RULE 497(c)
Registration No. 2-65315
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PROSPECTUS
June 22, 1999
Short Term Income Fund, Inc.
Total Resource Account
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Class of Shares ("TRA Shares")
of U.S. Government Portfolio
The objective of the Fund through its
U.S. Government Portfolio is to seek as
high a level of current income to the
extent consistent with the preservation [IMAGE OMITTED]
of capital and the maintenance of
liquidity.
The Securities and Exchange Commission
has not approved or disapproved these
securities or passed upon the accuracy
or adequacy of this prospectus. Any
representation to the contrary is a
criminal offense.
MetLife (R) Securities
Investing Made Easy(R)
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TABLE OF CONTENTS
2 Risk/Return Summary: Investments, Risks,
and Performance
5 Fee Table
6 Investment Objectives, Principal Investment
Strategies and Related Risks
8 Management, Organization and Capital Structure
10 Shareholder Information
19 Distribution Arrangements
22 Financial Highlights
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I. Risk/Return Summary:
Investments, Risks, and Performance
Investment Objectives
The objective of the Fund through its U.S. Government Portfolio is to seek
as high a level of current income to the extent consistent with the
preservation of capital and the maintenance of liquidity. There is no
assurance that the Fund will achieve its investment objectives.
Principal Investment Strategies
The U.S. Government Portfolio is a money market fund which invests in high
quality, short-term debt instruments. The Fund seeks to maintain investment
portfolios with a dollar-weighted average maturity of 90 days or less, to
value its investment portfolio at amortized cost and maintain a net asset
value of $1.00 per share.
The U.S. Government Portfolio
The U.S. Government Portfolio of the Fund seeks to achieve its objectives
principally by investing in obligations issued or guaranteed by the United
States Government, including repurchase agreements covering those types of
obligations. Repurchase agreements are agreements in which a buyer
purchases a security and simultaneously agrees with the vendor to resell
the security to the vendor at an agreed upon time and price.
Principal Risks
o Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the
Fund. The value of the Fund's shares and the securities held by the
Fund can each decline in value.
o The amount of income the Fund generates will vary with changes in
prevailing interest rates.
o An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other governmental agency.
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o The U.S. Government Portfolio's investment policy of only investing in
obligations issued or guaranteed by the United States Government,
while minimizing risk of loss, may produce a lower yield than a policy
of investing in other types of instruments.
Risk/Return Bar Chart and Table
The following bar chart and table may assist in your decision to invest in
the TRA Shares of the Fund. The bar chart shows the change in the annual
returns of the Class A shares of the Fund over the last ten calendar years.
The table shows the average annual returns for the last one, five, ten year
periods, and since the inception of the Class A shares of the Fund. While
analyzing this information, please note that the Fund's past performance is
not an indication of how the Fund will perform in the future. Also, the
returns presented are for a class that is not offered in this Prospectus
that would have substantially similar annual returns because the shares are
invested in the same portfolio of securities and the annual returns differ
only to the extent that the classes do not have the same expenses. The
current 7-day yield of the Fund may be obtained by calling the Fund
toll-free at 1-800-221-3079.
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Short Term Income Fund, Inc. - U.S. Government Portfolio
Class A Shares (1)(2)(3)(4)
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[GRAPHIC OMITTED]
Calendar Year End % Total Return
1989 8.25%
1990 7.47%
1991 5.47%
1992 3.29%
1993 2.45%
1994 3.43%
1995 5.18%
1996 4.71%
1997 4.76%
1998 4.64%
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(1) The chart shows returns for the Class A shares of the Fund's U.S.
Government Portfolio that are not offered by this Prospectus but that
will have substantially similar annual returns as the TRA Shares
because the shares are invested in the same portfolio of securities
and the annual returns will differ only to the extent that the Classes
do not have the same expenses. If the expenses of the TRA Shares are
higher than the Class A shares, then your annual return may be lower.
(2) As of March 31, 1999, the Fund's U.S. Government Portfolio had a
year-to-date return of 0.96%.
(3) The Fund's U.S. Government Portfolio's highest quarterly return was
2.10% for the quarter ended June 30, 1989; the lowest quarterly return
was 0.60% for the quarter ended December 31,1993.
(4) Investors purchasing or redeeming shares through a financial
intermediary may be charged a fee in connection with such service and,
therefore, the net return to such investors may be less than the net
return by investing in the Fund directly.
Average Annual Total Returns - U.S. Government Portfolio
Class A
For the periods ended December 31, 1998
One Year 4.64%
Five Years 4.54%
Ten Years 4.95%
Average Annual Total Returns
since Inception 5.83%
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Fee Table
This table describes the fees and expenses that you may pay if you buy and
hold the TRA Shares of the Fund's U.S. Government Portfolio.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
TRA Shares
Management Fees................................ .26%
Distribution and Service (12b-1) Fees.......... .25%
*Other Expenses................................ .50%
Administration Fees....................... .21%
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Total Annual Fund Operating Expenses........... 1.01%
* "Other Expenses" are based on estimated amounts for the current fiscal
year. The Distributor may voluntarily waive the entire 12b-1 Fee or
the Fund may receive reimbursements of certain Other Expenses in order
to maintain a Total Annual Fund Operating Expense Ratio of 0.70% with
respect to the TRA shares. After such waivers and reimbursements, the
12b-1 Fee with respect to the TRA shares would be 0.00% and Other
Expenses with respect to TRA shares would be 0.44%. This fee waiver
and reimbursement arrangement may be terminated or changed at any time
at the option of the Distributor or the Fund, respectively.
Example
This Example is intended to help you compare the cost of investing in the
Fund's U.S. Government Portfolio with the cost of investing in other money
market funds.
The Example assumes that you invest $10,000 in the U.S. Government
Portfolio of the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
1 year 3 years
U.S. Government Portfolio - TRA Shares $103 $322
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II. Investment Objectives, Principal Investment
Strategies and Related Risks Investment Objectives
The U.S. Government Portfolio is a money market fund which seeks to provide
a high level of current income while maintaining liquidity and preserving
capital.
The Fund's investment objectives described in this section may only be
changed upon the approval of the holders of a majority of the outstanding
shares of the Fund that would be affected by such a change.
Principal Investment Strategies
Generally
In order to maintain a share price of $1.00, the Fund must comply with
certain industry regulations. The Fund will only invest in securities which
are denominated in United States dollars. Other regulations pertain to the
maturity and credit quality of the securities in which the Fund may invest.
The Fund will only invest in securities which have, or are deemed to have,
a remaining maturity of 397 days or less. Also, the average maturity for
all securities contained in the Fund, on a dollar-weighted basis, will be
90 days or less.
The Fund will only invest in either securities which have been rated (or
whose issuers have been rated) in the highest short-term rating category by
nationally recognized statistical rating organizations, or are unrated
securities but which have been determined by the Fund's Board of Directors
to be of comparable quality.
Subsequent to its purchase by the Fund, the quality of an investment may
cease to be rated or its rating may be reduced below the minimum required
for purchase by the Fund. If this occurs, the Board of
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Directors of the Fund shall reassess the security's credit risks and shall
take such action as the Board of Directors determines is in the best
interest of the Fund and its shareholders. Reassessment is not required,
however, if the security is disposed of or matures within five business
days of the Manager becoming aware of the new rating and provided further
that the Board of Directors is subsequently notified of the Manager's
actions.
The Fund shall invest not more than 5% of its total assets in securities
issued by a single issuer.
The Fund's investment manager considers the following factors when buying
and selling securities for the Fund: (i) availability of cash, (ii)
redemption requests, (iii) yield management, and (iv) credit management.
U.S. Government Portfolio
The U.S. Government Portfolio is intended to attain the Fund's investment
objectives through investments limited to obligations issued or guaranteed
by the United States Government including repurchase agreements covering
those types of obligations. The Fund will enter into repurchase agreements
for inclusion in the U.S. Government Portfolio only if the instruments
serving as collateral for the agreements are eligible for inclusion in the
U.S. Government Portfolio.
The investment policies of the U.S. Government Portfolio may produce a
lower yield than a policy of investing in other types of instruments.
Risks
The Fund complies with industry-standard requirements on the quality,
maturity and diversification of its investments which are designed to help
maintain a $1.00 share price. A significant change in interest rates or a
default on the Fund's investments could cause its share price (and the
value of your investment) to change.
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this
date value. Failure to adequately
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address this issue could have potentially serious repercussions. The
Manager is in the process of working with the Fund's service providers to
prepare for the year 2000. Based on information currently available, the
Manager does not expect that the Fund will incur material costs to be year
2000 compliant. Although the Manager does not anticipate that the year 2000
issue will have a material impact on the Fund's ability to provide service
at current levels, there can be no assurance that steps taken in
preparation for the year 2000 will be sufficient to avoid an adverse impact
on the Fund. The year 2000 problem may also adversely affect issuers of the
securities contained in the Fund's Portfolio, to varying degrees based upon
various factors, and thus may have a corresponding adverse affect on the
portfolio's performance. The Manager is unable to predict what affect, if
any, the year 2000 problem will have on such issuers.
III. Management, Organization and Capital Structure
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of May 31, 1999, the Manager was the
investment manager, advisor or supervisor with respect to assets
aggregating in excess of $13.4 billion. The Manager has been an investment
adviser since 1970 and currently is manager of seventeen other registered
investment companies and also advises pension trusts, profit-sharing trusts
and endowments.
Pursuant to the Investment Management Contract for the U.S. Government
Portfolio, the Manager manages the portfolio of securities and makes the
decisions with respect to the purchase and sale of investments, subject to
the general control of the Board of Directors of the Fund. Under the
Investment Management Contract the U.S. Government Portfolio will pay an
annual management fee of .275% of the Portfolio's average daily net assets
not in excess of $250 million, plus .25% of such assets in excess of $250
million.
Pursuant to the Administrative Services Contract for the U.S. Government
Portfolio, the Manager performs clerical, accounting supervision and office
service functions for the Fund. The
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Manager provides the Fund with personnel to perform all of the clerical and
accounting type functions not performed by the Manager. 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 an annual fee of .21% of each Portfolio's average
daily net assets not in excess of $1.25 billion, plus .20% of such assets
in excess of $1.25 billion but not in excess of $1.5 billion, plus .19% of
such assets in excess of $1.5 billion. Any portion of the total fees
received by the Manager and its past profits may be used to provide
shareholder services and for distribution of Fund shares. In addition,
Reich & Tang Distributors, Inc. receives a fee equal to .25% per annum of
the average daily net assets of the TRA Shares of the U.S. Government
Portfolio under the Shareholder Servicing Agreement. The fees are accrued
daily and paid monthly.
