary or desirable. Each Director
serves until the next meeting of the shareholders called for the purpose of
considering the election or re-election of such Director or of a successor to
such Director, and until the election and qualification of his or her successor,
elected at such a meeting, or until such Director sooner dies, resigns, retires
or is removed by the vote of the shareholders.
FEDERAL INCOME TAXES
The Fund intends to elect to qualify under the Internal Revenue Code of 1986, as
amended (the "Code"), and under Texas law as a "regulated investment company"
that distributes "exempt-interest dividends". The Fund intends to continue to
qualify for regulated investment company status so long as such qualification is
in the best interests of its shareholders. Such qualification relieves the Fund
of liability for Federal income taxes to the extent its earnings are distributed
in accordance with the applicable provisions of the Code.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its tax -exempt interest income, net of certain deductions.
Exempt-interest dividends, as defined in the Code, are dividends or any part
thereof (other than capital gain dividends) paid by the Fund that are
attributable to interest on obligations, the interest on which is exempt from
regular Federal income tax, and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders not later than
60 days after the close of its taxable year. The percentage of the total
dividends paid by the Fund during any taxable year that qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends during the year.
Exempt-interest dividends are to be treated by the Fund's shareholders as items
of interest excludible from their gross income under Section 103(a) of the Code.
However, a shareholder is advised to consult his tax advisors with respect to
whether exempt-interest dividends retain the exclusion under Section 103 of the
Code if such shareholder would be treated as a "substantial user" or "related
person" under Section 147(a) of the Code with respect to some or all of the
"private activity" bonds, if any, held by the Fund. If a shareholder receives an
exempt-interest dividend with respect to any share and such share has been held
for six months or less, then any loss on the sale or exchange of such share will
be disallowed to the extent of the amount of such exempt-interest dividend. The
Code provides that interest on indebtedness incurred, or continued, to purchase
or carry certain tax-exempt securities such as shares of the Fund is not
deductible. Therefore, among other consequences, a certain proportion of
interest on indebtedness incurred, or continued, to purchase or carry securities
on margin may not be deductible during the
-28-
631807.3
<PAGE>
period an investor holds shares of the Fund. For Social Security recipients,
interest on tax exempt bonds, including exempt-interest dividends paid by the
Fund, is to be added to adjusted gross income for purposes of computing the
amount of social security benefits includible in gross income. The amount of
such interest received will have to be disclosed on the shareholders' Federal
income tax returns. Taxpayers other than corporations are required to include as
an item of tax preference for purposes of the Federal alternative minimum tax
all tax-exempt interest on "private activity" bonds (generally, a bond issue in
which more than 10% of the proceeds are used in a non-governmental trade or
business) (other than Section 501(c)(3) bonds) issued after August 7, 1986.
Thus, this provision will apply to the portion of the exempt-interest dividends
from the Fund's assets that are attributable to such post-August 7, 1986 private
activity bonds, if any of such bonds are acquired by the Fund. Corporations are
required to increase their alternative minimum taxable income for purposes of
calculating their alternative minimum tax liability by 75% of the amount by
which the adjusted current earnings (which will include tax-exempt interest) of
the corporation exceeds the alternative minimum taxable income (determined
without this item). In addition, in certain cases, Subchapter S corporations
with accumulated earnings and profits from Subchapter C years are subject to a
minimum tax on excess "passive investment income" which includes tax-exempt
interest.
Although it is not intended, it is possible that the Fund may realize short-term
or long-term capital gains or losses from its portfolio transactions. The Fund
may also realize short-term or long-term capital gains upon the maturity or
disposition of securities acquired at discounts resulting from market
fluctuations. Short-term capital gains will be taxable to shareholders as
ordinary income when they are distributed. Any net capital gains (the excess of
its net realized long-term capital gain over its net realized short-term capital
loss) will be distributed annually to the Fund's 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.
The Fund intends to distribute at least 90% of its investment company taxable
income (taxable income subject to certain adjustments exclusive of the excess of
its net long-term capital gain over its net short-term capital loss) for each
taxable year. The Fund will be subject to Federal income tax on any
undistributed investment company taxable income. To the extent such income is
distributed it will be taxable to shareholders as ordinary income. Expenses paid
or incurred by the Fund will be allocated between tax-exempt and taxable income
in the same proportion as the amount of the Fund's tax-exempt income bears to
the total of such exempt income and its gross income (excluding from gross
income the excess of capital gains over capital losses). If the Fund does not
distribute at least 98% of its ordinary income and 98% of its capital gain net
income for a taxable year,
-29-
631807.3
<PAGE>
the Fund will be subject to a nondeductible 4% excise tax on the excess of such
amounts over the amounts actually distributed.
If a shareholder fails to provide the Fund with a current taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
interest, dividend payments, and proceeds from the redemption of shares of the
Fund.
Dividends and distributions to shareholders will be treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund.
With respect to the variable rate demand instruments, including participation
certificates therein, the Fund has obtained and is relying on the opinion of
Battle Fowler LLP, counsel to the Fund, that it will be treated for Federal
income tax purposes as the owner thereof and the interest on the underlying
Municipal Obligations will be tax-exempt to the Fund. Counsel has pointed out
that the Internal Revenue Service has announced that it will not ordinarily
issue advance rulings on the question of ownership of securities or
participation interests therein subject to a put and, as a result, the Internal
Revenue Service could reach a conclusion different from that reached by counsel.
From time to time, proposals have been introduced before Congress to restrict or
eliminate the Federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund would reevaluate its investment objective and policies and consider
changes in the structure.
In South Carolina v. Baker, the United States Supreme Court held that the
Federal government may constitutionally require states to register bonds they
issue and may subject the interest on such bonds to Federal tax if not
registered, and that there is no constitutional prohibition against the Federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the Federal government to
regulate and control bonds such as the Municipal Obligations and to tax such
bonds in the future. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Municipal Obligations in
accordance with Section 103 of the Code.
TEXAS INCOME TAXES
[To be added.]
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is custodian for the Fund's cash and securities and is the transfer agent
and dividend disbursing agent for shares of the Fund. The transfer agent and
custodian do not assist in, and are not responsible for, investment decisions
involving assets of the Fund.
-30-
631807.3
<PAGE>
DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s
Two Highest Municipal Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. ( ): Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc's two highest ratings of state and
municipal notes and other short-term loans:
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
- --------
* As described by the rating agencies.
-31-
631807.3
<PAGE>
Description of Standard & Poor's Rating Services' two highest debt ratings:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Standard & Poor's does not provide ratings for state and municipal notes.
Description of Standard & Poor's Rating Services' two highest commercial paper
ratings:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Moody's Investors Service, Inc.'s two highest commercial paper
ratings:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues Prime-1, highest
quality; Prime-2, higher quality.
-32-
631807.3
<PAGE>
TAXABLE EQUIVALENT YIELD TABLE
<TABLE>
<S> <C> <C> <C> <C> <C>
1. If Your Taxable Income Bracket Is . . .
Single 0- 24,651- 59,751- 124,651- 271,051 and
Return 24,650 59,750 124,650 271,050 over
Joint 0- 42,201- 99,601- 151,751- 271,051 and
Return 41,200 99,600 151,750 271,050 over
2. Then Your Combined Income Tax Bracket Is . . .
Federal
Tax Bracket 15.00% 28.00% 31.00% 36.00% 39.60%
State
Tax Bracket
Combined
Tax Bracket
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
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
</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.
-33-
631807.3
<PAGE>
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
* (A) Financial Statements
Included in Prospectus Part A:
(1) Table of Fees and Expenses
Included in Statement of Additional Information Part B:
(1) Report of McGladrey & Pullen, LLP, independent
accountants, dated October __, 1997; and
(2) Statement of Net Assets (audited).
(B) Exhibits
(1) Articles of Incorporation of the Registrant.
(2) By-Laws of the Registrant.
(3) Not applicable.
(4) Not applicable.
* (5) Investment Management Contract between the Registrant
and Reich & Tang Asset Management L.P.
* (6) See Distribution Agreement filed as Exhibit 15.2.
(7) Not applicable.
* (8) Custody Agreement between the Registrant and
Investors Fiduciary Trust Company.
* (9) Not Applicable.
* (9.1) Administrative Services Agreement between the
Registrant and Reich & Tang Asset Management
L.P.
* (10.1) Consent Opinion of Messrs. Battle Fowler LLP as
to the use of their name under the headings
"Federal Income Taxes" in the Prospectus and
"Counsel and Auditors" in the Statement of
Additional Information.
* (10.2) Opinion of [ ] as to Texas law, including their
consent to the filing thereof and to the use of
their name under the heading "Texas Income
Taxes" in the Prospectus and "Counsel and
Auditors" in the Statement of Additional
Information.
