As filed with the Securities and Exchange Commission on January 31, 2000
Registration No. 2-78513
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 30 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 26 [X]
DAILY TAX FREE INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue, New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5200
Bernadette N. Finn
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)
Copy to: MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
(212) 856-6858
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on (February 1, 2000) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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DAILY TAX FREE 600 FIFTH AVENUE
INCOME FUND, INC. NEW YORK, N.Y. 10020
Class A Shares; Class B Shares (212) 830-5220
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PROSPECTUS
February 1, 2000
A money market fund whose investment objective is to seek as high a level of
current interest income exempt from regular Federal income tax, to the extent
consistent with preservation of capital, maintenance of liquidity and stability
of principal.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
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2 Risk/Return Summary: Investments, Risks 7 Management, Organization and Capital Structure
and Performance 7 Shareholder Information
4 Fee Table 15 Tax Consequences
5 Investment Objectives, Principal Investment 16 Distribution Arrangements
Strategies and Related Risks 17 Financial Highlights
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I. RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The Fund seeks to provide its investors with as high a level of current
interest income exempt from regular Federal income tax, to the extent consistent
with preservation of capital, maintenance of liquidity and stability of
principal. There can be no assurance that the Fund will achieve its investment
objective.
PRINCIPAL INVESTMENT STRATEGIES
The Fund intends to achieve its investment objective by investing
principally in short-term, high quality, debt obligations issued by states and
municipal governments and their authorities, agencies and political
subdivisions. These debt obligations are collectively referred to throughout the
Prospectus as Municipal Obligations. The Fund will also invest in Participation
Certificates, which evidence ownership of an interest in the underlying
Municipal Obligations. Participation Certificates are purchased from banks,
insurance companies, or other financial institutions.
The Fund is a money market fund and seeks to maintain an investment
portfolio with a dollar-weighted average maturity of 90 days or less, to value
its investment portfolio at amortized cost and to maintain a net asset value of
$1.00 per share.
The Fund intends to concentrate (i.e. 25% or more of the Fund's total net
assets) in Municipal Obligations. A large number of holdings within Municipal
Obligations may be in Participation Certificates in industrial revenue bonds
purchased from and secured by banks. Industrial revenue bonds are issued by
public authorities to provide funding for various privately operated industrial
facilities.
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.
o The value of the Fund's shares and the securities held by the Fund can each
decline in value.
o An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other governmental agency.
o The amount of income the Fund generates will vary with changes in
prevailing interest rates.
o Because the Fund intends to concentrate in Participation Certificates and
other Municipal Obligations, investors should consider the greater risk of
the Fund's concentration versus the safety that comes with a less
concentrated investment portfolio. In addition, because the Fund purchases
Participation Certificates from banks and the Participation Certificates
are backed by a bank letter of credit, investment in the Fund should be
made with an understanding of the risks which an investment in the banking
industry may entail.
o An investment in the Fund should be made with an understanding of the risks
that an investment in Municipal Obligations may entail. Payment of interest
and preservation of capital are dependent upon the continuing ability of
issuers and/or obligors of state, municipal and public authority debt
obligations to meet their payment obligations.
o Because the Fund reserves the right to invest up to 20% of its total assets
in taxable securities, investors should understand that some of the income
of the Fund may be subject to the Federal alternative minimum tax.
RISK/RETURN BAR CHART
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The following bar chart and table may assist you in deciding whether to
invest in the Fund. The bar chart shows the change in the annual total returns
of the Fund's Class A shares over the last ten calendar years. The table shows
the average annual total returns for the last one, five and ten year periods and
the average annual total return since inception. While analyzing this
information, please note that the Fund's past performance is not an indicator of
how the Fund will perform in the future. The current 7-day yield of the Fund's
classes may be obtained by calling the Fund toll-free at 1-800- 221-3079.
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Daily Tax Free Income Fund, Inc. Class A Shares (1), (2)
[GRAPHIC OMITTED]
Calendar Year % Total Return
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1990 5.54%
1991 4.36%
1992 2.73%
1993 2.19%
1994 2.57%
1995 3.49%
1996 3.02%
1997 3.10%
1998 2.81%
1999 2.48%
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(1) The Class A shares' highest quarterly return was 1.37% for the quarter
ended June 30, 1990; the lowest quarterly return was 0.48% for the quarter
ended March 31, 1994.
(2) Participating Organizations may change a fee to investors for purchasing
and redeeming shares. Therefore, the net return to such investors may be
less than if they had invested in the Fund directly.
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Average Annual Total Returns - Daily Tax Free Income Fund, Inc.
Class A Class B
For the periods ended December 31, 1999
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One Year 2.48% 2.80%
Five Years 2.98% 3.26%
Ten Years 3.22% N/A
Since Inception * 4.00% 3.07%
* The Inception date of the Class A shares was November 12, 1982 and for the
Class B shares November 23, 1992.
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FEE TABLE
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
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ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B
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Management Fees................................ 0.33% 0.33%
Distribution and Service (12b-1) Fees.......... 0.25% 0.00%
Other Expenses................................. 0.40% 0.34%
Administration Fees........................ 0.21% 0.21%
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Total Annual Fund Operating Expenses......... 0.98% 0.67%
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Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds. Assume that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. Also assume that your investment has a 5%
return each year and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A: $100 $312 $542 $1,201
Class B: $68 $214 $373 $ 835
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II. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objective
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The Fund is a diversified, short-term, tax-exempt money market fund whose
investment objective is to seek to provide its investors with as high a level of
current interest income exempt from regular Federal income tax to the extent
consistent with preserving capital, maintaining liquidity and stabilizing
principal.
The investment objective of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund that would be affected by such a change.
PRINCIPAL INVESTMENT STRATEGIES
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Generally
The Fund will invest primarily (i.e., at least 80%) in short-term, high
quality, tax-exempt, fixed rate and variable rate Municipal Obligations issued
by or on behalf of states, their authorities, agencies, instrumentalities and
political subdivisions.
The Fund will also invest in Participation Certificates in Municipal
Obligations. Participation Certificates represent the Fund's interest in a
Municipal Obligation that is held by another entity (i.e. banks, insurance
companies or other financial institutions). Instead of purchasing a Municipal
Obligation directly, the Fund purchases and holds an undivided interest in a
Municipal Obligation that is held by a third party. The Fund's interest in the
underlying Municipal Obligation is proportionate to the Fund's participation
interest. Ownership of the Participation Certificates cause the Fund to be
treated as the owner of the underlying Municipal Obligations for Federal income
tax purposes.
The Fund may invest more than 25% of its assets in Participation
Certificates purchased from banks in industrial revenue bonds and other
Municipal Obligations.
Although the Fund will attempt to invest 100% of its total assets in
Municipal Obligations and Participation Certificates, the Fund reserves the
right to invest up to 20% of its total assets in taxable securities whose
interest income is subject to regular Federal, state and local income tax. The
kinds of taxable securities in which the Fund may invest are limited to specific
types of short-term, fixed income securities as more fully described in "Taxable
Securities" in the Statement of Additional Information.
The Fund may also purchase securities and participation certificates whose
interest income may be subject to the Federal alternative minimum tax. However,
these investments are included in the same 20% of total assets that may be
invested in taxable securities,
As a temporary defensive measure the Fund may, from time to time, invest in
securities that are inconsistent with its principal investment strategies in an
attempt to respond to adverse market, economic, political or other conditions as
determined by the Manager. Such a temporary defensive position may cause the
Fund to not achieve its investment objective.
The Fund shall not invest more than 5% of its total assets in securities
issued by a single issuer.
With respect to 75% of its total assets, the Fund shall invest not more than
10% of its total assets in Municipal Obligations or Participation Certificates
backed by a demand feature or guarantee from the same institution.
The Fund's investments may also include "when-issued" Municipal Obligations
and stand-by commitments.
The Fund's investment adviser considers the following factors when buying
and selling securities for the portfolio: (i) availability of cash, (ii)
redemption requests, (iii) yield management, and (iv) credit management.
In order to maintain a share price of $1.00, the Fund must comply with
certain industry regulations. Other requirements pertain to the maturity and
credit quality of the securities in which the Fund may invest. The Fund will
only invest in securities which have or are deemed to have a remaining maturity
of 397 days or less.
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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 Directors of the Fund shall
reassess the security's credit risks and shall take such action as it determines
is in the best interest of the Fund and its shareholders. Reassessment is not
required, however, if the security is disposed of or matures within five
business days of the investment adviser becoming aware of the new rating and
provided further that the Board of Directors is subsequently notified of the
investment adviser's actions.
For a more detailed description of (i) the securities that the Fund will
invest in, (ii) fundamental investment restrictions, and (iii) industry
regulations governing credit quality and maturity, please refer to the Statement
of Additional Information.
Risks
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The Fund complies with industry-standard requirements on the quality,
maturity and diversification of its investments which are designed to help
maintain a $1.00 share price. A significant change in interest rates or a
default on the Fund's investments could cause its share price (and the value of
your investment) to change.
By investing in liquid, short-term, high quality investments that have high
quality credit support from banks, insurance companies or other financial
institutions (i.e. Participation Certificates and other variable rate demand
instruments), the Fund's management believes that it can protect the Fund
against credit risks that may exist on long-term Municipal Obligations. The Fund
may still be exposed to the credit risk of the credit or liquidity support
provider. Changes in the credit quality of the provider could affect the value
of the security and your investment in the Fund.
Because the Fund may concentrate in Participation Certificates which may be
secured by bank letters of credit or guarantees, an investment in the Fund
should be made with an understanding of the characteristics of the banking
industry and the risks which such an investment may entail. This includes
extensive governmental regulations, changes in the availability and cost of
capital funds, and general economic conditions (see "Variable Rate Demand
Instruments and Participation Certificates" in the Statement of Additional
Information) which may limit both the amounts and types of loans and other
financial commitments which may be made and interest rates and fees which may be
charged. The profitability of this industry is largely dependent upon the
availability and cost of capital funds for the purpose of financing lending
operations under prevailing money market conditions. General economic conditions
also play an important part in the operations of this industry. Exposure to
credit losses arising from possible financial difficulties of borrowers might
affect a bank's ability to meet its obligations under a letter of credit.
With the arrival of the Year 2000, an issue remains as to how effectively
existing application software programs and operating systems will accommodate
this date value. Failure to adequately address this issue could have potentially
serious repercussions. The investment adviser is working with the Fund's service
providers to prepare for any problems which may arise due to the Year 2000.
Based on information currently available, the investment adviser does not
believe that the Fund has incurred or will incur material costs to be Year 2000
compliant. Although the investment adviser 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 the steps taken in preparation
for
6
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the Year 2000 will be sufficient to avoid an adverse impact on the Fund. The
Year 2000 problem may also adversely affect issuers of the securities contained
in the Fund, to varying degrees based upon various factors, and thus may have a
corresponding adverse effect on the Fund's performance. The investment adviser
is unable to predict what effect, if any, the Year 2000 problem will have on
such issuers. At this time, however, it is generally believed that municipal
issuers may be more vulnerable to Year 2000 issues or problems than will other
issuers.
III. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of December 31, 1999, the Manager was the
investment manager, advisor or supervisor with respect to assets aggregating in
excess of $14.7 billion. The Manager has been an investment adviser since 1970
and currently is manager of eighteen other registered investment companies and
also advises pension trusts, profit-sharing trusts and endowments.
Pursuant to the Investment Management Contract, the Manager manages the
Fund's portfolio of securities and makes decisions with respect to the purchase
and sale of investments, subject to the general control of the Board of
Directors of the Fund. Pursuant to the Investment Management Contract, the Fund
pays the Manager a fee equal to .325% per annum of the Fund's average daily net
assets up to $750 million, plus .30% of such assets in excess of $750 million
for managing the Fund's investment portfolio and performing related services.
Pursuant to the Administrative Services Contract, the Manager performs
clerical, accounting supervision and office service functions for the Fund. The
Manager provides the Fund with the personnel to perform all other clerical and
accounting type functions not performed by the Manager. For its services under
the Administrative Services Contract, the Fund pays the Manager a fee equal to
.21% per annum of the Fund's average daily net assets up to $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. The Manager, at its
discretion, may voluntarily waive all or a portion of the administrative
services fee. Any portion of the total fees received by the Manager may be used
to provide shareholder services and for distribution of Fund shares.
In addition, Reich & Tang Distributors Inc., the Distributor, receives a
servicing fee equal to .25% per annum of the average daily net assets of the
Class A shares of the Fund under the Shareholder Servicing Agreement. The fees
are accrued daily and paid monthly. Investment management fees and operating
expenses, which are attributable to both Classes of shares of the Fund, will be
allocated daily to each Class of shares based on the percentage of shares
outstanding for each Class at the end of the day.
Thornburg Investment Management, Inc., a Delaware corporation with principal
offices at 119 East Marcy Street, Santa Fe, New Mexico 87501 (the
"Sub-Adviser"), was formed as an investment adviser in 1982 and provides
investment advisory assistance and portfolio management advice to the Manager.
The Sub-Adviser is paid a fee by the manager of an amount equal to 25% of all
fees paid to the Manager by the Fund, less certain costs, payments and expenses
of the Manager. The Fund does not pay any portion of the Sub-Adviser's fee.
Thornburg Investment Management, Inc. is also the investment adviser to two
registered open-end investment companies with assets in excess of $2.4 billion.
IV. SHAREHOLDER INFORMATION
The Fund sells and redeems its shares on a continuing basis at their net
asset value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent, who
accepts orders for purchases and redemptions from Participating Organizations
and from investors directly.
7
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Pricing of Fund Shares
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The net asset value of each Class of the Fund's shares is determined as of
12 noon, New York City time, on each Fund Business Day. Fund Business Day means
weekdays (Monday through Friday) except days on which the New York Stock
Exchange is closed for trading (i.e. national holidays). The net asset value of
a Class is computed by dividing the value of the Fund's net assets for such
Class (i.e., the value of its securities and other assets less its liabilities,
including expenses payable or accrued, but excluding capital stock and surplus)
by the total number of shares outstanding for such Class. The Fund intends to
maintain a stable net asset value at $1.00 per share although there can be no
assurance that this will be achieved.
The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost
valuation involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium. If fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument is higher or lower
than the price an investment company would receive if the instrument were sold.
Shares are issued as of the first determination of the Fund's net asset
value per share for each Class made after receipt and acceptance of the
investor's purchase order. In order to maximize earnings on its portfolio, the
Fund normally has its assets as fully invested as is practicable. Many
securities in which the Fund invests require the immediate settlement in funds
of Federal Reserve member banks on deposit at a Federal Reserve Bank (commonly
known as "Federal Funds"). Fund shares begin accruing income on the day the
shares are issued to an investor. The Fund reserves the right to reject any
purchase order for its shares. Certificates for Fund shares will not be issued
to an investor.
Purchase of Fund Shares
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The Fund does not accept a purchase order until an investor's payment has
been converted into Federal Funds and is received by the Fund's transfer agent.
Orders accompanied by Federal Funds and received after 12 noon, New York City
time, on a Fund Business Day will result in the issuance of shares on the
following Fund Business Day.
Investors purchasing shares through a Participating Organization with which
they have an account ("Participant Investors") become Class A shareholders.
"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. 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.
The minimum initial investment in the Fund for both classes of shares is (i)
$1,000 for purchases through Participating Organizations - this may be satisfied
by initial investments aggregating $1,000 by a Participating Organization on
behalf of their customers whose initial investments are less than $1,000; (ii)
$1,000 for securities brokers, financial institutions and other industry
professionals that are not Participating
8
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Organizations and (iii) $5,000 for all other investors. Initial investments may
be made in any amount in excess of the applicable minimums. The minimum amount
for subsequent investments is $100 unless the investor is a client of a
Participating Organization whose clients have made aggregate subsequent
investments of $100.
Each shareholder, except certain shareholders who invest through accounts at
Participating Organizations, will receive from the Fund a personalized monthly
statement listing (i) 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).
INVESTMENTS THROUGH PARTICIPATING ORGANIZATIONS - PURCHASE OF CLASS A SHARES
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Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. 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 the net yield that could be
achieved by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day only if the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 4:00 p.m., New York City time, on
that day. Orders for which Federal Funds are received after 4:00 p.m., New York
City time, will result in share issuance the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.
INITIAL DIRECT PURCHASES OF CLASS B SHARES
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Investors who wish to invest in the Fund directly may obtain a current
prospectus and the subscription order form necessary to open an account by
telephoning the Fund at the following numbers:
Within New York 212-830-5220
Outside New York (TOLL FREE) 800-221-3079
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MAIL
Investors may send a check made payable to "Daily Tax Free Income Fund,
Inc." along with a completed subscription order form to:
Daily Tax Free 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:
State Street Kansas City
ABA # 101003621
Reich & Tang Funds
DDA # 890752-953-8
For Daily Tax Free Income Fund, Inc.
Account of (Investor's Name)
Fund Account #
SS#/Tax ID#
The investor should then promptly complete and mail the subscription order
form.
Investors planning to wire funds should instruct their bank 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 "Daily Tax Free Income Fund, Inc." along
with a completed subscription order form to:
Reich & Tang Mutual Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
ELECTRONIC FUNDS TRANSFERS (EFT), PRE-AUTHORIZED CREDIT AND DIRECT
DEPOSIT PRIVILEGE
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You may purchase shares of the Fund (minimum of $100) by having salary,
dividend payments, interest payments or any other payments designated by you,
federal salary, social security, or certain veteran's, military or other
payments from the federal government, automatically deposited into your Fund
account. You can also have money debited from your checking account. To enroll
in any one of these programs, you must file with the Fund a completed EFT
Application, Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form
for each type of payment that you desire to include in the Privilege. The
appropriate form may be obtained from your broker or the Fund. You may elect at
any time to terminate your participation by notifying in writing the appropriate
depositing entity and/or Federal agency. Death or legal incapacity will
automatically terminate your participation in the Privilege. Further, the Fund
may terminate your participation upon 30 days' notice to you.
SUBSEQUENT PURCHASES OF SHARES
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Subsequent purchases can be made by bank wire, as indicated above, or by
mailing a check to:
Daily Tax Free Income Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
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There is a $100 minimum for subsequent purchases of shares. All payments
should clearly indicate the shareholder's account number.
Provided that the information on the subscription form on file with the Fund
is still applicable, a shareholder may reopen an account without filing a new
subscription order form at any time during the year the shareholder's account is
closed or during the following calendar year.
REDEMPTION OF SHARES
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A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
Class upon receipt by the Fund's transfer agent of the redemption order (and any
supporting documentation 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.
WRITTEN REQUESTS
Shareholders may make a redemption in any amount by sending a written
request to the Fund addressed to:
Daily Tax Free 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 Fund in which they invest. The
checks, which will be issued in the shareholder's name, are drawn on a special
account maintained by the Fund with the Fund's agent bank. Checks may be drawn
in any amount of $250 or more. When a check is presented to the Fund's agent
bank, it instructs the Fund's transfer agent to redeem a sufficient number of
full and fractional shares in the shareholder's account to cover the amount of
the check. The use of a check to make a withdrawal enables a shareholder in the
Fund to receive dividends on the shares to be redeemed up to the Fund Business
Day on which the check clears. Checks provided by the Fund may not be certified.
Fund shares purchased by check may not be redeemed by check until the check has
cleared, which can take up to 15 days following the date of purchase.
11
<PAGE>
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. Failure by the Fund to
employ such reasonable procedures may cause the Fund to be liable for the losses
incurred by investors due to unauthorized or fraudulent telephone redemptions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York at 800-221-3079, and state: (i) the name of the
shareholder appearing on the Fund's records; (ii) the shareholder's account
number with the Fund; (iii) the amount to be withdrawn; (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address; and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time. Proceeds are sent the next Fund Business Day if the
redemption request is received after 12 noon, New York City time. The Fund
reserves the right to terminate or modify the telephone redemption service in
whole or in part at any time and will notify shareholders accordingly.
GENERALLY
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
12
<PAGE>
check. Unless other instructions are given in proper form to the Fund's transfer
agent, a check for the proceeds of a redemption will be sent to the
shareholder's address of record. If a shareholder elects to redeem all the
shares of the Fund he owns, all dividends accrued to the date of such redemption
will be paid to the shareholder along with the proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Additional exceptions
include any period during which an emergency (as determined by the SEC) exists
as a result of which disposal by the Fund of its portfolio securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or for such other
period as the SEC may by order permit for the protection of the shareholders of
the Fund.
The Fund has reserved the right to redeem the shares of any shareholder if
the net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be made to the
appropriate Participating Organization only. The Participating Organization will
be responsible for notifying the Participant Investors of the proposed mandatory
redemption. Shareholders may avoid mandatory redemption by purchasing sufficient
additional shares to increase their total net asset value to the minimum amount
during the notice period.
SPECIFIED AMOUNT AUTOMATIC
WITHDRAWAL PLAN
- --------------------------------------------------------------------------------
Shareholders may elect to withdraw shares and receive payment from the Fund of a
specified amount of $50 or more automatically on a monthly or quarterly basis.
The monthly or quarterly withdrawal payments of the specified amount are made by
the Fund on the 23rd day of the month. Whenever such 23rd day of a month is not
a Fund Business Day, the payment date is the Fund Business Day preceding the
23rd day of the month. In order to make a payment, a number of shares equal in
aggregate net asset value to the payment amount are redeemed at their net asset
value on the Fund Business Day immediately preceding the date of payment. To the
extent that the redemptions to make plan payments exceed the number of shares
purchased through reinvestment of dividends and distributions, the redemptions
reduce the number of shares purchased on original investment, and may ultimately
liquidate a shareholder's investment.
The election to receive automatic withdrawal payments may be made at the
time of the original subscription by so indicating on the subscription order
form. The election may also be made, changed or terminated at any later time by
sending a signature guaranteed written request to the transfer agent. Because
the withdrawal plan involves the redemption of Fund shares, such withdrawals may
constitute taxable events to the shareholder but the Fund does not expect that
there will be any realized capital gains.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund declares dividends equal to all its net investment income
(excluding capital gains and losses, if any, and amortization of market
discount) on each Fund Business Day and pays dividends monthly. There is no
fixed dividend rate. In computing these dividends, interest earned and expenses
are accrued daily.
Net realized capital gains, if any, are distributed at least annually and in
no event later than 60 days after the end of the Fund's fiscal year.
13
<PAGE>
All dividends and distributions of capital gains are automatically invested,
at no charge, in additional Fund shares of the same Class of shares immediately
upon payment thereof unless a shareholder has elected by written notice to the
Fund to receive either of such distributions in cash.
Because Class A shares bear the service fee under the Fund's 12b-1 Plan, the
net income of and the dividends payable to the Class A shares will be lower than
the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.
PORTFOLIO TRANSFERS
- --------------------------------------------------------------------------------
The Fund may establish separate portfolios in the future. If a shareholder
invests in more than one portfolio, that shareholder will have a separate
account for each portfolio shareholder and will be able to transfer shares from
one account to another at any time by instructing the transfer agent in writing
or by telephone. A shareholder who wants to transfer shares into a portfolio
that the shareholder does not own shares in at the time of the proposed transfer
must satisfy that portfolio's initial investment minimum.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders of the Fund are entitled to exchange some or all of their
Class of shares in the Fund for shares of the same Class of certain other
investment companies which retain Reich & Tang Asset Management L.P. as
investment adviser and which participate in the exchange privilege program with
the Fund. If only one Class of shares is available in a particular exchange
fund, the shareholder of the Fund is entitled to exchange their shares for the
shares available in that exchange fund. Currently the exchange privilege program
has been established between the Fund and California Daily Tax Free Income Fund,
Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc.,
Florida Daily Municipal Income Fund, Georgia Daily Municipal Income Fund, Inc.,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich &
Tang Equity Fund, Inc., Short Term Income Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc. In the future, the exchange privilege program may be
extended to other investment companies which retain Reich & Tang Asset
Management L.P. as investment adviser or manager.
There is no charge for the exchange privilege or limitation as to frequency
of exchange. The minimum amount for an exchange is $1,000. However, shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Each Class of shares is exchanged at its
respective net asset value.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares of the same Class may be exchanged
only between investment company accounts registered in identical names. Before
making an exchange, the investor should review the current prospectus of the
investment company into which the exchange is to be made. An exchange is a
taxable event.
Instructions for exchanges may be made by sending a signature guaranteed
written request to:
14
<PAGE>
Daily Tax Free Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
or, for shareholders who have elected that option, by telephoning the Fund at
212-830-5220 (within New York) or 800-221-3079 (outside New York). The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time.
Tax Consequences
- --------------------------------------------------------------------------------
The purchase of Fund shares will be the purchase of an asset. Dividends paid
by the Fund that are designated by the Fund and derived from Municipal
Obligations and Participation Certificates, will be exempt from regular Federal
income tax, provided the Fund complies with Section 852(b)(5) of the Internal
Revenue Code, but may be subject to Federal alternative minimum tax. These
dividends are referred to as exempt interest dividends. Income exempt from
regular Federal income tax may be subject to state and local income tax.
The Fund may invest a portion of its assets in taxable securities the
interest income on which is subject to Federal, state and local income tax.
Dividends paid from taxable income, if any, and distributions of any realized
short-term capital gains (from tax-exempt or taxable obligations) are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares of the Fund.
For Social Security recipients, interest on tax-exempt bonds, including
exempt interest dividends paid by the Fund, is to be added to adjusted gross
income to determine the amount of Social Security benefits includible in gross
income.
Interest on certain personal private activity bonds will constitute an item
of tax preference subject to the individual alternative minimum tax.
Corporations will be required to include in alternative minimum taxable income
75% of the amount by which their adjusted current earnings (including tax-exempt
interest) exceed their alternative minimum taxable income (determined without
this tax item). In certain cases Subchapter S corporations with accumulated
earnings and profits from Subchapter C years will be subject to a tax on
tax-exempt interest.