Investment management fees and operating expenses, which are attributable
to all Classes of the U.S. Government Portfolio, will be allocated daily to
each Class share based on the percentage of outstanding shares at the end
of the day.
IV. Shareholder Information
The Fund sells and redeems its shares on a continuing basis at their net
asset value and does not impose a charge for either sales or redemptions.
All transactions in TRA Shares are effected through the Fund's transfer
agent, who accepts orders for purchases and redemptions from MetLife
Securities, Inc. ("MSI").
Pricing of Fund Shares
The net asset value of the TRA Shares is determined as of 12 noon, New York
City time, on each Fund Business Day. Fund Business Day means weekdays
(Monday through Friday) except days on which the New York Stock Exchange is
closed for trading. The net asset value of the TRA Shares 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
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stock and surplus) by the total number of shares outstanding for such
Class. The Fund intends to maintain a stable net asset value at $1.00 per
share although there can be no assurance that this will be achieved.
The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the Investment Company
Act of 1940 (the "1940 Act"). Amortized cost valuation involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium. If fluctuating interest rates cause
the market value of the securities in a portfolio to deviate more than 1/2
of 1% from the value determined on the basis of amortized cost, the Board
of Directors will consider whether any action should be initiated. Although
the amortized cost method provides certainty in valuation, it may result in
periods during which the value of an instrument is higher or lower than the
price an investment company would receive if the instrument were sold.
Shares will be issued as of the first determination of the Fund's net asset
value per share made upon receipt of MSI's purchase order at the net asset
value per share next determined after receipt of the purchase order. Orders
received by the Fund's transfer agent before 12 noon, New York City time,
on a Fund Business Day, without accompanying Federal Funds will result in
the issuance of shares on that day only if the Federal Funds required in
connection with the orders are received by the Fund's transfer agent before
4:00 p.m., New York City time, on that day. Orders for which Federal Funds
are received after 4:00 p.m., New York City time, will result in share
issuance the following Fund Business Day. The Fund reserves the right to
reject any order for its shares. Fund shares begin accruing income on the
day the shares are issued. Certificates for the TRA Shares will not be
issued to an investor.
Purchase of TRA Shares
Only the TRA Shares of the U.S. Government Portfolio are offered through
this Prospectus. These shares are only offered through MSI's Total Resource
Account. All shares are held in an
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omnibus account at the Fund through MSI, which will maintain individual
investor accounts.
The minimum initial investment in the Fund for the TRA Shares is $2,500.
The minimum amount for subsequent investments is $100.
Each TRA shareholder will receive from MSI a personalized monthly statement
(i) listing the total number of Fund shares owned as of the statement
closing date, (ii) purchase and redemptions of Fund shares and (iii) the
dividends paid on Fund shares (including dividends paid in cash or
reinvested in additional Fund shares).
When instructed by a TRA shareholder to purchase or redeem Fund shares, MSI
,on behalf of the TRA shareholder, promptly 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.
MSI confirms to its customers who are shareholders in the Fund each
purchase and redemption of Fund shares for the customers' accounts.
Application forms and checks should be sent to Total Resource Account, c/o
PFPC, P.O. Box 8908, Wilmington, DE 19899-8908.
Electronic Funds Transfers (EFT)
You may purchase the TRA Shares of the Fund by having salary, dividend
payments, interest payments or any other payments designated by you,
automatically deposited into your Fund account. To enroll, you must file
with MSI a completed EFT Application. The appropriate form may be obtained
from the entity that makes the payment to you. You may elect at any time to
terminate your participation by notifying in writing the appropriate
depositing entity. Death or legal incapacity will automatically terminate
your participation. Further, MSI, on behalf of the Fund may terminate your
participation in the EFT program upon 30 days' notice to you.
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Subsequent Purchases of Shares
Subsequent purchases can be made by mailing a check to:
Total Resource Account
c/o PFPC
P.O. Box 8908
Wilmington, DE 19899-8908
There is a $100 minimum for subsequent purchases of shares. All payments
should clearly indicate your Total Resource Account number.
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
the TRA Shares following receipt by the Fund's transfer agent of the
redemption order (and any supporting documentation which it may require)
from MSI. 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 paid unless the check (including a
certified or cashier's check) used for investment has been cleared for
payment by the investor's bank, which could take up to 15 days after
investment. Shares redeemed are not entitled to participate in dividends
declared on the day a redemption becomes effective.
The Total Resource Account application form permits you to redeem by
written request and to elect one or more of the additional redemption
procedures described below. You may only change the instructions indicated
on your original application form by transmitting a written direction to
MSI. MSI will promptly notify the transfer agent when you place a
redemption order.
When a signature guarantee is called for, you should have "Signature
Guaranteed" stamped under your signature. It should be signed and
guaranteed by an eligible guarantor institution
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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.
Written Requests
You may make a redemption in any amount by sending a written request to the
Fund addressed to:
Total Resource Account
c/o PFPC
P.O. Box 8908
Wilmington, DE 19899-8908
All written requests for redemption must be signed, in each case with
signature guaranteed.
Normally the redemption proceeds are paid by check and mailed to MSI, which
will disburse payment on behalf of its customer.
Checks
You will receive a supply of checks which may be used to effect redemptions
in the TRA Shares. The checks, which will be issued in your name, are drawn
on a special account maintained by MSI, on behalf of the Fund, with MSI's
agent bank. When a check is presented to MSI's agent bank, it instructs the
Fund's transfer agent to redeem a sufficient number of full and fractional
shares in the MSI omnibus account to cover the amount of the check. The use
of a check to make a withdrawal enables you to receive dividends on the
shares to be redeemed up to the Fund Business Day on which the check
clears. Checks may not be certified. Investors who purchase Fund shares by
check may not receive their redemption proceeds until the check has
cleared, which can take up to 15 days following the date of purchase.
There is no charge to you for checks provided by MSI. MSI, on behalf of the
Fund, reserves the right to impose a charge or impose a different minimum
check amount in the future.
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Shareholders electing the checking option are subject to the procedures,
rules and regulations of MSI's agent bank governing checking accounts.
Checks drawn on a jointly owned account may, at your election, require only
one signature. Checks in amounts exceeding the value of your 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, MSI, on behalf of the Fund, reserves the
right to charge your account a fee of up to $25 for checks not honored as a
result of an insufficient account value, a check deemed not negotiable
because it has been held longer than six months, an unsigned check and/or a
post-dated check. MSI, on behalf of the Fund, reserves the right to
terminate or modify the check redemption procedure at any time or to impose
additional fees following notification to the TRA shareholders.
Corporations and other entities electing the checking option are required
to furnish a certified resolution or other evidence of authorization in
accordance with MSI's normal practices. Individuals and joint tenants are
not required to furnish any supporting documentation. Appropriate
authorization forms will be sent by MSI, on behalf of the Fund, to
corporations and other investors who select this option. As soon as the
authorization forms are filed in good order with MSI's agent bank, it will
provide the shareholder with a supply of checks.
Telephone
The Fund accepts telephone requests for redemption from TRA shareholders
who elect this option on their application form. The proceeds of a
telephone redemption may be sent to you at your address or, if in excess of
$1,000, to your bank account designated in writing. MSI, on behalf of the
Fund, may accept telephone redemption instructions from any TRA
shareholders who elect this service and thus such TRA shareholders risk
possible loss of principal and interest in the event of a telephone
redemption not authorized by them. MSI, on behalf of the Fund, will employ
reasonable procedures to confirm that telephone redemption instructions are
genuine, and will require that TRA shareholders
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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 TRA shareholder making a telephone withdrawal should call MSI at
1-800-638-7283 and state: (i) the name of the TRA shareholder appearing on
the TRA records; (ii) the Total Resource Account number with MSI; (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 MSI's
designated bank account 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. MSI, on behalf of the Fund,
reserves the right to terminate or modify the telephone redemption service
in whole or in part at any time and will notify shareholders accordingly.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are
given in proper form to the Fund's transfer agent, a check for the proceeds
of a redemption will be sent by MSI to the TRA shareholder's address of
record. If the TRA shareholder elects to redeem all the shares of his Total
Resource Account, all dividends accrued to the date of such redemption will
be paid to the TRA 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 (i) any period during which the New York Stock
Exchange, Inc. is closed (other than customary weekend and holiday
closings), (ii) any period during which the SEC determines that trading
thereon is restricted, (iii) any period during which an emergency (as
determined by the SEC) exists as a result of which disposal by
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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 (iv) for such other period as the
SEC may by order permit for the protection of the shareholders of the Fund.
MSI, on behalf of the Fund, has reserved the right to redeem the shares of
any TRA shareholder if the net asset value of all the remaining shares in
the account after a withdrawal is less than $250. A TRA shareholder may
avoid mandatory redemption by purchasing sufficient additional shares to
increase his total net asset value to the minimum amount.
Dividends and Distributions
The Fund declares dividends equal to all its net investment income
(excluding capital gains and losses, if any, and amortization of market
discount) on each Fund Business Day and pays dividends monthly. There is no
fixed dividend rate. In computing these dividends, interest earned and
expenses are accrued daily.
All dividends and distributions of capital gains are automatically
invested, at no charge, in additional TRA Shares immediately upon payment
thereof.
Tax Consequences
The purchase of shares will be the purchase of an asset. Dividends paid by
the Fund from its net investment income, including its short-term capital
gains are taxable to shareholders as ordinary income. Your purchase price
is based on the Fund's net asset value, which may include undistributed
income and capital gains. You will be subject to tax on dividends of net
investment income or capital gains paid shortly following your purchase of
shares of the Fund, even though the dividend might be viewed economically
as a return of capital.
It is expected that no portion of dividends to shareholders will qualify
for the dividends-received deduction for corporations.
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Distributions from the U.S. Government Portfolio that are derived from
interest on certain obligations of the United States Government and
agencies thereof may be exempt from state and local taxes in certain
states.
Since the Fund expects to maintain the net asset value of the TRA Shares of
the Fund at $1.00, you will generally not realize any gain for Federal
income tax purposes upon a redemption of your shares in the Fund. However,
the redemption of shares in the Fund will be a taxable event on which any
gain realized will be subject to tax.
The Fund is required by Federal law to withhold 31% of reportable payments
paid to certain shareholders who have not complied with IRS regulations. In
connection with this withholding requirement, you will be asked to certify
on your application form that the Social Security or tax identification
number provided is correct and that you are not subject to 31% backup
withholding for previous underreporting to the IRS.