* (11) Consent of Independent Accountants filed as
Exhibit 11 herein.
* (12) Not Applicable.
- --------
* To be filed by Amendment
641155.1
C-1
<PAGE>
* (13) Form of written assurance of Reich & Tang Asset
Management L.P. that its purchase of shares of
the Registrant was for investment purposes
without any present intention of redeeming or
reselling.
(14) Not Applicable.
* (15.1) Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940.
* (15.2) Distribution Agreement between the Registrant
and Reich & Tang Distributors L.P.
* (15.3) Shareholder Servicing Agreement between the
Registrant and Reich & Tang Distributors L.P.
(16) Not applicable.
* (17) Financial Data Schedule (For EDGAR Filing Only)
Item 25. Persons controlled by or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of
Common Stock
(par value $.0001)
Class A
Class B
Item 27. Indemnification.
In accordance with Section 2-418 of the General
Corporation Law of the State of Maryland, Article NINTH of the
Registrant's Articles of Incorporation provides as follows:
"NINTH: (a) The Corporation shall indemnify (i) its
currently acting and former directors and officers, whether
serving the Corporation or at its request any other entity, to
the fullest extent required or permitted by the General Laws of
the State of Maryland now or hereafter in force, including the
advance of expenses under the procedures and to the fullest
extent permitted by law, and (ii) other employees and agents to
such extent as shall be authorized by the Board of Directors or
the By-Laws and as permitted by law. Nothing contained herein
shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be
entitled. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time
such by-laws, resolutions or contracts implementing such
provisions or such indemnification arrangements as may be
permitted by law. No amendment of the charter of the Corporation
or repeal
- --------
* To be filed by Amendment
641155.1
C-2
<PAGE>
of any of its provisions shall limit or eliminate the right of
indemnification provided hereunder with respect to acts or
omissions occurring prior to such amendment or repeal.
(b) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment
Company Act of 1940, no director or officer of the Corporation
shall be personally liable to the Corporation or its stockholders
for money damages; provided, however, that nothing herein shall
be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. No
amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of
liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such amendment
or repeal."
In Section 7 of the Distribution Agreement relating to the
securities being offered hereby, the Registrant agrees to
indemnify Texas Daily Municipal Income Fund, Inc. and any person
who controls Texas Daily Municipal Income Fund, Inc., within the
meaning of the Securities Act of 1933, against certain types of
civil liabilities arising in connection with the Registration
Statement or Prospectus.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Securities Act") may be
permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than a payment by
the Registrant of expenses incurred or paid by a director,
officer or the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Insofar as the Investment Company Act of 1940 may be
concerned, in the event that a claim for indemnification is
asserted by a director, officer or controlling person of the
Registrant in connection with the securities being registered,
the Registrant will not make such indemnification unless (i) the
Registrant has submitted, before a court or other body, the
question of whether the person to be indemnified was liable by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duties, and has obtained a final decision
on the merits that such person was not liable by reason of such
conduct or (ii) in the absence of such decision, the Registrant
shall have obtained a reasonable determination, based upon a
review of the facts, that such person was not liable by virtue of
such conduct, by (a) the vote of a majority of directors who are
neither interested persons as such term is defined in the
Investment Company Act of 1940, nor parties to the proceeding or
(b) an independent legal counsel in a written opinion.
The Registrant will not advance attorneys' fees or other
expenses incurred by the person to be indemnified unless the
Registrant shall have received an undertaking by or on behalf of
such person to repay the advance unless it is ultimately
determined that such person is entitled to indemnification and
one of the following conditions shall have occurred: (x) such
person shall provide security for his undertaking, (y) the
Registrant shall be insured against losses arising by reason of
any lawful advances or (z) a majority of the disinterested,
non-party directors of the Registrant, or an independent legal
counsel in a written opinion, shall have determined that based on
a review of readily available facts there is reason to believe
that such person ultimately will be found entitled to
indemnification.
641155.1
C-3
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
The description of the Reich & Tang Asset Management L.P.
("RTAMLP") under the caption "Management of the Fund" in the Prospectus and
"Management and Investment Management Contract" in the Statement of Additional
Information constituting parts A and B, respectively, of the Registration
Statement are incorporated herein by reference.
New England Investment Companies, L.P. ("NEICLP") is the limited
partner and owner of 99.5% interest in Reich & Tang Asset Management L.P. (the
"Manager"). Reich & Tang Asset Management, Inc. (a wholly-owned subsidiary of
NEICLP) is the sole general partner of NEICLP. Reich & Tang Asset Management
L.P. serves as the sole general partner of Reich & Tang Distributors L.P. Reich
& Tang Asset Management, Inc. serves as the sole limited partner of Reich & Tang
Distributors L.P.
On August 30, 1996, The New England Mutual Life Insurance Company
and Metropolitan Life Insurance Company ("MetLife") merged, with MetLife being
the continuing company. The Manager remains a wholly-owned subsidiary of NEICLP,
but Reich & Tang Asset Management, Inc., its sole general partner, is now an
indirect subsidiary of MetLife. Also, MetLife New England Holding, Inc., a
wholly-owned subsidiary of MetLife, owns 51% of the outstanding limited
partnership interest of NEICLP and may be deemed a "controlling person" of the
Manager. Reich & Tang, Inc. owns approximately 16% of the outstanding
partnership units of NEICLP.
Registrant's investment adviser, RTAMLP, is a registered
investment adviser. RTAMLP's investment advisory clients include California
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Florida Daily Municipal
Income Fund, Institutional Daily Income Fund, New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., Michigan Daily Tax Free
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Short Term Income Fund, Inc., and Tax
Exempt Proceeds Fund, Inc., registered investment companies whose addresses are
600 Fifth Avenue, New York, New York 10020, which invest principally in money
market instruments, Delafield Fund, Inc. and Reich & Tang Equity Fund, Inc.,
registered investment companies whose addresses are 600 Fifth Avenue, New York,
New York 10020, which invest principally in equity securities. In addition,
Reich & Tang Asset Management L.P. is the sole general partner of Alpha
Associates, August Associates, Reich & Tang Minutus L.P., Reich & Tang Minutus
II, L.P., Reich & Tang Equity Partnerships L.P. and Tucek Partners, L.P.,
private investment partnerships organized as limited partnerships.
Peter S. Voss, President, Chief Executive Officer and a Director of NEIC
since October 1992, Chairman of the Board of NEIC since December 1992, Group
Executive Vice President, Bank of America, responsible for the global asset
management private banking businesses, from April 1992 to October 1992,
Executive Vice President of Security Pacific Bank, and Chief Executive Officer
of Security Pacific Hoare Govett Companies, a wholly owned subsidiary of
Security Pacific Corporation, from April 1988 to April 1992, Director of The New
England since March 1993, Chairman of the Board of Directors of NEIC's
subsidiaries other than Loomis, Sayles & Company, Incorporated ("Loomis") and
Back Bay Advisors, Inc. ("Back Bay"), where he serves as a Director, and
Chairman of the Board of Trustees of all of the mutual funds in the TNE Fund
Group and the Zenith Funds. G. Neal Ryland, Executive Vice President, Treasurer
and Chief Financial Officer NEIC since July 1993, Executive Vice President and
Chief Financial Officer of The Boston Company, a diversified financial services
company, from March 1989 until July 1993; from September 1985 to December 1988,
Mr. Ryland was employed by Kenner Parker Toys, Inc. as Senior Vice President and
Chief Financial Officer. Edward N. Wadsworth, Executive Vice President, General
Counsel, Clerk and Secretary of NEIC since December 1989, Senior Vice President
and Associate General Counsel of The New England from 1984 until December 1992,
and Secretary of Westpeak and Draycott and the Treasurer of NEIC. Lorraine C.
