Registration No. 2-89264
Rule 497(b)
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Evergreen Shares of
Connecticut Daily Tax Free Income Fund, Inc.
Florida Daily Municipal Income Fund
New Jersey Daily Municipal Income Fund, Inc.
New York Daily Tax Free Income Fund, Inc.
North Carolina Daily Municipal Income Fund, Inc.
(collectively the "Funds" and individually the "Fund")
P.O. Box 9021, Boston MA 02205-9827
(800) 807-2940
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SUPPLEMENT DATED OCTOBER 12, 1995
Reich & Tang Asset Management L.P., the Fund's investment advisor, is a
wholly-owned subsidiary of New England Investment Companies, L.P. ("NEIC"). New
England Mutual Life Insurance Company ("The New England") owns NEIC's sole
general partner and a majority of the limited partnership interest in NEIC. The
New England and Metropolitan Life Insurance Company ("MetLife") have entered
into an agreement to merge, with MetLife to be the survivor of the merger. The
merger is conditioned upon, among other things, approval by the policyholders of
The New England and MetLife and receipt of certain regulatory approvals. The
merger is not expected to occur until after December 31, 1995.
The merger of The New England into MetLife will constitute an "assignment" of
the existing investment advisory agreement relating to the Fund. Under the
Investment Company Act of 1940, such an "assignment" will result in the
automatic termination of the investment advisory agreement, effective at the
time of the merger. Prior to the merger, shareholders of record of the Fund will
be asked to approve a new investment advisory agreement, intended to take effect
at the time of the merger. The new agreement will be substantially similar to
the existing agreement. A proxy statement describing the new agreement will be
sent to shareholders of the Fund prior to their being asked to vote on the new
agreement.
<PAGE>
Registration No. 2-89264
Rule 497(b)
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EVERGREEN SHARES OF
NEW YORK DAILY TAX FREE
INCOME FUND, INC. [GRAPHIC OMITTED]
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PROSPECTUS
January 19, 1996
New York Daily Tax Free Income Fund, Inc. (the "Fund") is designed to be a money
market fund for investors who desire interest income exempt from regular
Federal, and to the extent possible, New York State and New York City income
taxes and preservation of capital, liquidity and stability of principal by
investing in a professionally managed, non-diversified portfolio of high
quality, short-term municipal obligations. No assurance can be given that these
objectives will be achieved. Only Evergreen shares are offered by this
Prospectus.
This Prospectus sets forth concisely the information about the Fund that
prospective investors will find helpful in making their investment decisions.
Additional information about the Fund has been filed with the Securities and
Exchange Commission and is available upon request and without charge by calling
the Fund at (800) 807-2940. The "Statement of Additional Information" bears the
same date as this Prospectus and is incorporated by reference into this
Prospectus in its entirety.
Investors should be aware that the Evergreen shares may not be purchased other
than through certain securities dealers with whom Evergreen Funds Distributor,
Inc. ("EFD") has entered into agreements for this purpose or directly from EFD.
Evergreen shares have been created for the primary purpose of providing a New
York tax-free money market fund product for shareholders of certain funds
distributed by EFD. Shares of the Fund other than Evergreen shares are offered
pursuant to a separate Prospectus.
Reich & Tang Asset Management L.P. acts as the investment manager of the Fund
and Reich & Tang Distributors L.P. acts as distributor of the Fund's shares.
Reich & Tang Asset Management L.P. is a registered investment adviser. Reich &
Tang Distributors L.P. is a registered broker-dealer and member of the National
Association of Securities Dealers, Inc.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND INTENDS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE ALTHOUGH THERE CAN BE NO ASSURANCE THAT THIS VALUE WILL BE MAINTAINED.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THIS PROSPECTUS SHOULD BE READ AND RETAINED BY INVESTORS FOR FUTURE REFERENCE.
________________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
TABLE OF FEES AND EXPENSES 3
SELECTED FINANCIAL INFORMATION 3
INTRODUCTION 4
MANAGEMENT OF THE FUND 4
DESCRIPTION OF COMMON STOCK 5
INVESTMENT OBJECTIVES,
POLICIES AND RISKS 6
DIVIDENDS AND DISTRIBUTIONS 8
HOW TO PURCHASE AND REDEEM SHARES 8
How to Buy Shares 8
How to Redeem Shares 9
SHAREHOLDER SERVICES 10
Effect of Banking Laws 11
DISTRIBUTION AND SERVICE PLAN 12
FEDERAL INCOME TAXES 12
GENERAL INFORMATION 13
NET ASSET VALUE 14
CUSTODIAN AND TRANSFER AGENT 14
2
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<TABLE>
<CAPTION>
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TABLE OF FEES AND EXPENSES
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Annual Fund Operating Expenses
(as a percentage of average net assets)
<S> <C>
Management Fees .30%
12b-1 Fees .20%
Other Expenses .37%
Administrative Services Fee .21%
____
Total Fund Operating Expenses .87%
</TABLE>
Example 1 year 3 years 5 years 10 years You would pay the following expenses on
a $1,000 investment, assuming 5% annual return (cumulative through the end of
each year): $9 $28 $48 $107 The purpose of the above table is to assist an
investor in understanding the various costs and expenses that an investor in the
Fund will bear directly or indirectly. For a further discussion of these fees
see "Management of the Fund" and "Distribution and Service Plan" herein.
THE FIQURES REFLECTED IN THIS EXAMPLE SHOULD NOT BE CONSIDERED AS A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN ABOVE.
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SELECTED FINANCIAL INFORMATION
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The following selected financial information of New York Daily Tax Free Income
Fund, Inc. has been audited by McGladrey & Pullen, LLP, Independent Certified
Public Accountants, whose report thereon appears in the Statement of Additional
Information.