Reports containing appropriate information with respect to the Federal
income tax status of dividends paid by the Fund during the year are mailed
to shareholders annually.
In view of the continuous changes in the tax law and the regulations
thereunder, it is recommended that you consult with counsel and other
competent tax advisors.
V. Distribution Arrangements
Rule 12b-1 Fees
Investors do not pay a sales charge to purchase the TRA Shares of the Fund.
However, the Fund pays fees in connection with the distribution of shares
and for services provided to TRA shareholders. The Fund pays these fees
from its assets on an ongoing basis and therefore, over time, the payment
of these fees will increase the cost of your investment and may cost you
more than paying sales charges.
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The Fund's Board of Directors has adopted a Rule 12b-1 distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Reich &
Tang Distributors, Inc. (the "Distributor") have entered into a
Distribution Agreement and a Shareholder Servicing Agreement (with respect
to the TRA Shares of the Fund).
Under the Distribution Agreement, the Distributor serves as distributor of
the Fund's shares and, for nominal consideration (i.e., $1.00) and as agent
for the Fund, will solicit orders for the purchase of the Fund's shares,
provided that any orders will not be binding on the Fund until accepted by
the Fund as principal.
Under the Shareholder Servicing Agreement, the Distributor receives, with
respect to the TRA Shares, a service fee equal to .25% per annum of the TRA
Shares' average daily net assets (the "Shareholder Servicing Fee") for
providing personal shareholder services and for the maintenance of
shareholder accounts. This 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 MSI with respect to its provision of such services to its clients or
customers who are shareholders of the TRA Shares. Shareholders of other
classes offered by the Fund who do not receive the benefit of such services
from participating organizations such as MSI will not be assessed a
Shareholder Servicing Fee.
The Plan and the Shareholder Servicing Agreement provide that the Fund will
pay for (i) telecommunications expenses including the cost of dedicated
lines and CRT terminals, incurred by the Distributor and participating
organizations such as MSI in carrying out their obligations under the
Shareholder Servicing Agreement with respect to TRA Shares, and (ii)
preparing, printing and delivering the Fund's prospectus to existing
shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from
its own resources, which may include the management fee and past profits
for the following purposes: (i) to defray costs, and to compensate others,
including
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participating organizations with whom the Distributor has entered into
written agreements, for performing shareholder servicing on behalf of the
TRA Shares; (ii) to compensate certain participating organizations such as
MSI for providing assistance in distributing the TRA 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 TRA 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 the TRA Shares) and past
profits, for the purposes enumerated in (i) above. The Distributor will
determine the amount of such payments made pursuant to the Plan, provided
that such payments will not increase the amount which the Fund is required
to pay to the Manager and Distributor for any fiscal year under either the
Investment Management Contract in effect for that year or under the
Shareholder Servicing Agreement in effect for that year.
PFPC has contracted with the Distributor to perform certain sub-transfer
agent accounting services for the TRA shareholders. In consideration of the
provisions of these sub-transfer agency accounting services, PFPC will
receive sub-transfer agency fees from the Distributor or its affiliate, the
Fund's transfer agent. As a result of the payment of the sub-transfer
agency accounting fees to PFPC, TRA Shares will have higher transfer agency
charges than the other classes of the Fund.
19
<PAGE>
VI. Financial Highlights
This financial highlights table is intended to help you understand the
financial performance of the U.S. Government Portfolio for the past 5
years. Certain information reflects the financial results of a single Fund
share. The highlights reflect an investment in the Class A shares of the
U.S. Government Portfolio since there were no TRA Shares issued during the
periods covered by this table. The total returns in the table represent the
rate that an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This
information, except for the six months ended February 28, 1999, has been
audited by McGladrey and Pullen, LLP, whose report, along with the Fund's
financial statements, is included in the annual report, which is available
upon request.
U.S. Government Portfolio
Six Months Ended
CLASS A February 28, 1999
(unaudited)
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period.............. $ 1.00
---------
Income from investment operations:
Net investment income........................... 0.020
Less distributions:
Dividends from net investment income.............. ( 0.020)
-------
Net asset value, end of period.................... $ 1.00
=========
Total Return...................................... 4.18%*
Ratios/Supplemental Data
Net assets, end of period (000)................... $769,528
Ratios to average net assets:
Expenses........................................ 0.89%*
Net investment income........................... 4.10%*
* Annualized
20
<PAGE>
VI. Financial Highlights (Continued)
U.S Government Portfolio
Year Ended August 31,
CLASS A 1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Per Share Operating Performance:
(for a share outstanding
throughout the period)
Net asset value,
beginning of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income..... 0.047 0.046 0.047 0.048 0.028
Less distributions:
Dividends from net
investment income....... ( 0.047) ( 0.046) ( 0.047) ( 0.048) ( 0.028)
------ ------ ------ ------ ------
Net asset value,
end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return .............. 4.82% 4.73% 4.81% 4.93% 2.79%
Ratios/Supplemental Data
Net assets,
end of period (000)...... $752,497 $735,581 $666,620 $469,592 $398,699
Ratios to average net assets:
Expenses.................. 0.87% 0.81% 0.81% 0.80% 0.85%
Net investment income..... 4.71% 4.61% 4.68% 4.83% 2.75%
21
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
Short Term Income Fund, Inc.
Total Resource Account
Class of Shares ("TRA Shares")
of U.S. Government Portfolio
A Statement of Additional Information
(SAI) dated June 22, 1999, and the
Fund's Annual and Semi-Annual Reports
include additional information about the
Fund and its investments and are
incorporated by reference into this
prospectus. You may obtain the SAI, the
Annual and Semi-Annual Reports and
material incorporated by reference
without charge by calling the Fund at
1-800-221-3079. To request other
information, please call your financial
intermediary or the Fund.
A current SAI has been filed with the
Securities and Exchange Commission. You
may visit the Securities and Exchange
Commission's Internet website
(www.sec.gov) to view the SAI, material
incorporated by reference and other
information. These materials can also be
reviewed and copied at the Commission's
Public Reference Room in Washington D.C.
Information on the operation of the
Public Reference Room may be obtained by
calling the Commission at
1-800-SEC-0330. In addition, copies of
these materials may be obtained, upon
payment of a duplicating fee, by writing
the Public Reference Section of the
Commission, Washington, D.C. 20549-6009.
Distributed through
MetLife Securities, Inc.
Home Office
One Madison Avenue
New York, NY 10010
1-800-638-7283
Member NASD, SIPC
TRASTIF699P
811-2950
<PAGE>
RULE 497(c)
Registration No. 2-65315
- --------------------------------------------------------------------------------
SHORT TERM
INCOME FUND, INC. 600 Fifth Avenue, New York, NY 10020
(212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
June 22, 1999
RELATING TO THE SHORT TERM INCOME FUND, INC.
PROSPECTUS DATED JANUARY 4, 1999
and the
TOTAL RESOURCE ACCOUNT CLASS OF SHARES ("TRA Shares") OF THE
U.S. GOVERNMENT PORTFOLIO PROSPECTUS DATED JUNE 22, 1999
This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current Prospectus
of Short Term Income Fund, Inc. (the "Fund"), dated January 4, 1999 and the TRA
Shares of the U.S. Government Portfolio Prospectus dated June 22, 1999 and
should be read in conjunction with each Prospectus.
A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll-free at 1-(800) 221-3079. The audited and unaudited
Financial Statements of the Fund have been incorporated by reference into the
SAI from the Fund's Annual and Semi-Annual Reports, respectively. The Annual and
Semi-Annual Reports are available, without charge, upon request by calling the
toll-free number provided.
This Statement of Additional Information is incorporated by reference into the
Fund's Prospectus in its entirety.
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund History.........................................2 Capital Stock and Other Securities......................11
Description of the Fund and its Investments and Purchase, Redemption and Pricing of Shares..............12
Risks..............................................2 Taxation of the Fund....................................20
Management of the Fund...............................5 Underwriters............................................21
Control Persons and Principal Holders of Calculation of Performance Data.........................21
Securities.........................................6 Financial Statements....................................22
Investment Advisory and Other Services...............7 Description of Ratings..................................23
Brokerage Allocation and Other Practices.............11
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
I. FUND HISTORY
The Fund was incorporated on August 22, 1979 in the state of Maryland.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund is an open-end, diversified management investment company. The Fund's
investment objectives are to seek as high a level of current income to the
extent consistent with preserving capital and maintaining liquidity. 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 may only purchase United States dollar-denominated securities that have
been determined by the Fund's Board of Directors to present minimal credit risks
and that are Eligible Securities at the time of acquisition. The term Eligible
Securities means: (i) securities which have or are deemed to have remaining
maturities of 397 days or less and rated in the two highest short-term rating
categories by any two nationally recognized statistical rating organizations
("NRSROs") or in such categories by the only NRSRO that has rated the Municipal
Obligations (collectively, the "Requisite NRSROs"); or (ii) unrated securities
determined by the Fund's Board of Directors to be of comparable quality. In
addition, securities which have or are deemed to have remaining maturities of
397 days or less but that at the time of issuance were long-term securities
(i.e. with maturities greater than 366 days) are deemed unrated and may be
purchased if such had received a long-term rating from the Requisite NRSROs in
one of the three highest rating categories. Provided, however, that such may not
be purchased if it (i) does not satisfy the rating requirements set forth in the
preceding sentence and (ii) has received a long-term rating from any NRSRO that
is not within the three highest long-term rating categories. A determination of
comparability by the Board of Directors is made on the basis of its credit
evaluation of the issuer, which may include an evaluation of a letter of credit,
guarantee, insurance or other credit facility issued in support of the
securities. While there are several organizations that currently qualify as
NRSROs, two examples of NRSROs are Standard & Poor's Rating Services, a division
of The McGraw-Hill Companies, ("S&P") and Moody's Investors Service, Inc.
("Moody's"). The two highest ratings by S&P and Moody's are "AAA" and "AA" by
S&P in the case of long-term bonds and notes or "Aaa" and "Aa" by Moody's in the
case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the
case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's in
the case of tax-exempt commercial paper. The highest rating in the case of
variable and floating demand notes is "VMIG-1" by Moody's or "SP-1/AA" by S&P.
Such instruments may produce a lower yield than would be available from less
highly rated instruments.
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.