Hysler has been Secretary of RTAM since July 1994, Assistant Secretary of NEIC
since September 1993, Vice President of the Mutual Funds Group of NEICLP from
September 1993 until July 1994, and Vice President of Reich & Tang Mutual Funds
since July 1994. Ms. Hysler joined Reich & Tang, Inc. in May 1977 and served as
Secretary from April 1987 until September 1993. Richard E. Smith, III has been a
Director of Reich & Tang Asset Management Inc. since July 1994, President and
Chief Operating Officer of the Capital Management Group of NEICLP from May 1994
until July 1994, President and Chief Operating Officer of the Reich & Tang
Capital Management Group since July 1994, Executive Vice President and Director
of Rhode Island Hospital Trust from March 1993 to May 1994, President, Chief
Executive Officer and Director of USF&G Review Management Corp. from January
1988 until September 1992. Steven W. Duff has been a Director of RTAM since
October 1994, President and Chief Executive Officer of Reich & Tang Funds since
August 1994, Senior Vice President of NationsBank from June 1981 until August
1994; Mr. Duff is President and a Director of California Daily Tax Free Income
Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income
Fund,
641155.1
C-4
<PAGE>
Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal
Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina
Daily Municipal Income Fund, Inc. and Short Term Income Fund, Inc., President
and Trustee of Florida Daily Municipal Income Fund, Pennsylvania Daily Municipal
Income Fund, President and Chief Executive Officer of Tax Exempt Proceeds Fund,
Inc., and Executive Vice President of Reich & Tang Equity Fund, Inc. Bernadette
N. Finn has been Vice President - Compliance of RTAM since July 1994, Vice
President of Mutual Funds Division of NEICLP from September 1993 until July
1994, Vice President of Reich & Tang Funds since July 1994. Ms. Finn joined
Reich & Tang, Inc. in September 1970 and served as Vice President from September
1982 until May 1987 and as Vice President and Assistant Secretary from May 1987
until September 1993. Ms. Finn is also Secretary of California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust,
Inc., Daily Tax Free Income Fund, Inc., Florida Daily Municipal Income Fund,
Michigan Daily Tax Free Income Funds, Inc., New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund and Tax
Exempt Proceeds Fund, Inc., a Vice President and Secretary of Delafield Fund,
Inc., Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc. Richard De
Sanctis has been Vice President and Treasurer of RTAM since July 1994, Assistant
Treasurer of NEIC since September 1993 and Treasurer of the Mutual Funds Group
of NEICLP from September 1993 until July 1994, Treasurer of the Reich & Tang
Funds since July 1994. Mr. De Sanctis joined Reich & Tang, Inc. in December 1990
and served as Controller of Reich & Tang, Inc., from January 1991 to September
1993. Mr. De Sanctis was Vice President and Treasurer of Cortland Financial
Group, Inc. and Vice President of Cortland Distributors, Inc. from 1989 to
December 1990. Mr. De Sanctis is also Treasurer of AEW Commercial Mortgage
Securities Fund, Inc., California Daily Tax Free Income Fund, Inc., Connecticut
Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Michigan Daily Tax Free Income
Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily Tax
Free Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Reich
& Tang Government Securities Trust, Tax Exempt Proceeds Fund, Inc. and Short
Term Income Fund, Inc. and is Vice President and Treasurer of Cortland Trust,
Inc.
Item 29. Principal Underwriters.
(a) Reich & Tang Distributors L.P., the Registrant's Distributor
is also distributor for California Daily Tax Free Income Fund, Inc., Connecticut
Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income
Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income, Inc., Pennsylvania Daily Municipal
Income Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc. and
Tax Exempt Proceeds Fund, Inc.
(b) The following are the directors and officers of Reich & Tang
Asset Management, Inc., the general partner of Reich & Tang Distributors L.P.
Reich & Tang Distributors L.P. does not have any officers. The principal
business address of Messrs. Voss, Ryland, and Wadsworth is 399 Boylston Street,
Boston, Massachusetts 02116. For all other persons the principal address is 600
Fifth Avenue, New York, New York 10020.
641155.1
C-5
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
With the General Partner Positions and Offices
Name of the Distributor With Registrant
<S> <C> <C>
Peter S. Voss Director None
G. Neal Ryland Director None
Edward N. Wadsworth Clerk None
Richard E. Smith III Director None
Steven W. Duff Director President and Director
Bernadette N. Finn Vice President - Compliance Secretary
and Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Vice President and Treasurer
Treasurer
Richard I. Weiner Vice President None
</TABLE>
(c) Not applicable
Item 30. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of Registrant at Reich &
Tang Asset Management L.P., 600 Fifth Avenue, New York, New York 10020 the
Registrant's Manager; Reich & Tang Services, 600 Fifth Avenue, New York, New
York 10020, the Registrant's transfer agent and dividend distributing agent; and
at Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64104, the Registrant's custodian.
Item 31. Management Services.
Not Applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective
amendment, using financial statements which need not be
certified, within four to six months from the effective
date of its Securities Act Registration Statement.
641155.1
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of New York, and State
of New York, on the 9th day of October, 1997.
TEXAS DAILY MUNICIPAL INCOME FUND, INC.
By:/s/ Bernadette N. Finn
-----------------------------
Bernadette N. Finn, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated below.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
(1) Principal Executive Officer: Chairman and President
Steven W. Duff
October 9, 1997
By: /s/ Steven W. Duff
-------------------
Steven W. Duff
(2) Majority of Directors
Steven W. Duff Director October 9, 1997
Bernadette N. Finn Director
</TABLE>
By: /s/ Steven W. Duff
-------------------
Steven W. Duff
By: /s/ Bernadette N. Finn
-------------------
Bernadette N. Finn
641155.1
C-7
<PAGE>
Exhibit Index
(1) Articles of Incorporation of the Registrant.
(2) By-Laws of the Registrant.
(3) Not applicable.
(4) Not applicable.
* (5) Investment Management Contract between the
Registrant and Reich & Tang Asset Management L.P.
* (6) Distribution Agreement filed as Exhibit 15.2.
(7) Not applicable.
* (8) Form of Custody Agreement between the Registrant
and Investors Fiduciary Trust Company.
* (9) Not applicable.
* (9.1) Administrative Services Agreement between the
Registrant and Reich & Tang Asset Management L.P.
* (10.1) Consent of Messrs. Battle Fowler LLP as to the
legality of the securities being registered,
including their consent to the filing thereof and
as to the use of their name under the headings
"Federal Income Taxes" and "Counsel and Auditors"
in the Statement of Additional Information.
* (10.2) Opinion of [name] as to Texas law, including their
consent to the filing thereof and to the use of
their name under the heading "Texas Income Taxes"
in the Prospectus.
* (11) Consent of Independent Accountants.
(12) Not applicable.
* (13) Form of written assurance of Reich & Tang Asset
Management L.P. that its purchase of shares of the
registrant was for investment purposes without any
present intention of redeeming or reselling.
(14) Not applicable.
* (15.1) Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940
* (15.2) Distribution Agreement between the Registrant and
Reich & Tang Distributors L.P.
* (15.3) Shareholder Servicing Agreement between the
Registrant and Reich & Tang Distributors L.P.
(16) Not applicable.
- --------
* To be filed by Amendment
641155.1
C-8
ARTICLES OF INCORPORATION
OF
TEXAS DAILY MUNICIPAL INCOME FUND, INC.
FIRST: (1) The name of the incorporator is Amy
McGuffin.
(2) The incorporator's post office address
is 75 East 55th Street, New York, New York 10022.
(3) The incorporator is over eighteen years
of age.
(4) The incorporator is forming the
corporation named in these Articles of Incorporation under the General
Corporation Law of the State of Maryland.
SECOND: The name of the corporation (hereinafter
called the "Corporation") is Texas Daily Municipal Income Fund,
Inc.
THIRD: The purposes for which the Corporation is
formed are:
(1) to conduct, operate and carry on the
business of an investment company;
(2) to subscribe for, invest in, reinvest
in, purchase or otherwise acquire, hold, pledge, sell, assign,
transfer, exchange, distribute or otherwise dispose of notes,
bills, bonds, debentures and other negotiable or
non-negotiable instruments, obligations and evidences of
indebtedness issued or guaranteed as to principal and interest
by the United States Government, or any agency or
instrumentality thereof, any State or local government, or any
agency or instrumentality thereof, or any other securities of
any kind issued by any corporation or other issuer organized
under the laws of the United States or any State, territory or
possession thereof or any foreign country or any subdivision
thereof or otherwise, to pay for the same in cash or by the
issue of stock, including treasury stock, bonds and notes of
the Corporation or otherwise; and to exercise any and all
rights, powers and privileges of ownership or interest in
respect of any and all such investments of every kind and
description, including and without limitation, the right to
consent and otherwise act with respect thereto, with power to
designate one or more persons,
640429.1
<PAGE>
firms, associations or corporations to exercise any of
said rights, powers and privileges in respect of any
said investments;
(3) to conduct research and investigations
in respect of securities, organizations, business and general
business and financial conditions in the United States of
America and elsewhere for the purpose of obtaining information
pertinent to the investment and employment of the assets of
the Corporation and to procure any and all of the foregoing to
be done by others as independent contractors and to pay
compensation therefor;
(4) to borrow money or otherwise obtain
credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the
Corporation, and to endorse, guarantee or undertake the
performance of any obligation, contract or engagement of any
other person, firm, association or corporation;
(5) to issue, sell, distribute, repurchase,
redeem, retire, cancel, acquire, hold, resell, reissue,
dispose of, transfer, and otherwise deal in, shares of stock
of the Corporation, including shares of stock of the
Corporation in fractional denominations, and to apply to any
such repurchase, redemption, retirement, cancellation or
acquisition of shares of stock of the Corporation, any funds
or property of the Corporation, whether capital or surplus or
otherwise, to the full extent now or hereafter permitted by
the laws of the State of Maryland and by these Articles of
Incorporation;
(6) to conduct its business, promote its
purposes, and carry on its operations in any and all of its
branches and maintain offices both within and without the
State of Maryland, in any and all States of the United States
of America, in the District of Columbia, and in any or all
commonwealths, territories, dependencies, colonies,
possessions, agencies, or instrumentalities of the United
States of America and of foreign governments;
(7) to carry out all or any part of the
foregoing purposes or objects as principal or agent, or in
conjunction with any other person, firm, association,
corporation or other entity, or as a partner or member of a
partnership, syndicate or joint venture or otherwise, and in
any part of the world to the same extent and as fully as
natural persons might or could do;
-2-
640429.1
<PAGE>
(8) to have and exercise all of the powers
and privileges conferred by the laws of the State of Maryland
upon corporations formed under the laws of such State; and
(9) to do any and all such further acts and
things and to exercise any and all such further powers and
privileges as may be necessary, incidental, relative,
conducive, appropriate or desirable for the foregoing
purposes.