<TABLE>
<CAPTION>
Year Ended April 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period
$1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Income from investment operations:
Net investment income.......... 0.027 0.018 0.023 0.037 0.048 0.053 0.047 0.040 0.036 0.046
Less distributions:
Dividends from net investment income
0.027 0.018 0.023 0.037 0.048 0.053 0.047 0.040 0.036 0.046
------ ------ ------ ------ ------ ------ ------ ------ -----
Net asset value, end of year... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ======= ======= ===== ====== ======= ======= ======= ====== ======
Total Return.................. 2.74% 1.84% 2.28% 3.73% 4.92% 5.48% 4.86% 4.01% 3.63% 4.67%
Ratios/Supplemental Data
Net assets, end of period (000's omitted)
$254,422 $218,348 $210,486 $202,291 $191,622 $211,662 $181,060 $226,115 $215,703 $121,856
Ratios to average net assets:
Expenses................... 0.87% 0.89% 0.89% 0.87% 0.82%+ .77%+ .80%+ .79%+ .82%+ .73%+
Net investment income...... 2.71% 1.82% 2.25% 3.63% 4.82%+ 5.32%+ 4.73%+ 3.96%+ 3.61%+ 4.51%+
+ Net of management and shareholder servicing fees waived equivalent to
.07%, .10%, .02%, .02%, .02% and .28% of average net assets.
</TABLE>
3
<PAGE>
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INTRODUCTION
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New York Daily Tax Free Income Fund, Inc. (the "Fund") is a no-load,
non-diversified, open-end, management investment company that seeks to provide
its investors with a liquid money market portfolio from which the interest
income is, under current law, exempt from regular Federal, and to the extent
possible, New York State and New York City personal income taxes, preservation
of capital, liquidity and stability of principal by investing principally in
short-term, high quality debt obligations of the State of New York and its
political subdivisions and of Puerto Rico or other U.S. territories, and their
political subdivisions, the interest on which is exempt from regular Federal
income tax under section 103 of the Internal Revenue Code (the "Code") and
cannot be taxed by any state under Federal law as described under "Investment
Objectives, Policies and Risks" herein. The Fund also will invest in municipal
securities of issuers located in states other than New York, the interest income
on which will be exempt from regular Federal income tax, but will be subject to
New York State and New York City personal income tax for New York residents.
Although the Fund does not intend to do so, it reserves the right to invest up
to 20% of the value of its net assets in taxable obligations. This is a summary
of the Fund's fundamental investment policies which are set forth in full under
"Investment Objectives, Policies and Risks" herein and in the Statement of
Additional Information and may not be changed without approval of a majority of
the Fund's outstanding shares. No assurance can be given that these objectives
will be achieved.
The Fund's investment manager is Reich & Tang Asset Management L.P..
(the "Manager") which is a registered investment adviser and which currently
acts as manager or administrator to eighteen other open-end management
investment companies. The Fund's shares are distributed through Reich & Tang
Distributors L.P. (the "Distributor"), and the Fund has entered into a
Distribution Agreement and a Shareholder Servicing Agreement pursuant to the
Fund's distribution and service plan adopted under Rule 12b-1 under the
Investment Company Act of 1940, as amended, (the "1940 Act"). (See "Distribution
and Service Plan".)
The Fund intends that its investment portfolio will be concentrated in
New York Municipal Obligations and bank participation certificates therein. A
summary of recent financial and credit developments and special risk factors
affecting New York State and New York City is set forth under "Special Factors
Affecting New York" in the Statement of Additional Information. Investment in
the Fund should be made with an understanding of the risks which an investment
in New York Municipal Obligations may entail. Payment of interest and
preservation of capital are dependent upon the continuing ability of New York
issuers and/or obligors of state, municipal and public authority debt
obligations to meet their obligations hereunder. Investors should consider the
greater risk of the Fund's concentration versus the safety that comes with a
less concentrated portfolio and should compare yields available on portfolios of
New York issues with those of more diversified portfolios including out-of-state
issues before making an investment decision. The Fund's Board of Directors is
authorized to divide the unissued shares into separate series of stock, one for
each of the Fund's separate investment portfolios that may be created in the
future.
Evergreen shares are identical to other shares of the Fund, which are
offered pursuant to a separate prospectus, with respect to investment objectives
and yield, but differ with respect to certain other matters. See "How to
Purchase and Redeem Shares" and "Shareholder Services."
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MANAGEMENT OF THE FUND
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The Fund's Board of Directors which is responsible for the overall
management and supervision of the Fund, has employed Reich & Tang Asset
Management L.P. (the "Manager") to serve as investment manager of the Fund. The
Manager provides persons satisfactory to the Fund's Board of Directors to serve
as officers of the Fund. Such officers, as well as certain other employees and
directors of the Fund, may be directors or officers of Reich & Tang Asset
Management, Inc., the sole general partner of the Manager, or employees of the
Manager or its affiliates. Due to the services performed by the Manager, the
Fund currently has no employees and its officers are not required to devote
full-time to the affairs of the Fund. The Statement of Additional Information
contains general background information regarding each Director and principal
officer of the Fund.
The Manager is a Delaware limited partnership with its principal
offices at 600 Fifth Avenue, New York, New York 10020. The Manager was at June
30, 1995 investment manager, adviser or supervisor with respect to assets
aggregating in excess of $7.5 billion. The Manager acts as manager or
administrator of eighteen other investment companies and also advises pension
trusts, profit-sharing trusts and endowments.
4
<PAGE>
Effective October 1, 1994, the Board of Directors of the Fund approved
the re-execution of the Investment Management Contract and Administrative
Services Contract with the Manager. The Manager's predecessor, New England
Investment Companies, L.P. ("NEICLP") is the limited partner and owner of a
99.5% interest in the newly created limited partnership, Reich & Tang Asset
Management L.P., the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and owner of the
remaining .5% interest of the Manager. Reich & Tang Asset Management L.P. has
succeeded NEICLP as the Manager of the Fund. The re-execution of the Investment
Management Contract did not result in "assignment" of the Investment Management
Contract with NEICLP under the 1940 Act, since there is no change in actual
control or management of the Manager caused by the re-execution.