Subsequent to its purchase by the Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Fund. If this occurs, the Board of Directors of the Fund shall promptly reassess
whether the security presents minimal credit risks and shall cause the Fund to
take such action as the Board of Directors determines is in the best interest of
the Fund and its shareholders. However, reassessment is not required if the
security is disposed of or matures within five business days of the Manager
becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Manager's actions.
In addition, in the event that a security (i) is in default, (ii) ceases to be
an Eligible Security under Rule 2a-7 of the 1940 Act or (iii) is determined to
no longer present minimal credit risks, or an event of insolvency occurs with
respect to the issues of a portfolio security or the provider of any Demand
Feature or Guarantee, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. Disposal of the security shall
occur as soon as practicable consistent with achieving an orderly disposition by
sale, exercise of any demand feature or otherwise. In the event of a default
with respect to a security which immediately before default accounted for 1/2 of
1% or more of the Fund's total assets, the Fund shall promptly notify the SEC of
such fact and of the actions that the Fund intends to take in response to the
situation.
The Fund shall not invest more than 5% of the total market value of any
Portfolio's assets (determined at the time of the proposed investment and giving
effect thereto) in the securities of any one issuer other than the United States
Government, its agencies or instrumentalities.
2
<PAGE>
There is no guarantee that the Fund will be able to maintain a stable price of
$1.00 and thus, it is possible to lose money in this Fund. The income from the
Fund will vary with changes in prevailing interest rates. In addition, the
Fund's investments are subject to "credit risk", which is the risk that an
issuer will be unable to repay its obligations at maturity. The U.S. Government
Portfolio reduces credit risk by investing exclusively in obligations issued or
guaranteed by the U.S. Government.
The Fund intends to continue qualify as a "regulated investment company" under
Subchapter M of the Code (the "Code"). For the Fund to qualify, at the close of
each quarter of the taxable year, at least 50% of the value of its total assets
must consist of cash, government securities, investment company securities and
other securities. They must be 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 (however, this restriction
does not apply to the Fund's investing in Government securities). The
limitations described in this paragraph regarding qualification as a "regulated
investment company" are not fundamental policies and may be revised if
applicable Federal income tax requirements are revised. (See "Federal Income
Taxes" herein.)
Description Of Investments
The following discussion expands upon the description in the Prospectus of the
types of securities in which the portfolios of the Fund invest.
Bank Obligations
Domestic banks organized under Federal law are supervised and examined by the
Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal Deposit Insurance Corporation
("FDIC"). Domestic banks organized under state law are supervised and examined
by state banking authorities. State banks whose certificates of deposit may be
purchased by the Fund are insured by the FDIC and are subject to Federal
examination and to Federal law and regulation.
Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks and domestic and foreign branches of foreign banks, such as
certificates of deposit ("CDs") and time deposits ("TDs") may be general
obligations of the parent banks in addition to the issuing branch, or may be
limited by the terms of a specific obligation and governmental regulation. Such
obligations are subject to different risks than are those of domestic banks.
These risks include foreign economic and political developments, foreign
governmental restrictions that may adversely affect payment of principal and
interest on the obligations, foreign exchange controls and foreign withholding
and other taxes on interest income. Foreign branches and subsidiaries are not
necessarily subject to the same or similar regulatory requirements that apply to
domestic banks, such as mandatory reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping requirements. In addition, less
information may be publicly available about a foreign branch of a domestic bank
or about a foreign subsidiary of a domestic bank or about a domestic or foreign
branch of a foreign bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal and State
regulation as well as governmental action in the country in which the foreign
bank has its head office. In addition, branches licensed by the Comptroller of
the Currency and branches licensed by certain states ("State Branches") may or
may not be required to: (1) pledge to the regulator, by depositing assets with a
designated bank within the state, an amount of its assets equal to 5% of its
total liabilities; and (2) maintain assets within the state of an amount equal
to a specified percentage of the aggregate amount of liabilities of the foreign
bank payable at or through all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be insured by the FDIC.
In view of the foregoing factors associated with the purchase of CDs and the TDs
issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Manager carefully evaluates such investments on a case by
case basis.
Repurchase Agreements
Investments by the Fund in repurchase agreements are made in accordance with
procedures established by the Fund providing that the securities serving as
collateral for each repurchase agreement are delivered to the Fund's custodian
either physically or in book entry form and that the collateral is marked to the
market with sufficient frequency to ensure that each repurchase agreement is
fully collateralized at all times. A buyer of a repurchase agreement runs the
risk of loss with respect to his investment in the event of a default by the
issuer if, at the time of default, the value of the collateral securing the
agreement is less than the price paid for the repurchase agreement.
3
<PAGE>
Were a default to occur, the Fund would look to the collateral securing the
repurchase agreement to recover its entire investment. In the event that a
vendor defaults on its repurchase obligation, the Fund might suffer a loss to
the extent that the proceeds from the sale of the collateral are less than the
repurchase price. If the vendor becomes bankrupt, the Fund might be delayed, or
may incur costs or possible losses in selling the collateral. The Fund enters
into repurchase agreements only with member banks of the Federal Reserve System
and "primary dealers" (as designated by the Federal Reserve Bank of New York) in
United States government securities. In the view of the management of the Fund,
the restrictions and procedures described above which govern the Fund's
investments in repurchase agreements substantially minimize the Fund's risk of
losses in making those investments. Repurchase agreements may be considered to
be loans under the Investment Company Act of 1940, as amended (the "1940 Act").
Investment Restrictions
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios. They may not be changed unless approved by a majority
of the outstanding shares "of each series of the Fund's shares that would be
affected by such a change." The term "majority of the outstanding shares" of the
Fund means the vote of the lesser of (i) 67% or more of the shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund.
The Fund may not:
(a) invest in securities of companies that have conducted operations for less
than three years, including the operations of predecessors;
(b) invest in or hold securities of any issuer if officers and directors of the
Fund or Reich & Tang Asset Management, Inc., the general partner of its
investment manager, individually own beneficially more than 1/2 of 1% of
the issuer's securities or in the aggregate own more than 5% of the
issuer's securities; and
(c) (1) make investments for the purpose of exercising control over any issuer
or other person; (2) purchase securities having voting rights at the time
of purchase; (3) purchase securities of other investment companies, except
in connection with a merger, acquisition, consolidation or reorganization
involving the Fund; (4) invest in real estate (other than debt obligations
secured by real estate or interests therein or debt obligations issued by
companies which invest in real estate or interests therein), commodities,
commodity contracts, commodity options, interests in oil or gas or
interests in other mineral exploration or development programs; (5)
purchase restricted securities or purchase securities on margin; (6) make
short sales of securities or intentionally maintain a short position in any
security or write, purchase or sell puts, calls, straddles, spreads or any
combination thereof; (7) act as an underwriter of securities; (8) issue
senior securities, except insofar as the Fund may be deemed to have issued
a senior security in connection with any permitted borrowings; (9) invest
more than 5% of the total market value of any Portfolio's assets
(determined at the time of the proposed investment and giving effect
thereto) in the securities of any one issuer other than the United States
Government, its agencies or instrumentalities; (10) invest more than 25% of
the total market value of any Portfolio's assets (determined at the time of
the proposed investment and giving effect thereto) in the securities of
issuers conducting their principal business activities in any one industry;
provided, however, there is no limitation on the aggregate of a Portfolio's
investment in obligations of domestic commercial banks, savings banks and
savings and loan associations and in instruments secured by these
obligations or in obligations of the United States Government, its agencies
or its instrumentalities and in instruments secured by those obligations.
Provided, however, that a Portfolio will not acquire securities that are
not readily marketable or repurchase agreements calling for resale within
more than seven days if, as a result thereof, more than 10% of the value of
its net assets would be invested in such securities; and with respect to
75% of any portfolio's total assets, the Fund shall not invest more than
10% of such total assets in securities backed by a demand feature or
guarantee from the same institution; (11) make loans, except that the Fund
may purchase for a Portfolio the debt securities described above under
"Description of Investments " and may enter into repurchase agreements as
therein described; (12) borrow money, unless the borrowing does not exceed
10% of the total market value of the assets of the Portfolio with respect
to which the borrowing is made (determined at the time of borrowing but
without giving effect thereto) and the money is borrowed from one or more
banks as a temporary measure for extraordinary or emergency (not
leveraging) purposes or to meet unexpectedly heavy redemption requests.
While borrowings exceed 5% of the value of a Portfolio's total assets, a
Portfolio will not make any investments; and (13) pledge, mortgage, assign
or encumber any of a Portfolio's assets except to the extent necessary to
secure a borrowing permitted by clause (12) made with respect to the
Portfolio.
4
<PAGE>
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 a Fund's portfolio's assets will not
constitute a violation of such restriction.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as investment
manager of the Fund. The Manager provides persons satisfactory to the Fund's
Board of Directors to serve as officers of the Fund. Such officers, as well as
certain other employees and directors of the Fund, may be directors or officers
of Reich & Tang Asset Management, Inc., the sole general partner of the Manager
or employees of the Manager or its affiliates. Due to the services performed by
the Manager, the Fund currently has no employees and its officers are not
required to devote their full-time to the affairs of the Fund.
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. Unless otherwise specified, the address
of each of the following persons is 600 Fifth Avenue, New York, New York 10020.
Mr. Duff may be deemed an "interested person" of the Fund, as defined in the
1940 Act, on the basis of his affiliation with Reich & Tang Asset Management
L.P.
Steven W. Duff, 45 - President and Director of the Fund, has been President of
the Mutual Funds Division of the Manager since September 1994. Mr. Duff was
formerly Director of Mutual Fund Administration at NationsBank which he was
associated with from June 1981 to August 1994. Mr. Duff is also President and a
Director/Trustee of 13 other funds in the Reich & Tang Fund Complex, Director of
Pax World Money Market Fund, Inc., Executive Vice President of Reich & Tang
Equity Fund, Inc., President of Back Bay Funds, Inc., and President and Chief
Executive Officer of Tax Exempt Proceeds Fund, Inc.
Dr. W. Giles Mellon, 67 - Director of the Fund, has been Professor of Business
Administration and Area Chairman of Economics in the Graduate School of
Management, Rutgers University since 1966. His address is Rutgers University
Graduate School of Management, 92 New Street, Newark, New Jersey 07102. Dr.
Mellon is a Director/Trustee of 15 other funds in the Reich & Tang Fund Complex.
Robert Straniere, 57 - Director of the Fund, has been a member of the New York
State Assembly and a partner with The Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director/Trustee of 15 other funds in the Reich & Tang Fund Complex, and a
Director of Life Cycle Mutual Funds, Inc.