The enumeration herein of the objects and purposes of the
Corporation shall be construed as powers as well as objects and purposes and
shall not be deemed to exclude by inference any powers, objects or purposes
which the Corporation is empowered to exercise, whether expressly by force of
the laws of the State of Maryland now or hereafter in effect, or impliedly by
the reasonable construction of the said law.
FOURTH: The post office address of the principal office of
the Corporation within the State of Maryland is 11 East Chase Street, Baltimore
City, Maryland 21202.
FIFTH: The resident agent of the Corporation in the State of
Maryland is CSC - Lawyers Incorporating Service Company, Maryland, at 11 East
Chase Street, Baltimore, Maryland 21202.
SIXTH: (1) The total number of shares of stock of all classes
and series which the Corporation initially has authority to issue is twenty
billion (20,000,000,000) shares of capital stock (par value of One Tenth of One
Cent $.001 per share), amounting in aggregate par value to $20,000,000. All of
such shares are classified as "Common Stock".
(2) The Board of Directors may classify or reclassify any
unissued shares of capital stock (whether or not such shares have been
previously classified or reclassified) from time to time by setting or changing
in any one or more respects the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such shares of stock.
(3) Unless otherwise prohibited by law, so long as the
Corporation is registered as an open-end management company under the Investment
Company Act of 1940, the Board of Directors shall have the power and authority,
without the approval of the holders of any outstanding shares, to increase or
decrease the number of shares of capital stock or the number of shares of
capital stock of any class or series that the Corporation has authority to
issue.
-3-
640429.1
<PAGE>
(4) Until such time as the Board of Directors shall provide
otherwise in accordance with Section (2) of this Article SIXTH four billion
(4,000,000,000) shares of the authorized shares of stock of the Corporation
shall be allocated to the following class of Common Stock: Texas Daily Municipal
Income Fund Common Stock. The balance of sixteen billion (16,000,000,000) shares
of such stock may be issued in this class, or in any new class or classes each
comprising such number of shares and having such designations, limitations and
restrictions thereof as shall be fixed and determined from time to time by
resolution or resolutions providing for the issuance of such stock adopted by
the Board of Directors.
(5) Any series of Common Stock shall be referred to herein
individually as a "Series" and collectively, together with any further series
from time to time established, as the "Series".
(6) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the shares
of Common Stock of the Corporation (unless provided otherwise by the Board of
Directors with respect to any such additional Series at the time it is
established and designated):
(a) Asset Belonging to Series. All consideration
received by the Corporation from the issue or sale of shares
of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings,
profits and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any investment or reinvestment
of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject
only to the rights of creditors, and shall be so recorded upon
the books of account of the Corporation. Such consideration,
assets, income, earnings, profits and proceeds, together with
any General Items allocated to that Series as provided in the
following sentence, are herein referred to collectively as
"assets belonging to" that Series. In the event that there are
any assets, income, earnings, profits or proceeds which are
not readily identifiable as belonging to any particular Series
(collectively, "General Items"), such General Items shall be
allocated by or under the supervision of the Board of
Directors to and among any one or more of the Series
established and designated from time to time in such manner
and on such basis as the Board of Directors, in its sole
discretion, deems fair and equitable; and any General
-4-
640429.1
<PAGE>
Items so allocated to a particular Series shall belong to that
Series. Each such allocation by the Board of Directors shall
be conclusive and binding for all purposes.
(b) Liabilities of Series. The assets belonging to
each particular Series shall be charged with the liabilities
of the Corporation in respect of that Series and all expenses,
costs, charges and reserves attributable to that Series, and
any general liabilities, expenses, costs, charges or reserves
of the Corporation which are not readily identifiable as
pertaining to any particular Series, shall be allocated and
charged by or under the supervision of the Board of Directors
to and among any one or more of the Series established and
designated from time to time in such manner and on such basis
as the Board of Directors, in its sole discretion, deems fair
and equitable. The liabilities, expenses, costs, charges and
reserves allocated and so charged to a Series are herein
referred to collectively as "liabilities of" that Series. Each
allocation of liabilities, expenses, costs, charges and
reserves by or under the supervision of the Board of Directors
shall be conclusive and binding for all purposes.
(c) Dividends and Distributions. Dividends and
capital gains distributions on shares of a particular Series
may be paid with such frequency, in such form and in such
amount as the Board of Directors may determine by resolution
adopted from time to time, or pursuant to a standing
resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine, after
providing for actual and accrued liabilities of that Series.
All dividends on shares of a particular Series shall be paid
only out of the income belonging to that Series and all
capital gains distributions on shares of a particular series
shall be paid only out of the capital gains belonging to that
Series. All dividends and distributions on shares of a
particular Series shall be distributed pro rata to the holders
of that Series in proportion to the number of shares of that
Series held by such holders at the date and time of record
established for the payment of such dividends or
distributions, except that in connection with any dividend or
distribution program or procedure, the Board of Directors may
determine that no dividend or distribution shall be payable on
shares as to which the stockholder's purchase order and/or
payment have not been received by the time or times
established by the Board of Directors under such program or
procedure.
-5-
640429.1
<PAGE>
Dividends and distributions may be paid in cash,
property or additional shares of the same or another Series,
or a combination thereof, as determined by the Board of
Directors or pursuant to any program that the Board of
Directors may have in effect at the time for the election by
stockholders of the form in which dividends or distributions
are to be paid. Any such dividend or distribution paid in
shares shall be paid at the current net asset value thereof.
(d) Voting. On each matter submitted to a vote of the
stockholders, each holder of shares shall be entitled to one
vote for each share standing in his name on the books of the
Corporation, irrespective of the Series thereof, and all
shares of all Series shall vote as a single class ("Single
Class Voting"); provided, however, that (i) as to any matter
with respect to which a separate vote of any Series is
required by the Investment Company Act of 1940 or by the
Maryland General Corporation Law, such requirement as to a
separate vote by that Series shall apply in lieu of Single
Class Voting; (ii) in the event that the separate vote
requirement referred to in clause (i) above applies with
respect to one or more Series, then, subject to clause (iii)
below, the shares of all other Series shall vote as a single
class; and (iii) as to any matter which does not affect the
interest of a particular Series, including liquidation of
another Series as described in subsection (7) below, only the
holders of shares of the one or more affected Series shall be
entitled to vote.
(e) Redemption by Stockholders. Each holder of shares
of a particular Series shall have the right at such times as
may be permitted by the Corporation to require the Corporation
to redeem all or any part of his shares of that Series, at a
redemption price per share equal to the net asset value per
share or that Series next determined after the shares are
properly tendered for redemption, less such redemption fee or
sales charge, if any, as may be established from time to time
by the Board of Directors in its sole discretion. Payment of
the redemption price shall be in cash; provided, however, that
if the Board of Directors determines, which determination
shall be conclusive, that conditions exist which make payment
wholly in cash unwise or undesirable, the Corporation may, to
the extent and in the manner permitted by the Investment
Company Act of 1940, make payment wholly or partly in
securities or other assets belonging to the Series of which
the shares being redeemed are a part,
-6-
640429.1
<PAGE>
at the value of such securities or assets used in such
determination of net asset value.