New England Investment Companies, Inc. ("NEIC"), a Massachusetts
corporation, serves as the sole general partner of NEICLP. New England Mutual
Life Insurance Company ("The New England") wholly owns NEIC and approximately
67.3%, of the total partnership units outstanding of NEICLP, and Reich & Tang,
Inc. owns approximately 22.6% of the outstanding partnership units of NEICLP. In
addition, NEIC is a wholly-owned subsidiary of The New England, which may be
deemed a "controlling person" of the Manager.
NEIC is a holding company offering a broad array of investment styles
across a wide range of asset categories through eight investment
advisory/management affiliates and three distribution subsidiaries. These
include Loomis, Sayles & Company, L.P.; Copley Real Estate Advisors, Inc.; Back
Bay Advisors, L.P.; Marlborough Capital Advisors, L.P.; Westpeak Investment
Advisors, L.P.; Draycott Partners, Ltd.; TNE Investment Services, L.P.; New
England Investment Associates, Inc.; and an affiliate, Capital Growth Management
Limited Partnership. These affiliates in the aggregate are investment advisors
or managers to 57 other registered investment companies.
The re-executed Investment Management Contract contains the same terms
and conditions governing the Manager's investment management responsibilities as
the Fund's previous Investment Management Contract with NEICLP except for (i)
the dates of execution and termination and (ii) the identity of the Manager.
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 Manager receives
from the Fund a fee equal to .30% per annum of the Fund's average daily net
assets for managing the Fund's investment portfolio and performing related
services. In addition to its fees under the Investment Management Contract,
Reich & Tang Distributors L.P., the Distributor, receives a service fee equal to
.20% per annum of the Fund's average daily net assets under the Shareholder
Servicing Agreement. The fees are accrued daily and paid monthly. Any portion of
the total fees received by the Manager and the Distributor may be used to
provide shareholder and administrative services and for distribution of Fund
shares. (See "Distribution and Service Plan" herein.)
Pursuant to the Administrative Services Contract for the Fund, the
Manager performs clerical, accounting supervision and office service functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of bookkeeping and related services by Investors Fiduciary Trust
Company, the Fund's bookkeeping agent, (ii) prepare reports to and filings with
regulatory authorities and (iii) perform such other services as the Fund may
from time to time request of the Manager. The personnel rendering such services
may be employees of the Manager or its affiliates. The Manager at its discretion
may voluntarily waive all or a portion of the administrative services fee. For
its services under the Administrative Services Contract, the Manager receives a
fee equal to .21% per annum of the Fund's average daily net assets. Any portion
of the total fees received by the Manager may be used to provide shareholder
services and for distribution of Fund shares. (See "Distribution and Service
Plan" herein.)
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DESCRIPTION OF COMMON STOCK
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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 unissued shares into
separate series of stock, each series representing a separate, additional
investment portfolio. Shares of all series will have identical voting rights,
except where, by law, certain matters must be approved by a majority of the
shares of the affected series. Each share of any series of shares when issued
has equal dividend, distribution, liquidation and voting rights within the
series for which it was issued, and each fractional share has those rights in
proportion to the percentage that the fractional share represents of a whole
share. Shares will be voted in the aggregate. There are no conversion or
preemptive rights in connection with any
5
<PAGE>
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.
Under its Articles of Incorporation the Fund has the right to redeem
for cash shares of stock owned by any shareholder to the extent and at such
times as the Fund's Board of Directors determines to be necessary or appropriate
to prevent an undue concentration of stock ownership which would cause the Fund
to become a "personal holding company" for Federal income tax purposes. In this
regard, the Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means
that the holders of more than 50% of the shares outstanding voting for the
election of directors can elect 100% of the directors if the holders choose to
do so, and, in that event, the holders of the remaining shares will not be able
to elect any person or persons to the Board of Directors. Unless specifically
requested by an investor who is a shareholder of record, the Fund does not issue
certificates evidencing Fund shares.
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
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The Fund is a no-load, open-end, non-diversified, management investment
company whose investment objectives are to provide investors with a money market
portfolio from which the interest income is exempt from regular Federal, and to
the extent possible, New York State and New York City income taxes, preservation
of capital, maintenance of liquidity and relative stability of principal. There
can be, of course, no assurance that the Fund will achieve its investment
objectives.
The Fund's assets will be invested primarily in high quality debt
obligations issued by or on behalf of the State of New York, other states,
territories and possessions of the U.S., 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. Dividends paid by the Fund which are
attributable to interest income on tax-exempt obligations of the State of New
York and its political subdivisions, or by or on behalf of Puerto Rico or other
U.S. possessions or territories or their political subdivisions, the interest on
which is exempt from regular Federal income tax under section 103 of the Code
and cannot be taxed by any state under Federal law, ("New York Municipal
Obligations"), will be exempt under current law from regular Federal, New York
State and New York City personal income taxes.
Although the Supreme Court has determined that Congress has the
authority to subject the interest on bonds such as the Municipal Obligations to
Federal income taxation, existing law excludes such interest from regular
Federal income tax. However, "exempt-interest" dividends may be subject to the
Federal alternative minimum tax. To the extent suitable New York Municipal
Obligations are not available for investment by the Fund, the Fund may purchase
Municipal Obligations issued by other states, their agencies and
instrumentalities, the interest income on which will be exempt from Federal
income tax but will be subject to New York State and New York City personal
income taxes. Except when acceptable securities are unavailable for investment
by the Fund as determined by the Manager, the Fund will invest at least 65% of
its total assets New York Municipal Obligations, although the exact amount of
the Fund's assets invested in such securities will vary from time to time. The
Fund may hold uninvested cash reserves pending investment and reserves the right
to borrow up to 15% of the Fund's total assets for temporary purposes from
banks. 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, the
Fund reserves the right to invest up to 20% of the value of its net assets in
securities, the interest income on which is subject to Federal, state and local
income tax, including securities the interest of which is subject to the federal
alternative minimum tax. The Fund expects to invest more than 25% of its assets
in participation certificates purchased from banks in New York Municipal
Obligations, including industrial revenue bonds. In view of this "concentration"
in bank participation certificates in New York Municipal Obligations, 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. (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) The investment
objectives of the Fund described in this paragraph may not be changed unless
approved by the holders of a majority of the outstanding shares of the Fund that
would be affected by such a change. As used in this Prospectus, the term
"majority of the outstanding shares" of the Fund means, respectively, the vote
of the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy or (ii) more than 50% of the outstanding shares
of the Fund.