Dr. Yung Wong, 60 - Director of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly General Partner
of Abacus Partners Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong has been a Director of Republic Telecom Systems
Corporation (a provider of telecommunications equipment) since January 1989 and
of TelWatch, Inc. (a provider of network management software) since August 1989.
Dr. Wong is also a Director/Trustee of 15 other funds in the Reich & Tang Fund
Complex . Dr. Wong is also a Trustee of Eclipse Financial Asset Trust.
Molly Flewharty, 47 - Vice President of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of 18
other funds in the Reich & Tang Fund Complex.
Lesley M. Jones, 50 - Vice President of the Fund, has been Senior Vice President
of the Mutual Funds Division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. which she was associated
with from April 1973 to September 1993. Ms. Jones is also a Vice President of 14
other funds in the Reich & Tang Fund Complex.
Dana E. Messina, 42 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. with which she was associated with from
December 1980 to September 1993. Ms. Messina is also Vice President of 15 other
funds in the Reich & Tang Fund Complex.
Bernadette N. Finn, 51 - Vice President and Secretary of the Fund, has been Vice
President of the Mutual Funds Division of the Manager since September 1993. Ms.
Finn was formerly Vice President and Assistant Secretary of Reich & Tang, Inc.
which she was associated with from September 1970 to September 1993. Ms. Finn is
also Vice President and Secretary of 4 other funds, and a Secretary of 14
additional funds in the Reich & Tang Fund Complex.
5
<PAGE>
Richard De Sanctis, 42 - Treasurer of the Fund, has been Assistant Treasurer of
NEIC 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. Mr. De Sanctis is also Treasurer of 17 other
funds in the Reich & Tang Fund Complex, and is Vice President and Treasurer of
Cortland Trust, Inc.
Rosanne Holtzer, 34 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she has been
associated with from June 1986. Ms. Holtzer is also Assistant Treasurer of 18
other funds in the Reich & Tang Fund Complex.
The Fund paid an aggregate remuneration of $42,000 to its directors with respect
to the period ended August 31, 1998, all of which consisted of directors' fees
paid to the three disinterested directors, pursuant to the terms of the
Investment Management Contract (see "Manager" herein).
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C> <C> <C> <C>
Aggreagate Pension or Retirement Estimated Annual Total Compensation from
Name of Person, Compensation from Benefits Accrued as Benefits upon Fund and Fund Complex
Position the Fund Part of Fund Expenses Retirement Paid to Directors*
Dr. W. Giles
Mellon, $14,000 0 0 $59,000 (16 Funds)
Director
Robert Straniere, $14,000 0 0 $59,000 (16 Funds)
Director
Dr. Yung Wong, $14,000 0 0 $59,000 (16 Funds)
Director
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending August 31, 1998. The parenthetical number represents the
number of investment companies (including the Fund) from which such person
receives compensation that are considered part of the same Fund complex as the
Fund, because, among other things, they have a common investment advisor.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On May 31, 1999 there were 1,158,886,511 Money Market Portfolio - Class A shares
outstanding, 279,643,514 Money Market Portfolio - Class B shares outstanding,
752,105,724 U.S. Government Portfolio -Class A shares outstanding and
105,733,830 U.S. Government Portfolio - Class B shares outstanding. As of May
31, 1999, the amount of shares owned by all officers and directors of the Fund,
as a group, was less than 1% of the outstanding shares. Set forth below is
certain information as to persons who owned 5% or more of the Fund's outstanding
shares as of May 31, 1999:
Name and Address % of Class Nature of Ownership
Money Market Portfolio - Class A
Reich & Tang Services, Inc.
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York, N.Y. 10020 77.69% Record
National Financial Services Corp.
as Agent for Various
Beneficial Owners
200 Liberty Street
New York, NY 10281 5.24% Record
6
<PAGE>
Money Market Portfolio - Class B
Reich & Tang Services, Inc.
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York, N.Y. 10020 49.81% Record
U.S. Government Portfolio - Class A
Reich & Tang Services, Inc.
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York, N.Y. 10020 92.65% Record
Neuberger & Berman
as Agent for Customer
Attn: Steve Gallaro
55 Water Street - 27th Floor
New York, NY 10041 5.71% Record
U.S. Government Portfolio - Class B
Reich & Tang Services, Inc.
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York, N.Y. 10020 55.85% Record
V. INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020. The Manager was as of May 31, 1999, investment manager,
adviser, or supervisor with respect to assets aggregating in excess of $13.4
billion. In addition to the Fund, the Manager acts as investment manager and
administrator of seventeen other investment companies and also advises pension
trusts, profit-sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager due to a restructuring by New England Investment
Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998, Nvest
Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP, replaces
NEICOP as the limited partner and owner of a 99.5% interest in the Manager.
Reich & Tang Asset Management, Inc. (an indirect wholly-owned subsidiary of
Nvest Companies) is the sole general partner and owner of the remaining 0.5%
interest of the Manager. Nvest Corporation, a Massachusetts Corporation
(formerly known as New England Investment Companies, Inc.), serves as the
managing general partner of Nvest Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
MetLife is a mutual life insurance company and is the second largest life
insurance company in the United States in terms of total assets. MetLife
provides a wide range of insurance and investment products and services to
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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. MetLife and its affiliates
provide insurance or other financial services to approximately 36 million people
worldwide.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through 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
Limited Partnerships, Greystone Partners; L.P., Harris Associates, L.P., Jurika
& Voyles, L.P., Loomis, Sayles & Company, L.P., New England Funds, L.P., Nvest
Associates, Inc., Snyder Capital Management, L.P., Vaughan, Nelson, Scarborough
& McCullough, L.P., and Westpeak Investment Advisors, L.P. These affiliates in
the aggregate are investment advisors or managers to 80 other registered
investment companies.
The recent name change did not result in a change of control of the Manager and
has no impact upon the Manager's performance of its responsibilities and
obligations.
On January 21, 1999, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved the continuance of the Investment Management
Contract effective May 1, 1999, which has a term which extends to April 30,
2000. The contract is continued in force thereafter for successive twelve-month
periods beginning each May 1, provided that such majority vote of the Fund's
outstanding voting securities or by a majority of the directors who are not
parties to the Investment Management Contract or interested persons of any such
party, by votes cast in person at a meeting called for the purpose of voting on
such matter.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Manager provides persons satisfactory to the Board of Directors of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of NEIC, the
sole general partner of the Manager, or employees of the Manager or its
affiliates.
The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Directors,
or by the Manager on sixty days written notice, and will automatically terminate
in the event of its assignment. The Investment Management Contract provides that
in the absence of willful misfeasance, bad faith or gross negligence on the part
of the Manager, or of reckless disregard of its obligations thereunder, the
Manager shall not be liable for any action or failure to act in accordance with
its duties thereunder.
Under the Investment Management Contract, (i) the Money Market Portfolio will
pay an annual management fee of .30% of the Portfolio's average daily net assets
not in excess of $750 million, plus .29% of such assets in excess of $750
million but not in excess of $1 billion, plus .28% of such assets in excess of
$1 billion but not in excess of $1.5 billion, plus .27% of such assets in excess
of $1.5 billion and (ii) the U.S. Government Portfolio will pay an annual
management fee of .275% of the Portfolio's average daily net assets not in
excess of $250 million, plus .25% of such assets in excess of $250 million. The
Manager, at its discretion, may voluntarily waive all or a portion of the
management fee. The fees are accrued daily and paid monthly. Any portion of the
total fees received by the Manager may be used by the Manager to provide
shareholder services and for distribution of Fund shares. For the Fund's fiscal
year ended August 31, 1998 the Manager received investment management fees
totaling $3,491,263 of which $276,258 was waived and $2,060,639 from the Money
Market Portfolio and the U.S. Government Portfolio, respectively. For the Fund's
fiscal year ended August 31, 1997 the Manager received investment management
fees totaling $3,041,228 and $1,968,002 from the Money Market Portfolio and the
U.S. Government Portfolio, respectively. For the Fund's fiscal year ended August
31, 1996 the Manager received investment management fees totaling $2,827,181 and
$1,960,693 from the Money Market Portfolio and the U.S. Government Portfolio,
respectively.
Pursuant to an Administrative Services Contract with the Fund, the Manager also
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of bookkeeping 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, of its affiliates or of other organizations.
The Manager, at its discretion, may voluntarily waive all or a
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portion of the administrative services fee. For its services under the
Administrative Services Contract, the Manager receives from the Fund an annual
fee equal to .21% of each Portfolio's average daily net assets not in excess of
$1.25 billion, plus .20% of such assets in excess of $1.25 billion but not in
excess of $1.5 billion, plus .19% of such assets in excess of $1.5 billion. For
the Funds fiscal year ended August 31, 1998, the Manager received administration
fees in the aggregate of $2,487,557 of which $9,742 was waived and $1,678,581
from the Money Market Portfolio and the U.S. Government Portfolio, respectively.
For the Fund's fiscal year ended August 31, 1997, the Manager received
administration fees in the aggregate of $2,150,030 and $1,600,765 from the Money
Market Portfolio and the U.S. Government Portfolio, respectively. For the Fund's
fiscal year ended August 31, 1996 the Manager received administration fees in
the aggregate of $1,970,196 and $1,573,195 from the Money Market Portfolio and
the U.S. Government Portfolio, respectively.
The Manager at its discretion may waive its rights to any portion of the
management fee or the administrative services fee and may use any portion of the
management fee for purposes of shareholder and administrative services and
distribution of the Fund's shares. There can be no assurance that such fees will
be waived in the future.
Investment management fees and operating expenses which are attributable to all
Classes of a portfolio 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 and TRA shareholders
pursuant to the Plan shall be compensated by the Distributor from its own
resources which includes the shareholder servicing fee and past profits, and the
Manager from its own resources which includes the management fee and past
profits. Expenses incurred in the distribution of Class B shares and the
servicing of Class B shares shall be paid by the Manager.