Payment by the Corporation for shares of stock of the
Corporation surrendered to it for redemption shall be made by
the Corporation within such period from surrender as may be
required under the Investment Company Act and the rules and
regulations thereunder. Notwithstanding the foregoing, the
Corporation may postpone payment of the redemption price and
may suspend the right of the holders of shares of any Series
to require the Corporation to redeem shares of that Series
during any period or at any time when and to the extent
permissible under the Investment Company Act of 1940.
(f) Redemption by Corporation. The Board of Directors
may cause the Corporation to redeem at their net asset value
the shares of any Series held in an account having, because of
redemptions or exchanges, a net asset value on the date of the
notice of redemption less than the Minimum Amount, as defined
below, in that Series specified by the Board of Directors from
time to time in its sole discretion, provided that at least 30
days prior written notice of the proposed redemption has been
given to the holder of any such account by first class mail,
postage prepaid, at the address contained in the books and
records of the Corporation and such holder has been given an
opportunity to purchase the required value of additional
shares.
(i) The term "Minimum Amount" when used
herein shall mean One Thousand Dollars ($1,000)
unless otherwise fixed by the Board of Directors from
time to time, provided that the Minimum Amount may
not in any event exceed Twenty-Five Thousand Dollars
($25,000). The Board of Directors may establish
differing Minimum Amounts for each class and series
of the Corporation's stock and for holders of shares
of each such class and series of stock based on such
criteria as the Board of Directors may deem
appropriate.
(ii) The Corporation shall be entitled but
not required to redeem shares of stock from any
stockholder or stockholders, as provided in this
subsection (6), to the extent and at such times as
the Board of Directors shall, in its absolute
discretion, determine to be necessary or advisable to
prevent the Corporation from qualifying as a
"personal holding company", within the meaning of
-7-
640429.1
<PAGE>
the Internal Revenue Code of 1986, as amended from
time to time.
(g) Liquidation. In the event of the liquidation of a
particular Series, the stockholders of the Series that is
being liquidated shall be entitled to receive, as a class,
when and as declared by the Board of Directors, the excess of
the assets belonging to that Series over the liabilities of
that Series. The holders of shares of any particular Series
shall not be entitled thereby to any distribution upon
liquidation of any other Series. The assets so distributable
to the stockholders of any particular Series shall be
distributed among such stockholders in proportion to the
number of shares of that Series held by them and recorded on
the books of the Corporation. The liquidation of any
particular Series in which there are shares then outstanding
may be authorized by vote of a majority of the Board of
Directors then in office, subject to the approval of a
majority of the outstanding voting securities of that Series,
as defined in the Investment Company Act of 1940, and without
the vote of the holders of shares of any other Series. The
liquidation of a particular Series may be accomplished, in
whole or in part, by the transfer of assets of such Series to
another Series or by the exchange of shares of Series for the
shares of another Series.
(h) Net Asset Value Per Share. The net asset value
per share of any Series shall be the quotient obtained by
dividing the value of the net assets of that Series (being the
value of the assets belonging to that Series less the
liabilities of that Series) by the total number of shares of
that Series outstanding, all as determined by or under the
direction of the Board of Directors in accordance with
generally accepted accounting principles and the Investment
Company Act of 1940. Subject to the applicable provisions of
the Investment Company Act of 1940, the Board of Directors, in
its sole discretion, may prescribe and shall set forth in the
By-Laws of the Corporation or in a duly adopted resolution of
the Board of Directors such bases and times for determining
the value of the assets belonging to, and the net asset value
per share of outstanding shares of, each Series, or the net
income attributable to such shares, as the Board of Directors
deems necessary or desirable. The Board of Directors shall
have full discretion, to the extent not inconsistent with the
Maryland General Corporation Law and the Investment Company
Act of 1940, to determine which item shall be treated as
income and which items
-8-
640429.1
<PAGE>
as capital and whether any item of expense shall be charged to
income or capital. Each such determination and allocation
shall be conclusive and binding for all purposes.
The Board of Directors may determine to maintain the
net asset value per share of any Series at a designated
constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the Investment Company Act of
1940 for the continuing declaration of income attributable to
that Series as dividends and for the handling of any losses
attributable to that Series. Such procedures may provide that
in the event of any loss, each stockholder shall be deemed to
have contributed to the capital of the Corporation
attributable to that Series his pro rata portion of the total
number of shares required to be canceled in order to permit
the net asset value per share of that Series to be maintained,
after reflecting such loss, at the designated constant dollar
amount. Each stockholder of the Corporation shall be deemed to
have agreed, by his investment in any Series with respect to
which the Board of Directors shall have adopted any such
procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
(i) Equality. All shares of each particular Series
shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities of that
Series), and each share of any particular Series shall be
equal to each other share of that Series. The Board of
Directors may from time to time divide or combine the shares
of any particular Series into a greater or lesser number of
shares of that series without thereby changing the
proportionate interest in the assets belonging to that Series
or in any way affecting the rights of holders of shares of any
other Series.
(j) Conversion or Exchange Rights. Subject to
compliance with the requirements of the Investment Company Act
of 1940, the Board of Directors shall have the authority to
provide that holders of shares of any Series shall have the
right to convert or exchange said shares into shares of one or
more other Series of shares in accordance with such
requirements and procedures as may be established by the Board
of Directors.
(7) The Board of Directors may, from time to time and without
stockholder action, classify shares of a particular
-9-
640429.1
<PAGE>
Series into one or more additional classes of that Series, the voting, dividend,
liquidation and other rights of which shall differ from the classes of common
stock of that Series to the extent provided in Articles Supplementary for such
additional class, such Articles to be filed for record with the appropriate
authorities of the State of Maryland. Each class so created shall consist, until
further changed, of the lesser of (x) the number of shares classified in Section
(5) of this Article SIXTH or (y) the number of shares that could be issued by
issuing all of the shares of that Series currently or hereafter classified less
the total number of shares of all classes of such Series then issued and
outstanding. Any class of a Series of Common Stock shall be referred to herein
individually as a "Class" and collectively, together with any further class or
classes of such Series from time to time established, as the "Classes".
(8) All Classes of a particular Series of Common Stock of the
Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights with any other shares
of Common Stock of that Series; provided, however, that notwithstanding anything
in the charter of the Corporation to the contrary:
(a) Any class of shares may be subject to such sales
loads, contingent deferred sales charges, Rule 12b-1 fees,
administrative fees, service fees, or other fees, however
designated, in such amounts as may be established by the Board
of Directors from time to time in accordance with the
Investment Company Act of 1940.
(b) Expenses related solely to a particular Class of
a Series (including, without limitation, distribution expenses
under a Rule 12b-1 plan and administrative expenses under an
administration or service agreement, plan or other
arrangement, however designated) shall be borne by that Class
and shall be appropriately reflected (in the manner determined
by the Board of Directors) in the net asset value, dividends,
distributions and liquidation rights of the shares of that
Class.
(c) As to any matter with respect to which a separate
vote of any Class of a Series is required by the Investment
Company Act of 1940 or by the Maryland General Corporation Law
(including, without limitation, approval of any plan,
agreement or other arrangement referred to in subsection (b)
above), such requirement as to a separate vote by that Class
shall apply in lieu of Single Class Voting, and if permitted
by the Investment Company Act of 1940 or the Maryland General
Corporation Law, the Classes of more than one Series
-10-
640429.1
<PAGE>
shall vote together as a single class on any such matter which
shall have the same effect on each such Class. As to any
matter which does not affect the interest of a particular
Class of a Series, only the holders of shares of the affected
Classes of that Series shall be entitled to vote.
(9) The Corporation may issue and sell fractions of shares of
capital stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the words
"share" or "shares" are used in the charter or By-Laws of the Corporation, they
shall be deemed to include fractions of shares where the context does not
clearly indicate that only full shares are intended.
(10) The Corporation shall not be obligated to issue
certificates representing shares of any Class or Series of capital stock. At the
time of issue or transfer of shares without certificates, the Corporation shall
provide the stockholder with such information as may be required under the
Maryland General Corporation Law.
(11) No holder of any shares of stock of the Corporation shall
be entitled as of right to subscribe for, purchase, or otherwise acquire any
such shares which the Corporation shall issue or propose to issue; and any and
all of the shares of stock of the Corporation, whether now or hereafter
authorized, may be issued, or may be reissued or transferred if the same have
been reacquired and have treasury status, by the Board of Directors to such
persons, firms, corporations and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine, without first offering same, or any thereof, to any said holder.
(12) All persons who shall acquire stock or other securities
of the Corporation shall acquire the same subject to the provisions of these
Articles of Incorporation, as from time to time amended.