6
<PAGE>
The Fund may only purchase Municipal Obligations that have been
determined by the Fund's Board of Directors to present minimal credit risks and
that are Eligible Securities at the time of acquisition. The term Eligible
Securities means (i) Municipal Obligations with remaining maturities of 397 days
or less and rated in the two highest short-term rating categories by any two
nationally recognized statistical rating organizations ("NRSROs") or in such
categories by the only NRSRO that has rated the Municipal Obligations
(collectively, the "Requisite NRSROs") (acquisition in the latter situation must
also be ratified by the Board of Directors); (ii) Municipal Obligations with
remaining maturities of 397 days or less but that at the time of issuance were
long-term securities (i.e., with maturities greater than 366 days) and whose
issuer has received from the Requisite NRSROs a rating with respect to
comparable short-term debt in the two highest short-term rating categories and
(iii) unrated Municipal Obligations determined by the Fund's Board of Directors
to be of comparable quality. Where the issuer of a long-term security with a
remaining maturity which would otherwise qualify it as an Eligible Security,
does not have rated short-term debt outstanding, the long-term security is
treated as unrated but may not be purchased if it has a long-term rating from
any NRSRO that is below the two highest long-term categories. A determination of
comparability by the Board of Directors is made on the basis of its credit
evaluation of the issuer, which may include an evaluation of a letter of credit,
guarantee, insurance or other credit facility issued in support of the Municipal
Obligations or participation certificates. (See "Variable Rate Demand
Instruments and Participation Certificates" in the Statement of Additional
Information.) While there are several organizations that currently qualify as
NRSROs, two examples of NRSROs are Standard & Poor's Corporation ("S&P") and
Moody's Investors Service, Inc. ("Moody's"). The two highest ratings by S&P and
Moody's are "AAA" and "AA" by S&P in the case of long-term bonds or notes, and
"Aaa" and "Aa" by Moody's in the case of bonds; "SP-1" and "SP-2" by S&P or
"MIG-1" and "MIG-2" by Moody's in the case of notes; "A-1" and "A-2" by S&P 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 "SP-1AA"
by S&P and "VMIG-1" by Moody's. Such instruments may produce a lower yield than
would be available from less highly rated instruments. The Fund's Board of
Directors has determined that Municipal Obligations which are backed by the
credit of the Federal government (the interest on which is not exempt from
Federal income taxation) will be considered to have a rating equivalent to
Moody's "Aaa."
Subsequent to its purchase by the Fund, the quality of an investment
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Fund. If this occurs, the Board of Directors of the Fund
shall reassess promptly whether the security presents minimal credit risks and
shall cause the Fund to take such action as the Board of Directors determines is
in the best interest of the Fund and its shareholders. However, reassessment is
not required if the security is disposed of or matures within five business days
of the Manager becoming aware of the new rating and provided further that the
Board of Directors is subsequently notified of the Manager's actions.
In addition, in the event that a security (1) is in default, (2) ceases
to be an eligible investment under Rule 2a-7 or (3) is determined to no longer
present minimal credit risks, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. In the event that the security
is disposed of it shall be disposed of as soon as practicable consistent with
achieving an orderly disposition by sale, exercise of any demand feature or
otherwise. In the event of a default with respect to a security which
immediately before default accounted for 1/2 of 1% or more of the Fund's total
assets, the Fund shall promptly notify the Securities and Exchange Commission of
such fact and of the actions that the Fund intends to take in response to the
situation.
All investments by the Fund will mature or will be deemed to mature
within 397 days or less from the date of acquisition and the average maturity of
the Fund portfolio (on a dollar-weighted basis) will be 90 days or less. The
maturities of variable rate demand instruments held in the Fund's portfolio will
be deemed to be the longer of the period required before the Fund is entitled to
receive payment of the principal amount of the instrument through demand, or the
period remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
In view of the "concentration" of the Fund in bank participation
certificates in New York Municipal Obligations, which may be secured by bank
letters of credit or guarantees, an investment in the Fund should be made with
an understanding of the characteristics of the banking industry and the risks
which such an investment may entail which include extensive governmental
regulations, changes in the availability and cost of capital funds, and general
economic conditions (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information) which may limit both
the amounts and types of loans and other financial commitments which may be made
and interest rates and fees which may be charged. The profitability of this
industry is largely dependent upon the availability and cost of capital funds
for the purpose of financing lending operations under prevailing money market
conditions. Also, general economic conditions
7
<PAGE>
play an important part in the operations of this industry and exposure to credit
losses arising from possible financial difficulties of borrowers might affect a
bank's ability to meet its obligations under a letter of credit. The Fund may
invest 25% or more of the net assets of any portfolio in securities that are
related in such a way that an economic, business or political development or
change affecting one of the securities would also affect the other securities
including, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the 1940 Act with respect to investing its assets in
one or relatively few issuers. This non-diversification may present greater
risks than in the case of a diversified company. However, the Fund intends to
qualify as a "regulated investment company" under Subchapter M of the Code. The
Fund will be restricted in that at the close of each quarter of the taxable
year, at least 50% of the value of its total assets must be represented by cash,
government securities, investment company securities and other securities
limited in respect of any one issuer to not more than 5% in value of the total
assets of the Fund and to not more than 10% of the outstanding voting securities
of each such issuer. In addition, at the close of each quarter of its taxable
year, not more than 25% in value of the Fund's total assets may be invested in
securities of one issuer other than government securities. The limitations
described in this paragraph are not fundamental policies and may be revised to
the extent applicable Federal income tax requirements are revised. (See "Federal
Income Taxes" herein.)