The Fund does not expect to realize long-term capital gains, and thus does
not contemplate distributing "capital gain dividends" or having undistributed
capital gain income. The Fund will inform shareholders of the amount and nature
of its income and gains in a written notice mailed to shareholders not later
than 60 days after the close of the Fund's taxable year.
The sale, exchange or redemption of shares will generally be the taxable
disposition of an asset that may result in a taxable gain or loss for the
shareholder if the shareholder receives more or less than it paid for its
shares. An exchange pursuant to the exchange privilege is treated as a sale on
which the shareholder may realize a taxable gain or loss.
With respect to variable rate demand instruments, including Participation
Certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner of an interest in the underlying Municipal Obligations and that the
interest thereon will be exempt from regular Federal income taxes to the Fund to
the same extent as the interest on the underlying Municipal Obligations. Battle
Fowler LLP has pointed out that the Internal Revenue Service has announced it
will not ordinarily issue advance rulings on the question of the ownership of
securities or participation interests therein subject to a put and could reach a
conclusion different from that reached by counsel.
The United States Supreme Court has held that there is no constitutional
prohibition against the Federal government's taxing the interest earned on state
or other municipal bonds. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Municipal Obligations.
15
<PAGE>
V. DISTRIBUTION ARRANGEMENTS
Rule 12b-1 Fees
- --------------------------------------------------------------------------------
Investors do not pay a sales charge to purchase shares of the Fund. However,
the Fund pays fees in connection with the distribution of shares and for
services provided to the Class A shareholders. The Fund pays these fees from its
assets on an ongoing basis and therefore, over time, the payment of these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
The Fund's Board of Directors has adopted a Rule 12b-1 distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc. (the "Distributor") have entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to the Class A
shares of the Fund only).
Under the Distribution Agreement, the Distributor serves as distributor of
the Fund's shares. For nominal consideration (i.e., $1.00) and as agent for the
Fund, the Distributor solicits orders for the purchase of the Fund's shares,
provided that any orders will not be binding on the Fund until accepted by the
Fund as principal.
Under the Shareholder Servicing Agreement, the Distributor receives, with
respect only to the Class A shares, a service fee equal to .25% per annum of the
Class A shares' average daily net assets (the "Shareholder Servicing Fee") for
providing personal shareholder services and for the maintenance of shareholder
accounts. The fee is accrued daily and paid monthly. Any portion of the fee may
be deemed to be used by the Distributor for payments to Participating
Organizations with respect to their provision of such services to their clients
or customers who are shareholders of the Class A shares of the Fund. The Class B
shareholders will not receive the benefit of such services from Participating
Organizations and, therefore, will not be assessed a Shareholder Servicing Fee.
The Plan and the Shareholder Servicing Agreement provide that, in addition
to the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Distributor and Participating Organizations in carrying out their
obligations under the Shareholder Servicing Agreement with respect to Class A
shares, and (ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.
The Plan and the Shareholder Servicing Agreement provide that the Manager
may make payments from time to time from its own resources, which may include
the management fee and past profits for the following purposes: (i) to defray
costs, and to compensate others, including Participating Organizations with whom
the Distributor has entered into written agreements, for performing shareholder
servicing on behalf of the Class A shares of the Fund; (ii) to compensate
certain Participating Organizations for providing assistance in distributing the
Class A shares of the Fund; and (iii) to pay the costs of printing and
distributing the Fund's prospectus to prospective investors, and to defray the
cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's Class A shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholding Servicing Fee (with respect to Class A
shares) and past profits, for the purposes enumerated in (i) above. The
Distributor will determine the amount of such payments made pursuant to the
Plan, provided that such payments will not increase the amount which the Fund is
required to pay to the Manager and Distributor for any fiscal year under either
the Investment Management Contract in effect for that year or under the
Shareholder Servicing Agreement in effect for that year.
16
<PAGE>
- --------------------------------------------------------------------------------
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, for the fiscal year
ended October 31, 1999, and by other auditors for the fiscal years before
October 31, 1999.
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------------------
Class A
------- 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income........................ 0.024 0.029 0.031 0.031 0.034
Less distributions:
Dividends from net investment income......... ( 0.024) ( 0.029) ( 0.031) ( 0.031) ( 0.034)
------- ------- ------- ------- -------
Net asset value, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return................................... 2.42% 2.92% 3.08% 3.09% 3.46%
Ratios/Supplemental Data
Net assets, end of year (000).................. $ 323,100 $ 363,295 $ 389,897 $ 448,647 $ 458,942
Ratios to average net assets:
Expenses (Includes expenses paid indirectly). 0.98% 0.94% 0.91% 0.90% 0.89%
Net investment income........................ 2.39% 2.89% 3.03% 3.05% 3.41%
Expenses paid indirectly..................... 0.00% 0.00% 0.00% 0.01% 0.01%
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------------------
Class B
------- 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income........................ 0.027 0.032 0.033 0.033 0.037
Less distributions:
Dividends from net investment income......... ( 0.027) ( 0.032) ( 0.033) ( 0.033) ( 0.037)
------- ------- ------- ------- -------
Net asset value, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return................................... 2.74% 3.21% 3.34% 3.35% 3.71%
Ratios/Supplemental Data
Net assets, end of year (000).................. $ 291,708 $ 230,446 $ 173,339 $ 160,986 $ 166,700
Ratios to average net assets:
Expenses (Includes expenses paid indirectly). 0.67% 0.67% 0.66% 0.66% 0.64%
Net investment income........................ 2.71% 3.15% 3.29% 3.30% 3.66%
Expenses paid indirectly..................... 0.00% 0.00% 0.00% 0.01% 0.01%
</TABLE>
17
<PAGE>
DAILY TAX
FREE
INCOME
FUND, INC.
PROSPECTUS
February 1, 2000
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, NY 10020
(212) 830-5220
====================================================
A Statement of Additional Information (SAI) dated February 1, 2000, 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 and the Annual and Semi-Annual Reports and other 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. Copies of this information may be obtained, after paying a
duplication fee, by electronic request at [email protected]. These materials
can also be reviewed and copied at the Commission's Public Reference Room in
Washington D.C. Information on the operation of the Public Reference Room may be
obtained by calling the Commission at 1-800-SEC-0330. In addition, copies of
these materials may be obtained, upon payment of a duplicating fee, by writing
the Public Reference Section of the Commission, Washington, D.C. 20549-6009.
======================================================
811-3522
DTIF2/00P
<PAGE>
[ DAILY TAX FREE INCOME FUND, INC.- THORNBURG CLASS OF SHARES]
DAILY TAX FREE
INCOME FUND, INC.
THORNBURG CLASS OF SHARES -
DISTRIBUTED THROUGH THORNBURG SECURITIES CORPORATION
PROSPECTUS
FEBRUARY 1, 2000
A money market fund
whose investment
objective is to seek
as high a level of
current interest
income exempt from
regular Federal
income tax, to the
extent consistent
with preservation of
capital, maintenance
of liquidity and
stability of
principal.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
TABLE OF CONTENTS
3 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
8 Shareholder Information
14 Tax Consequences
15 Distribution Arrangements
16 Financial Highlights
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The Fund seeks to provide its investors with as high a level of current interest
income exempt from regular Federal income tax, to the extent consistent with
preservation of capital, maintenance of liquidity and stability of principal.
There can be no assurance that the Fund will achieve its investment objective.
PRINCIPAL INVESTMENT STRATEGIES
The Fund intends to achieve its investment objective by investing principally in
short-term, high quality, debt obligations issued by states and municipal
governments and their authorities, agencies and political subdivisions. These
debt obligations are collectively referred to throughout the Prospectus as
Municipal Obligations. The Fund will also invest in Participation Certificates,
which evidence ownership of an interest in the underlying Municipal Obligations.
Participation Certificates are purchased from banks, insurance companies, or
other financial institutions.
The Fund is a money market fund and seeks to maintain an investment portfolio
with a dollar-weighted average maturity of 90 days or less, to value its
investment portfolio at amortized cost and to maintain a net asset value of
$1.00 per share.
The Fund intends to concentrate (i.e. 25% or more of the Fund's total net
assets) in Municipal Obligations. A large number of holdings within Municipal
Obligations may be in Participation Certificates in industrial revenue bonds
purchased from and secured by banks. Industrial revenue bonds are issued by
public authorities to provide funding for various privately operated industrial
facilities.
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.
o The value of the Fund's shares and the securities held by the Fund can each
decline in value.
o An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other governmental agency.
o The amount of income the Fund generates will vary with changes in
prevailing interest rates.
o Because the Fund intends to concentrate in Participation Certificates and
other Municipal Obligations, investors should consider the greater risk of
the Fund's concentration versus the safety that comes with a less
concentrated investment portfolio. In addition, because the Fund purchases
Participation Certificates from banks and the Participation Certificates
are backed by a bank letter of credit, investment in the Fund should be
made with an understanding of the risks which an investment in the banking
industry may entail.
o An investment in the Fund should be made with an understanding of the risks
that an investment in Municipal Obligations may entail. Payment of interest
and preservation of capital are dependent upon the continuing ability of
issuers and/or obligors of state, municipal and public authority debt
obligations to meet their payment obligations.
o Because the Fund reserves the right to invest up to 20% of its total assets
in taxable securities, investors should understand that some of the income
of the Fund may be subject to the Federal alternative minimum tax.
RISK/RETURN BAR CHART
The following bar chart and table may assist you in deciding whether to invest
in the Fund. The bar chart shows the change in the annual total returns of the
Fund's Class A shares (which are not offered by this Prospectus) over the last
ten calendar years. The table shows the average annual total returns of the
Fund's Class A shares for the last one, five and ten year periods and the
average annual total return since inception. While analyzing this information,
please note that the Fund's past performance is not an indicator of how the Fund
will perform in the future. The current 7-day yield of each of the Fund's
classes may be obtained by calling the Fund toll-free at 1-800-847-0200.
3
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
================================================================================
Daily Tax Free Income Fund, Inc. Class A Shares (1), (2), (3)
[GRAPHIC OMITTED]
Calendar Year % Total Return
- ------------ ==============
1990 5.54%
1991 4.36%
1992 2.73%
1993 2.19%
1994 2.57%
1995 3.49%
1996 3.02%
1997 3.10%
1998 2.81%
1999 2.48%
================================================================================
(1) The chart shows returns for the Class A shares of the Fund (which are not
offered by this Prospectus) since, as of December 31, 1999, there were no
Thornburg shares issued by the Fund. All Classes of the Fund will 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. If the expenses of
the Thornburg shares are higher than the Class A shares, then your returns
may be lower.
(2) The Class A shares' highest quarterly return was 1.37% for the quarter
ended June 30, 1990; the lowest quarterly return was 0.48% for the quarter
ended March 31, 1994.
(3) Participating Organizations may charge a fee to investors for purchasing
and redeeming shares. Therefore, the net return to such investors may be
less than if they had invested in the Fund directly.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS - DAILY TAX FREE INCOME FUND, INC.
FOR THE PERIODS ENDED DECEMBER 31, 1999 CLASS A
<S> <C>
One Year 2.48%
Five Years 2.98%
Ten Years 3.22%
Since Inception [November 12, 1982] 4.00%
</TABLE>
4
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
FEE TABLE
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
THORNBURG SHARES
<S> <C>
Management Fees................................ 0.33%
Distribution and Service (12b-1) Fees.......... 0.25%
Other Expenses*................................ 0.40%
Administration Fees.......................... 0.21%
-----
Total Annual Fund Operating Expenses........... 0.98%
=====
* Based on estimated amounts for the current fiscal year.
</TABLE>
<TABLE>
<CAPTION>
Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds. Assume that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. Also assume that your investment has a 5%
return each year and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Thornburg Shares: $100 $312 $542 $1,201
</TABLE>
5
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
The Fund is a diversified, short-term, tax-exempt money market fund whose
investment objective is to seek to provide its investors with as high a level of
current interest income exempt from regular Federal income tax to the extent
consistent with preserving capital, maintaining liquidity and stabilizing
principal.
The investment objective of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund that would be affected by such a change.
PRINCIPAL INVESTMENT STRATEGIES
GENERALLY
The Fund will invest primarily (i.e., at least 80%) in short-term, high quality,
tax-exempt, fixed rate and variable rate Municipal Obligations issued by or on
behalf of states, their authorities, agencies, instrumentalities and political
subdivisions.
The Fund will also invest in Participation Certificates in Municipal
Obligations. Participation Certificates represent the Fund's interest in a
Municipal Obligation that is held by another entity (i.e. banks, insurance
companies or other financial institutions). Instead of purchasing a Municipal
Obligation directly, the Fund purchases and holds an undivided interest in a
Municipal Obligation that is held by a third party. The Fund's interest in the
underlying Municipal Obligation is proportionate to the Fund's participation
interest. Ownership of the Participation Certificates cause the Fund to be
treated as the owner of the underlying Municipal Obligations for Federal income
tax purposes.
The Fund may invest more than 25% of its assets in Participation Certificates
purchased from banks in industrial revenue bonds and other Municipal
Obligations.
Although the Fund will attempt to invest 100% of its total assets in Municipal
Obligations and Participation Certificates, the Fund reserves the right to
invest up to 20% of its total assets in taxable securities whose interest income
is subject to regular Federal, state and local income tax. The kinds of taxable
securities in which the Fund may invest are limited to specific types of
short-term, fixed income securities as more fully described in "Taxable
Securities" in the Statement of Additional Information.
The Fund may also purchase securities and participation certificates whose
interest income may be subject to the Federal alternative minimum tax. However,
these investments are included in the same 20% of total assets that may be
invested in taxable securities.
As a temporary defensive measure the Fund may, from time to time, invest in
securities that are inconsistent with its principal investment strategies in an
attempt to respond to adverse market, economic, political or other conditions as
determined by the Manager. Such a temporary defensive position may cause the
Fund to not achieve its investment objective.
The Fund shall not invest more than 5% of its total assets in securities issued
by a single issuer.
With respect to 75% of its total assets, the Fund shall invest not more than 10%
of its total assets in Municipal Obligations or Participation Certificates
backed by a demand feature or guarantee from the same institution.
The Fund's investments may also include "when-issued" Municipal Obligations and
stand-by commitments.
The Fund's investment adviser considers the following factors when buying and
selling securities for the portfolio: (i) availability of cash, (ii) redemption
requests, (iii) yield management, and (iv) credit management.
In order to maintain a share price of $1.00, the Fund must comply with certain
industry regulations. Other requirements pertain to the maturity and credit
quality of the securities in which the Fund may invest. The Fund will only
invest in securities which have or are deemed to have a remaining maturity of
397 days or less. Also, the average maturity for all securities contained in the
Fund, on a dollar-weighted basis, will be 90 days or less.
The Fund will only invest in either securities which have been rated (or whose
issuers have been rated) in the highest
6
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
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 Directors of the Fund shall reassess
the security's credit risks and shall take such action as it determines is in
the best interest of the Fund and its shareholders. Reassessment is not
required, however, if the security is disposed of or matures within five
business days of the investment adviser becoming aware of the new rating and
provided further that the Board of Directors is subsequently notified of the
investment adviser's actions.
For a more detailed description of (i) the securities that the Fund will invest
in, (ii) fundamental investment restrictions, and (iii) industry regulations
governing credit quality and maturity, please refer to the Statement of
Additional Information.
RISKS
The Fund complies with industry-standard requirements on the quality, maturity
and diversification of its investments which are designed to help maintain a
$1.00 share price. A significant change in interest rates or a default on the
Fund's investments could cause its share price (and the value of your
investment) to change.
By investing in liquid, short-term, high quality investments that have high
quality credit support from banks, insurance companies or other financial
institutions (i.e. Participation Certificates and other variable rate demand
instruments), the Fund's management believes that it can protect the Fund
against credit risks that may exist on long-term Municipal Obligations. The Fund
may still be exposed to the credit risk of the credit or liquidity support
provider. Changes in the credit quality of the provider could affect the value
of the security and your investment in the Fund.
Because the Fund may concentrate in Participation Certificates which may be
secured by bank letters of credit or guarantees, an investment in the Fund
should be made with an understanding of the characteristics of the banking
industry and the risks which such an investment may entail. This includes
extensive governmental regulations, changes in the availability and cost of
capital funds, and general economic conditions (see "Variable Rate Demand
Instruments and Participation Certificates" in the Statement of Additional
Information) which may limit both the amounts and types of loans and other
financial commitments which may be made and interest rates and fees which may be
charged. The profitability of this industry is largely dependent upon the
availability and cost of capital funds for the purpose of financing lending
operations under prevailing money market conditions. General economic
conditions also play an important part in the operations of this industry.
Exposure to credit losses arising from possible financial difficulties of
borrowers might affect a bank's ability to meet its obligations under a letter
of credit.
With the arrival of the Year 2000, an issue remains as to how effectively
existing application software programs and operating systems will accommodate
this date value. Failure to adequately address this issue could have potentially
serious repercussions. The investment adviser is working with the Fund's service
providers to prepare for any problems which may arise due to the Year 2000.
Based on information currently available, the investment adviser does not
believe that the Fund has incurred or will incur material costs to be Year 2000
compliant. Although the investment adviser 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 the steps taken in preparation
for the Year 2000 will be sufficient to avoid an adverse impact on the Fund. The
Year 2000 problem may also adversely affect issuers of the securities contained
in the Fund, to varying degrees based upon various factors, and thus may have a
corresponding adverse effect on the Fund's performance. The investment adviser
is unable to predict what effect, if any, the Year 2000 problem will have on
such issuers. At this time, however, it is generally believed that municipal
issuers may be more vulnerable to Year 2000 issues or problems than will other
issuers.
7
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
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 December 31, 1999, the Manager was the
investment manager, adviser or supervisor with respect to assets aggregating in
excess of $14.7 billion. The Manager has been an investment adviser since 1970
and currently is manager of eighteen other registered investment companies and
also advises pension trusts, profit-sharing trusts and endowments.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. Pursuant to the Investment Management Contract, the Fund pays the
Manager a fee equal to .325% per annum of the Fund's average daily net assets up
to $750 million, plus .30% of such assets in excess of $750 million for managing
the Fund's investment portfolio and performing related services.
Pursuant to the Administrative Services Contract, the Manager performs clerical,
accounting supervision and office service functions for the Fund. The Manager
provides the Fund with the personnel to perform all other clerical and
accounting type functions not performed by the Manager. For its services under
the Administrative Services Contract, the Fund pays the Manager a fee equal to
.21% per annum of the Fund's average daily net assets up to $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. The Manager, at its
discretion, may voluntarily waive all or a portion of the administrative
services fee. Any portion of the total fees received by the Manager may be used
to provide shareholder services and for distribution of Fund shares.
In addition, Reich & Tang Distributors Inc., the Distributor, receives a
servicing fee equal to .25% per annum of the average daily net assets of the
Thornburg shares of the Fund under the Shareholder Servicing Agreement. The fees
are accrued daily and paid monthly. Investment management fees and operating
expenses, which are attributable to each Class of shares of the Fund, will be
allocated daily to each Class based on the percentage of shares outstanding for
each Class at the end of the day.
Thornburg Investment Management, Inc., a Delaware corporation with principal
offices at 119 East Marcy Street, Santa Fe, New Mexico 87501 (the
"Sub-Adviser"), was formed as an investment adviser in 1982 and provides
investment advisory assistance and portfolio management advice to the Manager.
The Sub-Adviser is paid a fee by the manager of an amount equal to 25% of all
fees paid to the Manager by the Fund, less certain costs, payments and expenses
of the Manager. The Fund does not pay any portion of the Sub-Adviser's fee.
Thornburg Investment Management, Inc. is also the investment adviser to two
registered open-end investment companies with assets in excess of $2.4 billion.
SHAREHOLDER INFORMATION
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent, who
accepts orders for purchases and redemptions from Participating Organizations
and from investors directly.
PRICING OF SHARES
The net asset value of each Class of the Fund's shares is determined as of 12
noon, New York City time, on each Fund Business Day. Fund Business Day means
weekdays (Monday through Friday) except days on which the New York Stock
Exchange is closed for trading (i.e. national holidays). The net asset value of
a Class is computed by dividing the value of the Fund's net assets for such
Class (i.e., the value of its securities and other assets less its liabilities,
including expenses payable or accrued, but excluding capital stock and surplus)
by the total number of shares outstanding for such Class. The Fund intends to
maintain a stable net asset value at $1.00 per share although there can be no
assurance that this will be achieved.
8
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. If fluctuating interest
rates cause the market value of the Fund's portfolio to deviate more than 1/2 of
1% from the value determined on the basis of amortized cost, the Board of
Directors will consider whether any action should be initiated. Although the
amortized cost method provides certainty in valuation, it may result in periods
during which the value of an instrument is higher or lower than the price an
investment company would receive if the instrument were sold.
Shares are issued as of the first determination of the Fund's net asset value
per share for each Class made after receipt and acceptance of the investor's
purchase order. In order to maximize earnings on its portfolio, the Fund
normally has its assets as fully invested as is practicable. Many securities in
which the Fund invests require the immediate settlement in funds of Federal
Reserve member banks on deposit at a Federal Reserve Bank (commonly known as
"Federal Funds"). Fund shares begin accruing income on the day the shares are
issued to an investor. The Fund reserves the right to reject any purchase order
for its shares. Certificates for Fund shares will not be issued to an investor.
PURCHASE OF SHARES
The Fund does not accept a purchase order until an investor's payment has been
converted into Federal Funds and is received by the Fund's transfer agent.
Orders accompanied by Federal Funds and received after 12 noon, New York City
time, on a Fund Business Day will result in the issuance of shares on the
following Fund Business Day.
Only Thornburg shares are offered through this prospectus. Investors may
purchase shares through a Participating Organization with which they have an
account ("Participating Investors") or directly by following the instructions
provided in this Prospectus. "Participating Organizations" are securities
brokers, banks and financial institutions or other industry professionals or
organizations that have entered into shareholder servicing agreements with the
Distributor with respect to investment of their customer accounts in the Fund.
The minimum initial investment through Participating Organizations is $5,000.
The minimum amount for a subsequent purchase is $100. An Automated Investment
Plan using the Automated Clearing House ("ACH") system is available by selecting
the option on the application or by requesting a form at (800) 847-0200.
INVESTMENTS THROUGH PARTICIPATING ORGANIZATIONS
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations, such as Thornburg Securities Corporation, with
which they have accounts. When instructed by its customer to purchase or redeem
Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund ("Participant Investors") each purchase and redemption of Fund
shares for the customers' accounts. Also, Participating Organizations may send
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 the net yield that could be achieved by
9
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
investing in the Fund directly. A Participant Investor should read this
Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day only if the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 4:00 p.m., New York City time, on
that day. Orders for which Federal Funds are received after 4:00 p.m., New York
City time, will result in share issuance the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.
DIRECT PURCHASE OF SHARES
Investors may obtain a current prospectus and the application necessary to open
an account by telephoning the Fund at (800) 847-0200.
MAIL
Investors may send a check made payable to "Daily Tax Free Income Fund, Inc. -
Thornburg Shares" along with a completed application to:
Daily Tax Free Income Fund, Inc. -
Thornburg Shares
c/o NFDS
P.O. Box 219017
Kansas City, MO 64121-9017
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 (800) 847-0200 and then instruct a member commercial bank to wire
money immediately to:
State Street Bank and Trust Company
ABA # 011000028
NFDS Purchase Account
DDA # 9904946-2
For Daily Tax Free Income Fund, Inc.
Fund Account #
Investor's Name
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.
AUTOMATED INVESTMENT PLAN
You may purchase shares of the Fund (minimum $100) automatically. You choose the
date, frequency and amount of the purchase. This automatic purchase program is
initiated through the ACH system. To initiate this plan, please complete the
section on the application or call (800) 847-0200 for the appropriate form.
You may elect at any time to terminate your participation by notifying in
writing the appropriate depositing entity. Further, the Fund may terminate your
participation upon 30 days' notice to you.
REDEMPTION OF SHARES
A redemption is effected immediately following the next determination of net
asset value per share after receipt by the Fund's transfer agent of the
redemption order (and any
10
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
supporting documentation which it may require). The redemption price is the net
asset value per share next determined after the transfer agent's receipt of the
order. Normally, payment for redeemed shares is made on the next 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 application 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 application form by transmitting written directions to the Fund's
transfer agent. Requests to institute or change any of the additional redemption
procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature. It should be signed and guaranteed by
an eligible guarantor institution which includes a domestic bank, a domestic
savings and loan institution, a domestic credit union, a member bank of the
Federal Reserve system or a member firm of a national securities exchange,
pursuant to the Fund's transfer agent's standards and procedures.
WRITTEN REQUESTS
Shareholders may make a redemption in any amount by sending a written request to
the Fund addressed to:
Daily Tax Free Income Fund, Inc. -
Thornburg Shares
c/o NFDS
P.O. Box 219017
Kansas City, MO 64121-9017
All written requests for redemption must be signed by the shareholder and
signature guaranteed if the amount is over $10,000. Normally the redemption
proceeds are paid by check and mailed to the shareholder of record.
CHECKS
Shareholders may request a supply of checks which may be used to effect
redemptions. 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.
11
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
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 application. 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 application or in a subsequent written
authorization. The Fund may accept telephone redemption instructions from any
person with respect to accounts of shareholders who elect this service and thus
such shareholders risk possible loss of principal and interest in the event of a
telephone redemption not authorized by them. The Fund will employ reasonable
procedures to confirm that telephone redemption instructions are genuine, and
will require that shareholders electing such option provide a form of personal
identification. Failure by the Fund to employ such reasonable procedures may
cause the Fund to be liable for the losses incurred by investors due to
unauthorized or fraudulent telephone redemptions.