SEVENTH: The number of directors of the Corporation, until
such number shall be increased pursuant to the By-Laws of the Corporation, shall
be two. The number of directors shall never be less than the number prescribed
by the General Corporation Law of the State of Maryland and shall never be more
than twenty. The names of the persons who shall act as directors of the
Corporation until their successors are duly chosen and qualify are Steven W.
Duff and Bernadette N. Finn.
EIGHTH: The following provisions are inserted for the
purpose of defining, limiting and regulating the powers of the Corporation and
of the Board of Directors and stockholders.
-11-
640429.1
<PAGE>
(1) The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which shall have and may
exercise all powers of the Corporation except those powers which are by law, by
these Articles of Incorporation or by the By-Laws conferred upon or reserved to
the stockholders. In furtherance and not in limitation of the powers conferred
by law, the Board of Directors shall have power:
(a) to make, alter and repeal the By-Laws of the
Corporation;
(b) to issue and sell, from time to time, shares of
any class or series of the Corporation's stock in such amounts
and on such terms and conditions, and for such amount and kind
of consideration, as the Board of Directors shall determine,
provided that the consideration per share to be received by
the Corporation shall be not less than the greater of the net
asset value per share of that class of stock at such time
computed in accordance with Article SIXTH hereof or the par
value thereof;
(c) from time to time to set apart out of any
assets of the Corporation otherwise available for dividends a
reserve or reserves for working capital or for any other
proper purpose or purposes, and to reduce, abolish or add to
any such reserve or reserves from time to time as said Board
of Directors may deem to be in the best interests of the
Corporation; and to determine in its discretion what part of
the assets of the Corporation available for dividends in
excess of such reserve or reserves shall be declared in
dividends and paid to the stockholders of the Corporation; and
(d) from time to time to determine to what extent
and at what times and places and under what conditions and
regulations the accounts, books and records of the
Corporation, or any of them, shall be open to the inspection
of the stockholders; and no stockholder shall have any right
to inspect any account or book or document of the Corporation,
except as conferred by the laws of the State of Maryland,
unless and until authorized to do so by resolution of the
Board of Directors or of the stockholders of the Corporation.
(2) Notwithstanding any provision of the General Corporation
Law of the State of Maryland requiring a greater proportion than a majority of
the votes of all classes or of any class of the Corporation's stock entitled to
be cast in order to take or authorize any action, any such action may be taken
or authorized upon the concurrence of a majority of the aggregate number of
votes entitled to be cast thereon subject to any
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applicable requirements of the Investment Company Act of 1940, as from time to
time in effect, or rules or orders of the Securities and Exchange Commission or
any successor thereto.
(3) Except as may otherwise be expressly provided by
applicable statutes or regulatory requirements, the presence in person or by
proxy of the holders of one-third of the shares of stock of the Corporation
entitled to vote shall constitute a quorum at any meeting of the stockholders.
(4) Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted
accounting principles by or pursuant to the discretion of the Board of
Directors, as to the amount of the assets, debts, obligations, or liabilities of
the Corporation, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purposes for creating such reserves or
charges, as to the use, alteration or cancellation of any reserves or charges
(whether or not any debt, obligation or liability for which such reserves or
charges shall have been created shall have been paid or discharged or shall by
then or thereafter required to be paid or discharged), as to the value of or the
method of valuing any investment owned or held by the Corporation, as to the
market value or fair value of any investment or fair value of any other asset of
the Corporation, as to the allocation of any asset of the Corporation to a
particular class or classes of the Corporation's stock, as to the charging of
any liability of the Corporation to a particular class or classes of the
Corporation's stock, as to the number of shares of the Corporation outstanding,
as to the estimated expense to the Corporation in connection with purchases of
its shares, as to the ability to liquidate investments in orderly fashion, or as
to any other matters relating to the issue, sale, purchase and/or other
acquisition or disposition of investments or shares of the Corporation, shall be
final and conclusive and shall be binding upon the Corporation and all holders
of its shares, past, present and future, and shares of the Corporation are
issued and sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.
(5) Except to the extent prohibited by the Investment Company
Act of 1940, as amended, or rules, regulations or orders thereunder promulgated
by the Securities and Exchange Commission or any successor thereto or by the
By-Laws of the Corporation, a director, officer or employee of the Corporation
shall not be disqualified by his position from dealing or contracting with the
Corporation, nor shall any transaction or contract of the Corporation be void or
voidable by reason of the fact that any director, officer or employee or any
firm of which any director, officer or employee is a member or any corporation
of which any director, officer or employee is a stockholder, officer or
director, is in any way interested in such transaction or
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contract; provided that in case a director, or a firm or corporation of which a
director is a member, stockholder, officer or director, is so interested, such
fact shall be disclosed to or shall have been known by the Board of Directors or
a majority thereof; and any director of the Corporation who is so interested, or
who is a member, stockholder, officer or director of such firm or corporation,
may be counted in determining the existence of a quorum at any meeting of the
Board of Directors of the Corporation which shall authorize any such transaction
or contract, with like force and effect as if he were not such director, or
member, stockholder, officer or director of such firm or corporation.
(6) Specifically and without limitation of the foregoing
subsection (e) but subject to the exception therein prescribed, the Corporation
may enter into management or advisory, underwriting, distribution and
administration contracts and other contracts, and may otherwise do business,
with Reich & Tang Asset Management L.P., and any parent, subsidiary, partner, or
affiliate of such firm or any affiliates of any such affiliate, or the
stockholders, directors, officers, partners and employees thereof, and may deal
freely with one another notwithstanding that the Board of Directors of the
Corporation may be composed in part of directors, officers, partners or
employees of such firm and/or its parents, subsidiaries or affiliates and that
officers of the Corporation may have been, be or become directors, officers, or
employees of such firm, and/or its parents, subsidiaries or affiliates, and
neither such management or advisory, underwriting, distribution or
administration contracts nor any other contract or transaction between the
Corporation and such firm and/or its parents, subsidiaries or affiliates shall
be invalidated or in any way affected thereby, nor shall any director or officer
of the Corporation be liable to the Corporation or to any stockholder or
creditor thereof or to any person for any loss incurred by it or him under or by
reason of such contract or transaction; provided that nothing herein shall
protect any director or officer of the Corporation against any liability to the
Corporation or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office; and provided always that
such contract or transaction shall have been on terms that were not unfair to
the Corporation at the time at which it was entered into.
NINTH: (1) The Corporation shall indemnify (i) its currently
acting and former directors and officers, whether serving the Corporation or at
its request any other entity, to the fullest extent required or permitted by the
General Laws of the State of Maryland now or hereafter in force, including the
advance of expenses under the procedures and to the fullest extent permitted by
law, and (ii) other employees and agents to
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such extent as shall be authorized by the Board of Directors or the By-Laws and
as permitted by law. Nothing contained herein shall be construed to protect any
director or officer of the Corporation against any liability to the Corporation
or its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such indemnification
arrangements as may be permitted by law. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit or eliminate the
right of indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.
(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company Act of
1940, no director or officer of the Corporation shall be personally liable to
the Corporation or its stockholders for money damages; provided, however, that
nothing herein shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. No amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of liability provided to
directors and officers hereunder with respect to any act or omission occurring
prior to such amendment or repeal.
TENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in these Articles of Incorporation or
in any amendment hereto in the manner now or hereafter prescribed by the laws of
the State of Maryland and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned, being the incorporator of
the Corporation, has adopted and signed these Articles of Incorporation for the
purpose of forming the corporation described herein pursuant to the General
Corporation
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law of the State of Maryland and does hereby acknowledge that said adoption and
signing are her act.
/s/ Amy McGuffin
---------------------
Amy McGuffin
Dated: October 6, 1997
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BY-LAWS
OF
TEXAS DAILY MUNICIPAL INCOME FUND, INC.
a Maryland corporation
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The Corporation
shall have a principal office in the City of Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have offices
also at such other places within and without the State of Maryland as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders shall be
held at such place, either within the State of Maryland or at such other place
within the United States, as shall be fixed from time to time by the Board of
Directors.
Section 2. Annual Meetings. The Corporation shall not be
required to hold an annual meeting of its stockholders in any year in which none
of the following is required to be acted on by the holders of any class or
series of stock under the Investment Company Act of 1940: (a) election of the
directors, (b) approval of the Corporation's investment advisory agreement with
respect to a particular class or series; (c) ratification of the selection of
independent public accountants; and (d) approval of the Corporation's
distribution agreement with respect to a particular class or series. In the
event that the Corporation shall be required to hold an annual meeting of
stockholders by the Investment Company Act of 1940, such meeting of stockholders
shall be held on a date fixed from time to time by the Board of Directors not
less than ninety nor more than one hundred twenty days following the end of such
fiscal year of the Corporation.