The primary purpose of investing in a portfolio of New York Municipal
Obligations is the special tax treatment accorded New York resident individual
investors. However, payment of interest and preservation of principal is
dependent upon the continuing ability of the New York issuers and/or obligors of
state, municipal and public authority debt obligations to meet their obligations
thereunder. Over the long term, New York State and New York City face serious
potential economic problems. The State has long been one of the wealthiest
states in the nation. For decades, however, the state economy has grown more
slowly than that of the nation as a whole, resulting in the gradual erosion of
its relative economic affluence. The causes of this relative decline are varied
and complex, in many cases involving national and international developments
beyond the State's control. For additional information, please refer to "Special
Factors Affecting New York" in the Statement of Additional Information.
Investors should consider the greater risk of the Fund's concentration versus
the safety that comes with a less concentrated investment portfolio and should
compare yields available on portfolios of New York issues with those of more
diversified portfolios including out-of-state issues before making an investment
decision. The Fund's management believes that by maintaining the Fund's
investment portfolio in liquid, short-term, high quality investments, including
the participation certificates and other variable rate demand instruments that
have high quality credit support from banks, insurance companies or other
financial institutions, the Fund is largely insulated from the credit risks that
may exist on long-term New York Municipal Obligations. For additional
information, please refer to the Statement of Additional Information.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund declares dividends equal to all its net investment income
(excluding capital gains and losses, if any, and amortization of market
discount) on each Fund Business Day and generally pays dividends monthly. There
is no fixed dividend rate. In computing these dividends, interest earned and
expenses are accrued daily.
Net realized capital gains, if any, are distributed at least annually
and in no event later than 60 days after the end of the Fund's fiscal year. All
dividends and distributions of capital gains are automatically invested in
additional Fund shares immediately upon payment thereof unless a shareholder has
elected by written notice to the Fund to receive either of such distributions in
cash.
- --------------------------------------------------------------------------------
HOW TO PURCHASE AND REDEEM SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of the Fund through broker-dealers, banks or
other financial intermediaries, or directly through EFD. The minimum initial
investment is $1,000 which may be waived in certain situations. There is no
minimum for subsequent investments. In states where EFD is not registered as a
broker-dealer, shares of the Fund will only be sold through other broker-dealers
or other financial institutions that are registered. Only Evergreen shares are
offered through this Prospectus. Instructions on how to purchase shares of the
Fund are set forth in the Share Purchase Application.
Additional Purchase Information: As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the
8
<PAGE>
Fund's Manager incurs. If such investor is an existing shareholder, the Fund may
redeem shares from his or her account to reimburse the Fund or the Fund's
Manager for any loss. In addition, such investors may be prohibited or
restricted from making further purchase in any of the Evergreen mutual funds.
HOW TO REDEEM SHARES
You may "redeem", i.e., sell your shares in the Fund to the Fund on any
Fund Business Day, either directly or through your financial intermediary. The
price you will receive is the net asset value next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, the Fund
will not send proceeds until it is reasonably satisfied that the check has been
collected (which may take up to ten days). Once a redemption request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
REDEEMING SHARES THROUGH YOUR FINANCIAL INTERMEDIARY. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service. Certain financial intermediaries may require that
you give instructions earlier than 4:00 p.m. (Eastern time).
REDEEMING SHARES DIRECTLY BY MAIL OR TELEPHONE. Send a signed letter of
instruction or stock power form to State Street Bank and Trust Company ("State
Street") which is the registrar, transfer agent and dividend disbursing agent
for the Fund. Stock power forms are available from your financial intermediary,
State Street, and many commercial banks. Additional documentation is required
for the sale of shares by corporations, financial intermediaries, fiduciaries
and surviving joint owners. Signature guarantees are required for all redemption
requests for shares with a value of more than $10,000 or where the redemption
proceeds are to be mailed to an address other than that shown in the account
registration. A signature guarantee must be provided by a bank or trust company
(not a Notary Public), a member firm of a domestic stock exchange or by other
financial institutions whose guarantees are acceptable to State Street.
Shareholders may withdraw amounts of $1,000 or more from their accounts
by calling State Street at 800-423-2615 between the hours of 8:00 a.m. to 5:30
p.m. (Eastern time) each Fund Business Day. Redemption requests made after 4:00
p.m. (Eastern time) will be processed using the net asset value determined on
the next business day. Such redemption requests must include the shareholder's
account name, as registered with the Fund, and the account number. During
periods of drastic economic or market changes, shareholders may experience
difficulty in effecting telephone redemptions. Shareholders who are unable to
reach State Street by telephone should follow the procedures outlined above for
redemption by mail.
The telephone redemption service is not available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the Share Purchase Application and choose how the redemption
proceeds are to be paid. Redemption proceeds will either (i) be mailed by check
to the shareholder at the address in which the account is registered or (ii) be
wired to an account with the same registration as the shareholder's account in
the Fund at a designated commercial bank. State Street currently deducts a $5.00
wire charge from all redemption proceeds wired. This charge is subject to change
without notice. Redemption proceeds will be wired on the same day if the request
is made prior to 12 noon (Eastern time). Such shares, however, will not earn
dividends for that day. Redemption requests received after 12 noon will earn
dividends for that day, and the proceeds will be wired on the following business
day. A shareholder who decides later to use this service, or to change
instructions already given, should fill out a Shareholder Services Form and send
it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827, with such shareholder's signature guaranteed by a bank or trust
company (not a Notary Public), a member firm of a domestic stock exchange or by
other financial institutions whose guarantees are acceptable to State Street.
Shareholders should allow approximately ten days for such form to be processed.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include requiring some
form of personal identification prior to acting upon instructions and tape
recording of telephone instructions. If the Fund fails to follow such
procedures, it may be liable for any losses due to unauthorized or fraudulent
instructions. The Fund will not be liable for following telephone instructions
reasonably believed to be genuine. The Fund reserves the right to refuse a
telephone redemption if it is believed advisable to do so. Financial
intermediaries may charge a fee for handling telephone requests. Procedures for
redeeming Fund shares by telephone may be modified or terminated without notice
at any time.