Expense Limitation
The Manager has agreed, pursuant to the Investment Management Contract, to
reimburse the Fund for its expenses (exclusive of interest, taxes, brokerage and
extraordinary expenses) which in any year exceed the limits on investment
company expenses prescribed by any state in which the Fund's shares are
qualified for sale. For the purpose of this obligation to reimburse expenses,
the Fund's annual expenses are estimated and accrued daily, and any appropriate
estimated payments are made to it on a monthly basis. Subject to the obligations
of the Manager to reimburse the Fund for its excess expenses as described above,
the Fund has, under the Investment Management Contract, confirmed its obligation
for payment of all its other expenses. This includes all operating expenses,
taxes, brokerage fees and commissions, commitment fees, certain insurance
premiums, interest charges and expenses of the custodian, transfer agent and
dividend disbursing agent's fees, telecommunications expenses, auditing and
legal expenses, bookkeeping agent fees, costs of forming the corporation and
maintaining corporate existence, compensation of directors, officers and
employees of the Fund and costs of other personnel performing services for the
Fund who are not officers of the Manager or its affiliates, costs of investor
services, shareholders' reports and corporate meetings, SEC registration fees
and expenses, state securities laws registration fees and expenses, expenses of
preparing and printing the Fund's prospectus for delivery to existing
shareholders and of printing application forms for shareholder accounts, and the
fees and reimbursements payable to the Manager under the Investment Management
Contract and the Distributor under the Shareholder Servicing Agreement.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein. The management of the Fund intends to do so
whenever it appears advantageous to the Fund. The Fund's expenses for employees
and for such services are among the expenses subject to the expense limitation
described above.
Distribution And Service Plan
The Fund's distributor is Reich & Tang Distributors, Inc., a Delaware
corporation with principal officers at 600 Fifth Avenue, New York, New York
10020. Pursuant to Rule 12b-1 under the 1940 Act, the SEC 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
and TRA Shares only) with Reich & Tang Distributors, Inc., (the "Distributor"),
as distributor of the Fund's shares.
Under the Plan, the Portfolios and the Distributor will enter into a Shareholder
Servicing Agreement with respect to the Class A shares and TRA Shares. Under the
Shareholder Servicing Agreement, the Distributor receives from each Portfolio a
service fee equal to .25% per annum of each Portfolio's Class A shares and TRA
Shares average daily net assets (the "Service Fee"). The service fee is in
exchange for providing personal shareholder services and
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for the maintenance of shareholder accounts. The Service Fee is accrued daily
and paid monthly and any portion of the Service Fee may be deemed to be used by
the Distributor for payments to Participating Organizations with respect to
servicing their clients or customers who are shareholders of the Fund. The Class
B shareholders will not receive the benefit of such services from Participating
Organizations and, therefore, will not be assessed a Shareholder Servicing Fee.
The following information applies only to the Class A shares of the Portfolios.
For the fiscal year ended August 31,1998, the Fund paid a Service Fee for
expenditures pursuant to the Plan in amounts aggregating $2,309,663 with respect
to the Money Market Portfolio and $1,793,205 with respect to the U.S. Government
Portfolio. During such period, the Manager and Distributor made payments
pursuant to the Plan to or on behalf of Participating Organizations of
$4,483,163 with respect to the Money Market Portfolio and $3,451,933 with
respect to the U.S. Government Portfolio. Of the payments made pursuant to the
Plan by the Fund, with respect to the Money Market Portfolio, $0 was spent on
advertising, $10,777 on printing and mailing of prospectuses to other than
current shareholders, $0 on compensation to underwriters, $4,427,428 on
compensation to broker-dealers, $29,263 on compensation to sales personnel, and
$0 on interest, carrying or other financial charges. Of the payments made
pursuant to the Plan by the Fund, with respect to the U.S. Government Portfolio,
$0 was spent on advertising, $3,398 on printing and mailing of prospectuses to
other than current shareholders, $0 on compensation to underwriters, $3,413,152
on compensation to broker-dealers, $25,188 on compensation to sales personnel,
and $0 on interest, carrying or other financial charges. The excess of such
payments over the total payments the Distributor received from the Fund
represents distribution and servicing expenses funded by the Distributor from
its own resources, or the Manager from its own resources (which may be deemed to
be an indirect payment by the Fund).
Under the Distribution Agreement, the Distributor, for nominal consideration
(i.e., $1.00) and as agent for the Fund, will solicit orders for the purchase of
the Fund's shares, provided that any subscriptions and orders will not be
binding on the Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that the Fund will pay
for (i) telecommunications expenses, including the cost of dedicated lines and
CRT terminals, incurred by the Participating Organizations and Distributor in
carrying out their obligations under the Shareholder Servicing Agreement with
respect to the Class A shares and TRA Shares and (ii) preparing, printing and
delivering the Fund's prospectus to existing shareholders of the Fund and
preparing and printing subscription application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from
their own resources, which may include the management fee, and past profits for
the following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements for performing shareholder servicing and related
administrative functions on behalf of the Class A and TRA 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 TRA 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 or the Shareholder Servicing Agreement in effect
for that year.
In accordance with the 12b-1 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 will remain in effect until April 30, 2000. Thereafter
it may continue in effect for successive annual periods commencing May 1,
provided it is approved by the Fund's shareholders or by the Board of Directors.
This includes a majority of directors who are not interested persons of the Fund
and who have no direct or indirect interest in the operation of the Plan or in
the agreements related to the Plan. The Plan further provides that it may not be
amended to increase materially the costs which may be spent by the Fund for
distribution pursuant to the Plan without shareholder approval, and the other
material amendments must be approved by the directors in the manner described in
the preceding sentence. The Plan may be terminated at any time by a vote of a
majority of the disinterested directors of the Fund or the Fund's shareholders.
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Custodian And Transfer Agent
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri
64105, is custodian for the Fund's cash and securities. Reich & Tang Services,
Inc., an affiliate of the Fund's Manager, located at 600 Fifth Avenue, New York,
NY 10020, is transfer agent and dividend agent for the shares of the Fund. The
custodian and transfer agent do not assist in, and are not responsible for,
investment decisions involving assets of the Fund.
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Thus, the Fund will select a broker
for such a transaction based upon which broker can effect the trade at the best
price and execution available. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases participation
certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the participation certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
VII. CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Fund consists of ten 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. Except as noted below, 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 Money Market Portfolio offers
two classes of common stock, Class A and Class B. The U.S. Government Portfolio
offers three classes of common stock, Class A, Class B and the TRA Shares. Each
share, regardless of class, will represent an interest in the same portfolio of
investments and will have identical voting, dividend, liquidation and other
rights, preferences, powers, restrictions, limitations, qualifications,
designations and terms and conditions, except that: (i) the Class A, Class B and
TRA Shares will have different class designations;
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(ii) only the Class A and the TRA 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 and
TRA shares will 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.
Under its amended Articles of Incorporation, the Fund has the right to redeem
for cash shares of stock owned by any shareholder to the extent and at such
times as the Fund's Board of Directors determines to be necessary or appropriate
to prevent an undue concentration of stock ownership which would cause the Fund
to become a "personal holding company" for Federal income tax purposes. In this
regard, the Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so. In
that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Unless specifically requested by an
investor, the Fund will not issue certificates evidencing Fund shares.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
or special meetings only (i) for the election (or re-election) of directors,
(ii) for approval of the revised investment advisory contracts with respect to a
particular class or series of stock, (iii) for approval of the Fund's
distribution agreement with respect to a particular class or series of stock,
and (iv) upon the written request of shareholders entitled to cast not less than
25% of all the votes entitled to be cast at such meeting. Annual and other
meetings may be required with respect to such additional matters relating to the
Fund as may be required by the 1940 Act, including the removal of Fund
director(s) and communication among shareholders, any registration of the Fund
with the SEC or any state, or as the Directors may consider necessary or
desirable. Each Director serves until his successor is elected or qualified, or
until such Director sooner dies, resigns, retires or is removed by the vote of
the shareholders.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
Pricing of Fund Shares
The net asset value of each Class of each portfolio of the Fund's shares is
determined as of 12 noon, New York City time, on each Fund Business Day. Fund
Business Day means weekdays (Monday through Friday) except days on which the New
York Stock Exchange is closed for trading. The net asset value of a Class is
computed by dividing the value of the Fund's net assets for such Class (i.e.,
the value of its securities and other assets less its liabilities, including
expenses payable or accrued, but excluding capital stock and surplus) by the
total number of shares outstanding for such Class. The Fund intends to maintain
a stable net asset value at $1.00 per share although there can be no assurance
that this will be achieved.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. If fluctuating interest
rates cause the market value of the securities in a portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument is higher or lower
than the price an investment company would receive if the instrument were sold.
Shares will be issued as of the first determination of the Fund's net asset
value per share made upon receipt of the investor's purchase order at the net
asset value per share next determined after receipt of the purchase order.
Except as described below in the case of certain Participating Organizations
(see "Investment Through Participating Organizations" herein), an investor's
funds will not be invested by the Fund during the period before the Fund's
receipt of Federal Funds and its issuance of Fund shares. The Fund reserves the
right to reject any subscription to its shares.
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 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.
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Subscribing to the Fund--Money Market Portfolio and U.S. Government Portfolio
At the time of initial investment in the Fund, investors must elect on their
subscription order form the class of shares of the Portfolio in which they wish
to invest. Subject to the Portfolios' initial investment minimums, investors may
divide their investment in the Fund between the Portfolios in any manner they
choose by submitting a separate subscription order form for each Portfolio.
Investors who purchase shares of the Portfolios from a Participating
Organization that is compensated for its services by the Manager and the
Distributor may purchase Class A shares of the Portfolios. Investors who
purchase shares of the U.S. Government Portfolio through MSI purchase TRA
Shares. Subject to a $100 minimum, Class A and B shareholders in the Fund may
transfer all or a portion of their shares from one open Portfolio account to
another open Portfolio account at any time. Any transfer into a Portfolio in
which the shareholder does not have an open account must satisfy the Portfolio's
initial investment minimum. Shareholders will have a separate account with the
Fund for each Portfolio in which they invest. Certificates for Fund shares will
not be issued to an investor.
Purchase of Fund Shares
Investors purchasing shares through a Participating Organization with which they
have an account become Class A shareholders. Investors who purchase shares of
the U.S. Government Portfolio through MSI purchase TRA Shares. All other
investors, and investors who have accounts with Participating Organizations but
do not wish to invest in the Fund through them, may invest in the Fund directly
as Class B shareholders of the Fund. Class B shareholders do not receive the
benefit of the servicing functions performed by a Participating Organization.
Class B shares may also be offered to investors who purchase their shares
through Participating Organizations who, because they may not be legally
permitted to receive such as fiduciaries, do not receive compensation from the
Distributor or the Manager.
With respect to Class A and Class B shares the minimum initial investment in the
Fund is $1,000 for Participating Organizations which are shareholders in the
Fund and shareholders who invest through Participating Organizations. The
minimum initial investment for securities brokers, financial institutions and
other industry professionals that are not Participating Organizations is also
$1,000. The minimum initial investment is $5,000 for all other investors. The
minimum amount for subsequent investments is $100 for all shareholders. Minimum
investments for TRA Shares are discussed in the "Purchase and Redemption of the
TRA Shares" section that follows.