A shareholder making a telephone withdrawal should call the Fund at (800)
847-0200 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 next Fund Business Day after the redemption is
effected. 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.
Generally
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholders' address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Additional exceptions
include any period during which an emergency (as determined by the SEC) exists
as a result of which disposal by the Fund of its portfolio securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or for such other
period as the SEC may by order permit for the protection of the shareholders of
the Fund.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's account is less
than $1,000. 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
made to the appropriate Participating Organization only. The Participating
Organization will be responsible for notifying the Participant Investors of the
proposed mandatory redemption. Shareholders may avoid mandatory redemption by
purchasing sufficient additional shares to increase their total net asset value
to the minimum amount during the notice period.
12
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
SPECIFIED AMOUNT AUTOMATIC WITHDRAWAL PLAN
Shareholders may elect to withdraw shares and receive payment from the Fund of a
specified amount of $50 or more automatically on a monthly or quarterly basis.
The monthly or quarterly withdrawal payments of the specified amount are made by
the Fund on the 1st day of the month. Whenever such 1st day of a month is not a
Fund Business Day, the payment date is the next Fund Business Day following the
1st day of the month. In order to make a payment, a number of shares equal in
aggregate net asset value to the payment amount are redeemed at their net asset
value on the specified Fund Business Day. To the extent that the redemptions to
make plan payments exceed the number of shares purchased through reinvestment of
dividends and distributions, the redemptions reduce the number of shares
purchased on original investment, and may ultimately liquidate a shareholder's
investment.
The election to receive automatic withdrawal payments may be made at the time of
the original application by so indicating on the application. The election may
also be made, changed or terminated at any later time by sending a signature
guaranteed written request to the transfer agent. Because the withdrawal plan
involves the redemption of Fund shares, such withdrawals may constitute taxable
events to the shareholder but the Fund does not expect that there will be any
realized capital gains.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and pays dividends monthly. There is no fixed dividend rate.
In computing these dividends, interest earned and expenses are accrued daily.
Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year.
All dividends and distributions of capital gains are automatically invested, at
no charge, in additional Fund shares of the same Class of shares immediately
upon payment thereof unless a shareholder has elected by written notice to the
Fund to receive either of such distributions in cash.
Because Thornburg shares bear a service fee under the Fund's 12b-1 Plan, the net
income of and the dividends payable to the Thornburg shares will be lower than
the net income of and dividends payable to other Classes of the Fund which do
not bear such a fee. Dividends paid to each Class of shares of the Fund will,
however, be declared and paid on the same days at the same times and, except as
noted with respect to the service fees payable under the Plan, will be
determined in the same manner and paid in the same amounts.
EXCHANGE PRIVILEGE
Shareholders are entitled to exchange some or all of their shares in the Fund
for shares of other Thornburg funds. However, you should note the following:
o The fund you are exchanging into must be registered for sale in your state.
o You may only exchange between accounts that are registered in the same
name, address, and taxpayer identification number.
o Before exchanging into a fund, read its prospectus.
o If you exchange from Class A, C, or I shares of a Thornburg fund into the
Thornburg Class of shares in the Daily Tax Free Income Fund, when
exchanging out of the Thornburg Class of Daily Tax Free Income Fund you
must exchange into the original class of shares.
o If the initial purchase is into the Thornburg Class of Daily Tax Free
Income Fund, all sales charges and fees would apply when exchanging into
another Thornburg fund.
o All redemption penalties, if any, apply when exchanging from a Thornburg
fund into the Thornburg Class of Daily Tax Free Income Fund.
o Exchanging may have tax consequences for you.
13
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
o Because excessive trading can hurt the performance and shareholders, each
participating fund reserves the right to temporarily or permanently
terminate the exchange privilege of any investor who makes more than four
exchanges out of a fund in any calendar year. Accounts under common
ownership or control, including accounts with the same tax payer
identification number, will be counted together for the purposes of the
exchange limit.
o Each participating fund reserves the right to refuse the order if it
receives or anticipates simultaneously orders affecting significant
portions of its assets. In particular, a pattern of exchanges that coincide
with a "market timing" strategy may be disruptive to a participating fund.
Although a participating fund will attempt to give prior notice whenever it is
reasonably able to do so, it may impose exchange restrictions at any time. The
participating funds reserve the right to terminate or modify the exchange
privilege in the future.
Instructions for exchanges may be made by sending a written request to:
Thornburg Investment Management, Inc.
c/o NFDS
P.O. Box 219017
Kansas City, MO 64121-9017
or, shareholders may exchange by telephoning the Fund at (800) 847-0200.
Thornburg Investment Management reserves the right to reject any exchange
request and may modify or terminate the exchange privilege at any time.
TAX CONSEQUENCES
The purchase of Fund shares will be the purchase of an asset. Dividends paid by
the Fund that are designated by the Fund and derived from Municipal Obligations
and Participation Certificates, will be exempt from regular Federal income tax,
provided the Fund complies with Section 852(b)(5) of the Internal Revenue Code,
but may be subject to Federal alternative minimum tax. These dividends are
referred to as exempt interest dividends. Income exempt from regular Federal
income tax may be subject to state and local income tax.
The Fund may invest a portion of its assets in taxable securities the interest
income on which is subject to Federal, state and local income tax. Dividends
paid from taxable income, if any, and distributions of any realized short-term
capital gains (from tax-exempt or taxable obligations) are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares of the Fund.
For Social Security recipients, interest on tax-exempt bonds, including exempt
interest dividends paid by the Fund, is to be added to adjusted gross income to
determine the amount of Social Security benefits includible in gross income.
Interest on certain personal private activity bonds will constitute an item of
tax preference subject to the individual alternative minimum tax. Corporations
will be required to include in alternative minimum taxable income 75% of the
amount by which their adjusted current earnings (including tax-exempt interest)
exceed their alternative minimum taxable income (determined without this tax
item). In certain cases Subchapter S corporations with accumulated earnings and
profits from Subchapter C years will be subject to a tax on tax-exempt interest.
The Fund does not expect to realize long-term capital gains, and thus does not
contemplate distributing "capital gain dividends" or having undistributed
capital gain income. The Fund will inform shareholders of the amount and nature
of its income and gains in a written notice mailed to shareholders not later
than 60 days after the close of the Fund's taxable year.
The sale, exchange or redemption of shares will generally be the taxable
disposition of an asset that may result in a taxable gain or loss for the
shareholder if the shareholder receives more or less than it paid for its
shares. An exchange pursuant to the exchange privilege is treated as a sale on
which the shareholder may realize a taxable gain or loss.
With respect to variable rate demand instruments, including Participation
Certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner
14
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
of an interest in the underlying Municipal Obligations and that the interest
thereon will be exempt from regular Federal income taxes to the Fund to the same
extent as the interest on the underlying Municipal Obligations. Battle Fowler
LLP has pointed out that the Internal Revenue Service has announced it will not
ordinarily issue advance rulings on the question of the ownership of securities
or participation interests therein subject to a put and could reach a conclusion
different from that reached by counsel.
The United States Supreme Court has held that there is no constitutional
prohibition against the Federal government's taxing the interest earned on state
or other municipal bonds. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Municipal Obligations.
DISTRIBUTION ARRANGEMENTS
RULE 12b-1 FEES
Investors do not pay a sales charge to purchase shares of the Fund. However, the
Fund pays fees in connection with the distribution of shares and for services
provided to the shareholders. The Fund pays these fees from its assets on an
ongoing basis and therefore, over time, the payment of these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
The Fund's Board of Directors has adopted a Rule 12b-1 distribution and service
plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc. (the "Distributor") have entered into a Distribution
Agreement and a Shareholder Servicing Agreement.
Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares. For nominal consideration (i.e., $1.00) and as agent for the
Fund, the Distributor solicits orders for the purchase of the Fund's shares,
provided that any orders will not be binding on the Fund until accepted by the
Fund as principal. Under the Shareholder Servicing Agreement, the Distributor
receives a service fee equal to .25% per annum of the Thornburg shares' average
daily net assets (the "Shareholder Servicing Fee") for providing personal
shareholder services and for the maintenance of shareholder accounts. The fee is
accrued daily and paid monthly. Any portion of the fee may be deemed to be used
by the Distributor for payments to Participating Organizations with respect to
their provision of such services to their clients or customers who are
shareholders of the Thornburg shares of the Fund.
The Plan and the Shareholder Servicing Agreement provide that the Fund will pay
for (i) telecommunications expenses including the cost of dedicated lines and
CRT terminals, incurred by the Distributor and Participating Organizations in
carrying out their obligations under the Shareholder Servicing Agreement, 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 and the Shareholder Servicing Agreement provide that the Manager may
make payments from time to time from its own resources, which may include the
management fee and past profits for the following purposes: (i) to defray costs,
and to compensate others, including Participating Organizations with whom the
Distributor has entered into written agreements, for performing shareholder
servicing on behalf of the Thornburg shares of the Fund; (ii) to compensate
certain Participating Organizations for providing assistance in distributing the
Thornburg shares of the Fund; and (iii) to pay the costs of printing and
distributing the Fund's prospectus to prospective investors, and to defray the
cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's Thornburg shares.
The Distributor may also make payments from time to time from its own resources,
which may include the Shareholding Servicing Fee 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.
15
<PAGE>
[DAILY TAX FREE INCOME FUND, INC.]
FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The highlights reflect an investment
in the Class A shares since there were no Thornburg shares issued during the
periods covered by this table. The total returns in the table represent the rate
that an investor would have earned [or lost] on an investment in the Class A
shares of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, for the fiscal
year ended October 31, 1999, and by other auditors for the fiscal years before
October 31, 1999.
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------------------
Class A
------- 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income........................ 0.024 0.029 0.031 0.031 0.034
Less distributions:
Dividends from net investment income......... ( 0.024) ( 0.029) ( 0.031) ( 0.031) ( 0.034)
------- ------- ------- ------- -------
Net asset value, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return................................... 2.42% 2.92% 3.08% 3.09% 3.46%
Ratios/Supplemental Data
Net assets, end of year (000).................. $ 323,100 $ 363,295 $ 389,897 $ 448,647 $ 458,942
Ratios to average net assets:
Expenses (Includes expenses paid indirectly). 0.98% 0.94% 0.91% 0.90% 0.89%
Net investment income........................ 2.39% 2.89% 3.03% 3.05% 3.41%
Expenses paid indirectly..................... 0.00% 0.00% 0.00% 0.01% 0.01%
</TABLE>
16
<PAGE>
THORNBURG INVESTMENT MANAGEMENT
PROSPECTUS
THORNBURG SHARES
DAILY TAX FREE INCOME FUND, INC.
FEBRUARY 1, 2000
A Statement of Additional Information (SAI) dated February 1, 2000, 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 and the Annual and Semi-Annual Reports and other material
incorporated by reference without charge by calling the Fund at (800)-847-0200.
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. Copies of this information may be obtained after paying a duplicate
fee, by electronic request at [email protected]. These materials can also be
reviewed and copied at the Commission's Public Reference Room in Washington D.C.
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-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.
Thornburg Shares distributed through:
Thornburg Securities Corporation
119 East Marcy Street
Santa Fe, New Mexico 87501
(800) 847-0200
www.thornburg.com
Investment Company Act of 1940 File Number: 811-3522
<PAGE>
- --------------------------------------------------------------------------------
DAILY TAX FREE 600 Fifth Avenue, New York, NY 10020
INCOME FUND, INC. (212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2000
RELATING TO THE DAILY TAX FREE INCOME FUND, INC.
PROSPECTUS DATED FEBRUARY 1, 2000
AND THE
THORNBURG CLASS OF SHARES OF DAILY TAX FREE INCOME FUND, INC.
PROSPECTUS DATED FEBRUARY 1, 2000
This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current
Prospectuses for Daily Tax Free Income Fund, Inc., dated February 1, 2000 and
the Thornburg Class of Daily Tax Free Income Fund, Inc. dated February 1, 2000
(each the "Fund")_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 Financial
Statements of the Fund have been incorporated by reference into the SAI from the
to the Fund's Annual Report. The Annual Report is available, without charge,
upon request by calling the toll-free number provided. The material relating to
Purchase, Redemption and Pricing of Shares has been incorporated by reference to
the Prospectus for each Class of shares.
If you wish to invest in the Thornburg Class of Shares of Daily Tax Free Income
Fund, Inc., you should obtain a separate Prospectus by writing to Thornburg
Investment Management, Inc., c/o NFDS, P.O. Box 219017, Kansas City, MO
64121-9017 or calling the Fund toll-free at (800) 847-0200.
This Statement of Additional Information is incorporated by reference into the
respective Prospectus in its entirety.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Table of Contents
- -----------------------------------------------------------------------------------------------------------------------
Fund History.........................................2 Capital Stock and Other Securities......................16
Description of the Fund and its Investments and Purchase, Redemption and Pricing Shares.................17
Risks..............................................2 Taxation of the Fund....................................22
Management of the Fund..............................10 Underwriters............................................24
Control Persons and Principal Holders of Calculation of Performance Data.........................24
Securities........................................12 Financial Statements....................................25
Investment Advisory and Other Services..............12 Description of Ratings..................................26
Brokerage Allocation and Other Practices............16 Corporate Taxable Equivalent Yield Table................27
Individual Taxable Equivalent Yield Table...............28
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
I. FUND HISTORY
The Fund was incorporated on July 22, 1982 in the state of Maryland.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund is a diversified, open-end, management investment company that is a
short-term, tax-exempt money market fund. The Fund's investment objectives are
to provide its investors with high current interest income exempt from regular
Federal income tax consistent with preserving capital, maintaining liquidity and
stabilizing principal. No assurance can be given that these objectives will be
achieved.
The following discussion expands upon the description of the Fund's investment
objectives and policies in the Prospectus for each Class of shares.
The Fund's assets will be invested primarily in short-term high quality,
tax-exempt fixed rate and variable rate obligations issued by or on behalf of
states and municipal governments and their authorities, agencies,
instrumentalities and political subdivisions ("Municipal Obligations") and in
Participation Certificates in such obligations purchased from banks, insurance
companies or other financial institutions. The Fund seeks to maintain an
investment portfolio with a dollar-weighted average maturity of 90 days or less,
and to value its investment portfolio at amortized cost and maintain a net asset
value of $1.00 per share of each Class.
The Fund may hold uninvested cash reserves pending investment. The Fund's
investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements. Although the Fund will attempt to
invest 100% of its assets in tax-exempt Municipal Obligations and in
Participation Certificates, the Fund reserves the right to invest up to 20% of
the value of its total assets in securities, the interest income on which is
subject to regular Federal, state and local income tax. The Fund will invest
more than 25% of its assets in Participation Certificates issued by banks in
industrial revenue bonds and other Municipal Obligations. In view of this
"concentration" in bank Participation Certificates in Municipal Obligations, an
investment in Fund shares should be made with an understanding of the
characteristics of the banking industry and the risks which such an investment
may entail. (See "Variable Rate Demand Instruments and Participation
Certificates" herein.) The investment objectives of the Fund described in the
preceding paragraphs of this section may not be changed unless approved by the
holders of a majority of the outstanding shares of the Fund that would be
affected by such a change. As used herein, the term "majority of the outstanding
shares" of the Fund means, respectively, the vote of the lesser of (i) 67% or
more of the shares of the Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding shares of the Fund.
The Fund may only purchase United States dollar-denominated securities
determined by the Fund's Board of Directors to present minimal credit risks and
that are Eligible Securities at the time of acquisition. The term Eligible
Securities means: (i) Municipal Obligations 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 Municipal Obligations determined by the Fund's Board of Directors to be
of comparable quality. In addition, Municipal Obligations 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 has received a long-term rating
from the Requisite NRSROs in one of the three highest rating categories.
Provided however, that such may not be purchased if it (i) does not satisfy the
rating requirements set forth in the preceding sentence and (ii) has received a
long-term rating from any NRSRO that is not within the three highest long-term
rating categories. A determination of comparability by the Board of Directors is
made on the basis of its credit evaluation of the issuer, which may include an
evaluation of a letter of credit, guarantee, insurance or other credit facility
issued in support of the Municipal Obligations or Participation Certificates.
There are several organizations that currently qualify as NRSROs including
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.
2
<PAGE>
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days. The maturity of a variable rate demand
instrument will be determined in the same manner for purposes of computing the
Fund's dollar-weighted average portfolio maturity.
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. Certain Municipal Obligations issued by instrumentalities of the
United States government are not backed by the full faith and credit of the
United States Treasury but only by the creditworthiness of the instrumentality.
The Fund's Board of Directors has determined that any Municipal Obligation that
depends directly, or indirectly through a government insurance program or other
Guarantee, on the full faith and credit of the United States government will be
considered to have a rating in the highest category. Where necessary to ensure
that the Municipal Obligations are Eligible Securities, or where the obligations
are not freely transferable, the Fund will require that the obligation to pay
the principal and accrued interest be backed by an unconditional irrevocable
bank letter of credit, a Guarantee, insurance or other comparable undertaking of
an approved financial institution that would qualify the investment as an
Eligible Security.
The Fund shall not invest more than 5% of its total assets in securities issued
by a single issuer.
The Fund has elected and intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Code. The Fund will be restricted
in that at the close of each quarter of the taxable year, at least 50% of the
value of its total assets must be represented by cash, government securities,
regulated investment company securities and other securities. The other
securities must be limited in respect of any one issuer to not more than 5% of
the value of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of such issuer. In addition, at the close of each
quarter of its taxable year, not more than 25% in value of the Fund's total
assets may be invested in securities of one issuer other than Government
securities or regulated investment company securities. The limitations described
in this paragraph regarding qualification as a "regulated investment company"
are not fundamental policies and may be revised to the extent applicable Federal
income tax requirements are revised. (See "Federal Income Taxes" herein.)
DESCRIPTION OF MUNICIPAL OBLIGATIONS
As used herein, "Municipal Obligations" include the following as well as
"Variable Rate Demand Instruments and Participation Certificates".
1. Municipal Bonds with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. Municipal Bonds are debt
obligations of states, cities, counties, municipalities and municipal agencies
(all of which are generally referred to as "municipalities"). They generally
have a maturity at the time of issue of one year or more and are issued to raise
funds for various public purposes such as construction of a wide range of public
facilities, to refund outstanding obligations and to obtain funds for
institutions and facilities.
The two principal classifications of Municipal Bonds are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its faith, credit and taxing power for the payment of principal and interest.
Issuers of general obligation bonds include states, counties, cities, towns and
other governmental units. The principal of, and interest on revenue bonds are
payable from the income of specific
3
<PAGE>
projects or authorities and generally are not supported by the issuer's general
power to levy taxes. In some cases, revenues derived from specific taxes are
pledged to support payments on a revenue bond.
In addition, certain kinds of "private activity bonds" are issued by public
authorities to provide funding for various privately operated industrial
facilities (hereinafter referred to as "industrial revenue bonds" or "IRBs").
Interest on IRBs is generally exempt, with certain exceptions, from regular
Federal income tax pursuant to Section 103(a) of the Code, provided the issuer
and corporate obligor thereof continue to meet certain conditions. (See "Federal
Income Taxes" herein.) IRBs are, in most cases, revenue bonds and do not
generally constitute the pledge of the credit of the issuer of such bonds. The
payment of the principal and interest on IRBs usually depends solely on the
ability of the user of the facilities financed by the bonds or other guarantor
to meet its financial obligations and, in certain instances, the pledge of real
and personal property as security for payment. If there is no established
secondary market for the IRBs, the IRBs or the Participation Certificates in
IRBs purchased by the Fund will be supported by letters of credit, guarantees or
insurance that meet the definition of Eligible Securities at the time of
acquisition and provide the demand feature which may be exercised by the Fund at
any time to provide liquidity. Shareholders should note that the Fund may invest
in IRBs acquired in transactions involving a Participating Organization. In
accordance with Investment Restriction 6 herein, the Fund is permitted to invest
up to 10% of the portfolio in high quality, short-term Municipal Obligations
(including IRBs) meeting the definition of Eligible Securities at the time of
acquisition that may not be readily marketable or have a liquidity feature.
In view of the "concentration" of the Fund in IRBs and participation interests
therein secured by letters of credit or Guarantees of banks, an investment in
Fund shares should be made with an understanding of the characteristics of the
banking industry and the risks which such an investment may entail. Banks are
subject to extensive governmental regulations which may limit both the amounts
and types of loans and other financial commitments which may be made and
interest rates and fees which may be charged. The profitability of this industry
is largely dependent upon the availability and cost of capital funds for the
purpose of financing lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operations of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations under a letter of credit.
2. Municipal Notes with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. The principal kinds of Municipal
Notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes and project notes. Notes sold in anticipation of collection
of taxes, a bond sale or receipt of other revenues are usually general
obligations of the issuing municipality or agency. Project notes are issued by
local agencies and are guaranteed by the United States Department of Housing and
Urban Development. Project notes are also secured by the full faith and credit
of the United States.
3. Municipal Commercial Paper that is an Eligible Security at the time of
acquisition. Issues of Municipal Commercial Paper typically represent very
short-term, unsecured, negotiable promissory notes. These obligations are often
issued to meet seasonal working capital needs of municipalities or to provide
interim construction financing. They are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases Municipal
Commercial Paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by banks or
other institutions which may be called upon in the event of default by the
issuer of the commercial paper.
4. Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities such as fire
and sanitation vehicles, telecommunications equipment and other capital assets.
Municipal Leases frequently have special risks not normally associated with
general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses. These clauses provide that the governmental issuer
has no obligation to make future payments under the lease or contract unless
money is appropriated for such purpose by the appropriate legislative body on a
yearly or other periodic basis. To reduce this risk, the Fund will only purchase
Municipal Leases subject to a non-appropriation clause where the payment of
principal and accrued interest is backed by an unconditional irrevocable letter
of credit, a guarantee, insurance or other comparable undertaking of an approved
financial institution. These types of Municipal Leases may be considered
illiquid and subject to the 10% limitation of investments in illiquid securities
set forth under
4
<PAGE>
"Investment Restrictions" contained herein. The Board of Directors may adopt
guidelines and delegate to the Manager the daily function of determining and
monitoring the liquidity of Municipal Leases. In making such determination, the
Board and the Manager may consider such factors as the frequency of trades for
the obligation, the number of dealers willing to purchase or sell the
obligations and the number of other potential buyers and the nature of the
marketplace for the obligations, including the time needed to dispose of the
obligations and the method of soliciting offers. If the Board determines that
any Municipal Leases are illiquid, such lease will be subject to the 10%
limitation on investments in illiquid securities. 5. Any other Federal
tax-exempt obligations issued by or on behalf of states and municipal
governments and their authorities, agencies, instrumentalities and political
subdivisions, whose inclusion in the Fund will be consistent with the
"Description of the Fund and its Investments and Risks" herein and permissible
under Rule 2a-7 under the 1940 Act.
VARIABLE RATE DEMAND INSTRUMENTS AND PARTICIPATION CERTIFICATES
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations. They provide for a periodic adjustment in the interest
rate paid on the instrument and permit the holder to demand payment of the
unpaid principal balance plus accrued interest at specified intervals upon a
specified number of days notice either from the issuer or by drawing on a bank
letter of credit, a guarantee or insurance issued with respect to such
instrument.
The variable rate demand instruments in which the Fund may invest are payable on
demand on not more than thirty calendar days' notice and may be exercised at any
time or at specified intervals not exceeding 397 days depending upon the terms
of the instrument. Variable rate demand instruments that can not be disposed of
properly within seven days in the ordinary course of business are illiquid
securities. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to 397 days. The adjustments
are based upon the "prime rate"* of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The Fund decides
which variable rate demand instruments it will purchase in accordance with
procedures prescribed by its Board of Directors to minimize credit risks. A fund
utilizing the amortized cost method of valuation under Rule 2a-7 of the 1940 Act
may purchase variable rate demand instruments only if (i) the instrument is
subject to an unconditional demand feature, exercisable by the Fund in the event
of a default in the payment of principal or interest on the underlying
securities, that is an Eligible Security or (ii) the instrument is not subject
to an unconditional demand feature but does qualify as an Eligible Security and
has a long-term rating by the Requisite NRSROs in one of the two highest rating
categories, or if unrated, is determined to be of comparable quality by the
Fund's Board of Directors. The Fund's Board of Directors may determine that an
unrated variable rate demand instrument meets the Fund's high quality criteria
if it is backed by a letter of credit or guarantee or is insured by an insurer
that meets the quality criteria for the Fund stated herein or on the basis of a
credit evaluation of the underlying obligor. If an instrument is ever not deemed
to be an Eligible Security, the Fund either will sell it in the market or
exercise the demand feature.
The variable rate demand instruments that the Fund may invest in include
Participation Certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Obligations (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations. The Fund will not purchase Participation Certificates
in fixed rate tax-exempt Municipal Obligations without obtaining an opinion of
counsel that the Fund will be treated as the owner of an interest in the
underlying Municipal Obligations for Federal income tax purposes. A
participation certificate gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation interest bears to the
total principal amount of the Municipal Obligation and provides the demand
repurchase feature described below. Where the institution issuing the
participation does not meet the Fund's eligibility criteria, the participation
is backed by an irrevocable letter of credit or guaranty of a bank (which may be
the bank issuing the participation certificate, a bank issuing a confirming
letter of credit to that of the issuing bank, or a bank serving as agent of the
issuing bank with respect to the possible repurchase of the certificate of
participation) or insurance policy of an insurance company that the Board of
Directors of the Fund has determined meets the prescribed quality standards for
the Fund. The Fund has the right to sell the participation certificate back to
the institution. Where applicable, the Fund can draw on the letter of credit or
insurance after no more than 30 days
* The prime rate is generally the rate charged by a bank to its most
creditworthy customers for short-term loans. The prime rate of a particular
bank may differ from other banks and will be the rate announced by each
bank on a particular day. Changes in the prime rate may occur with great
frequency and generally become effective on the date announced.