REDEMPTIONS BY CHECK. Upon request, the Fund will provide holders of Evergreen
shares, without charge, with checks drawn on the Fund that will clear through
State Street. Shareholders will be subject to State Street's rules and
regulations governing such checking accounts. Checks will be sent usually within
ten business days following the date the account is established. Checks may be
made payable to the order of any payee in an
9
<PAGE>
amount of $250 or more. The payee of the check may cash or deposit it like a
check drawn on a bank. (Investors should be aware that, as in the case with
regular bank checks, certain banks may not provide cash at the time of deposit,
but will wait until they have received payment from State Street.) When such a
check is presented to State Street for payment, State Street, as the
shareholder's agent, causes the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the check.
Checks will be returned by State Street if there are insufficient or
uncollectable shares to meet the withdrawal amount. The check writing procedure
for withdrawal enables shareholders to continue earning income on the shares to
be redeemed up to but not including the date the redemption check is presented
to State Street for payment.
Shareholders wishing to use this method of redemption should fill out
the appropriate part of the Share Purchase Application (including the Signature
Card) and mail the completed form to State Street Bank and Trust Company, P.O.
Box 9021, Boston, Massachusetts 02205-9827. Shareholders requesting this service
after an account has been opened must contact State Street since additional
documentation will be required. Currently there is no charge either for checks
or for the clearance of any checks. This service may be terminated or altered at
any time.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
The Fund offers the following shareholder services. For more
information about these services or your account, contact EFD or the toll-free
number on the front of this Prospectus. Some services are described in more
detail in the Share Purchase Application.
SYSTEMATIC INVESTMENT PLAN. You may make monthly or quarterly investments into
an existing account automatically in amounts of not less than $25.
TELEPHONE INVESTMENT PLAN. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $25,000 per
investment. Telephone investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's account two business days after the request
is received.
SYSTEMATIC CASH WITHDRAWAL PLAN. When an account of $10,000 or more is opened or
when an existing account reaches that size, you may participate in the Fund's
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase Application. Under this plan, you may receive (or designated a third
party to receive) a monthly or quarterly check in a stated amount of not less
than $100. Fund shares will be redeemed as necessary to meet withdrawal
payments. All participants must elect to have their dividends and capital gain
distributions reinvested automatically. 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. 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 realizable capital gains.
INVESTMENTS THROUGH EMPLOYEE BENEFIT AND SAVINGS PLAN. Certain qualified and
non-qualified benefit and savings plans may make shares of the Fund and the
other Evergreen mutual funds available to their participants. Each Fund's
investment adviser may provide compensation to organizations providing
administrative and recordkeeping services to plans which make shares of the
Evergreen mutual funds available to their participants.
AUTOMATIC REINVESTMENT PLAN. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share at the close of business on the last
business day of each month, unless otherwise requested by a shareholder in
writing. If the transfer agent does not receive a written request for subsequent
dividends and/or distributions to be paid in cash at least three full business
days prior to a given record date, the dividends and/or distributions to be paid
to a shareholder will be reinvested. If you elect to receive dividends and
distributions in cash and the U.S. Postal Service cannot deliver the checks, or
if the checks remain uncashed for six months, the checks will be reinvested into
your account at the then current net asset value.
TAX SHELTERED RETIREMENT PLANS. You may open a pension and profit sharing
account in any Evergreen mutual fund (except those funds having an objective of
providing tax free income), including: (i) Individual Retirement Accounts
("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole
proprietors, partnerships
10
<PAGE>
and corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for
corporations and their employees.
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.
In order to maximize earnings on its portfolio, the Fund normally has
its assets as fully invested as is practicable. Many securities in which the
Fund invests require immediate settlement in funds of Federal Reserve member
banks on deposit at a Federal Reserve Bank (commonly known as "Federal Funds").
Accordingly, the Fund does not accept a subscription or invest an investor's
payment in portfolio securities until the payment has been converted into
Federal Funds.
Shares will be issued as of the first determination of the Fund's net
asset value per share made after acceptance of the investor's purchase order at
the net asset value per share next determined after receipt of the purchase
order. Shares begin accruing income dividends on the day they are purchased. The
Fund reserves the right to reject any subscription for its shares.
Shares are issued as of 12 noon, Eastern time, on any Fund Business Day
as defined herein on which an order for the shares and accompanying Federal
Funds are received by the Fund's transfer agent before 12 noon. Orders
accompanied by Federal Funds and received after 12 noon, Eastern time, on a Fund
Business Day will not result in share issuance until the following Fund Business
Day. Fund shares begin accruing income on the day the shares are issued to an
investor.
There is no redemption charge, no minimum period of investment, no
minimum amount for a redemption, and no restriction on frequency of withdrawals.
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 Securities and Exchange Commission determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
Securities and Exchange Commission) 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 Securities and Exchange
Commission may by order permit for the protection of the shareholders of the
Fund.
Redemption requests received by the Fund's transfer agent before 12
noon, Eastern time, on any day on which the New York Stock Exchange, Inc. is
open for trading become effective at the net asset value per share determined at
12 noon that day. Shares redeemed are not entitled to participate in dividends
declared on the day a redemption becomes effective. Redemption requests received
after 12 noon will result in a share redemption on the following Fund Business
Day.
The Fund has reserved the right to close an account that through
redemptions has remained below $1,000 for 30 days. Shareholders will receive 60
days' written notice to increase the account value before the account is closed.
The redemption of shares may result in the investor's receipt of more
or less than he paid for his shares and, thus, in a taxable gain or loss to the
investor.
EFFECT OF BANKING LAWS
The Glass-Steagall Act limits the ability of a depository institution
to become an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Manager for providing such services. However, this is an unsettled area of the
law and if a determination contrary to the Fund management's position is made by
a bank regulatory agency or court concerning shareholder servicing and
administration payments to banks from the Manager, any such payments will be
terminated and any shares registered in the banks' names, for their underlying
customers, will be re-registered in the name of the customers at no cost to the
Fund or its shareholders. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
11
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN
- --------------------------------------------------------------------------------
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by the Rule. The Fund's Board of Directors has adopted a
Distribution and Service Plan (the "Plan") and, pursuant to the Plan, the Fund
has entered into a Distribution Agreement with Reich & Tang Distributors L.P.