Section 3. Notice of Annual Meeting. Written or printed
notice of an annual meeting, stating the place, date and hour thereof, shall be
given to each stockholder entitled to vote
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thereat not less than ten nor more than ninety days before the date of the
meeting.
Section 4. Special Meetings. Special meetings of stockholders
may be called by the chairman, the president or by the Board of Directors and
shall be called by the secretary upon the written request of holders of shares
entitled to cast not less than twenty-five percent of all the votes entitled to
be cast at such meeting. Such request shall state the purpose or purposes of
such meeting and the matters proposed to be acted on thereat. In the case of
such request for a special meeting, upon payment by such stockholders to the
Corporation of the estimated reasonable cost of preparing and mailing a notice
of such meeting, the secretary shall give the notice of such meeting. The
secretary shall not be required to call a special meeting to consider any matter
which is substantially the same as a matter acted upon at any special meeting of
stockholders held within the preceding twelve months unless requested to do so
by the holders of shares entitled to cast not less than a majority of all votes
entitled to be cast at such meeting.
Section 5. Notice of Special Meeting. Written or printed
notice of a special meeting of stockholders, stating the place, date, hour and
purpose thereof, shall be given by the secretary to each stockholder entitled to
vote thereat not less than ten nor more than ninety days before the date fixed
for the meeting.
Section 6. Business of Special Meetings. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice thereof.
Section 7. Quorum. Except as may otherwise be expressly
provided by applicable statutes or regulations, the holders of one-third of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business.
Section 8. Voting. When a quorum is present at any meeting,
the affirmative vote of a majority of the votes cast shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the Investment Company Act of 1940, as from time to time in effect,
or other statutes or rules or orders of the Securities and Exchange Commission
or any successor thereto or of the Articles of Incorporation, a different vote
is required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Proxies. Each stockholder shall at every meeting
of stockholders be entitled to one vote in person or by
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proxy for each share of the stock having voting power held by such stockholder,
but no proxy shall be voted after eleven months from its date, unless otherwise
provided in the proxy.
Section 10. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, to express consent to corporate action
in writing without a meeting, or to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date
which shall be not more than ninety days and, in the case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be taken. In lieu of
fixing a record date, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period, but not to exceed, in any case,
twenty days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days immediately
preceding such meeting. If no record date is fixed and the stock transfer books
are not closed for the determination of stockholders: (1) the record date for
the determination of stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on the day on which
notice of the meeting of stockholders is mailed or the day thirty days before
the meeting, whichever is the closer date to the meeting; and (2) the record
date for the determination of stockholders entitled to receive payment of a
dividend or an allotment of any rights shall be at the close of business on the
day on which the resolution of the Board of Directors, declaring the dividend or
allotment of rights, is adopted, provided that the payment or allotment date
shall not be more than ninety days after the date of the adoption of such
resolution.
Section 11. Inspectors of Election. The directors, in advance
of any meeting, may, but need not, appoint one or more inspectors to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his or her
ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power
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of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or her or them
and execute a certificate of any fact found by him or her or them.
Section 12. Informal Action by Stockholders. Except to the
extent prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of directors shall
be fixed at no less than two nor more than twenty. Within the limits specified
above, the number of directors shall be fixed from time to time by the Board of
Directors, but the tenure of office of a director in office at the time of any
decrease in the number of directors shall not be affected as a result thereof.
The directors shall be elected to hold office at the annual meeting of
stockholders, except as provided in Section 2 of this Article, and each director
shall hold office until the next annual meeting of stockholders or until his
successor is elected and qualified. Any director may resign at any time upon
written notice to the Corporation. Any director may be removed, either with or
without cause, at any meeting of stockholders duly called and at which a quorum
is present by the affirmative vote of the majority of the votes entitled to be
cast thereon, and the vacancy in the Board of Directors caused by such removal
may be filled by the stockholders at the time of such removal. Directors need
not be stockholders.
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Section 2. Vacancies and Newly Created Directorships. Any
vacancy occurring in the Board of Directors for any cause, including an increase
in the number of directors, may be filled by the stockholders or by a majority
of the remaining members of the Board of Directors even if such majority is less
than a quorum. So long as the Corporation is a registered investment company
under the Investment Company Act of 1940, vacancies in the Board of Directors
may be filled by a majority of the remaining members of the Board of Directors
only if, immediately after filing any such vacancy, at least two-thirds of the
directors then holding office shall have been elected to such office at a
meeting of stockholders. A director elected by the Board of Directors to fill a
vacancy shall be elected to hold office until the next annual meeting of
stockholders or until his successor is elected and qualifies.
Section 3. Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors which shall
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
By-Laws conferred upon or reserved to the stockholders.
Section 4. Annual Meeting. The first meeting of each newly
elected Board of Directors shall be held immediately following the adjournment
of the annual meeting of stockholders and at the place thereof. No notice of
such meeting to the directors shall be necessary in order legally to constitute
the meeting, provided a quorum shall be present. In the event such meeting is
not so held, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 5. Other Meetings. The Board of Directors of the
Corporation or any committee thereof may hold meetings, both regular and
special, either within or without the State of Maryland. Regular meetings of the
Board of Directors may be held without notice at such time and at such place as
shall from time to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the chairman, the president
or by two or more directors. Notice of special meetings of the Board of
Directors shall be given by the secretary to each director at least three days
before the meeting if by mail or at least 24 hours before the meeting if given
in person or by telephone or by telegraph. The notice need not specify the
business to be transacted.
Section 6. Quorum and Voting. At meetings of the Board of
Directors, two of the directors in office at the time, but in no event less than
one-third of the entire Board of Directors, shall constitute a quorum for the
transaction of business. When required pursuant to Section 15(c) under the
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Investment Company Act of 1940 or Rule 12b-1 thereunder a quorum shall also
require the presence in person of a majority of directors who are not parties to
a contract or agreement to be voted upon or interested persons of any such
party. The action of a majority of the directors present at a meeting at which a
quorum is present shall be the action of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 7. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, appoint from
among its members an executive committee and other committees of the Board of
Directors, each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may, to the extent provided in the
resolution, delegate to such committees, in the intervals between meetings of
the Board of Directors, any or all of the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except the power
to declare dividends, to issue stock, to recommend to stockholders any action
requiring stockholders' approval, to amend the By-Laws or to approve any merger
or share exchange which does not require stockholders' approval. Such committee
or committees shall have the name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless the Board of
Directors designates one or more directors as alternate members of any
committee, who may replace an absent or disqualified member at any meeting of
the committee, the members of any such committee present at any meeting and not
disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member of such committee. At
meetings of any such committee, a majority of the members or alternate members
of such committee shall constitute a quorum for the transaction of business and
the act of a majority of the members or alternate members present at any meeting
at which a quorum is present shall be the act of the committee.
Section 8. Minutes of Committee Meetings. The committees
shall keep regular minutes of their proceedings.
Section 9. Informal Action by Board of Directors and
Committees. Any action, except approving the Rule 12b-1 Plan and the Advisory
Agreement, required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if a
written consent thereto is signed by all members of the Board of Directors or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee.
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Section 10. Meetings by Conference Telephone. Except to the
extent prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, the members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and such participation shall constitute presence in person at such meeting.
Section 11. Fees and Expenses. The directors may be paid their
expenses of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and stockholders
mailed to them at their post office addresses appearing on the books of the
Corporation shall be deemed to be given at the time when deposited in the United
States mail.
Section 2. Waiver of Notice. Whenever any notice is required
to be given under the provisions of the statutes, of the Articles of
Incorporation or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed the equivalent of notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation shall
be chosen by the Board of Directors at its first meeting after each annual
meeting of stockholders and shall be a chairman
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of the Board of Directors, a president, a secretary and a treasurer. The Board
of Directors may also choose such vice presidents and additional officers or
assistant officers as it may deem advisable. Any number of offices, except the
offices of president and vice president, may be held by the same person. No
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law to be executed, acknowledged or
verified by two or more officers.
Section 2. Other Officers and Agents. The Board of Directors
may appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such power and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the Corporation
shall hold office at the pleasure of the Board of Directors. Each officer shall
hold his or her office until his or her successor is elected and qualifies or
until his or her earlier resignation or removal. Any officer may resign at any
time upon written notice to the Corporation. Any officer elected or appointed by
the Board of Directors may be removed at any time by the Board of Directors
when, in its judgment, the best interests of the Corporation will be served
thereby. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors.