5
<PAGE>
notice either at any time or at specified intervals not exceeding 397 days
(depending on the terms of the participation), for all or any part of the full
principal amount of the Fund's participation interest in the security plus
accrued interest. The Fund intends to exercise the demand only (i) upon a
default under the terms of the bond documents, (ii) as needed to provide
liquidity to the Fund in order to make redemptions of Fund shares or (iii) to
maintain a high quality investment portfolio. The institutions issuing the
participation certificates will retain a service and letter of credit fee (where
applicable) and a fee for providing the demand repurchase feature, in an amount
equal to the excess of the interest paid on the instruments over the negotiated
yield at which the participations were purchased by the Fund. The total fees
generally range from 5% to 15% of the applicable prime rate or other interest
rate index. With respect to insurance, the Fund will attempt to have the issuer
of the participation certificate bear the cost of the insurance. However, the
Fund retains the option to purchase insurance if necessary, in which case the
cost of insurance will be an expense of the Fund subject to the expense
limitation (see "Expense Limitation" herein). The Manager has been instructed by
the Fund's Board of Directors to continually monitor the pricing, quality and
liquidity of the variable rate demand instruments held by the Fund, including
the participation certificates, on the basis of published financial information
and reports of the rating agencies and other bank analytical services to which
the Fund may subscribe. Although these instruments may be sold by the Fund, the
Fund intends to hold them until maturity, except under the circumstances stated
above (see "Federal Income Taxes" herein).
In view of the "concentration" of the Fund in Participation Certificates in
Municipal Obligations, which may be secured by bank letters of credit or
guarantees, an investment in the Fund should be made with an understanding of
the characteristics of the banking industry and the risks which such an
investment may entail. Banks are subject to extensive governmental regulations
which may limit both the amounts and types of loans and other financial
commitments which may be made and interest rates and fees which may be charged.
The profitability of this industry is largely dependent upon the availability
and cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit. The Fund may invest
25% or more of the net assets of any portfolio in securities that are related in
such a way that an economic, business or political development or change
affecting one of the securities would also affect the other securities. This
includes, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The portfolio may contain variable maximum rates set by state law,
which limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent state law contains such limits,
increases or decreases in value may be somewhat greater than would be the case
without such limits. Additionally, the portfolio may contain variable rate
demand participation certificates in fixed rate Municipal Obligations. The fixed
rate of interest on these Municipal Obligations will be a ceiling on the
variable rate of the participation certificate. In the event that interest rates
increase so that the variable rate exceeds the fixed rate on the Municipal
Obligations, the Municipal Obligations can no longer be valued at par and may
cause the Fund to take corrective action, including the elimination of the
instruments from the portfolio. Because the adjustment of interest rates on the
variable rate demand instruments is made in relation to movements of the
applicable banks' "prime rates", or other interest rate adjustment index, the
variable rate demand instruments are not comparable to long-term fixed rate
securities. Accordingly, interest rates on the variable rate demand instruments
may be higher or lower than current market rates for fixed rate obligations of
comparable quality with similar maturities.
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (i) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (ii) the period remaining until the instrument's next interest
rate adjustment. The maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity.
6
<PAGE>
If a variable rate demand instrument ceases to be an Eligible Security it will
be sold in the market or through exercise of the repurchase demand feature to
the issuer.
WHEN-ISSUED SECURITIES
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on these Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date of the Fund's
commitment to purchase. Although the Fund will only make commitments to purchase
when-issued Municipal Obligations with the intention of actually acquiring them,
the Fund may sell these securities before the settlement date if deemed
advisable by the Manager.
Municipal Obligations purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way; that is, both experiencing appreciation when interest rates
decline and depreciation when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
income tax.
STAND-BY COMMITMENTS
When the Fund purchases Municipal Obligations, it may also acquire stand-by
commitments from banks and other financial institutions. Under a stand-by
commitment, a bank or broker-dealer agrees to purchase at the Fund's option a
specified Municipal Obligation at a specified price with same day settlement. A
stand-by commitment is the equivalent of a "put" option acquired by the Fund
with respect to a particular Municipal Obligation held in its portfolio.
The amount payable to the Fund upon its exercise of a stand-by commitment
normally would be (i) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (ii) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank or dealer during the
time a stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment would be unconditional and
unqualified. A stand-by commitment would not be transferable by the Fund,
although it could sell the underlying Municipal Obligation to a third party at
any time.
The Fund expects stand-by commitments to generally be available without the
payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio will not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after the
acquisition of each stand-by commitment.
The Fund will enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks. If the issuer of the Municipal Obligation does not meet the eligibility
criteria, the issuer of the stand-by commitment will have received a rating
which meets the eligibility criteria or, if not rated, will present a minimal
risk of default as determined by the Board of Directors. The Fund's reliance
upon the credit of these banks and broker-dealers will be supported by the value
of the underlying Municipal Obligations held by the Fund that were subject to
the commitment.
7
<PAGE>
The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income tax
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment. The acquisition
of a stand-by commitment would not affect the valuation or assumed maturity of
the underlying Municipal Obligations which will continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund will be valued at zero in determining net asset value. In those cases in
which the Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund. Stand-by commitments will not affect the
dollar-weighted average maturity of the Fund's portfolio. The maturity of a
security subject to a stand-by commitment is longer than the stand-by repurchase
date.
The stand-by commitments the Fund may enter into are subject to certain risks.
These include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.
In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by commitments will be exempt from Federal income taxation (see
"Federal Income Taxes" herein). In the absence of a favorable tax ruling or
opinion of counsel, the Fund will not engage in the purchase of securities
subject to stand-by commitments.
TAXABLE SECURITIES
Although the Fund will attempt to invest 100% of its net assets in tax-exempt
Municipal Obligations, the Fund may invest up to 20% of the value of its total
assets in securities of the kind described below. The interest income from such
securities is subject to regular Federal, state and local income tax, under any
one or more of the following circumstances: (i) pending investment of proceeds
of sales of Fund shares or of portfolio securities; (ii) pending settlement of
purchases of portfolio securities; and (iii) to maintain liquidity for the
purpose of meeting anticipated redemptions. In addition, the Fund may
temporarily invest more than 20% in such taxable securities when, in the opinion
of the Manager, it is advisable to do so because of adverse market conditions
affecting the market for Municipal Obligations. The kinds of taxable securities
in which the Fund may invest are limited to the following short-term,
fixed-income securities (maturing in 397 days or less from the time of
purchase): (i) obligations of the United States Government or its agencies,
instrumentalities or authorities; (ii) commercial paper meeting the definition
of Eligible Securities at the time of acquisition; (iii) certificates of deposit
of domestic banks with assets of $1 billion or more; and (iv) repurchase
agreements with respect to any Municipal Obligations or other securities which
the Fund is permitted to own. (See "Federal Income Taxes" herein.)
REPURCHASE AGREEMENTS
The Fund may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Fund will acquire an underlying
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the 1940 Act. All repurchase agreements entered
into by the Fund shall be fully collateralized at all times during the period of
the agreement in that the value of the underlying security shall be at least
equal to the amount of the loan, including the accrued interest thereon.
Additionally, the Fund or its custodian shall have possession of the collateral,
which the Fund's Board believes will give it a valid, perfected security
interest in the collateral. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs in connection with the disposition of the
collateral. The Fund's Board believes that the collateral underlying repurchase
agreements may be more susceptible to claims of the seller's creditors than
would be the case with securities owned by the Fund. It is expected that
repurchase agreements will give rise to income which will not qualify as
tax-exempt income when distributed by the Fund. The Fund will not invest in a
repurchase agreement maturing in more than seven days if any such investment,
together with illiquid securities held by the Fund, exceeds 10% of the Fund's
total net assets. (See Investment Restriction Number 6 herein.) Repurchase
agreements are subject to the same risks described herein for stand-by
commitments.
8
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios. They may not be changed unless approved by a majority
of the outstanding shares "of each series of the Fund's shares that would be
affected by such a change." The term "majority of the outstanding shares" of the
Fund means the vote of the lesser of (i) 67% or more of the shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund. The Fund may not:
1. Make portfolio investments other than as described under "Description of the
Fund and its Investments and Risks." Any other form of Federal tax-exempt
investment must meet the Fund's high quality criteria, as determined by the
Board of Directors, and be consistent with the Fund's objectives and policies.
2. Borrow money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes. This includes the meeting of
redemption requests that might otherwise require the untimely disposition of
securities, in an amount up to 15% of the value of the Fund's total assets
(including the amount borrowed) valued at market less liabilities (not including
the amount borrowed) at the time the borrowing was made. While borrowings exceed
5% of the value of the Fund's total assets, the Fund will not make any
investments. Interest paid on borrowings will reduce net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in an
amount up to 15% of the value of its total assets and only to secure borrowings
for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing such
options. However, securities subject to a demand obligation and stand-by
commitments may be purchased as set forth under "Description of the Fund and its
Investments and Risks" herein.
5. Underwrite the securities of other issuers, except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
6. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may purchase
variable rate demand instruments which contain a demand feature. The Fund will
not invest in a repurchase agreement maturing in more than seven days if any
such investment together with securities that are not readily marketable held by
the Fund exceed 10% of the Fund's net assets.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests. This shall not
prevent the Fund from investing in Municipal Obligations secured by real estate
or interests in real estate.
8. Make loans to others, except through the purchase of portfolio investments,
including repurchase agreements, as described under "Description of the Fund and
its Investments and Risks" herein.
9. Invest more than 5% of its assets in the obligations of any one issuer except
for United States government and government agency securities and securities
backed by the United States government, or its agencies or instrumentalities,
which may be purchased without limitation.
10. Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
11. Invest more than 25% of its assets in the securities of "issuers" in any
single industry. The Fund may invest more than 25% of its assets in industrial
revenue bonds and in Participation Certificates therein issued by banks and
there shall be no limitation on the purchase of those Municipal Obligations and
other obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the issuing entity and a security is backed
only by the assets and revenues of the entity, the entity would be deemed to be
the sole issuer of the security. Similarly, in the case of an industrial revenue
bond, if that bond is backed only by the assets and revenues of the
non-government user, then such non-government user would be deemed to be the
sole issuer. If, however, in either case, the creating government or some other
entity, such as an insurance company or other corporate obligor, guarantees a
security or a bank issues a letter of credit, such a guarantee or letter of
credit would be considered a separate security and would be treated as an issue
of such government, other entity or bank. Immediately after the acquisition of
any securities subject to a Demand Feature or Guarantee (as such terms are
defined in Rule 2a-7 of the 1940 Act), with respect to 75% of the total assets
9
<PAGE>
of the Fund, not more than 10% of the Fund's assets may be invested in
securities that are subject to a Guarantee or Demand Feature from the same
institution. However, the Fund may only invest more than 10% of its assets in
securities subject to a Guarantee or Demand Feature issued by a Non-Controlled
Person (as such term is defined in Rule 2a-7 of the 1940 Act).
12. Invest in securities of other investment companies. The Fund may purchase
unit investment trust securities where such unit trusts meet the investment
objectives of the Fund and then only up to 5% of the Fund's net assets, except
as they may be acquired as part of a merger, consolidation or acquisition of
assets.
13. Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with a permitted borrowing.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, employs the Manager to serve as investment manager
of the Fund. The Manager provides persons satisfactory to the Fund's Board of
Directors to serve as officers of the Fund. Such officers, as well as certain
other employees and directors of the Fund, may be directors or officers of Reich
& Tang Asset Management, Inc., the sole general partner of the Manager or
employees of the Manager or its affiliates. Due to the services performed by the
Manager, the Fund currently has no employees and its officers are not required
to devote their full-time to the affairs of the Fund.
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. Unless otherwise specified, the address
of each of the following persons is 600 Fifth Avenue, New York, New York 10020.
Mr. Duff may be deemed an "interested person" of the Fund, as defined in the
1940 Act, on the basis of his affiliation with Reich & Tang Asset Management
L.P.
Steven W. Duff, 46 - President and Director of the Fund, has been President of
the Mutual Funds Division of the Manager since September 1994. Mr. Duff is also
President and a Director/Trustee of 13 other funds in the Reich & Tang Fund
Complex, President of Back Bay Funds, Inc., Director of Pax World Money Market
Fund, Inc., Executive Vice President of Reich & Tang Equity Fund, Inc., and
President and Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.
Dr. W. Giles Mellon, 69 - Director of the Fund, is Professor of Business
Administration in the Graduate School of Management, Rutgers University which he
has been associated with since 1966. His address is Rutgers University Graduate
School of Management, 92 New Street, Newark, New Jersey 07102. Dr. Mellon is
also a Director/Trustee of 15 other funds in the Reich & Tang Fund Complex.
Robert Straniere, 58 - Director of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director/Trustee of 15 other funds in the Reich & Tang Fund Complex, and
Director of Life Cycle Mutual Funds, Inc.
Dr. Yung Wong, 61 - Director of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly General Partner
of Abacus Partners Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong has been a Director of Republic Telecom Systems
Corporation (a provider of telecommunications equipment) since January 1989 and
of TelWatch, Inc. (a provider of network management software) since August 1989.
Dr. Wong is also a Director/Trustee of 15 other funds in the Reich & Tang Fund
Complex, and is also a Trustee of Eclipse Financial Asset Trust.
Molly Flewharty, 48 - Vice President of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. with which she was associated from
December 1977 to September 1993. Ms. Flewharty is also Vice President of 18
other funds in the Reich & Tang Fund Complex.
Lesley M. Jones, 51 - Vice President of the Fund, has been Senior Vice President
of the Mutual Funds Division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc., with which she was
associated from April 1973 to September 1993. Ms. Jones is also a Vice President
of 14 other funds in the Reich & Tang Fund Complex.
10
<PAGE>
Dana E. Messina, 43 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc., with which she was associated from
December 1980 to September 1993. Ms. Messina is also Vice President of 15 other
funds in the Reich & Tang Fund Complex.
Dawn Fischer 53 - Vice President of the Fund, is a Managing Director of
Thornburg Investment Management, Inc. with which she has been associated since
August 1982. Her address is 119 East Marcy Street, Suite 202, Santa Fe, New
Mexico 87501. Ms. Fischer is also Secretary and Assistant Treasurer of Thornburg
Investment Trust, Secretary of Limited Term Municipal Fund, Inc. and Chief
Financial Officer of Thornburg Foundation Reality, a private REIT.
Bernadette N. Finn, 52 - Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn was formerly
Vice President and Assistant Secretary of Reich & Tang, Inc. which she was
associated with from September 1970 to September 1993. Ms. Finn is also
Secretary of 13 other funds in the Reich & Tang Fund Complex, and a Vice
President and Secretary of 5 funds in the Reich & Tang Fund Complex.
Richard De Sanctis, 43 - Treasurer of the Fund, has been Treasurer of the
Manager since September 1993. Mr. De Sanctis is also Treasurer of 17 other funds
in the Reich & Tang Fund Complex, and is Vice President and Treasurer of
Cortland Trust, Inc.
Rosanne Holtzer, 35 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager, with which she was
associated 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 $27,000 to its directors with respect
to the period ended October 31, 1999, all of which consisted of directors' fees
paid to the three disinterested directors, pursuant to the terms of the
Investment Management Contracts (See "Investment Advisory and Other Services"
herein).
Directors of the Fund not affiliated with the Manager receive from the Fund an
annual retainer of $1,500 and a fee of $750 for each Board of Directors meeting
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Directors who are affiliated with the Manager do
not receive compensation from the Fund. (See "Compensation Table".)
<TABLE>
<CAPTION>
Compensation Table
Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation from Fund
Name of Person, from the Fund Benefits Accrued as Part Benefits upon and Fund Complex Paid to
Position of Fund Expenses Retirement Directors*
<S> <C> <C> <C> <C>
Dr. W. Giles Mellon, $9,000 0 0 $ 59,500 (16 Funds)
Director
Robert Straniere, $9,000 0 0 $ 59,500 (16 Funds)
Director
Dr. Yung Wong, $9,000 0 0 $ 59,500 (16 Funds)
Director
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex
for the fiscal year ending October 31, 1999 The parenthetical number
represents the number of investment companies (including the Fund) from
which such person receives compensation that are considered part of the
same Fund complex as the Fund, because, among other things, they have a
common investment advisor.
11
<PAGE>
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On December 31, 1999 there were 337,213,066 shares of Class A common stock
outstanding and 348,531,696 shares of Class B common stock outstanding, and no
Thornburg shares outstanding. As of December 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 December 31, 1999:
<TABLE>
<CAPTION>
CLASS A
% of Nature of
Name and Address Class Ownership
<S> <C> <C>
Warburg Dillon Read 8.10% Beneficial
677 Washington Blvd.
Stamford, CT 06901
Miller, Johnson & Keuhn, Inc. 7.94% Record
As agent for the exclusive benefit of customers
5500 Wayzata Blvd., Suite 600
Minneapolis, MN 55416
CLASS B
Noelie S. Alito 9.21% Beneficial
3716 Gilbert Street
Houston, TX 78703-2007
</TABLE>
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 December 31, 1999, investment
manager, adviser, or supervisor with respect to assets aggregating in excess of
$14.7 billion. In addition to the Fund, the Manager acts as investment manager
and administrator of eighteen other investment companies and also advises
pension trusts, profit-sharing trusts and endowments.
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"). MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
MetLife is a mutual life insurance company and is the second largest life
insurance company in the United States in terms of total assets. MetLife
provides a wide range of insurance and investment products and services to
individuals and groups and is the leader among United States life insurance
companies in terms of total life insurance in force. MetLife and its affiliates
provide insurance or other financial services to approximately 36 million people
worldwide.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through more then seventeen
subsidiaries, divisions and affiliates offering a wide array of investment
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styles and products to institutional clients. Its business units, in addition to
the Manager, include AEW Capital Management, L.P., Back Bay Advisors, L.P.,
Capital Growth Management, L.P., Greystone Partners, L.P., Harris Associates,
L.P., Jurika & Voyles, L.P., Kobrick Funds, LLC, Loomis, Sayles & Company, L.P.,
New England Funds, L.P., Nvest Advisor Services, L.P., Nvest Associates, Inc.,
Nvest Retirement Services, Nvest Services Company, Snyder Capital Management,
L.P., Vaughan, Nelson, Scarborough & McCullough, L.P., and Westpeak Investment
Advisors, L.P. These affiliates in the aggregate are investment advisors or
managers of more than 80 other registered investment companies.
On April 8, 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 and
extended the term to April 30, 2000. It will be continued in force thereafter
for successive twelve-month periods beginning each May 1, provided that it is
approved by a majority vote of the Fund's outstanding voting securities or by a
majority of the directors who are not parties to the Investment Management
Contract or interested persons of any such party, by votes cast in person at a
meeting called for the purpose of voting on such matter.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Manager provides persons satisfactory to the Board of Directors of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of NEIC, the
sole general partner of the Manager, or employees of the Manager or its
affiliates.
The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Directors,
or by the Manager on sixty days written notice, and will automatically terminate
in the event of its assignment. The Investment Management Contract provides that
in the absence of willful misfeasance, bad faith or gross negligence on the part
of the Manager, or of reckless disregard of its obligations thereunder, the
Manager shall not be liable for any action or failure to act in accordance with
its duties thereunder.
Under the Investment Management Contract, the Manager receives from the Fund a
fee equal to .325% per annum of the Fund's average daily net assets not in
excess of $750 million, plus .30% of such assets up to $750 million. The fees
are accrued daily and paid monthly. The Manager at its discretion may
voluntarily waive all or a portion of the management fee.
Pursuant to the Administrative Services Contract with the Fund, the Manager also
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of accounting related services by Investors Fiduciary Trust Company,
the Fund's bookkeeping or recordkeeping agent, (ii) prepare reports to and
filings with regulatory authorities and (iii) perform such other services as the
Fund may from time to time request of the Manager. The personnel rendering such
services may be employees of the Manager, of its affiliates or of other
organizations. For its services under the Administrative Services Contract, the
Manager receives from the Fund a fee equal to .21% per annum of the Fund's
average daily net assets up to $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 years ended October 31, 1999,
October 31, 1998 and October 31, 1997, the Manager received a fee of $1,348,557,
$1,223,278 and $1,238,632.
Pursuant to the Investment Management Contract for the fiscal years ended
October 31, 1999, October 31, 1998, and October 31, 1997, the Manager received
investment management fees aggregating $2,087,052, $1,893,168 and $1,916,931
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 (see "Distribution and Service Plan" herein).
Investment management fees and operating expenses which are attributable to each
Class of the Fund will be allocated daily to each Class based on the percentage
of outstanding shares at the end of the day. Additional shareholder services
provided by Participating Organizations to Class A and Thornburg shareholders
pursuant to the Plan shall be compensated by the Distributor from its
shareholder servicing fee, the Manager from its management fee and the Fund
itself. Expenses incurred in the distribution of Class B shares and the
servicing of Class B shares shall be paid by the Manager.
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EXPENSE LIMITATION
The Manager has agreed, pursuant to the Investment Management Contract, (See
"Distribution and Service Plan" herein), to reimburse the Fund for its expenses
(exclusive of interest, taxes, brokerage and extraordinary expenses) which in
any year exceed the limits on investment company expenses prescribed by any
state in which the Fund's shares are qualified for sale. For the purpose of this
obligation to reimburse expenses, the Fund's annual expenses are estimated and
accrued daily, and any appropriate estimated payments are made to it on a
monthly basis. Subject to the obligations of the Manager to reimburse the Fund
for its excess expenses as described above, the Fund has, under the Investment
Management Contract, confirmed its obligation for payment of all its other
expenses. This includes all operating expenses, taxes, brokerage fees and
commissions, commitment fees, certain insurance premiums, interest charges and
expenses of the custodian, transfer agent and dividend disbursing agent's fees,
telecommunications expenses, auditing and legal expenses, bookkeeping agent
fees, costs of forming the corporation and maintaining corporate existence,
compensation of directors, officers and employees of the Fund and costs of other
personnel performing services for the Fund who are not officers of the Manager
or its affiliates, costs of investor services, shareholders' reports and
corporate meetings, SEC registration fees and expenses, state securities laws
registration fees and expenses, expenses of preparing and printing the Fund's
prospectus for delivery to existing shareholders and of printing application
forms for shareholder accounts, and the fees and reimbursements payable to the
Manager under the Investment Management Contract and the Distributor under the
Shareholder Servicing Agreement.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein. The management of the Fund intends to do so
whenever it appears advantageous to the Fund. The Fund's expenses for employees
and for such services are among the expenses subject to the expense limitation
described above.
INVESTMENT SUB-ADVISOR
Thornburg Investment Management, Inc., a Delaware corporation with principal
offices at 119 East Marcy Street, Santa Fe, New Mexico 87501 (the
"Sub-Adviser"), provides investment advisory assistance and portfolio management
advice to the Manager. The Sub-Adviser is also the investment adviser to Limited
Term Municipal Fund, Inc., a registered open-end, tax-exempt management
investment company comprised of a National Portfolio and a California Portfolio.
The Company is also adviser to Thornburg Investment Trust, a registered open-end
management investment company with seven series of shares outstanding. The
Sub-Adviser is paid a fee by the Manager of an amount equal to 25% of all fees
paid to the Manager by the Fund, less certain costs, payments and expenses of
the Manager. The Fund does not pay any portion of the Sub-Adviser's fee. For the
Fund's fiscal year ended October 31, 1999, 1998 and 1997, the Sub-Adviser
received from the Manager fees totaling $689,096, $640,919 and $633,674,
respectively.
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 and
Thornburg shares only) with Reich & Tang Distributors, Inc., (the
"Distributor"), as distributor of the Fund's shares.
Under the Plan, the Fund and the Distributor have entered into a Shareholder
Servicing Agreement with respect to the Class A and Thornburg shares only. For
its services under the Shareholder Servicing Agreement, the Distributor receives
from the Fund a fee equal to .25% per annum of the Fund's average daily net
assets of the Class A and Thornburg shares of the Fund (the "Shareholder
Servicing Fee"). The fee is accrued daily and paid monthly and any portion of
the fee may be deemed to be used by the Distributor for purposes of distribution
of the Fund's Class A and Thornburg shares and for payments to Participating
Organizations with respect to servicing their clients or customers who are Class
A and Thornburg shareholders of the Fund. The Class B shareholders will not
receive the benefit of such services from Participating Organizations and,
therefore, will not be assessed a Shareholder Servicing Fee.
The following information applies only to the Class A shares of the Fund. For
the Fund's fiscal year ended October 31, 1999, the Fund paid shareholder
servicing and administration fees of $942,547 to the Distributor. During this
same period the Manager and Distributor made payments under the plan to or on
behalf of Participating Organizations of $1,913,406. The excess of such payments
over the total payments the Manager received from the
14
<PAGE>
Fund represents distribution expenses funded by the Manager from its own
resources including the management fee. Of the total amount paid pursuant to the
Plan, $59,868 was utilized for compensation to sales personnel, $5,332 on Travel
& Entertainment for sales personnel, $2,834 on Prospectus printing and $1,272 on
Miscellaneous expenses. For the Fund's fiscal year ended October 31, 1998, the
Fund paid shareholder servicing and administration fees of $940,148 to the
Distributor. During this same period the Manager and Distributor made payments
under the plan to or on behalf of Participating Organizations of $1,726,457. The
excess of such payments over the total payments the Manager received from the
Fund represents distribution expenses funded by the Manager from its own
resources including the management fee. Of the total amount paid pursuant to the
Plan, $46,344 was utilized for compensation to sales personnel,$7,760 on Travel
& Entertainment for sales personnel, $6,666 on Prospectus printing and $1,291 on
Miscellaneous expenses. For the Fund's fiscal year ended October 31, 1997, the
Fund paid shareholder servicing and administration fees of $1,057,762 to the
Distributor. During this same period the Manager and Distributor made payments
under the plan to or on behalf of Participating Organizations of $1,950,478. The
excess of such payments over the total payments the Manager received from the
Fund represents distribution expenses funded by the Manager from its own
resources including the management fee. Of the total amount paid pursuant to the
Plan, $76,989 was utilized for compensation to sales personnel, $14,313 on
Prospectus printing and $10,488 on Miscellaneous expenses.