(the "Distributor") and a Shareholder Servicing Agreement with the Distributor
and the Manager.
Reich & Tang Asset Management, Inc. serves as the sole general partner
for both Reich & Tang Asset Management L.P. and Reich & Tang Distributors L.P.,
and Reich & Tang Asset Management L.P. serves as the sole limited partner of the
Distributor
Under the Distribution Agreement, the Distributor for nominal
consideration and as agent for the Fund, will solicit orders for the purchase of
the Fund's shares, provided that any subscriptions and orders will not be
binding on the Fund until accepted by the Fund as principal.
For its services under the Shareholder Servicing Agreement, the
Distributor receives from the Fund a service fee equal to .20% per annum of the
Fund's average daily net assets (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 Fund shares and for
payments to Participating Organizations with respect to servicing their clients
or customers who are shareholders of the Fund.
The Plan and the Shareholder Servicing Agreement provides that, in
addition to the Shareholder Servicing Fee, the Fund will pay for (i)
telecommunications expenses not to exceed in the aggregate .05% per annum of the
Fund's average daily net assets, including the cost of dedicated lines and CRT
terminals, incurred by the Manager, Distributor and Participating Organizations
in carrying out their respective 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 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 Fund; (ii) to compensate certain Participating Organizations for
providing assistance in distributing the Fund's shares; (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 and past profits, for the
purposes enumerated in (i) above. The Manager and the Distributor may make
payments to Participating Organizations for providing certain of such services.
However, the Distributor, in its sole discretion, 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 the Investment Management Contract, the
Shareholder Servicing Agreement or the Administrative Services Contract in
effect for that year.
For the fiscal year ended April 30, 1995, the total amount spent
pursuant to the Plan was .30% of the average daily net assets of the Fund, of
which .20% of the average daily net assets was paid by the Fund to the Manager,
pursuant to the Shareholder Servicing Agreement and an amount representing .10%
of the average daily net assets was paid by the Manager (which may be deemed an
indirect payment by the Fund).
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
The Fund has elected to qualify under the Code and under New York law
as a regulated investment company that distributes "exempt-interest dividends"
as defined in the Code. The Fund's policy is to distribute as dividends each
year 100% (and in no event less than 90%) of its tax-exempt interest income, net
of certain deductions, and its investment company taxable income (if any). If
distributions are made in this manner dividends derived from the interest earned
on Municipal Obligations are "exempt-interest dividends" and are not subject to
regular Federal income tax, although as described below, such "exempt-interest
dividends" may
12
<PAGE>
be subject to the Federal alternative minimum tax. (See "Federal Income Taxes"
in the Statement of Additional Information.) Dividends paid from taxable income,
if any, and distributions of any realized short-term capital gains (whether from
tax-exempt or taxable obligations) are taxable to shareholders as ordinary
income, for Federal income tax purposes, whether received in cash or reinvested
in additional shares of the Fund. The Fund does not expect to realize long-term
capital gains and thus does not contemplate distributing "capital gains
dividends" or have undistributed capital gain income within the meaning of the
Code. The Fund will inform shareholders of the amount and nature of its income
and gains in a written notice mailed to shareholders not later than 60 days
after the close of the Fund's taxable year. For Social Security recipients,
interest on tax-exempt bonds, including tax-exempt interest dividends paid by
the Fund, is to be added to adjusted gross income for purposes of computing the
amount of Social Security benefits includible in gross income. The Revenue
Reconciliation Act of 1993 (P.L. 103-66) and other recent tax legislation
affects many of the Federal tax aspects of Municipal Obligations and makes many
important changes to the Federal income tax system, including an increase in
marginal tax rates. In addition to these changes, the Tax Reform Act of 1986
(P.L. 99-514) limited the annual amount of many types of tax-exempt bonds that a
state may issue and revised current arbitrage restrictions. P.L. 99-514 also
provided that interest on certain "private activity bonds" (generally, a bond
issue in which more than 10% of the proceeds are used for a non-governmental
trade or business and which meets the private security or payment test, or a
bond issue which meets the private loan financing test) issued after August 7,
1986 will constitute an item of tax preference subject to the individual
alternative minimum tax and P.L. 103-66 increases the alternative minimum tax
rate for taxpayers other than corporations to up to 28%. Further, corporations
will be required to include in alternative minimum taxable income, 75% of the
amount by which its adjusted current earnings (including generally, tax-exempt
interest) exceeds its alternative minimum taxable income (determined without
this tax item). Certain tax-exempt interest is also included in the tax base for
the additional corporate minimum tax imposed by the Superfund Amendments and
Reauthorization Act of 1986 for taxable years beginning before January 1, 1996.
In addition, in certain cases Subchapter S corporations with accumulated
earnings and profits from Subchapter C years will be subject to a tax on
"passive investment income," including tax-exempt interest.
With respect to the variable rate demand instruments, including
participation certificates therein, the Fund is relying on the opinion of Battle
Fowler LLP, counsel to the Fund, that it will be treated for Federal income tax
purposes as the owner thereof and the interest on the underlying Municipal
Obligations will be exempt from regular Federal income taxes to the Fund.
Counsel has pointed out that the Internal Revenue Service has announced that it
will not ordinarily issue advance rulings on the question of ownership of
securities or participation interests therein subject to a put and could reach a
conclusion different from that reached by counsel.
The exemption of interest income for Federal income tax purposes does
not necessarily result in an exemption under the income or other tax laws of any
state or local taxing authority. However, to the extent that dividends are
derived from interest on New York Municipal Obligations, the dividends will also
be excluded from a New York resident shareholder's gross income for New York
State and New York City personal income tax purposes. This exclusion does not
result in a corporate shareholder being exempt for New York State and New York
City franchise tax purposes. Shareholders should consult their own tax advisors
about the status of distributions from the Fund in their own states and
localities.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on
January 31, 1984 and it is registered with the Securities and Exchange
Commission as a non-diversified, open-end, management investment company.