Section 4. Chairman of the Board of Directors. The chairman
of the Board of Directors shall be the chief executive officer of the
Corporation, shall preside at all meetings of the stockholders and of the Board
of Directors, shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. The chairman shall execute on behalf of the
Corporation, and may affix the seal or cause the seal to be affixed to, all
instruments requiring such execution except to the extent that signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
Section 5. President. The president shall, in the absence of
the chairman of the Board of Directors, preside at all meetings of the
stockholders or of the Board of Directors. The president shall have general and
active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. The
president shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
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Section 6. Vice Presidents. The vice presidents shall act
under the direction of the president and in the absence or disability of the
president shall perform the duties and exercise the power of the president. They
shall perform such other duties and have such other powers as the president or
the Board of Directors may from time to time prescribe. The Board of Directors
may designate one or more executive vice presidents or may otherwise specify the
order of seniority of the vice presidents and, in that event, the duties and
powers of the president shall descend to the vice presidents in the specified
order of seniority.
Section 7. Secretary. The secretary shall act under the
direction of the president. Subject to the direction of the president, the
secretary shall attend all meetings of the Board of Directors and all meetings
of stockholders and record the proceedings in a book to be kept for that purpose
and shall perform like duties for the committees designated by the Board of
Directors when required. The secretary shall give, or cause to be given, notice
of all meetings of stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the president or the
Board of Directors. The secretary shall keep in safe custody the seal of the
Corporation and shall affix the seal or cause it to be affixed to any instrument
requiring it.
Section 8. Assistant Secretaries. The assistant secretaries in
the order of their seniority, unless otherwise determined by the president or
the Board of Directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the president or the Board of
Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under the
direction of the president. Subject to the direction of the president he shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The treasurer shall disburse the funds of the
Corporation as may be ordered by the president or the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the president and
the Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his or her transactions as treasurer and of the
financial condition of the Corporation.
Section 10. Assistant Treasurers. The assistant treasurers
in the order of their seniority, unless otherwise determined by the president or
the Board of Directors, shall, in
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the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. They shall perform such other duties and have such
other powers as the president or the Board of Directors may from time to time
prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the Corporation
who has made full payment of the consideration for such stock shall be entitled
upon request to have a certificate, signed by, or in the name of the Corporation
by, the president or a vice president and countersigned by the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
Corporation, certifying the number and class of whole shares of stock owned by
such holder in the Corporation.
Section 2. Fractional Share Interests or Scrip. The
Corporation may, but shall not be obliged to, issue fractions of a share of
stock, arrange for the disposition of fractional interests by those entitled
thereto, pay in cash the fair value of fractions of a share of stock as of the
time when those entitled to receive such fractions are determined, or issue
scrip or other evidence of ownership which shall entitle the holder to receive a
certificate for a full share of stock upon the surrender of such scrip or other
evidence of ownership aggregating a full share. Fractional shares of stock shall
have proportionately to the respective fractions represented thereby all the
rights of whole shares, including the right to vote, the right to receive
dividends and distributions and the right to participate upon liquidation of the
Corporation, excluding, however, the right to receive a stock certificate
representing such fractional shares. The Board of Directors may cause such scrip
or evidence of ownership to be issued subject to the condition that it shall
become void if not exchanged for certificates representing full shares of stock
before a specified date or subject to the condition that the shares of stock for
which such scrip or evidence of ownership is exchangeable may be sold by the
Corporation and the proceeds thereof distributed to the holders of such scrip or
evidence of ownership, or subject to any other reasonable conditions which the
Board of Director shall deem advisable, including provision for forfeiture of
such proceeds to the Corporation if not claimed within a period of not less than
three years after the date of the original issuance of scrip certificates.
Section 3. Signatures on Certificates. Any of or all the
signatures on a certificate may be a facsimile. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
cease to be such officer before
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such certificate is issued, it may be issued with the same effect as if he or
she were such officer at the date of issue. The seal of the Corporation or a
facsimile thereof may, but need not, be affixed to certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The Board
of Directors may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Corporation alleged
to have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his or her legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the registered
owner of shares, and if a certificate has been issued to represent such shares
upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, subject to the Corporation's
rights to redeem or purchase such shares, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the By-Laws and of the law regarding the transfer of shares
have been duly complied with, to record the transactions upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be
entitled to recognize the person registered on its books as the owner of shares
to be the exclusive owner for all purposes including, redemption, voting and
dividends, and the Corporation shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in their
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absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for repairing or maintaining any property of the Corporation,
or for the purchase of additional property, or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may modify or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock of the
Corporation may, subject to the provisions of the Articles of Incorporation and
of the provisions of applicable law, be declared by the Board of Directors at
any time. Dividends may be paid in cash, in property or in shares of the
Corporation's stock, subject to the provisions of the Articles of Incorporation
and of applicable law.
Section 3. Capital Gains Distributions. The amount and number
of capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.
Section 4. Checks. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board of
Directors.
Section 6. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words,
"Corporate Seal, Maryland". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in another manner reproduced.
Section 7. Filing of By-Laws. A certified copy of the
By-Laws, including all amendments, shall be kept at the principal
office of the Corporation in the State of Maryland.
Section 8. Annual Report. The books of account of the
Corporation shall be examined by an independent firm of public accountants at
the close of each annual fiscal period of the Corporation and at such other
times, if any, as may be directed by the Board of Directors of the Corporation.
Within one hundred and twenty days of the close of each annual fiscal period a
report based upon such examination at the close of that fiscal period shall be
mailed to each stockholder of the Corporation of record at the close of such
annual fiscal period, unless the Board of Directors shall set another record
date, at his address as the same appears on the books of the Corporation. Each
such
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report shall contain such information as is required to be set forth therein by
the Investment Company Act of 1940 and the rules and regulations promulgated by
the Securities and Exchange Commission thereunder. Such report shall also be
submitted at the annual meeting of the stockholders and filed within twenty days
thereafter at the principal office of the Corporation in the State of Maryland.
Section 9. Stock Ledger. The Corporation shall maintain at its
principal office outside of the State of Maryland an original or duplicate stock
ledger containing the names and addresses of all stockholders and the number of
shares of stock hold by each stockholder. Such stock ledger may be in written
form or in any other form capable of being converted into written form within a
reasonable time for visual inspection.
Section 10. Ratification of Accountants by Stockholders. At
every annual meeting of the stockholders of the Corporation otherwise called
there shall be submitted for ratification or rejection the name of the firm of
independent public accountants which has been selected for the current fiscal
year in which such annual meeting is held by a majority of those members of the
Board of Directors who are not investment advisers of, or interested person (as
defined in the Investment Company Act of 1940) of an investment adviser of, or
officers or employees of, the Corporation.
Section 11. Custodian. All securities and similar investments
owned by the Corporation shall be held by a custodian which shall be either a
trust company or a national bank of good standing, having a capital surplus and
undivided profits aggregating not less than two million dollars ($2,000,000), or
a member firm of the New York Stock Exchange, Inc. The terms of custody of such
securities and cash shall include such provisions required to be contained
therein by the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission.
Upon the resignation or inability to serve of any such
custodian the Corporation shall (a) use its best efforts to obtain a successor
custodian, (b) require the cash and securities of the Corporation held by the
custodian to be delivered directly to the successor custodian, and (c) in the
event that no successor custodian can be found, submit to the stockholders of
the Corporation, before permitting delivery of such cash and securities to
anyone other than a successor custodian, the question whether the Corporation
shall be dissolved or shall function without a custodian; provided, however,
that nothing herein contained shall prevent the termination of any agreement
between the Corporation and any such custodian by the affirmative vote of the
holders of a majority of all the stock of the Corporation at the time
outstanding and entitled to vote. Upon
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its resignation or inability to serve and pending action by the Corporation as
set forth in this section, the custodian may deliver any assets of the
Corporation held by it to a qualified bank or trust company in the City of New
York, or to a member firm of the New York Stock Exchange, Inc. selected by it,
such assets to be held subject to the terms of custody which governed such
retiring custodian.
Section 12. Investment Advisers. The Corporation may enter
into one or more management or advisory, underwriting, distribution or
administration contract with any person, firm, partnership, association or
corporation but such contract or contracts shall continue in effect only so long
as such continuance is specifically approved annually by a majority of the Board
of Directors or by vote of the holders of a majority of the voting securities of
the Corporation, and in either case by vote of a majority of the directors who
are not parties to such contracts or interested persons (as defined in the
Investment Company Act of 1940) of any such party cast in person at a meeting
called for the purpose of voting on such approval.
ARTICLE VIII
Amendments
The Board of Directors shall have the power, by a majority
vote of the entire Board of Directors at any meeting thereof, to make, alter and
repeal By-Laws of the Corporation.
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