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 Thornburg shares and (ii) preparing, printing
and delivering the Fund's prospectus to existing shareholders of the Fund and
preparing and printing subscription application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the management fee, and past profits for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements for performing shareholder servicing and related
administrative functions on behalf of the Class A shares and Thornburg 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 Thornburg shares and past profits for the purpose enumerated in (i) above.
The Distributor determines the amount of such payments made pursuant to the
Plan, provided that such payments will not increase the amount which the Fund is
required to pay to the Manager or the Distributor for any fiscal year under the
Investment Management Contract or the Shareholder Servicing Agreement in effect
for that year.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Directors. In addition, the Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
The Plan provides that it may continue in effect for successive annual periods
provided it is approved by the Class A and Thornburg shareholders or by the
Board of Directors, including a majority of directors who are not interested
persons of the Fund and who have no direct or indirect interest in the operation
of the Plan or in the agreements related to the Plan. The Plan was approved by a
majority of the shareholders on August 18, 1992. The continuance of the Plan was
most recently approved by the Board of Directors on April 8, 1999 and shall
continue in effect until April 30, 2000. The Plan further provides that it may
not be amended to increase materially the costs which may be spent by the Fund
for distribution pursuant to the Plan without Class A and Thornburg shareholder
approval, and the other material amendments must be approved by the directors in
the manner described in the preceding sentence. The Plan may be terminated at
any time by a vote of a majority of the disinterested directors of the Fund or
the Fund's Class A and Thornburg shareholders.
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<PAGE>
CUSTODIAN AND TRANSFER AGENT
State Street Kansas City, 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 INDEPENDENT ACCOUNTANTS
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.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, independent accountants, have been selected as auditors for the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Thus, the Fund will select a broker
for such a transaction based upon which broker can effect the trade at the best
price and execution available. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases participation
certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the participation certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund are made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
VII. CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Fund consists of twenty billion shares of
stock having a par value of one tenth of one cent ($.001) per share. The Fund's
Board of Directors is authorized to divide the shares into separate series of
stock, one for each of the portfolios that may be created. Each share of any
series of shares when issued has equal dividend, distribution and liquidation
rights within the series for which it was issued. Each fractional share has
those rights in proportion to the percentage that the fractional share
represents of a whole share. Shares of all series have identical voting rights,
except where, by law, certain matters must be approved by a majority of the
shares of the unaffected series. Shares will be voted in the aggregate. There
are no conversion or preemptive rights in connection with any shares of the
Fund. All shares, when issued in accordance with the terms of the offering, will
be fully paid and nonassessable. Shares are redeemable at net asset value, at
the option of the shareholder. The Fund is subdivided into three classes of
common stock, Class A, Class B and the Thornburg Class of shares. Each share,
regardless of class, represents an interest in the same portfolio of investments
and has identical voting, dividend, liquidation and other rights, preferences,
powers, restrictions, limitations, qualifications, designations and terms and
16
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conditions, except: (i) the Class A, Class B and Thornburg shares have different
class designations; (ii) only the Class A and Thornburg shares are assessed a
service fee pursuant to the Rule 12b-1 Distribution and Service Plan of the Fund
of .25% of the average daily net assets of Class A and Thornburg shares,
respectively; and (iii) only the holders of the Class A and Thornburg shares
will be entitled to vote on matters pertaining to the Plan and any related
agreements in accordance with provisions of Rule 12b-1. The exchange privilege
permits stockholders to exchange their shares only for shares of the same class
of an investment company that participates on an exchange privilege program with
the Fund. Payments made under the Plan and 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 will 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. 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 and qualified.
VIII. PURCHASE, REDEMPTION AND PRICING SHARES
The material relating to purchase, redemption and pricing of shares for each
Class of shares is located in the Shareholder Information section of each
prospectus and is hereby incorporated by reference.
NET ASSET VALUE
The Fund does not determine net asset value per share of each Class on any day
in which the New York Stock Exchange is closed for trading. Those days include:
New Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. The net asset value of a Class is computed
by dividing the value of the Fund's net assets for such Class (i.e., the value
of its securities and other assets less its liabilities, including expenses
payable or accrued but excluding capital stock and surplus) by the total number
of shares outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. If fluctuating interest
rates cause the market value of the Fund's portfolio to deviate more than 1/2 of
1% from the value determined on the basis of amortized cost, the Board of
Directors will consider whether any action should be initiated, as described in
the following paragraph. Although the amortized cost method provides certainty
in valuation, it may result in periods during which the value of an instrument
is higher or lower than the price an investment company would receive if the
instrument were sold.
The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset value at $1.00 per share of each Class. These procedures include a
review of the extent of any deviation of net asset value per share, based on
available market rates, from the Fund's $1.00 amortized cost per share of each
Class. Should that deviation exceed 1/2 of 1%, the Board will consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redemption of shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days
17
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or less, will not purchase any instrument with a remaining maturity greater than
397 days, will limit portfolio investments, including repurchase agreements, to
those United States dollar-denominated instruments that the Fund's Board of
Directors determines present minimal credit risks, and will comply with certain
reporting and record keeping procedures. The Fund has also established
procedures to ensure compliance with the requirement that portfolio securities
are Eligible Securities. (See "Description of the Fund and its Investments and
Risks" herein.)
IX. TAXATION OF THE FUND
FEDERAL INCOME TAXES
The Fund has elected to qualify under the 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.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its net tax-exempt interest income. Exempt-interest dividends
are dividends paid by the Fund that are attributable to interest on obligations,
the interest on which is exempt from regular Federal income tax, and designated
by the Fund as exempt-interest dividends in a written notice mailed to the
Fund's shareholders not later than 60 days after the close of its taxable year.
The percentage of the total dividends paid by the Fund during any taxable year
that qualifies as exempt-interest dividends will be the same for all
shareholders receiving dividends during the year.
Exempt-interest dividends are excludable from are gross income under Section
103(a) of the Code although the amount of tax-exempt interest received must be
disclosed on the shareholders' Federal income tax returns. Shareholders should
consult their tax advisors with respect to whether exempt-interest dividends
retain the exclusion under Section 103 of the Code if they would be treated as
"substantial users" or "related persons" under Section 147(a) of the Code with
respect to some or all of any "private activity bonds" held by the Fund. If a
shareholder receives an exempt-interest dividend with respect to any share that
it has held for six months or less, then any loss on the sale or exchange of
such share will be disallowed to the extent of the amount of such
exempt-interest dividend. For Social Security recipients, interest on tax-exempt
bonds, including exempt-interest dividends paid by the Fund, must be added to
adjusted gross income for purposes of computing the amount of social security
benefits includible in gross income. Taxpayers other than corporations are
required to include as an item of tax preference for purposes of the Federal
alternative minimum tax all tax-exempt interest on "private activity bonds"
(generally, a bond issue in which more than 10% of the proceeds are used in a
non-governmental trade or business, other than Section 501(c)(3) bonds) issued
after August 7, 1986. Thus, this provision will apply to any exempt-interest
dividends from the Fund's assets that are attributable to such post-August 7,
1986 private activity bonds acquired by the Fund. Corporations are required to
increase their alternative minimum taxable income for purposes of calculating
their alternative minimum tax liability by 75% of the amount by which the
adjusted current earnings (which will include tax exempt interest) of the
corporation exceeds it's alternative minimum taxable income (determined without
this item). In addition, in certain cases, Subchapter S corporations with
accumulated earnings and profits from Subchapter C years are subject to a tax on
tax-exempt interest.
Although not intended, it is possible that the Fund may realize short-term or
long-term capital gains or losses from its portfolio transactions. The Fund may
also realize market discount income, short-term or long-term capital gains upon
the maturity or disposition of securities acquired at discounts resulting from
market fluctuations. Accrued market discount income and short-term capital gains
will be taxable to shareholders as ordinary income when they are distributed.
Any net capital gains (the excess of its net realized long-term capital gain
from sales of assets with a holding period of more than 12 months over its net
realized short-term capital loss) will be distributed annually to the Fund's
shareholders. The Fund will have no tax liability with respect to distributed
net capital gains and the distributions are taxable to shareholders as long-term
capital gains regardless of how long the shareholders have held Fund shares.
However, Fund shareholders who at the time of such a net capital gain
distribution have not held their Fund shares for more than 6 months, and who
subsequently dispose of those shares at a loss, will be required to treat such
loss as a long-term capital loss to the extent of the net capital gain
distribution. Distributions of net capital gain will be designated as a "capital
gain dividend" in a written notice mailed to the Fund's shareholders not later
than 60 days after the close of the Fund's taxable year. Capital gains realized
by corporations are generally taxed at the same rate as ordinary income.
However, capital gains are generally taxable at a maximum rate of 20% to
non-corporate shareholders who have a holding period of more than 12 months.
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.
18
<PAGE>
The Fund also intends to distribute at least 90% of its investment company
taxable income (taxable income exclusive of the excess of its net long-term
capital gain over its net short-term capital loss and subject to certain other
adjustments) for each taxable year. This distribution will be taxable to
shareholders as ordinary income. The Fund will be subject to Federal income tax
on any undistributed investment company taxable income. Expenses paid or
incurred by the Fund will be allocated between tax-exempt and taxable income in
the same proportion as the amount of the Fund's tax-exempt income bears to the
total of such exempt income and its gross income (excluding from gross income
the excess of capital gains over capital losses). If the Fund does not
distribute at least 98% of its ordinary income and 98% of its capital gain net
income for a taxable year, the Fund will be subject to a nondeductible 4% excise
tax on the excess of such amounts over the amounts actually distributed.
If a shareholder (other than a corporation) fails to provide the Fund with a
current taxpayer identification number, the Fund generally is required to
withhold 31% of taxable interest, dividend payments, and proceeds from the
redemption of shares of the Fund.
Dividends and distributions to shareholders will be treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund.
With respect to the variable rate demand instruments, including participation
certificates therein, the Fund has obtained and is relying on the opinion of
Battle Fowler LLP, counsel to the Fund, that it will be treated for Federal
income tax purposes as the owner of an interest in the underlying Municipal
Obligations and that the interest thereon will be exempt from regular Federal
income taxes to the Fund and its shareholders to the same extent as interest on
the underlying Municipal Obligation. Counsel has pointed out that the Internal
Revenue Service has announced that it will not ordinarily issue advance rulings
on the question of ownership of securities or participation interests therein
subject to a put and, as a result, the Internal Revenue Service could reach a
conclusion different from that reached by counsel.
The Code provides that interest on indebtedness incurred, or continued, to
purchase or carry tax-exempt securities is not deductible. Therefore, a certain
portion of interest on indebtedness incurred, or continued, to purchase or carry
securities, including margin interest, may not be deductible during the period
an investor holds shares of the Fund.
From time to time, proposals have been introduced before Congress to restrict or
eliminate the Federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund would reevaluate its investment objective and policies and consider
changes in the structure.
In South Carolina v. Baker, the United States Supreme Court held that the
Federal government may constitutionally require states to register bonds they
issue and may subject the interest on such bonds to Federal tax if not
registered, and that there is no constitutional prohibition against the Federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the Federal government to
regulate and control bonds such as Municipal Obligations and to tax such bonds
in the future. The decision does not, however, affect the current exemption from
regular income taxation of the interest earned on the Municipal Obligations in
accordance with Section 103 of the Code.
The exemption for Federal income tax purposes of exempt-interest dividends does
not necessarily result in an exemption under the income or other tax laws of any
state or local taxing authority. Shareholders of the Fund may be exempt from
state and local taxes on distributions of tax-exempt interest income derived
from obligations of the state and/or municipalities of the state in which they
may reside but may be subject to tax on income derived from obligations of other
jurisdictions. Shareholders are advised to consult with their tax advisers
concerning the application of state and local taxes to investments in the Fund
which may differ from the Federal income tax consequences described above.
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. On November 16, 1999,
19
<PAGE>
President Clinton signed the Gramm Leach Bliley Act, repealing certain
provisions of the Glass-Steagall Act which have restricted affiliation between
banks and insurance companies. The new legislation grants banks new authority to
conduct certain authorized activity though financial subsidiaries. In the
opinion of the Manager, however, based on the advice of counsel, these laws and
regulations do not prohibit such depository institutions from providing other
services for investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Directors will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
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 yield figure,
which is based on a chosen seven-day period, is computed as follows: the Fund's
return for the seven-day period is obtained by dividing the net change in the
value of a hypothetical account having a balance of one share at the beginning
of the period by the value of such account at the beginning of the period
(expected to always be $1.00). This is multiplied by (365/7) with the resulting
annualized figure carried to the nearest hundredth of one percent. For purposes
of the foregoing computation, the determination of the net change in account
value during the seven-day period reflects (i) dividends declared on the
original share and on any additional shares, including the value of any
additional shares purchased with dividends paid on the original share, and (ii)
fees charged to all shareholder accounts. Realized capital gains or losses and
unrealized appreciation or depreciation of the Fund's portfolio securities are
not included in the computation. Therefore, annualized yields may be different
from effective yields quoted for the same period.
The Fund's "effective yield" for each Class is obtained by adjusting its
"current yield" to give effect to the compounding nature of the Fund's
portfolio, as follows: the unannualized base period return is compounded and
brought out to the nearest one hundredth of one percent by adding one to the
base period return, raising the sum to a power equal to 365 divided by 7, and
subtracting one from the result, i.e., effective yield = [(base period return +
1)365/7] - 1.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day. The Fund's yield for any given period is not an indication, or
representation by the Fund, of future yields or rates of return on the Fund's
shares, and may not provide a basis for comparison with bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors who
purchase the Fund's shares directly may realize a higher yield than Participant
Investors because they will not be subject to any fees or charges that may be
imposed by Participating Organizations.
The Fund may from time to time advertise its tax equivalent current yield. The
tax equivalent yield for each Class is computed based upon a 30-day (or one
month) period ended on the date of the most recent balance sheet included in
this Statement of Additional Information. It is computed by dividing that
portion of the yield of the Fund (as computed pursuant to the formulae
previously discussed) which is tax exempt by one minus a stated income tax rate
and adding the quotient to that portion, if any, of the yield of the Fund that
is not tax exempt. The tax equivalent yield for the Fund may also fluctuate
daily and does not provide a basis for determining future yields.
The Fund may from time to time advertise a tax equivalent effective yield table
which shows the yield that an investor needs to receive from a taxable
investment in order to equal a tax-free yield from the Fund. This is calculated
by dividing that portion of the Fund's effective yield that is tax-exempt by 1
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's effective yield that is not tax-exempt. See "Taxable Equivalent
Yield Table" herein.
The Fund's Class A shares' yield for the seven day period ended October 31, 1999
was 2.61% which is equivalent to an effective yield of 2.64%. The Fund's Class B
shares yield for the seven-day period ended October 31, 1999 was 2.93% which is
equivalent to an effective yield of 2.97%.
20
<PAGE>
XII. FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended October
31, 1999 and the report therein of PricewaterhouseCoopers LLP, are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.
21
<PAGE>
DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s Two Highest Municipal Bond
Ratings:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. ( ... ) Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (i) earnings of projects under construction, (ii) earnings of
projects unseasoned in operating experience, (iii) rentals which begin when
facilities are completed, or (iv) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc.'s Two Highest Ratings of State
and Municipal Notes and Other Short-Term Loans:
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used are as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services Two Highest Debt Ratings:
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only to a small degree.
Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Standard & Poor's does not provide ratings for state and municipal notes.
Description of Standard & Poor's Rating Services Two Highest Commercial Paper
Ratings:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Moody's Investors Service, Inc.'s Two Highest Commercial Paper
Ratings:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues: Prime-1, highest
quality; Prime-2, higher quality.
_____________________________________
* As described by the rating agencies.
22
<PAGE>
CORPORATE TAXABLE EQUIVALENT YIELD TABLE
(Based on Estimated Tax Rates Effective Until December 31, 2000)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. If Your Taxable Income Bracket is . . .
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate $0- $50,001- $75,001- $100,001- $335,001- $10,000,001- $15,000,001- $18,333,334-
Return 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 and over
- ------------------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ------------------------------------------------------------------------------------------------------------------------------------
Federal
Tax Rate 15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- ------------- ---------
State Tax
Rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
Combined
Marginal
Tax Rate 15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%
- ------------------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ------------------------------------------------------------------------------------------------------------------------------------
Tax
Exempt Equivalent Taxable Investment Yield
Yield Required to Match Tax Exempt Yield
- ----------------- ------------------------------------------------------------------------------------------------------------------
2.00% 2.35% 2.67% 3.03% 3.28% 3.03% 3.08% 3.23% 3.08%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
2.50% 2.94% 3.33% 3.79% 4.10% 3.79% 3.85% 4.03% 3.85%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
3.00% 3.53% 4.00% 4.55% 4.92% 4.55% 4.62% 4.84% 4.62%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
3.50% 4.12% 4.67% 5.30% 5.74% 5.30% 5.38% 5.65% 5.38%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
4.00% 4.71% 5.33% 6.06% 6.56% 6.06% 6.15% 6.45% 6.15%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
4.50% 5.29% 6.00% 6.82% 7.38% 6.82% 6.92% 7.26% 6.92%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
5.00% 5.88% 6.67% 7.58% 8.20% 7.58% 7.69% 8.06% 7.69%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
5.50% 6.47% 7.33% 8.33% 9.02% 8.33% 8.46% 8.87% 8.46%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
6.00% 7.06% 8.00% 9.09% 9.84% 9.09% 9.23% 9.68% 9.23%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
6.50% 7.65% 8.67% 9.85% 10.66% 9.85% 10.00% 10.48% 10.00%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
7.00% 8.24% 9.33% 10.61% 11.48% 10.61% 10.77% 11.29% 10.77%
- ----------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- ---------
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, to section three, to see the equivalent taxable yields
for each of the tax free income yields given.
</TABLE>
23
<PAGE>
INDIVIDUAL TAXABLE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective Until December 31, 2000)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1. If Your Taxable Income Bracket is . . .
- ------------------------------------------------------------------------------------------------------
Single $0- $26,251- $63,551- $132,601- $288,351
Return 26,250 63,550 132,600 283,350 and over
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
Joint $0- $43,851- $105,951- $161,451- $288,351
Return 43,850 105,950 161,450 288,350 and over
- ------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
Federal
Tax Bracket 15.00% 28.00% 31.00% 36.0% 39.60%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
State
Tax Bracket 0.00% 0.00% 0.00% 0.00% 0.00%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
Combined
Tax Bracket 15.00% 28.00% 31.00% 36.00% 39.60%
- ------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ------------------------------------------------------------------------------------------------------
Tax
Exempt Equivalent Taxable Investment Yield
Yield Required to Match Tax Exempt Yield
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
6.00% 7.06% 8.33% 9.38% 9.38% 9.93%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
- ----------------- -------------- --------------- ----------------- ----------------- -----------------
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, to section three, to see the equivalent taxable yields
for each of the tax free income yields given.
24
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Articles of Incorporation, as amended, of the Registrant (filed with
Post-Effective Amendment No. 19 to said Registration Statement on December
23, 1993, and re-filed herein for Edgar purposes only).
(a.1) Articles Supplementary of the Registrant, filed with the Maryland State
Department of Assessments and Taxation on January 24, 2000.
(b) By-Laws of the Registrant (filed with the initial Registration Statement
No. 2-78513, on July 22, 1982, and re-filed herein for Edgar purposes
only).
(c) Form of certificate for shares of Common Stock, par value $.001 per share,
of the Registrant (filed with Pre-Effective Amendment No. 1 to said
Registration Statement on November 3, 1982, and re-filed herein for Edgar
purposes only).
(d) Form of Investment Management Contract between the Registrant and Reich &
Tang Asset Management L.P. (filed with Post-Effective Amendment No. 25 to
said Registration Statement on February 26, 1997, and incorporated by
reference herein).
(e) Form of Distribution Agreement between the Registrant and Reich & Tang
Distributors, Inc. (filed with Post-Effective Amendment No. 26 to said
Registration Statement on February 26, 1998, and incorporated by reference
herein).
(e.1) Form of Distribution Agreement (for Thornburg Shares) between the
Registrant and Reich & Tang Distributors, Inc. (filed with Post-Effective
Amendment No. 29 to said Registration Statement on December 3, 1999 and
incorporated by reference herein).
(f) Not applicable.
(g) Custody Agreement between the Registrant and Investors Fiduciary Trust
Company (filed with Post-Effective Amendment No. 21 to said Registration
Statement on February 28, 1995, and incorporated by reference herein).
(h) Administrative Services Contract between Registrant and Reich & Tang Asset
Management L.P. (filed with Post-Effective Amendment No. 23 to said
Registration Statement on February 28, 1996, and incorporated by reference
herein).
(i) Opinion of Battle Fowler LLP as to the legality of the securities being
registered, including their consent to the filing thereof and to the use of
their name under the headings "Federal Income Taxes" and "Counsel and
Auditors" in the Prospectus (filed with Pre-Effective Amendment No. 1 to
said Registration Statement on November 3, 1982, and re-filed herein for
Edgar purposes only).
(j) Consent of Independent Auditors (filed herewith).
(k) Audited Financial Statements (filed with Annual Report).
(l) Written assurance of Reich & Tang, Inc. that its purchase of shares of the
registrant was for investment purposes without any present intention of
redeeming or reselling (filed with Pre-Effective Amendment No. 1 to said
Registration Statement on November 3, 1982, and re-filed herein for Edgar
purposes only).
(m) Form of Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (filed with Post-Effective Amendment No. 26
to said Registration Statement on February 26, 1998, and incorporated by
reference herein).
(m.1) Form of Distribution and Service Plan (relating to Thornburg Shares)
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (filed with
Post-Effective Amendment No. 29 to said Registration Statement on December
3, 1999 and incorporated by reference herein).
(m.2) Form of Shareholder Servicing Agreement between the Registrant and Reich &
Tang Distributors, Inc. (filed with Post-Effective Amendment No. 26 to said
Registration Statement filed on February 26, 1998, and incorporated by
reference herein).
(m.3) Form of Shareholder Servicing Agreement (relating to Thornburg Shares)
between the Registrant and Reich & Tang Distributors, Inc. (filed with
Post-Effective Amendment No. 29 to said Registration Statement on December
3, 1999 and incorporated by reference herein).
(m.4) Form of Distribution Agreement between the Registrant and Reich & Tang
Distributors, Inc. filed herein as Exhibit (e).
(m.5) Form of Distribution Agreement (relating to Thornburg Shares) between the
Registrant and Reich & Tang Distributors, Inc. filed herein as Exhibit
(e.1) (filed with Post-Effective Amendment No. 29 to said Registration
Statement on December 3, 1999 and incorporated by reference herein).
(n) Not applicable.
C-1
<PAGE>
(o) Amendment No. 5 to Rule 18f-3 Plan for Multi-Class (filed with
Post-Effective Amendment No. 29 to said Registration Statement on December
3, 1999 and incorporated by reference herein).
(p) Powers of Attorney (filed with Post-Effective Amendment No. 29 to said
Registration Statement on December 3, 1999 and incorporated by reference
herein).
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
None.
ITEM 25. INDEMNIFICATION.
The registrant incorporates by reference the response to Item 25 of Part
II of the Registrants Post-Effective Amendment No. 29 to the Registration
Statement on Form N-1A filed with the Commission on December 3, 1999.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The description of Reich & Tang Asset Management L.P. ("RTAMLP") under
the caption "Management, Organization and Capital Structure" in the Prospectus
and "Investment Advisory and Other Services" and "Management of the Fund" in the
Statement of Additional Information constituting parts A and B, respectively, of
this Post-Effective Amendment No. 29 to the Registration Statement are
incorporated herein by reference.
Registrant's investment advisor, RTAMLP, is a registered investment
advisor. Nvest Companies, L.P. (Nvest) is the limited partner and owner of a
99.5% interest in RTAMLP. Reich & Tang Asset Management, Inc. ("RTAM")(an
indirect wholly-owned subsidiary of Nvest) is the sole general partner and owner
of the remaining .05% interest in RTAMLP. RTAMLP's investment advisory clients
include more than twenty-one registered investment companies which invest in
money market instruments, equity securities and debt securities. In addition,
RTAMLP is the sole general partner of ten investment partnerships organized as
limited partnerships.
Peter S. Voss, President, has been Chief Executive Officer and a
Director of Nvest Corporation (formerly New England Investment Companies, Inc.)
since October 1992, Chairman of the Board of Nvest Corporation since December
1992, Director of The New England since March 1993, Chairman of the Board of
Directors of NEIC's subsidiaries other than Loomis, Sayles & Company, L.P.