Each shareholder, except certain Participant Investors, will receive from the
Fund a personalized monthly statement (i) listing the total number of Fund
shares owned as of the statement closing date, (ii) purchase and redemptions of
Fund shares and (iii) the dividends paid on Fund shares (including dividends
paid in cash or reinvested in additional Fund shares).
Purchase and Redemption of Class A and Class B Shares
Investments Through Participating Organizations--Purchase of Class A Shares
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 Distributor with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such statements will receive them from the Fund directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly, may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
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In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day only if the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 4:00 p.m., New York City time, on
that day. Orders for which Federal Funds are received after 4:00 p.m., New York
City time, will result in share issuance the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.
Initial Direct Purchases of Class B Shares
Investors who wish to invest in the Fund directly may obtain a current
prospectus and the subscription order form necessary to open an account by
telephoning the Fund at the following numbers:
Within New York 212-830-5220
Outside New York (TOLL FREE) 800-221-3079
Mail
Investors may send a check made payable to "Short Term Income Fund, Inc." along
with a completed subscription order form to:
Short Term Income Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
will normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's purchase order will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number by telephoning
the Fund at 212-830-5220 (within New York) or at 800-221-3079 (outside New York)
and then instruct a member commercial bank to wire money immediately to:
For Money Market Portfolio:
Investors Fiduciary Trust Company
ABA # 101003621
Reich & Tang Funds
DDA # 890752-953-8
For Short Term Income Fund, Inc.
Money Market Portfolio
Account of (Investor's Name)
Fund Account #
SS#/Tax ID#
For U.S. Government Portfolio:
Investors Fiduciary Trust Company
ABA # 101003621
Reich & Tang Funds
DDA # 890752-953-8
For Short Term Income Fund
U.S. Government Portfolio
Account of (Investor's Name)
SS#/Tax ID#
The investor should then promptly complete and mail the subscription order form.
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Investors 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 investor's bank for transmitting the
money by bank wire, and there also may be a charge for use of Federal Funds. The
Fund does not charge investors in the Fund for its receipt of wire transfers.
Payment in the form of a "bank wire" received prior to 12 noon, New York City
time, on a Fund Business Day will be treated as a Federal Funds payment received
on that day.
Personal Delivery
Deliver a check made payable to "Short Term Income Fund, Inc." along with a
completed subscription order form to:
Reich & Tang Mutual Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Electronic Funds Transfers (EFT), Pre-authorized Credit and Direct Deposit
Privilege
You may purchase shares of the Fund (minimum of $100) by having salary, dividend
payments, interest payments or any other payments designated by you, or by
having federal salary, social security, or certain veteran's, military or other
payments from the federal government, automatically deposited into your Fund
account. You can also have money debited from your checking account. To enroll
in any one of these programs, you must file with the Fund a completed EFT
Application, Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form
for each type of payment that you desire to include in the Privilege. The
appropriate form may be obtained from your broker or the Fund. You may elect at
any time to terminate your participation by notifying in writing the appropriate
depositing entity and/or federal agency. Death or legal incapacity will
automatically terminate your participation in the Privilege. Further, the Fund
may terminate your participation upon 30 days' notice to you.
Subsequent Purchases of Shares
Subsequent purchases can be made by bank wire, as indicated above, or by mailing
a check to:
Short Term 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 of each Portfolio 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, which could take
up to 15 days after investment. Shares redeemed are not entitled to participate
in dividends declared on the day a redemption becomes effective.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature. It should be signed and guaranteed by
an eligible guarantor institution which includes a domestic bank, a domestic
savings and loan institution, a domestic credit union, a member bank of the
Federal Reserve system or a member firm of a national securities exchange,
pursuant to the Fund's transfer agent's standards and procedures.
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<PAGE>
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund addressed to:
Short Term Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
All previously issued certificates submitted for redemption must be endorsed by
the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with signature guaranteed.
Normally the redemption proceeds are paid by check and mailed to the shareholder
of record.
Checks
By making the appropriate election on their subscription order form,
shareholders may request a supply of checks which may be used to effect
redemptions from the Class of shares of the Portfolios 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 governing checking accounts. Checks
drawn on a jointly owned account may, at the shareholder's election, require
only one signature. Checks in amounts exceeding the value of the shareholder's
account at the time the check is presented for payment will not be honored.
Since the dollar value of the account changes daily, the total value of the
account may not be determined in advance and the account may not be entirely
redeemed by check. In addition, the Fund reserves the right to charge the
shareholder's account a fee up to $20 for checks not honored as a result of an
insufficient account value, a check deemed not negotiable because it has been
held longer than six months, an unsigned check and/or a post-dated check. The
Fund reserves the right to terminate or modify the check redemption procedure at
any time or to impose additional fees following notification to the Fund's
shareholders.
Corporations and other entities electing the checking option are required to
furnish a certified resolution or other evidence of authorization in accordance
with the Fund's normal practices. Individuals and joint tenants are not required
to furnish any supporting documentation. Appropriate authorization forms will be
sent by the Fund or its agents to corporations and other shareholders who select
this option. As soon as the authorization forms are filed in good order with the
Fund's agent bank, it will provide the shareholder with a supply of checks.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option on their subscription order form. The proceeds of a telephone
redemption may be sent to the shareholders at their addresses or, if in excess
of $1,000, to their bank accounts, both as set forth in the subscription order
form or in a subsequent written authorization. The Fund may accept telephone
redemption instructions from any person with respect to accounts of shareholders
who elect this service and thus such shareholders risk possible loss of
principal and interest in the event of a telephone redemption not authorized by
them. The Fund will employ reasonable procedures to confirm that telephone
redemption instructions are 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 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
16
<PAGE>
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.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholders' address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Any period during which
an emergency (as determined by the SEC) exists as a result of which disposal by
the Fund of its portfolio securities is not reasonably practicable or as a
result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or for such other period as the SEC may
by order permit for the protection of the shareholders of the Fund.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization. The Participating Organization
will be responsible for notifying the Participant Investor of the proposed
mandatory redemption. During the notice period a shareholder or Participating
Organization who receives such a notice may avoid mandatory redemption by
purchasing sufficient additional shares to increase his total net asset value to
the minimum amount.
Purchase and Redemption of the TRA Shares
Purchase of TRA Shares
TRA Shares are only offered through MSI's Total Resource Account. All shares are
held in an omnibus account at the Fund through MSI, which will maintain
individual investor accounts.
The minimum initial investment in the Fund for the TRA Shares is $2,500. The
minimum amount for subsequent investments is $100.
Each TRA shareholder will receive from MSI a personalized monthly statement (i)
listing the total number of Fund shares owned as of the statement closing date,
(ii) purchase and redemptions of Fund shares and (iii) the dividends paid on
Fund shares (including dividends paid in cash or reinvested in additional Fund
shares).
When instructed by a TRA shareholder to purchase or redeem Fund shares, MSI ,on
behalf of the TRA shareholder, promptly 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.
MSI confirms to its customers who are shareholders in the Fund each purchase and
redemption of Fund shares for the customers' accounts.
Application forms and checks should be sent to Total Resource Account, c/o PFPC,
P.O. Box 8908, Wilmington, DE 19899-8908.
Electronic Funds Transfers (EFT)
You may purchase the TRA Shares of the Fund by having salary, dividend payments,
interest payments or any other payments designated by you, automatically
deposited into your Fund account. To enroll, you must file with MSI a completed
EFT Application. The appropriate form may be obtained from the entity that makes
the payment to you. You may elect at any time to terminate your participation by
notifying in writing the appropriate depositing entity. Death or legal
incapacity will automatically terminate your participation. Further, MSI, on
behalf of the Fund may terminate your participation in the EFT program upon 30
days' notice to you.
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<PAGE>
Subsequent Purchases of Shares
Subsequent purchases can be made by mailing a check to:
Total Resource Account
c/o PFPC
P.O. Box 8908
Wilmington, DE 19899-8908
There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate your Total Resource Account number.
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 the TRA
Shares following receipt by the Fund's transfer agent of the redemption order
(and any supporting documentation which it may require) from MSI. 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 paid unless
the check (including a certified or cashier's check) used for investment has
been cleared for payment by the investor's bank, which could take up to 15 days
after investment. Shares redeemed are not entitled to participate in dividends
declared on the day a redemption becomes effective.
The Total Resource Account application form permits you to redeem by written
request and to elect one or more of the additional redemption procedures
described below. You may only change the instructions indicated on your original
application form by transmitting a written direction to MSI. MSI will promptly
notify the transfer agent when you place a redemption order.
When a signature guarantee is called for, you should have "Signature Guaranteed"
stamped under your signature. It should be signed and guaranteed by an eligible
guarantor institution which includes a domestic bank, a domestic savings and
loan institution, a domestic credit union, a member bank of the Federal Reserve
system or a member firm of a national securities exchange.
Written Requests
You may make a redemption in any amount by sending a written request to the Fund
addressed to:
Total Resource Account
c/o PFPC
P.O. Box 8908
Wilmington, DE 19899-8908
All written requests for redemption must be signed, in each case with signature
guaranteed.
Normally the redemption proceeds are paid by check and mailed to MSI, which will
disburse payment on behalf of its customer.
Checks
You will receive a supply of checks which may be used to effect redemptions in
the TRA Shares. The checks, which will be issued in your name, are drawn on a
special account maintained by MSI, on behalf of the Fund, with MSI's agent bank.
When a check is presented to MSI's agent bank, it instructs the Fund's transfer
agent to redeem a sufficient number of full and fractional shares in the MSI
omnibus account to cover the amount of the check. The use of a check to make a
withdrawal enables you to receive dividends on the shares to be redeemed up to
the Fund Business Day on which the check clears. Checks may not be certified.
Investors who purchase Fund shares by check may not receive their redemption
proceeds until the check has cleared, which can take up to 15 days following the
date of purchase.
There is no charge to you for checks provided by MSI. MSI, on behalf of the
Fund, reserves the right to impose a charge or impose a different minimum check
amount in the future.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of MSI's agent bank governing checking accounts. Checks drawn on
a jointly owned account may, at the your election, require only one signature.
Checks in amounts exceeding the value of your 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, MSI, on
behalf of the
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Fund reserves the right to charge your account a fee up to $25 for checks not
honored as a result of an insufficient account value, a check deemed not
negotiable because it has been held longer than six months, an unsigned check
and/or a post-dated check. MSI, on behalf of the Fund reserves the right to
terminate or modify the check redemption procedure at any time or to impose
additional fees following notification to the TRA shareholders.