("Loomis") and Back Bay Advisors, L.P. ("Back Bay"), where he serves as a
Director, and Chairman of the Board of Trustees of all of the mutual funds in
the TNE Fund Group and the Zenith Funds. G. Neil Ryland, Executive Vice
President, Treasurer and Chief Financial Officer Nvest Corporation since July
1993. Edward N. Wadsworth, Executive Vice President, General Counsel, Clerk and
Secretary of Nvest Corporation since December 1989, and Secretary of Westpeak
and Draycott and the Treasurer of Nvest Corporation. Lorraine C. Hysler,
Executive Vice President since January 2000, has been Secretary of RTAM since
July 1994, Assistant Secretary of NEIC since September 1993, and Vice President
of Reich & Tang Mutual Funds since July 1994. Richard E. Smith, III has been a
Director of RTAM since July 1994, and President and Director of RTAM since July
1994, President and Chief Operating Officer of the Reich & Tang Capital
Management Group since July 1994. Steven W. Duff has been a Director of RTAM
since October 1994, and President and Chief Executive Officer of Reich & Tang
Mutual Funds since August 1994. Mr. Duff is President and a Director/Trustee of
14 funds in the Reich & Tang Fund Complex, President of Back Bay Funds, Inc.,
Director of Pax World Money Market Fund, Inc., President and Chief Executive
Officer of Tax Exempt Proceeds Fund, Inc., and Executive Vice President of Reich
& Tang Equity Fund, Inc. Bernadette N. Finn has been Vice President/Compliance
of RTAM since July 1994, and Vice President of Reich & Tang Mutual Funds since
July 1994. Ms. Finn is also Secretary of 14 funds in the Reich & Tang Complex
and a Vice President and Secretary of 5 funds in the Reich & Tang Fund Complex.
Richard DeSanctis, Executive Vice President since January 2000, has been
Treasurer of RTAM since July 1994, Assistant Treasurer of NEIC since September
1993, Treasurer of the Reich & Tang Mutual Funds since July 1994. Mr. DeSanctis
is also Treasurer of 18 funds in the Reich & Tang Fund Complex. and is Vice
President and Treasurer of Cortland Trust, Inc. Richard I. Weiner has been Vice
President of RTAM since July 1994, Vice President of NEIC since September 1993,
and Vice President of Reich & Tang Asset Management L.P. Capital Management
Group since July 1994. Mr. Weiner has served as a Vice President of Reich &
Tang, Inc. since September 1982. Rosanne Holtzer has been Vice President of the
Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she was
associated with from June 1986, in addition she is also Assistant Treasurer of
19 funds in the Reich & Tang Fund Complex.
C-2
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Reich & Tang Distributors, Inc. is also distributor for Back Bay Fund
Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free
Income Fund, Inc., Cortland Trust, Inc., Delafield Fund, Inc., Florida Daily
Municipal Income Fund, Georgia Daily Municipal Income Fund, Inc., Institutional
Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pax World Money Market Fund, Inc.
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc.
(b) The following are the directors and officers of Reich & Tang
Distributors, Inc. The principal business address of Messrs Voss, Ryland, and
Wadsworth is 399 Boylston Street, Boston, Massachusetts 02116. For all other
persons, the principal businesss address is 600 Fifth Avenue, New York, New York
10020.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH THE DISTRIBUTOR WITH THE REGISTRANT
---- --------------------- ---------------------
<S> <C> <C>
Peter S. Voss Director None
G. Neal Ryland Director None
Edward N. Wadsworth Executive Officer None
Richard E. Smith III Director None
Peter DeMarco Executive Vice President None
Steven W. Duff Director President and Director
Bernadette N. Finn Vice President Secretary
Lorraine C. Hysler Executive Vice President and
Secretary None
Richard De Sanctis Executive Vice President and
Treasurer Treasurer
Richard I. Weiner Vice President None
</TABLE>
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are maintained in the physical possession of Registrant at 600 Fifth Avenue, New
York, New York 10020, the Registrant's Manager; and at State Street Kansas City,
801 Pennsylvania, Kansas City, Missouri, 64105, the Registrant's custodian; and
at Reich & Tang Services, Inc., 600 Fifth Avenue, New York, New York 10020, the
Registrant's Transfer Agent and Dividend Disbursing Agent.
ITEM 29. MANAGEMENT SERVICES.
Not applicable
ITEM 30. UNDERTAKINGS.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
to its Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the 31st day of
January, 2000.
DAILY TAX FREE INCOME FUND, INC.
By: /s/ Steven W. Duff
Steven W. Duff
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
(1) Principal Executive Officer
/s/ Steven W. Duff
Steven W. Duff President and Director 1/31/00
(2) Principal Financial and
Accounting Officer
/s/ Richard De Sanctis
Richard De Sanctis Treasurer 1/31/00
(3) Majority of Directors
W. Giles Mellon (Director)
Robert Straniere (Director)
Dr. Yung Wong (Director)
By:
Bernadette N. Finn
Attorney-in-Fact* 1/31/00
* Power of Attorney filed with Post-Effective Amendment No. 29 to said
Registration Statement on December 3, 1999 and incorporated by reference herein.
ARTICLES OF INCORPORATION
OF
DAILY TAX FREE INCOME FUND, INC.
--------------------
FIRST: (1) The name of the incorporator is Joseph H. Reich.
(2) The incorporator's post office address is 100 Park Avenue,
New York, New York 10017.
(3) The incorporator is over eighteen years of age.
(4) The incorporator is forming the corporation named in these
Articles of Incorporation under the general laws of the
State of Maryland.
SECOND: The name of the corporation (hereinafter called the "Corporation")
is Daily Tax Free Income Fund, Inc.
THIRD: The purposes for which the Corporation is formed are:
(a) to conduct, operate and carry on the business of an
investment company;
(b) to subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer,
exchange, distribute or otherwise dispose of notes, bills,
bonds, debentures and other negotiable or non-negotiable
instruments, obligations and evidences of indebtedness
issued or guaranteed as to principal and interest by the
United States Government, or any agency or instrumentality
thereof, any State or local government, or any agency or
instrumentality thereof, or any other securities of any kind
issued by any corporation or other issuer organized under
the laws of the United States or any State, territory or
possession thereof or any foreign country or any subdivision
thereof or otherwise, to pay for the same in cash or by the
issue of stock, including treasury stock, bonds or notes of
the Corporation or otherwise, and to exercise any and all
rights, powers and privileges of ownership or interest in
respect of any and all such investments of every kind and
description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power
to designate one or more persons,
<PAGE>
firms, associations or corporations to exercise any of said
rights, powers and privileges in respect of any said
investments;
(c) to conduct research and investigations in respect of
securities, organizations, business and general business and
financial conditions in the United States of America and
elsewhere for the purpose of obtaining information pertinent
to the investment and employment of the assets of the
Corporation and to procure any or all of the foregoing to be
done by others as independent contractors, and to pay
compensation therefor;
(d) to borrow money or otherwise obtain credit and to secure the
same by mortgaging, pledging or otherwise subjecting as
security the assets of the Corporation, and to endorse,
guarantee or undertake the performance of any obligation,
contract or engagement of any other person, firm,
association or corporation;
(e) to issue, sell, distribute, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, dispose of,
transfer, and otherwise deal in, shares of stock of the
Corporation, including shares of stock of the
2
<PAGE>
Corporation in fractional denominations, and to apply to any
such repurchase, redemption, retirement, cancellation or
acquisition of shares of stock of the Corporation, any funds
or property of the Corporation, whether capital or surplus
or otherwise, to the full extent now or hereafter permitted
by the laws of the State of Maryland and by these Articles
of Incorporation;
(f) to conduct its business, promote its purposes, and carry on
its operations in any and all of its branches and maintain
offices both within and without the State of Maryland, in
any and all States of the United States of America, in the
District of Columbia, and in any or all commonwealths,
territories, dependencies, colonies, possessions, agencies,
or instrumentalities of the United States of America and of
foreign governments;
(g) to carry out all or any part of the foregoing purposes or
objects as principal or agent, or in conjunction with any
other person, firm, association, corporation or other
entity, or as a partner or member of a partnership,
syndicate or joint venture or otherwise, and in any part of
the world to the same extent and as fully as natural persons
might or could do;
(h) to have and exercise all of the powers and privileges
conferred by the laws of the State of Maryland upon
corporations formed under the laws of such State; and
(i) to do any and all such further acts and things and to
exercise any and all such further powers and privileges as
may be necessary, incidental, relative, conducive,
appropriate or desirable for the foregoing purposes.
The enumeration herein of the objects and purposes of the
Corporation shall be construed as powers as well as objects and purposes, and
shall not be deemed to exclude by inference any powers, objects or purposes
which the Corporation is empowered to exercise, whether expressly by force of
3
<PAGE>
the laws of the State of Maryland now or hereafter in effect, or impliedly by
the reasonable construction of the said laws.
FOURTH: The post office address of the principal office of the
Corporation within the State of Maryland is First Maryland Building, Floor
10A, Suite 1006, 25 South Charles Street, Baltimore, Maryland 21201 in care
of The Corporation Trust, Incorporated.
The resident agent of the Corporation in the State of Maryland is The
Corporation Trust, Incorporated, First Maryland Building, Floor 10A, Suite
1006, 25 South Charles Street, Baltimore, Maryland 21201.
FIFTH: (1) The total number of shares of stock of all classes which
the Corporation shall have authority to issue is twenty billion
(20,000,000,000), all of which stock shall have a par value of One Tenth of
One Cent ($.001) per share. The aggregate par value of all authorized
shares of stock of the Corporation is Twenty Million Dollars ($20,000,000).
(2) (a) The Board of Directors of the Corporation is authorized
to classify or to reclassify, from time to time, any unissued shares
of stock of the Corporation, whether now or hereafter authorized, by
setting, changing or eliminating the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, and
qualifications or terms and conditions of or rights to require
redemption of the stock and, pursuant to such classification or
reclassification, to increase or decrease the number of authorized
shares of any class, but the number of shares of any class shall not
be reduced by the Board of Directors below the number of shares
thereof then outstanding.
(b) Without limiting the generality of the foregoing, the
dividends and distributions of investment income and capital gains
with respect to the stock of the Corporation, and with respect to each
class that hereafter may be created, shall be in such amount as may be
declared from time to time by the
4
<PAGE>
Board of Directors, and such dividends and distributions may vary from
class to class to such extent and for such purposes as the Board of
Directors may deem appropriate, including, but not limited to, the
purpose of complying with requirements of regulatory or legislative
authorities.
(3) Until such time as the Board of Directors shall provide otherwise
in accordance with section (2) of this Article FIFTH, all of the authorized
shares of the Corporation are designated as Common Stock. Such shares and
the holders thereof shall be subject to the following provisions.
(a) As more fully set forth hereafter, the assets and liabilities
and the income and expenses of each class of the Corporation's stock
shall be determined separately and, accordingly, the net asset value,
the dividends payable to holders, and the amounts distributable in the
event of dissolution of the Corporation to holders, of shares of the
Corporation's stock may vary from class to class. Except for these
differences and certain other differences hereafter set forth, each
class of the Corporation's stock shall have the same preferences,
conversion and other rights, voting powers, restrictions, limitations
as to dividends, qualifications and terms and conditions of and rights
to require redemption.
(b) All consideration received by the Corporation for the issue
or sale of shares of a class of the Corporation's stock, together with
all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and
any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that
class for all purposes, subject only to the rights of creditors, and
shall be so recorded upon the
5
<PAGE>
books of account of the Corporation. Such consideration, income,
earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, and any funds
or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, are herein referred to as "assets
belonging to" that class.
(c) The assets belonging to a class of the Corporation's stock
shall be charged with the liabilities of the Corporation with respect
to that class and with that class' share of the liabilities of the
Corporation not attributable to any particular class, in the latter
case in the proportion that the net asset value of that class bears to
the net asset value of all classes of the Corporation's stock as
determined in accordance with Article NINTH of these Articles of
Incorporation. The determination of the Board of Directors shall be
conclusive as to the allocation of liabilities, including accrued
expenses and reserves, and assets to a particular class or classes.
(d) Each holder of stock of the Corporation, upon request to the
Corporation (accompanied by surrender of the appropriate stock
certificate or certificates in proper form for transfer, if any
certificates have been issued to represent such shares) shall be
entitled to require the Corporation to redeem, to the extent that the
Corporation may lawfully effect such redemption under the laws of the
State of Maryland, all or any part of the shares of stock standing in
the name of such holder on the books of the Corporation at a price per
share equal to the net asset value per share computed in accordance
with Article NINTH hereof.
(e)(i) The term "Minimum Amount" when used herein shall mean One
Thousand Dollars ($1,000) unless otherwise fixed by the Board of
Directors from time to time, provided that the Minimum Amount may not
6
<PAGE>
in any event exceed Twenty-Five Thousand Dollars ($25,000). The Board
of Directors may establish differing Minimum Amounts for each class of
the Corporation's stock and for categories of holders of shares of any
class of stock based on such criteria as the Board of Directors may
deem appropriate.
(ii) If the net asset value of the shares of a class of the
Corporation's stock held by a stockholder shall be less than the
Minimum Amount then in effect with respect to shares of that class, or
with respect to the category of holders, in which the stockholder is
included, of shares of that class, the Corporation may redeem all of
those shares, upon notice given to the holder in accordance with
paragraph (iv) of this subsection (e), to the extent that the
Corporation may lawfully effect such redemption under the laws of the
State of Maryland.
(iii) The Corporation shall be entitled but not required to
redeem shares of stock from any stockholder or stockholders, to the
extent and at such times as the Board of Directors shall, in its
absolute discretion, determine to be necessary or advisable to prevent
the Corporation from qualifying as a "personal holding company",
within the meaning of the Internal Revenue Code of 1954, as amended
from time to time. Notice shall be given in accordance with paragraph
(iv) of this subsection (e).
(iv) The notice referred to in paragraphs (ii) and (iii) of this
subsection (e) shall be in writing personally delivered, or deposited
in the mail, at least thirty days (or such other number of days as may
be specified from time to time by the Board of Directors) prior to
such redemption. If mailed, the notice shall be addressed to the
stockholder at his post office address as shown on the books of the
Corporation, and sent by certified or registered mail, postage
prepaid. The price for shares acquired by the Corporation pursuant to
this
7
<PAGE>
subsection (e) shall be an amount equal to the net asset value of such
shares, computed in accordance with Article NINTH hereof.
(f) Payment by the Corporation for shares of stock of the
Corporation surrendered to it for redemption shall be made by the
Corporation within seven business days of such surrender out of the
funds legally available therefor, provided that the Corporation may
suspend the right of the holders of stock of the Corporation to redeem
shares of stock and may postpone the right of such holders to receive
payment for any shares when permitted or required to do so by
applicable statutes or regulations. Payment of the aggregate price of
shares surrendered for redemption may be made in cash or, at the
option of the Corporation, wholly or partly in such portfolio
securities of the Corporation as the Corporation shall select.
(g) The right of any holder of stock of the Corporation redeemed
by the Corporation as provided in subsection (d) or (e) of this
section 3 to receive dividends thereon and all other rights of such
holder with respect to such shares shall terminate at the time as of
which the purchase or redemption price of such shares is determined,
except the right of such holder to receive (i) the redemption price of
such shares from the Corporation or its designated agent and (ii) any
dividend or distribution to which such holder has previously become
entitled as the record holder of such shares on the record date for
such dividend or distribution. If shares of stock are redeemed by the
Corporation pursuant to subsection (e) of this sec tion (3) and
certificates representing the redeemed shares have been issued, the
redemption price need not be paid by the Corporation until the
certificates have been received by the Corporation or its agent duly
endorsed for transfer.
8
<PAGE>
(h) The Corporation shall be entitled to purchase shares of its
stock, to the extent that the Corporation may lawfully effect such
purchase under the laws of the State of Maryland, upon such terms and
conditions and for such consideration as the Board of Directors shall
deem advisable, by agreement with the stockholder at a price not
exceeding the net asset value per share computed in accordance with
Article NINTH hereof.
(i) The net asset value of each share of a class of the
Corporation's stock issued and sold or redeemed or purchased at net
asset value shall be the net asset value per share of the shares of
that class determined in accordance with Article NINTH hereof based on
the assets belonging to that class less the liabilities charged to
that class.
(j) In the absence of any specification as to the purpose for
which shares of stock of the Corporation are redeemed or purchased by
it, all shares so redeemed or purchased shall be deemed to be retired
in the sense contemplated by the laws of the State of Maryland and the
number of the authorized shares of stock of the Corporation shall not
be reduced by the number of any shares redeemed or purchased by it.
(k) Shares of each class of stock shall be entitled to such
dividends or distributions, in stock or in cash or both, as may be
declared from time to time by the Board of Directors, acting in its
sole discretion, with respect to such class, provided that dividends
or distributions shall be paid on shares of a class of stock only out
of lawfully available assets belonging to that class.
(l) For the purpose of allowing the net asset value per share of
a class of the Corporation's stock to remain constant, the Corporation
shall be entitled to declare,
9
<PAGE>
pay and credit as dividends daily the net income (which may include or
give effect to realized and unrealized gains and losses, as determined
in accordance with the Corporation's accounting and portfolio
valuation policies) of the Corporation allocated to that class. If the
amount so determined for any day is negative, the Corporation shall be
entitled, without the payment of monetary compensation but in
consideration of the interest of the Corporation and its stockholders
in maintaining a constant net asset value per share of the class, to
redeem pro rata from all the stockholders of record of shares of the
class at the time of such redemption (in proportion to their
respective holdings thereof) such number of outstanding shares of the
class, or fractions thereof, as shall be required to permit the net
asset value per share of the class to remain constant.
(m) In the event of the liquidation or dissolution of the
Corporation, the stockholders of a class of the Corporation's stock
shall be entitled to receive, as a class, out of the assets of the
Corporation available for distribution to stockholders, the assets
belonging to that class. The assets so distributable to the
stockholders of a class shall be distributed among such stockholders
in proportion to the number of shares of that class held by them and
recorded on the books of the Corporation. In the event that there are
any assets available for distribution that are not attributable to any
particular class of stock, such assets shall be allocated to all
classes in proportion to the net asset value of the respective classes
and then distributed to the holders of stock of each class in
proportion to the net asset value of the shares of that class held by
the respective holders.
(n) On each matter submitted to a vote of the stockholders, each
holder of a share of stock shall be entitled to one vote for each such
share standing in his name on
10
<PAGE>
the books of the Corporation irrespective of the class thereof;
provided, however, that to the extent class voting is required by the
Investment Company Act of 1940 or regulations thereunder, as from time
to time amended, or the laws of the State of Maryland as to any such
matter, those requirements shall apply.
(o) The Corporation may issue shares of stock in fractional
denominations to the same extent as its whole shares, and shares in
fractional denominations shall be shares of stock having
proportionately to the respective fractions represented thereby all
the rights of whole shares, including without limitation, the right to
vote, the right to receive dividends and distributions, and the right
to participate upon liquidation of the Corporation, but excluding the
right to receive a stock certificate representing fractional shares.
(4) No holder of any shares of stock of the Corporation shall be entitled
as of right to subscribe for, purchase, or otherwise acquire any such shares
which the Corporation shall issue or propose to issue; and any and all of the
shares of stock of the Corporation, whether now or hereafter authorized, may be
issued, or may be reissued or transferred if the same have been reacquired and
have treasury status, by the Board of Directors to such persons, firms,
corporations and associations, and for such lawful consideration, and on such
terms, as the Board of Directors in its discretion may determine, without first
offering same, or any thereof, to any said holder.
(5) All persons who shall acquire stock or other securities of the
Corporation shall acquire the same subject to the provisions of these Articles
of Incorporation, as from time to time amended.
SIXTH: The number of directors of the Corporation, until such number shall
be increased pursuant to the By-Laws of the Corporation, shall be three. The
number of directors shall never be less than the number prescribed by the
General Corporation Law of the State of Maryland and shall never be more than
twenty. The names of the persons who shall act as directors of the Corporation
until the first annual meeting or until their successors are duly chosen and
qualify are Joseph H. Reich, Oscar L. Tang and H. Garrett Thornburg, Jr.
SEVENTH: The following provisions are inserted for the purpose of defining,
limiting and regulating the powers of the Corporation and of the Board of
Directors and stockholders.
(a) The business and affairs of the Corporation shall be managed
under the direction of the Board of Directors which shall have and may
exercise all powers of the Corporation except those powers which are
by law, by these Articles of Incorporation or by the By-Laws conferred
upon or reserved to the stockholders. In furtherance and not in
limitation of the powers conferred by law, the Board of Directors
shall have power:
(i) to make, alter and repeal by-laws of the Corporation;
(ii) to issue, and sell, from time to time, shares of any class
of the Corporation's stock in such amounts and on such terms and
conditions, and for such amount and kind of consideration, as the
Board of Directors shall determine, provided that the consideration
per share to be received by the Corporation shall be not less than the
greater of the net asset value per share of that class of stock at
such time computed in accordance with Article NINTH hereof or the par
value thereof;
(iii) from time to time to set apart out of any assets of the
Corporation otherwise available for dividends a reserve or reserves
for working capital or for any other proper purpose or purposes, and
to reduce, abolish or add to any such reserve or reserves from time to
time as said Board of Directors may deem to be in the best interests
of the Corporation; and to determine in its discretion what
12
<PAGE>
part of the assets of the Corporation available for dividends in
excess of such reserve or reserves shall be declared in dividends and
paid to the stockholders of the Corporation; and
(iv) from time to time to determine to what extent and at what
times and places and under what conditions and regulations the
accounts, books and records of the Corporation, or any of them, shall
be open to the inspection of the stockholders; and no stockholder
shall have any right to inspect any account or book or document of the
Corporation, except as conferred by the laws of the State of Maryland,
unless and until authorized to do so by resolution of the Board of
Directors or of the stockholders of the Corporation.
(b) Notwithstanding any provision of the General Corporation Law
of the State of Maryland requiring a greater proportion than a
majority of the votes of all classes or of any class of the
Corporation's stock entitled to be cast in order to take or authorize
any action, any such action may be taken or authorized upon the
concurrence of a majority of the aggregate number of votes entitled to
be cast thereon subject to any applicable requirements of the
Investment Company Act of 1940, as from time to time in effect, or
rules or orders of the Securities and Exchange Commission or any
successor thereto.
(c) Except as may otherwise be expressly provided by applicable
statutes or regulatory requirements, the presence in person or by
proxy of the holders of one-third of the shares of stock of the
Corporation entitled to vote shall constitute a quorum at any meeting
of the stockholders.
13
<PAGE>
(d) Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted
accounting principles by or pursuant to the direction of the Board of
Directors, as to the amount of the assets, debts, obligations, or
liabilities of the Corporation, as to the amount of any reserves or
charges set up and the propriety thereof, as to the time of or purpose
for creating such reserves or charges, as to the use, alteration or
cancellation of any reserves or charges (whether or not any debt,
obligation or liability for which such reserves or charges shall have
been created shall have been paid or discharged or shall be then or
thereafter required to be paid or discharged), as to the value of or
the method of valuing any investment owned or held by the Corporation,
as to the market value or fair value of any investment or fair value
of any other asset of the Corporation, as to the allocation of any
asset of the Corporation to a particular class or classes of the
Corporation's stock, as to the charging of any liability of the
Corporation to a particular class or classes of the Corporation's
stock, as to the number of shares of the Corporation outstanding, as
to the estimated expense to the Corporation in connection with
purchases of its shares, as to the ability to liquidate investments in
orderly fashion, or as to any other matters relating to the issue,
sale, purchase or other acquisition or disposition of investments or
shares of the Corporation, shall be final and conclusive and shall be
binding upon the Corporation and all holders of its shares, past,
present and future, and shares of the Corporation are issued and sold
on the condition and understanding that any and all such
determinations shall be binding as aforesaid.
(e) Except to the extent prohibited by the Investment Company Act
of 1940, as amended, or rules, regulations or orders thereunder
promulgated by the Securities and Exchange Commission or any
14
<PAGE>
successor thereto or by the By-Laws of the Corporation, a director,
officer or employee of the Corporation shall not be disqualified by
his position from dealing or contracting with the Corporation, nor
shall any transaction or contract of the Corporation be void or
voidable by reason of the fact that any director, officer or employee
or any firm of which any director, officer or employee is a member or
any corporation of which any director, officer or employee is a
stockholder, officer or director, is in any way interested in such
transaction or contract; provided that in case a director, or a firm
or corporation of which a director is a member, stockholder, officer
or director, is so interested, such fact shall be disclosed to or
shall have been known by the Board of Directors or a majority thereof;
and any director of the Corporation who is so interested, or who is a
member, stockholder, officer or director of such firm or corporation,
may be counted in determining the existence of a quorum at any meeting
of the Board of Directors of the Corporation which shall authorize any
such transaction or contract, with like force and effect as if he were
not such director, or member, stockholder, officer or director of such
firm or corporation.
(f) Specifically and without limitation of subsection (e) of this
Article SEVENTH but subject to the exception therein prescribed, the
Corporation may enter into management or advisory, underwriting,
distribution and administration contracts and other contracts, and may
otherwise do business, with Reich & Tang, Inc., and any parent,
subsidiary or affiliate of such firm or any affiliate of any such
affiliate, or the stockholders, directors, officers and employees
thereof, and may deal freely with one another notwithstanding that the
Board of Directors of the Corporation may be composed in part of
directors, officers or employees of such firm and/or its parents,
subsidiaries or affiliates and that officers
15
<PAGE>
of the Corporation may have been, be or become directors, officers, or
employees of such firm and/or its parents, subsidiaries or affiliates,
and neither such management or advisory, underwriting, distribution or
administration contracts nor any other contract or transaction between
the Corporation and such firm and/or its parents, subsidiaries or
affiliates shall be invalidated or in any way affected thereby, nor
shall any director or officer of the Corporation be liable to the
Corporation or to any stockholder or creditor thereof or to any person
for any loss incurred by it or him under or by reason of such contract
or transaction; provided that nothing herein shall protect any
director or officer of the Corporation against any liability to the
Corporation or to its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his
office; and provided always that such contractor or transaction shall
have been on terms that were not unfair to the corporation at the time
at which it was entered into.
EIGHTH: To the maximum extent permitted by the General Corporation Law of
the State of Maryland as from time to time amended, the Corporation shall
indemnify its currently acting and its former directors and officers and those
persons who, at the request of the Corporation, serve or have served another
corporation, partnership, joint venture, trust or other enterprise in one or
more of such capacities.
NINTH: For the purposes of the computation of net asset value referred to
in these Articles of Incorporation, the following rules shall apply:
(a) The net asset value of each share of a class of the
Corporation's stock issued or sold at its net asset value shall
be the net asset value per share of that class next determined,
as provided in subsection (d) of this Article NINTH, following
acceptance by the Corporation of
16
<PAGE>
the purchase order, subscription or other agreement with respect
to the issue or sale of such share.
(b) The net asset value of each share of a class of the
Corporation's stock redeemed by the Corporation at the request of
its holder shall be the net asset value per share of that class
next determined, as provided in subsection (d) of this Article
NINTH, following the time the Corporation receives a request for
redemption of such share in good order with all appropriate
documentation, including stock certificates, if any, duly
endorsed for transfer.
(c) The net asset value of each share of a class of the
Corporation's stock purchased or redeemed by it otherwise than
upon request for redemption by the holder of the share shall be
(i) the net asset value per share of that class of the
Corporation's stock next determined, as provided in section (d)
of this Article NINTH, following the Corporation's determination
or agreement to purchase or redeem such share, the expiration of
any notice period and fulfillment of any other conditions
precedent to such purchase or redemption, or (ii) such lower
price per share as may be specified in the agreement, if any,
with the stockholder for the purchase or redemption of his
shares.
(d) The net asset value of a share of a class of the
Corporation's stock as at the time of a particular determination
shall be the quotient obtained by dividing the value at such time
of the net assets of that
17
<PAGE>
class (i.e., the value of the assets belonging to that class less
the liabilities charged to that class exclusive of capital stock
and surplus) by the total number of shares of that class
outstanding at such time, all determined and computed as provided
in the Corporation's By-Laws or by or pursuant to the direction
of the Board of Directors.
(e) The Corporation shall determine the net asset value per
share of a class of its stock on such days and at such times as
may be determined by the Board of Directors subject to any
applicable rules and regulations of the Securities and Exchange
Commission or any successor thereto.
(f) The Corporation may suspend the determination of the net
asset value of a class of its stock during any period when it may
suspend the right of the holders of shares of that class to
require the Corporation to redeem their shares.
TENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation or in any amendment
hereto in the manner now or hereafter prescribed by the laws of the State of
Maryland, and all rights conferred upon stockholders herein are granted subject
to this reservation.
IN WITNESS WHEREOF, the undersigned, being the incorporator of the
Corporation, has adopted and signed these Articles of Incorporation for the
purpose of forming the corporation described herein pursuant to the General
Corporation Law of the State of Maryland and does hereby acknowledge that said
adoption and signing are his act.
/S/Joseph H. Reich
Joseph H. Reich
Dated: July 22, 1982
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ARTICLES OF AMENDMENT
OF
DAILY TAX FREE INCOME FUND, INC.
Daily Tax Free Income Fund, Inc., a Maryland Corporation having its
principal office in the State of Maryland in the City of Baltimore (hereinafter
called the "Corporation"), the total number of shares of stock of all classes
and series which the Corporation presently has authority to issue is
20,000,000,000 shares of capital stock (par value $.001 per share), amounting in
aggregate par value to $20,000,000, certifies to the Department of Assessments
and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended
by striking out Article FIFTH and inserting in lieu thereof the
following:
FIFTH: (a) The total number of shares of stock of all classes
and series which the Corporation has authority to issue is
20,000,000,000 shares of capital stock (par value $.001 per
share), amounting in aggregate par value to $20,000,000.
All of such shares are classified as "Common Stock". The
Board of Directors may classify or reclassify any unissued
shares of capital stock (whether or not such shares have
been previously classified or reclassified) from time to
time by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications,
or terms or conditions of redemption of such shares of
stock.
(b) Unless otherwise prohibited by law, so long as the
Corporation is registered as an open-end company under the Investment
Company Act, the Board of Directors shall have the power and authority,
without the approval of the holders of any outstanding shares, to
increase or decrease the number of shares of capital stock or the
number of shares of capital stock of any class or series that the
Corporation has authority to issue.
(c) Any series of Common Stock shall be referred to herein
individually as a "Series" and collectively, together with any further
series from time to time established, as the "Series".
(d) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption
of the shares of any additional Series of Common Stock of the
Corporation (unless provided otherwise by the Board of Directors with
respect to any such additional Series at the time it is established and
designated):
(1) Asset Belonging to Series. All consideration
received by the Corporation from the issue or sale of
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shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all
income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of
such assets, and any funds or payments derived from any
investment or reinvestment of such proceeds in whatever form
the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors, and
shall be so recorded upon the books of account of the
Corporation. Such consideration, assets, income, earnings,
profits and proceeds, together with any General Items
allocated to that Series as provided in the following
sentence, are herein referred to collectively as "assets
belonging to" that Series. In the event that there are any
assets, income, earnings, profits or proceeds which are not
readily identifiable as belonging to any particular Series
(collectively, "General Items"), such General Items shall be
allocated by or under the supervision of the Board of
Directors to and among any one or more of the Series
established and designated from time to time in such manner
and on such basis as the Board of Directors, in its sole
discretion, deems fair and equitable; and any General Items so
allocated to a particular Series shall belong to that Series.
Each such allocation by the Board of Directors shall be
conclusive and binding for all purposes.
(2) Liabilities of Series. The assets belonging to
each particular Series shall be charged with the liabilities
of the Corporation in respect of that Series and all expenses,
costs, charges and reserves attributable to that Series, and
any general liabilities, expenses, costs, charges or reserves
of the Corporation which are not readily identifiable as
pertaining to any particular Series, shall be allocated and
charged by or under the supervision of the Board of Directors
to and among any one or more of the Series established and
designated from time to time in such manner and on such basis
as the Board of Directors, in its sole discretion, deems fair
and equitable. The liabilities, expenses, costs, charges and
reserves allocated and so charged to a Series are herein
referred to collectively as "liabilities of" that Series. Each
allocation of liabilities, expenses, costs, charges and
reserves by or under the supervision of the Board of Directors
shall be conclusive and binding for all purposes.
(3) Dividends and Distributions. Dividends and
capital gains distributions on shares of a particular
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Series may be paid with such frequency, in such form and in
such amount as the Board of Directors may determine by
resolution adopted from time to time, or pursuant to a
standing resolution or resolutions adopted only once or with
such frequency as the Board of Directors may determine, after
providing for actual and accrued liabilities of that Series.
All dividends on shares of a particular Series shall be paid
only out of the income belonging to that Series and all
capital gains distributions on shares of a particular Series
shall be paid only out of the capital gains belonging to that
Series. All dividends and distributions on shares of a
particular Series shall be distributed pro rata to the holders
of that Series in proportion to the number of shares of that
Series held by such holders at the date and time of record
established for the payment of such dividends or
distributions, except that in connection with any dividend or
distribution program or procedure, the Board of Directors may
determine that no dividend or distribution shall be payable on
shares as to which the stockholder's purchase order and/or
payment have not been received by the time or times
established by the Board of Directors under such program or
procedure.
Dividends and distributions may be paid in cash,
property or additional shares of the same or another Series,
or a combination thereof, as determined by the Board of
Directors or pursuant to any program that the Board of
Directors may have in effect at the time for the election by
stockholders of the form in which dividends or distributions
are to be paid. Any such dividend or distribution paid in
shares shall be paid at the current net asset value thereof.
(4) Voting. On each matter submitted to a vote of the
stockholders, each holder of shares shall be entitled to one
vote for each share standing in his name on the books of the
Corporation, irrespective of the Series thereof, and all
shares of all Series shall vote as a single class ("Single
Class Voting"); provided, however, that (i) as to any matter
with respect to which a separate vote of any Series is
required by the Investment Company Act or by the Maryland
General Corporation Law, such requirement as to a separate
vote by that Series shall apply in lieu of Single Class
Voting; (ii) in the event that the separate vote requirement
referred to in clause (i) above applies with respect to one or
more Series, then, subject to clause (iii) below, the shares
of all other Series shall vote as a single class; and (iii) as
to any matter which does not affect the interest of a
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particular Series, including liquidation of another Series as
described in subsection (7) below, only the holders of shares
of the one or more affected Series shall be entitled to vote.
(5) Redemption by Stockholders. Each holder of shares
of a particular Series shall have the right at such times as
may be permitted by the Corporation to require the Corporation
to redeem all or any part of his shares of that Series, at a
redemption price per share equal to the net asset value per
share of that Series next determined after the shares are
properly tendered for redemption, less such redemption fee or
sales charge, if any, as may be established from time to time
by the Board of Directors in its sole discretion. Payment of
the redemption price shall be in cash; provided, however, that
if the Board of Directors determines, which determination
shall be conclusive, that conditions exist which make payment
wholly in cash unwise or undesirable, the Corporation may, to
the extent and in the manner permitted by the Investment
Company Act, make payment wholly or partly in securities or
other assets belonging to the Series of which the shares being
redeemed are a part, at the value of such securities or assets
used in such determination of net asset value.
Payment by the Corporation for shares of stock of the
Corporation surrendered to it for redemption shall be made by
the Corporation within such period from surrender as may be
required under the Investment Company Act and the rules and
regulations thereunder. Notwithstanding the foregoing, the
Corporation may postpone payment of the redemption price and
may suspend the right of the holders of shares of any Series
to require the Corporation to redeem shares of that Series
during any period or at any time when and to the extent
permissible under the Investment Company Act.
(6) Redemption by Corporation. The Board of Directors
may cause the Corporation to redeem at their net asset value
the shares of any Series held in an account having, because of
redemptions or exchanges, a net asset value on the date of the
notice of redemption less than the Minimum Amount, as defined
below, in that Series specified by the Board of Directors from
time to time in its sole discretion, provided that at least 30
days prior written notice of the proposed redemption has been
given to the holder of any such account by first class mail,
postage prepaid, at the address contained in the books and
records of the Corporation
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<PAGE>
and such holder has been given an opportunity to purchase the
required value of additional shares.
(i) the term "Minimum Amount" when used herein shall
mean One Thousand Dollars ($1,000) unless otherwise fixed by
the Board of Directors from time to time, provided that the
Minimum Amount may not in any event exceed Twenty-Five
Thousand Dollars ($25,000). The Board of Directors may
establish differing Minimum Amounts for each class and series
of the Corporation's stock and for holders of shares of each
such class and series of stock based on such criteria as the
Board of Directors may deem appropriate.
(ii) the Corporation shall be entitled but not
required to redeem shares of stock from any stockholder or
stockholders, as provided in this subsection (6), to the
extent and at such times as the Board of Directors shall, in
its absolute discretion, determine to be necessary or
advisable to prevent the Corporation from qualifying as a
"personal holding company", within the meaning of the Internal
Revenue Code of 1986, as amended from time to time.
(7) Liquidation. In the event of the liquidation of a
particular Series, the stockholders of the Series that is
being liquidated shall be entitled to receive, as a class,
when and as declared by the Board of Directors, the excess of
the assets belonging to that Series over the liabilities of
that Series. The holders of shares of any particular Series
shall not be entitled thereby to any distribution upon
liquidation of any other Series. The assets so distributable
to the stockholders of any particular Series shall be
distributed among such stockholders in proportion to the
number of shares of that Series held by them and recorded on
the books of the Corporation. The liquidation of any
particular Series in which there are shares then outstanding
may be authorized by vote of a majority of the Board of
Directors then in office, subject to the approval of a
majority of the outstanding voting securities of that Series,
as defined in the Investment Company Act, and without the vote
of the holders of shares of any other Series. The liquidation
of a particular Series may be accomplished, in whole or in
part, by the transfer of assets of such Series to another
Series or by the exchange of shares of Series for the shares
of another Series.
(8) Net Asset Value Per Share. The net asset
value per share of any Series shall be the quotient
obtained by dividing the value of the net assets of
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<PAGE>
that Series (being the value of the assets belonging to that
Series less the liabilities of that Series) by the total
number of shares of that Series outstanding, all as determined
by or under the direction of the Board of Directors in
accordance with generally accepted accounting principles and
the Investment Company Act. Subject to the applicable
provisions of the Investment Company Act, the Board of
Directors, in its sole discretion, may prescribe and shall set
forth in the By-Laws of the Corporation or in a duly adopted
resolution of the Board of Directors such bases and times for
determining the value of the assets belonging to, and the net
asset value per share of outstanding shares of, each Series,
or the net income attributable to such shares, as the Board of
Directors deems necessary or desirable. The Board of Directors
shall have full discretion, to the extent not inconsistent
with the Maryland General Corporation Law and the Investment
Company Act, to determine which item shall be treated as
income and which items as capital and whether any item of
expense shall be charged to income or capital. Each such
determination and allocation shall be conclusive and binding
for all purposes.
The Board of Directors may determine to maintain the
net asset value per share of any Series at a designated
constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the Investment Company Act
for the continuing declaration of income attributable to that
Series as dividends and for the handling of any losses
attributable to that Series. Such procedures may provide that
in the event of any loss, each stockholder shall be deemed to
have contributed to the capital of the Corporation
attributable to that Series his pro rata portion of the total
number of shares required to be canceled in order to permit
the net asset value per share of that Series to be maintained,
after reflecting such loss, at the designated constant dollar
amount. Each stockholder of the Corporation shall be deemed to
have agreed, by his investment in any Series with respect to
which the Board of Directors shall have adopted any such
procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
(9) Equality. All shares of each particular Series
shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities of that
Series), and each share of any particular Series shall be
equal to each other share of that Series. The Board of
Directors may from time to
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<PAGE>
time divide or combine the shares of any particular Series
into a greater or lesser number of shares of that Series
without thereby changing the proportionate interest in the
assets belonging to that Series or in any way affecting the
rights of holders of shares of any other Series.
(10) Conversion or Exchange Rights. Subject to
compliance with the requirements of the Investment Company
Act, the Board of Directors shall have the authority to
provide that holders of shares of any Series shall have the
right to convert or exchange said shares into shares of one or
more other Series of shares in accordance with such
requirements and procedures as may be established by the Board
of Directors.
(e) The Board of Directors may, from time to time and without
stockholder action, classify shares of a particular Series into one or
more additional classes of that Series, the voting, dividend,
liquidation and other rights of which shall differ from the classes of
common stock of that Series to the extent provided in Articles
Supplementary for such additional class, such Articles to be filed for
record with the appropriate authorities of the State of Maryland. Each
class so created shall consist, until further changed, of the lesser of
(x) the number of shares classified in Section (c) of this Article
FIFTH or (y) the number of shares that could be issued by issuing all
of the shares of that Series currently or hereafter classified less the
total number of shares of all classes of such Series then issued and
outstanding. Any class of a Series of Common Stock shall be referred to
herein individually as a "Class" and collectively, together with any
further class or classes of such Series from time to time established,
as the "Classes".
(f) All Classes of a particular Series of Common Stock of the
Corporation shall represent the same interest in the Corporation and
have identical voting, dividend, liquidation and other rights with any
other shares of Common Stock of that Series; provided, however, that
notwithstanding anything in the charter of the Corporation to the
contrary:
(1) Any class of shares may be subject to such sales
loads, contingent deferred sales charges, Rule 12b-1 fees,
administrative fees, service fees, or other fees, however
designated, in such amounts as may be established by the Board
of Directors from time to time in accordance with the
Investment Company Act.
(2) Expenses related solely to a particular Class
of a Series (including, without limitation,
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<PAGE>
distribution expenses under a Rule 12b-1 plan and
administrative expenses under an administration or service
agreement, plan or other arrangement, however designated)
shall be borne by that Class and shall be appropriately
reflected (in the manner determined by the Board of Directors)
in the net asset value, dividends, distributions and
liquidation rights of the shares of that Class.
(3) As to any matter with respect to which a separate
vote of any Class of a Series is required by the Investment
Company Act or by the Maryland General Corporation Law
(including, without limitation, approval of any plan,
agreement or other arrangement referred to in subsection (2)
above), such requirement as to a separate vote by that Class
shall apply in lieu of Single Class Voting, and if permitted
by the Investment Company Act or the Maryland General
Corporation Law, the Classes of more than one Series shall
vote together as a single class on any such matter which shall
have the same effect on each such Class. As to any matter
which does not affect the interest of a particular Class of a
Series, only the holders of shares of the affected Classes of
that Series shall be entitled to vote.
(g) The Corporation may issue and sell fractions of
shares of capital stock having pro rata all the rights of full
shares, including, without limitation, the right to vote and
to receive dividends, and wherever the words "share" or
"shares" are used in the charter or By-Laws of the
Corporation, they shall be deemed to include fractions of
shares where the context does not clearly indicate that only
full shares are intended.
(h) The Corporation shall not be obligated to issue
certificates representing shares of any Class or Series of
capital stock. At the time of issue or transfer of shares
without certificates, the Corporation shall provide the
stockholder with such information as may be required under the
Maryland General Corporation Law.
(i) No holder of any shares of stock of the
Corporation shall be entitled as of right to subscribe for,
purchase, or otherwise acquire any such shares which the
Corporation shall issue or propose to issue; and any and all
of the shares of stock of the Corporation, whether now or
hereafter authorized, may be issued, or may be reissued or
transferred if the same have been reacquired and have treasury
status, by
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<PAGE>
the Board of Directors to such persons, firms, corporations
and associations, and for such lawful consideration, and on
such terms, as Board of Directors in its discretion may
determine, without first offering same, or any thereof, to any
said holder.
(j) All persons who shall acquire stock or other
securities of the Corporation shall acquire the same subject
to the provisions of these Articles of Incorporation, as from
time to time amended.
The charter of the Corporation, Article SEVENTH subsection (a)(ii) is
hereby amended by striking out the first two lines and inserting in lieu thereof
the following:
"(ii) to issue and sell, from time to time, of any
class or series of"
The charter of the Corporation, Article SEVENTH subsection (a)(ii) is
hereby amended by changing the reference in line nine from Article NINTH to
Article FIFTH.
The charter of the Corporation is hereby amended by striking out
Article EIGHTH and inserting in lieu thereof the following:
EIGHTH: (1) The Corporation shall indemnify (i) its currently acting and former
directors and officers, whether serving the Corporation or at its
request any other entity, to the fullest extent required or permitted
by the General Laws of the State of Maryland now or hereafter in force,
including the advance of expenses under the procedures and to the
fullest extent permitted by law, and (ii) other employees and agents to
such extent as shall be authorized by the Board of Directors or the
By-Laws and as permitted by law. Nothing contained herein shall be
construed to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the
conduct of his office. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking
indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions
and is expressly empowered to adopt, approve and amend from time to
time such by-laws, resolutions or contracts implementing such
provisions or such indemnification arrangements as may be permitted by
law. No amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the right of indemnification
provided hereunder with respect to
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<PAGE>
acts or omissions occurring prior to such amendment or
repeal.
(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company
Act, no director or officer of the Corporation shall be personally
liable to the Corporation or its stockholders for money damages;
provided, however, that nothing herein shall be construed to protect
any director or officer of the Corporation against any liability to the
Corporation or its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of his
office. No amendment of the charter of the Corporation or repeal of any
of its provisions shall limit or eliminate the limitation of liability
provided to directors and officers hereunder with respect to any act or
omission occurring prior to such amendment or repeal.
The charter of the Corporation is hereby amended by striking out
Article NINTH.
SECOND: The amendment of the charter of the Corporation as
herein set forth has been duly advised by the Board of Directors
and approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, Daily Tax Free Income Fund, Inc. has caused these
presents to be signed in its name and on its behalf by its President or one of
its Vice Presidents and attested by its Secretary or one of its Assistant
Secretaries, on December , 1992.
DAILY TAX FREE INCOME FUND, INC.
By:
William Berkowitz
President
Attest:
Dana E. Messina
Vice President
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<PAGE>
THE UNDERSIGNED, President of DAILY TAX FREE INCOME FUND, INC., who
executed on behalf of said corporation, the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information, and in all material respects, under the penalties of
perjury.
DAILY TAX FREE INCOME FUND, INC.
By:
William Berkowitz
President
ARTICLES SUPPLEMENTARY
OF
DAILY TAX FREE INCOME FUND, INC.
Daily Tax Free Income Fund, Inc., a Maryland corporation having its
principal office in the State of Maryland in the City of Baltimore (hereinafter
called the "Corporation" or the "Fund"), certifies to the Department of
Assessments and Taxation of Maryland that:
(1) The following is a description of the stock, including the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, as set and
changed by the board of directors:
The Corporation's stock is subdivided into three classes of stock, Class A,
Class B and the Thornburg Class. 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 as set forth in the Corporation's Articles of Incorporation,
as amended, except that (i) the Class A, Class B and Thornburg Class shares
will have different designations; (ii) only the Class A and Thornburg Class
shares will be assessed a service fee pursuant to the Rule 12b-1
Distribution and Service Plan applicable to the Class A and Class B shares
and the Rule 12b-1 Distribution and Service Plan applicable to the
Thornburg Class of shares, respectively (the "12b-1 Plans") of the Fund
equal to 0.25% of the Fund's average daily net assets; (iii) only the
holders of the Class A and Thornburg Class shares would be entitled to vote
on matters pertaining to the 12b-1 Plans and any related agreements in
accordance with provisions of Rule 12b-1 of the Investment Company Act of
1940; and (iv) the exchange privilege will permit stockholders to exchange
their shares only for shares of the same class of designated funds listed
in an exchange fund.
The Class A and Thornburg Class shares will bear the service fee under the
12b-1 Plans. As a result, the net income of an the dividends payable to the
Class A and Thornburg Class shares will be lower than the net income of and
dividends payable to the Class B shares of the Fund. Dividends paid to each
Class of shares of the Fund will, however, be declared and paid on the same
days at the same times and, except as noted with respect to the service
fees payable under the 12b-1 Plans, will be determined in the same manner
and paid in the same amounts.
(2) The Corporation's stock has been reclassified by the Corporation's
board of directors under the authority contained in Article Fifth of the
Corporation's Articles of Incorporation, as amended.
<PAGE>
IN WITNESS WHEREOF, Daily Tax Free Income Fund, Inc. has caused these
presents to be signed in its name and on its behalf by its President or one of
its Vice Presidents and attested by its Secretary or one of its Assistant
Secretaries, on January 19, 2000.
DAILY TAX FREE INCOME FUND, INC.
By: /s/ Steven W. Duff
Steven W. Duff
President
Attest:
/s/ Bernadette N. Finn
Bernadette N. Finn
Secretary
<PAGE>
THE UNDERSIGNED, President of DAILY TAX FREE INCOME FUND, INC., who
executed on behalf of said corporation, the foregoing Articles Supplementary, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles Supplementary to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information, and in all material respects, under the penalties of
perjury.
DAILY TAX FREE INCOME FUND, INC.
By: /s/ Steven W. Duff
Steven W. Duff
President
BY-LAWS
OF
DAILY TAX FREE INCOME FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The
Corporation shall have a principal office in the City of
Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may
have offices also at such other places within and without the
State of Maryland as the Board of Directors nay from time to
time determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stock-
holders shall be held at such place, either within the State
of Maryland or at such other place within the United States,
as shall be fixed from time to time by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of
stockholders shall be held on a date fixed from time to time
by the Board of Directors not less than ninety nor more than
one hundred and twenty flays following the end o each ii-scal
year of the Corporation, for the election of directors and
<PAGE>
the transaction of any other business within the powers of
the Corporation.
Section 3. Notice of Annual Meeting. Written or
printed notice of the annual meeting, stating the place, date
and hour thereof, shall be given to each stockholder entitled
to vote thereat not less than ten nor more than ninety days
before the date of the meeting.
Section 4. Special Meetings. Special meetings of
stockholders may be called by the chairman, the president or
by the Board of Directors and shall be called by the secretary
upon the written request of holders of shares entitled to cast
not less than twenty-five per cent of all the votes entitled
to be cast at such meeting. Such request shall state the
purpose or purposes of such meeting and the matters proposed
to be acted on thereat. In the case of such request for a
special meeting, upon payment by such stockholders to the
Corporation of the estimated reasonable cost of preparing and
mailing a notice of such meeting, the secretary shall give
the notice of such meeting. The secretary shall not be
required to call a special meeting to consider any matter
which is substantially the same as a matter acted upon at
any special meeting of stockholders held within the preceding
twelve months unless requested to do so by holders of shares
entitled to cast not less than a majority of all votes
entitled to be cast at such meeting.
2
<PAGE>
Section 5. Notice of Special Meeting. Written or
printed notice of a special meeting of stockholders, stating
the place, date, hour and purpose thereof, shall be given by
the secretary to each stockholder entitled to vote thereat
not less than ten nor more than ninety days before the date
fixed for the meeting.
Section 6. Business of Special Meetings. Business
transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice thereof.
Section 7. Quorum. Except as may otherwise be
expressly provided by applicable statutes or regulations,
the holders of one-third of the stock issued and outstanding
and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business.
Section 8. Voting. When a quorum is present at
any meeting, the affirmative vote of a majority of the votes
cast shall decide any question brought before such meeting,
unless the question is one upon which by express provision of
the Investment Company Act of 1940, as from time to time in
effect, or other statutes or rules or orders of the Securities
and Exchange Commission or any successor thereto or of the
Articles of incorporation a different vote is required, in
which case such express provision shall govern and control
the decision of such question.
3
<PAGE>
Section 9. Proxies. Each stockholder shall at
every meeting of stockholders be entitled to one vote in
person or by proxy for each share of the stock having
voting power held by such stockholder, but no proxy shall be
voted after eleven months from its date, unless otherwise
provided in the proxy.