Corporations and other entities electing the checking option are required to
furnish a certified resolution or other evidence of authorization in accordance
with MSI's normal practices. Individuals and joint tenants are not required to
furnish any supporting documentation. Appropriate authorization forms will be
sent by MSI, on behalf of the Fund, to corporations and other investors who
select this option. As soon as the authorization forms are filed in good order
with MSI's agent bank, it will provide the shareholder with a supply of checks.
Telephone
The Fund accepts telephone requests for redemption from TRA shareholders who
elect this option on their application form. The proceeds of a telephone
redemption may be sent to you at your address or, if in excess of $1,000, to
your bank account designated in writing. MSI, on behalf of the Fund may accept
telephone redemption instructions from any TRA shareholders who elect this
service and thus such TRA shareholders risk possible loss of principal and
interest in the event of a telephone redemption not authorized by them. MSI, on
behalf of the Fund will employ reasonable procedures to confirm that telephone
redemption instructions are genuine, and will require that TRA 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 TRA shareholder making a telephone withdrawal should call MSI at
1-800-638-7283 and state: (i) the name of the TRA shareholder appearing on the
TRA records; (ii) the Total Resource Account number with MSI; (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 MSI's designated
bank account 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. MSI, on behalf of the Fund reserves the right to terminate or
modify the telephone redemption service in whole or in part at any time and will
notify shareholders accordingly.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent by MSI to the TRA shareholder's address of record. If
the TRA shareholder elects to redeem all the shares of his Total Resource
Account, all dividends accrued to the date of such redemption will be paid to
the TRA 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. 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.
MSI, on behalf of the Fund has reserved the right to redeem the shares of any
TRA shareholder if the net asset value of all the remaining shares in the
account after a withdrawal is less than $250. A TRA shareholder may avoid
mandatory redemption by purchasing sufficient additional shares to increase his
total net asset value to the minimum amount.
Net Asset Value
The Fund does not determine net asset value per share of each Class on any day
in which the New York Stock Exchange is closed for trading. Those days include:
New Year's Day, Martin Luther King Jr Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The net asset value of each portfolio 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.
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The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. If fluctuating interest
rates cause the market value of the Fund's portfolio to deviate more than 1/2 of
1% from the value determined on the basis of amortized cost, the Board of
Directors will consider whether any action should be initiated, as described in
the following paragraph. Although the amortized cost method provides certainty
in valuation, it may result in periods during which the value of an instrument
is higher or lower than the price an investment company would receive if the
instrument were sold.
The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset value at $1.00 per share of each Class. These procedures include a
review of the extent of any deviation of net asset value per share, based on
available market rates, from the Fund's $1.00 amortized cost per share of each
Class. Should that deviation exceed 1/2 of 1%, the Board will consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redemption of shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
remaining maturity greater than 397 days, will limit portfolio investments,
including repurchase agreements, to those United States dollar-denominated
instruments that the Fund's Board of Directors determines present minimal credit
risks, and will comply with certain reporting and record keeping procedures. The
Fund has also established procedures to ensure compliance with the requirement
that portfolio securities are Eligible Securities.
IX. TAXATION OF THE FUND
Federal Income Taxes
The Fund has elected to qualify under the Code 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.
Dividends paid by the Fund from its net investment income including its
short-term capital gains are taxable to shareholders as ordinary income whether
they are distributed to the shareholder or reinvested in additional Fund shares.
Dividends designated by the Fund as from long-term capital gains which are
taxable to shareholders at capital gain rates are also taxable to shareholders
whether they are distributed to them or reinvested. A shareholder will be
subject to tax on dividends of net investment income or capital gains paid
shortly following the shareholder's purchase of shares of the Fund, even though
the dividend might be viewed economically as a return of capital to the
shareholder.
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 or accrued market
discount upon the maturity or disposition of securities acquired at discounts
resulting from market fluctuations. Short-term capital gains and accrued market
discount will be taxable to shareholders as ordinary income. Any net capital
gains (the excess of net realized long-term capital gain over net realized
short-term capital loss) will be distributed by the Fund annually. 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 their shares. However,
shareholders who at the time of such a net capital gain distribution have not
held their 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 after the close of the Fund's taxable year.
Capital gains realized by corporations are generally taxed at the same rate as
ordinary income. However, long-term capital gains (i.e. gains resulting from
assets with a holding of more than one year) realized as non-corporate
shareholder are taxable at a maximum rate of 20%. Corresponding maximum rate and
holding period rules apply with respect to capital gains distributed by the
Fund, without regard to the length of time shares have been held by the holder.
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. These distributions will be taxable to shareholders as ordinary
income. The Fund will be subject to Federal income tax on any undistributed
investment company taxable income and undistributed net long-term
20
<PAGE>
capital gains. If the Fund does not distribute at least 98% of its ordinary
income and 98% of its capital gain net income for a taxable year, the Fund will
be subject to a nondeductible 4% excise tax on the excess of such amounts over
the amounts actually distributed.
If a shareholder fails to provide the Fund with a current taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
dividend payments, and proceeds from the redemption of shares.
Dividends and distributions to shareholders will be taxable whether received in
cash or reinvested in additional shares of the Fund.
X. UNDERWRITERS
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge. The Distributor does not receive an
underwriting commission. In effecting sales of Fund shares under the
Distribution Agreement, the Distributor, for nominal consideration (i.e., $1.00)
and as agent for the Fund, 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 Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. In the opinion of the Manager,
however, based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Directors will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution would result in loss to shareholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register ad dealers pursuant to
state law.
XI. CALCULATION OF PERFORMANCE DATA
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the SEC. Under that method, the Fund's portfolios'
yield figures, which are based on a chosen seven-day period, are computed as
follows: the portfolio's return for the seven-day period is obtained by dividing
the net change in the value of a hypothetical account having a balance of one
share at the beginning of the period by the value of such account at the
beginning of the period (expected to always be $1.00). This is multiplied by
(365/7) with the resulting annualized figure carried to the nearest hundredth of
one percent. For purposes of the foregoing computation, the determination of the
net change in account value during the seven-day period reflects (i) dividends
declared on the original share and on any additional shares, including the value
of any additional shares purchased with dividends paid on the original share,
and (ii) fees charged to all shareholder accounts. Realized capital gains or
losses and unrealized appreciation or depreciation of the Fund's portfolio
securities are not included in the computation. Therefore annualized yields may
be different from effective yields quoted for the same period.
The portfolio's "effective yield" for each Class is obtained by adjusting its
"current yield" to give effect to the compounding nature of the Fund's
portfolio, as follows: the unannualized base period return is compounded and
brought out to the nearest one hundredth of one percent by adding one to the
base period return, raising the sum to a power equal to 365 divided by 7, and
subtracting one from the result, i.e., effective yield = [(base period return +
1)365/7] - 1.
Although published yield information is useful to investors in reviewing the
Fund's portfolios' performance, investors should be aware that the Fund's
portfolios' yields fluctuate from day to day. The Fund's portfolios' yields for
any given period are 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 portfolios' tax equivalent current
yield. The tax equivalent yield for each Class is computed based upon a 30-day
(or one month) period ended on the date of the most recent balance sheet
included in this Statement of Additional Information. It is computed by dividing
that portion of the yield of the Fund (as computed pursuant to the formulae
previously discussed) which is tax exempt by one minus a stated income tax
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rate and adding the quotient to that portion, if any, of the yield of the Fund
that is not tax exempt. The tax equivalent yield for the Fund may also fluctuate
daily and does not provide a basis for determining future yields.
The Fund may from time to time advertise a tax equivalent effective yield table
which shows the yield that an investor would need to receive from a taxable
investment in order to equal a tax-free yield from the Fund. This is calculated
by dividing that portion of the Fund's effective yield that is tax-exempt by 1
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's effective yield that is not tax-exempt.
The Fund's Money Market Portfolio's Class A shares' yield for the seven day
period ended November 30, 1998 was 4.32% which is equivalent to an effective
yield of 4/41%. The Fund's U.S. Government Portfolio's Class A shares' yield for
the seven day period ended November 30, 1998 was 3.97% which is equivalent to an
effective yield of 4.05%.
The Fund's Money Market Portfolio's Class B shares' yield for the seven day
period ended November 30, 1998 was 4.67% which is equivalent to an effective
yield of 4.78%. The Fund's U.S. Government Portfolio's Class B shares' yield for
the seven day period ended November 30, 1998 was 4.30% which is equivalent to an
effective yield of 4.39%.
The Fund's Money Market Portfolio's Class A shares' yield for the seven day
period ended February 28, 1999 was 4.09% which is equivalent to an effective
yield of 4.17%. The Fund's U.S. Government Portfolio's Class A shares' yield for
the seven day period ended February 28, 1999 was 3.92% which is equivalent to an
effective yield of 4.00%.
The Fund's Money Market Portfolio's Class B shares' yield for the seven day
period ended February 28, 1999 was 4.44% which is equivalent to an effective
yield of 4.54%. The Fund's U.S. Government Portfolio's Class B shares' yield for
the seven day period ended February 28, 1999 was 4.25% which is equivalent to an
effective yield of 4.34%.
XII. FINANCIAL STATEMENTS
The interim, unaudited financial statements for the Fund for the six months
ended February 28, 1999 and the audited financial statements for the fiscal year
ended August 31, 1998 and the report therein of McGladrey & Pullen, LLP are
herein incorporated by reference to the Fund's Semi-Annual and Annual Reports,
respectively. The Semi-Annual and Annual Reports are available upon request and
without charge.
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DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s Two Highest Municipal Bond
Ratings:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. (c) Bonds for which the security depends upon the completion of some act or
the fulfillment of some condition are rated conditionally. These are bonds
secured by (i) earnings of projects under construction, (ii) earnings of
projects unseasoned in operating experience, (iii) rentals which begin when
facilities are completed, or (iv) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc.'s Two Highest Ratings of State
and Municipal Notes and Other Short-Term Loans:
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services Two Highest Debt Ratings:
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only to a small degree.
Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Standard & Poor's does not provide ratings for state and municipal notes.
Description of Standard & Poor's Rating Services Two Highest Commercial Paper
Ratings:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Moody's Investors Service, Inc.'s Two Highest Commercial Paper
Ratings:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues: Prime-1, highest
quality; Prime-2, higher quality.
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* As described by the rating agencies.
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