Section 10. Record Date. In order that the
Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any
adjournment thereof, to express consent to corporate action
in writing without a meeting, or to receive payment of any
dividend or other distribution or allotment of any rights,
or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in
advance, a record date which shall be not more than ninety
days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particu-
lar action requiring such determination of stockholders is
to be taken. In lieu of fixing a record date, the Board
of Directors may provide that the stock transfer books
shall be closed for a stated period, but not to exceed, in
any case, twenty days. If the stock transfer books are
4
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closed for the purpose of determining stockholders entitled
to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least ten days immediately
preceding such meeting. If no record date is fixed and
the stock transfer books are not closed for the determina-
tion of stockholders: (1) The record date for the deter-
mination of stockholders entitled to notice of, or to vote
at, a meeting of stockholders shall be at the close of
business on the day on which notice of the meeting of
stockholders is mailed or the day thirty days before the
meeting, whichever is the closer date to the meeting; and
(2) The record date for the determination of stockholders
entitled to receive .payment of a dividend or an allotment
of any rights shall be at the close of business on the day
on which the resolution of the Board of Directors, declaring
the dividend or allotment of rights, is adopted, provided
that the payment or allotment date shall not be more than
ninety days after the date of the adoption of such resolu-
tion.
Section 11. Inspectors of Election. The directors,
in advance of any meeting, may, but need not, appoint one or
more inspectors to act at the meeting or any adjournment
thereof. If an inspector or inspectors are not appointed,
5
<PAGE>
the person presiding at the meeting may, but need not,
appoint one or more inspectors. In case any person who may
be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector, if any, before entering
upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his
ability. The inspectors, if any, shall determine the number
of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence- of a quorum,
the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count
and tabulate all votes, ballots or consents, determine-the
result, and do such acts as are proper to conduct the election
or vote with fairness to all stockholders. On request of the
person presiding at the meeting or any stockholder, the
inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by
him or them and execute a certificate of any fact found by
him or them.
6
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Section 12. Informal Action by Stockholders.
Except to the extent prohibited by the Investment Company Act
of 1940, as from time to time in effect, or rules or orders
of the Securities and Exchange Commission or any successor
thereto, any action required or permitted to be taken at any
meeting of stockholders may be taken without a meeting if a
consent in writing, setting forth such action, is signed by
all the stockholders entitled to vote on the subject matter
thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived
in writing any rights which they may have to dissent from
such action, and such consent and waiver are filed with the
records of the Corporation.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of
directors shall be fixed at no less than three nor more than
twenty. Within the limits specified above, the number of
directors shall be fixed from time to time by the Board, but
the tenure of office of a director in office at the time of
any decrease in the number of directors shall not be affected
as a result thereof. The directors shall be elected to hold
office at the annual meeting of stockholders, except as
provided in Section 2 of this Article, and each director shall
7
<PAGE>
hold office until the next annual meeting of stockholders or
until his successor is elected and qualifies. Any director
may resign at any time upon written notice to the Corporation.
Any director may be removed, either with or without cause, at
any meeting of stockholders duly called and at which a quorum
is present by the affirmative vote of the majority of the
votes entitled to be cast thereon, and the vacancy in the Board
of Directors caused by such removal may be filled by the stock-
holders at the time of such removal. Directors need not be
stockholders.
Section 2. Vacancies and Newly-Created Directorships.
Any vacancy occurring in the Board of Directors for any cause,
including an increase in the number of directors, may be filled
by the stockholders or by a majority of the remaining members
of the Board of Directors even if such majority is less than
a quorum. So long as the Corporation is a registered invest-
ment company under the Investment Company Act of 1940, vacancies
in the Board of Directors may be filled by a majority of the
remaining members of the Board of Directors only if, immediately
after filling any such vacancy, at least two-thirds of the
directors then holding office shall have been elected to such
office at a meeting of stockholders. A director elected by the
Board of Directors to fill a vancancy shall be elected to hold
office until the next annual meeting of stockholders or until
his successor is elected and qualifies.
8
<PAGE>
Section 3. Powers. The business and affairs of
the Corporation shall be managed under the direction of the
Board of Directors which shall exercise all such powers of
the Corporation and do all such lawful acts and things as
are not by statute or by the Articles of Incorporation or by
these By-Laws conferred upon or reserved to the stockholders.
Section 4. Annual Meeting. The first meeting of
each newly elected Board of Directors shall be held imme-
diately following the adjournment of the annual meeting of
stockholders and at the place thereof. No notice of such
meeting to the directors shall be necessary in order legally
to constitute the meeting, provided a quorum shall be present.
In the event such meeting is not so held, the meeting may be -
held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the
Board of Directors.
Section 5. Other Meetings. The Board of Directors
of the Corporation or any committee thereof may hold meetings,
both regular and special, either within or without the State
of Maryland. Regular meetings of the Board of Directors may
be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by
the chairman, the president or by two or more directors.
9
<PAGE>
Notice of special meetings of the Board of Directors shall
be given by the secretary to each director at least three
days before the meeting if by mail or at least 24 hours before
the meeting if given in person or by telephone or by telegraph
The notice need not specify the business to be transacted,
Section 6. Quorum and Voting. At meetings of the
Board of Directors, two of the directors in office at the
time, but in no event less than one-third of the entire Board
of Directors, shall constitute a quorum for the transaction
of business. The action of a majority of the directors
present at a meeting at which a quorum is present shall be
the action of the Board of Directors. If a quorum shall not
be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 7. Committees. The Board of Directors
may, by resolution passed by a majority of the entire Board
of Directors, appoint from among its members an executive
committee and other committees of the Board of Directors,
each committee to be composed of two or more of the directors
of the Corporation. The Board of Directors may, to the extent
provided in the resolution, delegate to such committees, in
the intervals between meetings of the Board of Directors, any
10
<PAGE>
or all of the powers of the Board of Directors in the manage-
ment of the business and affairs of the Corporation, except
the power to declare dividends, to issue stock, to recommend
to stockholders any action requiring stockholders' approval,
to amend the by-laws or to approve any merger or share exchange
which does not require stockholders' approval. Such committee
or committees shall have the name or names as may be deter-
mined from time to time by resolution adopted by the Board of
Directors. Unless the Board of Directors designates one or
more directors as alternate members of any committee, who
may replace an absent or disqualified member at any meeting
of the committee, the members of any such committee present
at any meeting and not disqualified from voting may, whether
or not they constitute a quorum, unanimously appoint another
member of the Board of Directors to act at the meeting in
the place of any absent or disqualified member of such
committee. At meetings of any such committee, a majority
of the members or alternate members of such committee shall
constitute a quorum for the transaction of business and the
act of a majority of the members or alternate members
present at any meeting at which a quorum is present shall
be the act of the committee.
Section 8. Minutes of Committee Meetings. The
committees shall keep regular minutes of their proceedings.
Section 9. Informal Action by Board of Directors
and Committees. Any action required or permitted to be taken
11
<PAGE>
at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if a written consent
thereto is signed by all members of the Board of Directors
or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board
of Directors or committee.
Section 10. Meetings by Conference Telephone. The
members of the Board of Directors or any committee thereof may
participate in a meeting of the Board of Directors or cohimittee
by means of a conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other at the same time and such parti-
cipation shall constitute presence in person at such meeting.
Section 11. Fees and Expenses. The directors may
be paid their expenses of attendance at each meeting of the
Board of Directors and may be paid a fixed sum for attendance
at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director
from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or
standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and
stockholders mailed to them at their post office addresses
12
<PAGE>
appearing on the books of the Corporation shall be deemed to
be given at the time when deposited in the United States mail.
Section 2. Waiver of Notice. Whenever any notice
is required to be given under the provisions of the statutes,
of the Articles of Incorporation or of these By-Laws, a
waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time
stated therein, shall be deemed the equivalent of notice.
Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting except when the person
attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any busi-
ness because the meeting is not lawfully called or convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corpora-
tion shall be chosen by the Board of Directors at its first
meeting after each annual meeting of stockholders and shall
be a chairman of the Board of Directors, a president, a
secretary and a treasurer. The Board of Directors may choose
also such vice presidents and additional officers or assistant
officers as it may deem advisable. Any number of offices,
except the offices of president and vice president, may be
held by the same person. No officer shall execute, acknow-
ledge or verify any instrument in more than one capacity if
13
<PAGE>
such instrument is required by law to be executed, acknow-
ledged or verified by two or more officers.
Section 2. Other Officers and Agents. The Board
of Directors may appoint such other officers and agents as
it desires who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of
the Corporation shall hold office at the pleasure of the
Board of Directors. Each officer shall hold his office until
his successor is elected and qualifies or until his earlier
resignation or removal. Any officer may resign at any time
upon written notice to the Corporation. Any officer elected
or appointed by the Board of Directors may be removed at any
time by the Board of Directors when, in its Judgment, the
best interests of the Corporation will be served thereby.
Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise shall be filled by
the Board of Directors.
Section 4. Chairman of the Board of Directors.
The chairman of the Board of Directors shall be the chief
executive officer of the Corporation, shall preside at all
meetings of the stockholders and of the Board of Directors,
shall have general and active management of the business of
the Corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect. He shall
14
<PAGE>
execute on behalf of the Corporation, and may affix the seal
or cause the seal to be affixed to, all instruments requiring
such execution except to the extent that signing and execution
thereof shall be expressly delegated by the Board of Directors
to some other officer or agent of the Corporation.
Section 5. President. The president shall, in the
absence of the chairman of the Board of Directors, preside at
all meetings of the stockholders or of the Board of Directors.
He shall be ex officio a member of all committees designated
by the Board of Directors, shall have general and active
management of the business of the Corporation and shall see
that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the Corpora
tion, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors
to some other officer or agent of the Corporation.
Section 6. Vice Presidents. The vice presidents
shall act under the direction of the president and in the
absence or disability of the president shall perform the duties
and exercise the powers of the president. They shall perform
such other duties and have such other powers as the president
or the Board of Directors may from time to time prescribe. The
Board of Directors may designate one or more executive vice
presidents or may otherwise specify the order of seniority of
15
<PAGE>
the vice presidents and, in that event, the duties and powers
of the president shall descend to the vice presidents in the
specified order of seniority.
Section 7. Secretary. The secretary shall act
under the direction of the president. Subject to the
direction of the president he shall attend all meetings of
the Board of Directors and all meetings of stockholders and
record the proceedings in a book to be kept for that purpose
and shall perform like duties for the committees designated
by the Board of Directors when required. He shall give, or
cause to be given, notice of all meetings of stockholders
and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the pre-
sident or the Board of Directors. He shall keep in safe
custody the seal of the Corporation and shall affix the seal
or cause it to be affixed to any instrument requiring it.
Section 8. Assistant Secretaries. The assistant
secretaries in the order of their seniority, unless otherwise
determined by the president or the Board of Directors, shall,
in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary. They shall
perform such other duties and have such other powers as the
president or the Board of Directors may from time to time
prescribe.
Section 9. Treasurer. The treasurer shall act
under the direction of the president. Subject to the direc-
tion of the president he shall have the custody of the
16
<PAGE>
corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by
the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the president or the Board
of Directors, taking proper vouchers for such disbursements,
and shall render to the president and the Board of Directors,
at its regular meetings, or when the Board of Directors so
requires, an account of all his transactions as treasurer
and of the financial condition of the Corporation.
Section 10. Assistant Treasurers. The assistant
treasurers in the order of their seniority, unless otherwise
determined by the president or the Board of Directors, shall,
in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer. They shall
perform such other duties and have such other powers as the
president or the Board of Directors may from time to time
prescribe.
ARTICLE VI
Certificates of Stock
Section I. General. Every holder of stock of
the Corporation who has made full payment of the consider-
ation for such stock shall be entitled upon request to have
17
<PAGE>
a certificate, signed by, or in the name of the Corporation
by, the president or a vice president and countersigned by
the treasurer or an assistant treasurer or the secretary or
an assistant secretary of the Corporation, certifying the
number and class of whole shares, of stock owned by him in
the Corporation.
Section 2. Fractional Share Interests or Scrip.
The Corporation may, but shall not be obliged to, issue
fractions of a share of stock, arrange for the disposition
of fractional interests by those entitled thereto, pay in
cash the fair value of fractions of a share of stock as of
the time when those entitled to receive such fractions are
determined, or issue scrip or other evidence of ownership
which shall entitle the holder to receive a certificate for a
full share of stock upon the surrender of such scrip or other
evidence of ownership aggregating a full share. Fractional
shares of stock shall have proportionately to the respective
fractions represented thereby all the rights of whole shares,
including the right to vote, the right to receive dividends
and distributions and the right to participate upon liquida-
tion of the Corporation, excluding, however, the right to
receive a stock certificate representing such fractional
shares. The Board of Directors may cause such scrip or
evidence of ownership to be issued subject to the condition
that it shall become void if not exchanged for certificates
18
<PAGE>
representing full shares of stock before a specified date or
subject to the condition that the shares of stock for which
such scrip or evidence of ownership is exchangeable may be
sold by the Corporation and the proceeds thereof distributed
to the holders of such scrip or evidence of ownership, or
subject to any other reasonable conditions which the Board
of Directors shall deem advisable, including provision for
forfeiture of such proceeds to the Corporation if not
claimed within a period of not less than three years after
the date of the original issuance of scrip certificates.
Section 3. Signatures on Certificates. Any of
or all the signatures on a certificate may be a facsimile.
In case any officer who has signed or whose facsimile sig-
nature has been placed upon a certificate shall cea'se to
be. such officer before such certificate is issued, it may
be issued with the same effect as if he were such officer
at the date of issue. The seal of the Corporation or a
facsimile thereof may, but need not, be affixed to certi-
ficates of stock.
Section 4. Lost, Stolen or Destroyed Certificates.
The Board of Directors may direct a new certificate or certi-
ficates to be issued in place of any certificate or certifi-
cates theretofore issued by the Corporation alleged to have
been lost, stolen or destroyed, upon the making of any affi-
davit of that fact by the person claiming the certificate
19
<PAGE>
or certificates to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certifi-
cates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate
or certificates, or his legal representative, to give the
corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation
with respect to the certificate or certificates alleged to
have been lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by
the registered owner of shares, and if a certificate has been
issued to represent such shares upon surrender to the Corpo-
ration or a transfer agent of the Corporation of a certifi-
cate for shares of stock duly endorsed or accompanied by
proper evidence of succession, assignment or authority to
transfer, subject to the Corporation's rights to redeem or
purchase such shares, it shall be the duty of the Corporation,
if it is satisfied that all provisions of the Articles of
incorporation, of the By-Laws and of the law regarding the
transfer of shares have been duly complied with, to record
the transaction upon its books, issue a new certificate to
the person entitled thereto upon request for such certificate,
and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation
shall be entitled to recognize the person registered on its
20
<PAGE>
books as the owner of shares to be the exclusive owner for
all purposes including redemption, voting and dividends, and
the Corporation shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the
part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided
by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section I. Reserves. There may be set aside out
of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in
their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for repairing or main-
taining any property of the Corporation, or for the purchase
of additional property, or for such other purpose as the
Board of Directors shall think conducive to the interest
of the Corporation, and the Board of Directors may modify
or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock
of the Corporation may, subject to the provisions of the
Articles of Incorporation and of the provisions of appli-
cable law, be declared by the Board of Directors at any
time. Dividends may be paid in cash, in property or in
21
<PAGE>
shares of the Corporation's stock, subject to the provi-
sions of the Articles of Incorporation and of applicable
law.
Section 3. Capital Gains Distributions. The
amount and number of capital gains distributions paid to
the stockholders during each fiscal year shall be determined
by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment,
to the extent required by law.
Section 4. Checks. All checks or demands for money
and notes of the Corporation shall be signed by such officer
or officers or such other person or persons as the Board of
Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board of
Directors.
Section 6. Seal. The corporate seal shall
have inscribed thereon the name of the Corporation, the
year of its organization and the words "Corporate Seal,
Maryland". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in another manner
reproduced.
Section 7. Filing of By-Laws. A certified copy
of the By-Laws, including all amendments, shall be kept at
22
<PAGE>
the principal office of the Corporation in the State of
Maryland.
Section 8. Annual Report. The books of account of
the Corporation shall be examined by an independent firm of
public accountants at the close of each annual fiscal period
of the Corporation and at such other times, if any, as may
be directed by the Board of Directors of the Corporation.
Within one hundred and twenty days of the close of each
annual fiscal period a report based upon such examination
at the close of that fiscal period shall be mailed to each
stockholder of the Corporation of record at the close of such
annual fiscal period, unless the Board of Directors shall set
another record date, at his address as the same appears on
the-books of the Corporation. Each such report shall contain
such information as is required to be set forth therein by
the Investment Company Act of 1940 and the rules and regula-
tions promulgated by the Securities and Exchange Commission
thereunder. Such report shall also be submitted at the annual
meeting of the stockholders and filed within twenty days
thereafter at the principal office of the Corporation in the
State of Maryland.
Section 9. Stock Ledger. The Corporation shall
maintain at its principal office outside of the State of
Maryland an original or duplicate stock ledger containing
23
<PAGE>
the names and addresses of all stockholders and the number of
shares of stock held by each stockholder. Such stock ledger
may be in written form or in any other form capable of being
converted into written form within a reasonable time for
visual inspection.
Section 10. Ratification of Accountants by Stock-
holders. At every annual meeting of the stockholders of the
Corporation there shall be submitted for ratification or re-
jection the name of the firm of independent public accountants
which has been selected for the current fiscal year in which
such annual meeting is held by a majority of those members
of the Board of Directors who are not investment advisers of,
or interested persons (as defined in the Investment Company
Act of 1940) of, an investment adviser of, or officers or
employees of, the Corporation.
Section 11. Custodian. All securities and
similar investments owned by the Corporation shall be held
by a custodian which shall be either a trust company or a
national bank of good standing, having a capital surplus
and undivided profits aggregating not less than two million
dollars ($2,000,000), or a member firm of the New York Stock
Exchange, Inc. The terms of custody of such securities and
cash shall include such provisions required to be contained
therein by the Investment Company Act of 1940 and the rules
24
<PAGE>
and regulations promulgated thereunder by the Securities and
Exchange Commission.
Upon the resignation or inability to serve of any
such custodian the Corporation shall (a) use its best efforts
to obtain a successor custodian, (b) require the cash and
securities of the Corporation held by the custodian to be
delivered directly to the successor custodian, and (c) in
the event that no successor custodian can be found, submit
to the stockholders of the Corporation, before permitting
delivery of such cash and securities to anyone other than a
successor custodian, the question whether the Corporation
shall be dissolved or shall function without a custodian;
provided, however, that nothing herein contained shall pre-
vent the termination of any agreement between the Corporation
and any such custodian by the affirmative vote of the holders
of a majority of all the stock of the Corporation at the time
outstanding and entitled to vote. Upon its resignation or
inability to serve and pending action by the Corporation as
set forth in this section, the custodian may deliver any
assets of the Corporation held by it to a qualified bank
or trust company in the City of New York, or to a member firm
of the New York Stock Exchange, Inc. selected by it, such
assets to be held subject to the terms of custody which
governed such retiring custodian.
25
<PAGE>
Section 12. investment Advisers. The Corporation
may enter into one or more management or advisory, under-
writing, distribution or administration contracts with any
person, firm, partnership, association or corporation but
such contract or contracts shall continue in effect only so
long as such continuance is specifically approved annually
by a majority of the Board of Directors or by vote of the
holders of a majority of the voting securities of the Corpo-
ration, and in either case by vote of a majority of the
directors who are not parties to such contracts or interested
persons (as defined in the Investment Company Act of 1940)
of any such party cast in person at a meeting called for the
purpose of voting on such approval.
ARTICLE IX
Amendments
The Board of Directors shall have the power, by a
majority vote of the entire Board of Directors at any meeting
thereof, to make, alter and repeal by-laws of the Corporation.
26
[GRAPHIC OMITTED]
Incorporated under the Laws of the State of Maryland
DAILY TAX FREE INCOME FUND, INC.
CUSIP 233820109
THIS CERTIFIES THAT [ SPECIMEN ] IS THE OWNER OF [ ]
FULLY PAID AND NON-ASSESABLE SHARES OF COMMON STOCK, PAR VALUE $.001 PER
SHARE, OF DAILY TAX FREE INCOME FUND, INC. (HEREIN THE "CORPORATION")
TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY ATTORNEY DULY
AUTHORIZED IN WRITING UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THE
HOLDER HEREOF BY ACCEPTING THIS CERTIFICATE EXPRESSLY ASSENTS TO AND IS BOUND BY
THE ARTICLES OF INCORPORATION, AS AMENDED, AND BY THE BY-LAWS, AS AMENDED, OF
THE CORPORATION, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE PRINICPAL
OFFICE OF THE CORPORATION IN THE STATE OF MARYLAND.
THE SHARES REPRESENTED BY THIS CERTIFICATE WILL BE REDEEMED BY THE
CORPORATION UPON REQUEST OF THE STOCKHOLDER AS PROVIDED IN THE ARTICLES OF
INCORPORATION OF THE CORPORATION. IN ADDITION, THE ARTICLES OF INCORPORATION
PROVIDE THAT THE CORPORATION, AT ITS OPTION, MAY REDEEM SHARES OF ITS STOCK
UNDER CERTAIN OTHER CIRCUMSTANCES. THE CORPORATION IS AUTHORIZED TO ISSUE TWO
CLASSES OF STOCK, MONEY MARKET PORTFOLIO COMMON STOCK AND U.S. GOVERNMENT
PORTFOLIO COMMON STOCK. A FULL STATEMENT OF THE DESIGNATION AND ANY PREFERENCES,
CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO
DIVIDENDS, QUALIFICATIONS AND TERMS AND CONDITI9ONS OF REDEMPTION OF THE STOCK
OF EACH CLASS MAY BE OBTAINED FROM THE CORPORATION BY ANY STOCKHOLDER UPON
REQUEST AND WITHOUT CHARGE.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED [ ]
Daily Tax Free Income Fund, Inc.
Corporate
Seal
1982
Maryland
/s/ Bernadette N. Finn /s/ H. Garrett Thornburg, Jr.
Secretary President
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
UNIF GIFT MIN ACT - __________________Custodian_________, under Uniform Gifts
to Minors Act_________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value REceived, _______hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]_________________________________________________
_____________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint_____________________________Attorney to transfer the said Shares on the
books of the within named Corporation with full power of substitution in the
premises.
Dated________________19__________
In presence of
____________________________________________________________________
NOTICE: THE SIGNATURE OF THIS ASSIGMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
BATTLE, FOWLER, JAFFIN & KHEEL
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
280 PARK AVENUE
NEW YORK, N.Y. 10017
(212) 949-8300
WRITER'S DIRECT DIAL NUMBER
CABLE ADDRESS
"COUNSELLOR"
TELEX 127053
TELECOPIER
(212) 896-5135
November 3, 1982
Daily Tax Free Income Fund, Inc.
100 Park Avenue
New York, New York 10017
Gentlemen:
We have acted as counsel to Daily Tax Free Income Fund, Inc., (the "Fund"),
in connection with the preparation of Registration Statement No. 2-78513 on Form
N-1 and all amendments thereto (the "Registration Statement") covering shares of
Common Stock, par value $.001 per share, of the Fund.
We have examined copies of the Certificate of Incorporation and By-Laws of
the Fund, the Registration Statement, and such other corporate records,
proceedings and documents, including the consent of the Board of Directors and
the minutes of the meeting of the Board of Directors of the Fund, as we have
deemed necessary for the purpose of this opinion. We have also examined such
other documents, papers, statutes and authorities as we deemed necessary to form
a basis for the opinion hereinafter expressed. In our examination of such
material, we have assumed the genuineness of all signatures and the conformity
to original documents of all copies submitted to us. As to various questions of
fact material to such opinion, we have relied upon statements and certificates
of officers and representatives of the Fund and others.
Based upon the foregoing, we are of the opinion that the shares of Common
Stock, par value $.001 per share, of the Fund, to be issued in accordance with
the terms of the offering, as set forth in the Prospectus and Statement of
Additional Information included as part of the Registration Statement, and in
accordance with applicable state securities laws, when so issued and paid for,
will constitute validly authorized and legally issued shares of Common Stock,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Propsectus included in
the Registration Statement under the heading "Federal Income Taxes" and "Counsel
and Auditors".
Very truly yours,
/s/ Battle Fowler
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated December 3, 1999, relating to the
financial statements and financial highlights which appears in the October 31,
1999 Annual Report to Shareholders of Daily Tax Free Income Fund, Inc. which is
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the headings "Financial Highlights", "Financial
Statements" and "Counsel and Independent Accountants" in such Registration
Statement.
PricewaterhouseCoopers LLP
New York, New York
January 24, 2000
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated December 4, 1998, on the
financial statements referred to therein, in Post-Effective Amendment No. 30 to
the Registration Statement on Form N-1A, File No. 2-78513, of Daily Tax Free
Income Fund, Inc. as filed with the Securities and Exchange Commission.
McGladrey & Pullen, LLP
New York, New York
January 24, 2000
November 1, 1982
Daily Tax Free Income Fund, Inc.
100 Park Avenue
New York, New York 10017
Ladies and Gentleman:
We hereby agree to provide you with an initial capital contribution of
$100,000 by purchasing 100,000 shares of your common stock par value $.001 per
share, at a subscription price of $1.00 per share. Our payment is confirmed.
We hereby represent that we are purchasing such shares for investment and
not with a view to reselling or otherwise distributing them.
Very truly yours,
REICH & TANG, INC.
By: /s/ Bernadette N. Finn
Accepted By:
Daily Tax Free Income Fund, Inc.
By: William Berkowitz