The Fund prepares semi-annual unaudited and annual audited reports
which include a list of investment securities held by the Fund and which are
sent to shareholders.
As a general matter, the Fund will not hold annual or other meetings of
the Fund's shareholders. This is because the By-Laws of the Fund provide for
annual meetings only (a) for the election of directors, (b) for approval of the
revised investment advisory contracts with respect to a particular class or
series of stock, (c) for approval of revisions to the Fund's distribution
agreement with respect to a particular class or series of stock, and (d) upon
the written request of holders or shares entitled to 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 Securities and Exchange Commission or any
state, or as the Directors may consider necessary or desirable. Each Director
serves until the next meeting of the shareholders called for the
13
<PAGE>
purpose of considering the election or reelection of such Director or of a
successor to such Director, and until the election and qualification of his or
her successor, elected at such a meeting, or until such Director sooner dies,
resigns, retires or is removed by the vote of the shareholders.
For further information with respect to the Fund and the shares offered
hereby, reference is made to the Fund's registration statement filed with the
Securities and Exchange Commission, including the exhibits thereto. The
registration statement and the exhibits thereto may be examined at the
Securities and Exchange Commission and copies thereof may be obtained upon
payment of certain duplicating fees.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares is determined as of 12 noon,
Eastern time, on each Fund Business Day. Fund Business Day means weekdays
(Monday through Friday) except customary business holidays and Good Friday. It
is computed by dividing the value of the Fund's net assets (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.
The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost
valuation involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, except that if
fluctuating interest rates cause the market value of the Fund's portfolio to
deviate more than 1/2 of 1% from the value determined on the basis of amortized
cost, the Board of Directors will consider whether any action should be
initiated. Although the amortized cost method provides certainty in valuation,
it may result in periods during which the value of an instrument is higher or
lower than the price an investment company would receive if the instrument were
sold. The Fund intends to maintain a stable net asset value at $1.00 per share
although there can be no assurance that this will be achieved.
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, is custodian for the Fund's cash and securities. State Street
Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 is the
registrar, transfer agent and dividend disbursing agent for the shares of the
Fund. The Fund's transfer agent and the Fund's custodian do not assist in, and
are not responsible for, investment decisions involving assets of the Fund.
14
<PAGE>
[This space intentionally left blank]
DISTRIBUTOR
Evergreen Funds Distributor, Inc., 230 Park Avenue, New York, New York 10169
For further information contact the Fund at 2500 Westchester Avenue,
Purchase, New York 10577
<PAGE>
EVERGREEN FUNDS APPLICATION
FOR PURCHASES OF CLASS A, B, C OR EVERGREEN SHARES ONLY
DO NOT USE FOR EVERGREEN'S, IRA OR KEOGH ACCOUNTS
If you need assistance in completing this application, please call
1-800-235-0064.
Mail check and completed application to: The Evergreen Funds, State Street
Bank & Trust Co., P.O. Box 9021, Boston, MA, 02205-9827
1. YOUR ACCOUNT REGISTRATION (please print)
(Check only one box here to indicate type of registration.)
[ ] INDIVIDUAL
- -------------------- --------------------------------------
First Name Initial Last Name
- ----------------------------------------------
Social Security Number 1
[ ] JOINT TENANT 2
- -------------------------------------------------------------------------------
1 Only one Social Security Number is needed for tax reporting.
2 The account registration will be joint tenants with right of survivorship and
not tenants in common unless tenants in common or community property
registrations are requested
[ ] GIFT TO A MINOR
____________________________________ as custodian for
Custodian's Name (Only One Permitted)
________________________________________under the
Minor's Name (Only One Permitted)
_______________________Uniform Gifts to Minors Act
State
-------------------------------
Minor's Social Security Number
- -------------------------------------------------------------------------------
[ ] A TRUST (Please include copy of Trust document)
_________________________________________as trustee for
Name of Trustee
_______________________________under agreement dated
Name of Trust
- -------------------. -----------------------
Date of Trust Agreement Taxpayer Identification Number
- --------------------------------------------------------------------------------
[ ] A CORPORATION, PARTNERSHIP OR OTHER ENTITY
(Please include copy of Corporate Resolution)
- --------------------------------------------------------
Name of corporation or other entity
- ---------------------------------------------
Taxpayer Identification Number
2. YOUR MAILING ADDRESS (please print)
- -----------------------------------------------------
Street Address
- -----------------------------------------------------
City State Zip
- -----------------------------------------------------
Home Phone Business Phone
I am a citizen of [ ] U.S. [ ] Other ____________________
(please specify)
3. DEALER INFORMATION (please print)
- ------------------------------------------------------
Dealer Name
- ------------------------------------------------------
Dealer Address
- ------------------------------------------------------
City State Zip
Dealer Authorized Signature __________________________________
- -------------------------------------------------------
Branch Address
- -------------------------------------------------------
City State Zip
- --------------------------------------------------------
Dealer Branch Office Number Branch Phone Number
- -------------------------------------------------------
Rep Number Rep Last Name
4. YOUR INITIAL INVESTMENT (minimum of $1,000 per account)
Fund Name Share Class** Amount
A B C Evergreen Shares
- ----------------------- [ ] [ ] [ ] [ ] $-----------
- ----------------------- [ ] [ ] [ ] [ ] $-----------
- ----------------------- [ ] [ ] [ ] [ ] $-----------
[ ] Check or [ ] Wire * (Make check payable to Evergreen Funds)
* To wire funds, obtain an account number and wiring instructions by calling
800-423-2615, and fill in the information below.
On _______________________Account No. _______________________________
(Date of Wire)
- --------------------------------------------------------------------
Name of Bank Branch
** If no class is chosen, it will be assumed you wish to invest in Class A
5. DIVIDEND AND DISTRIBUTION INSTRUCTIONS
Dividends are to be: [ ] Reinvested [ ] Paid in Cash
Capital Gain
Distributions are to be: [ ] Reinvested [ ] Paid in Cash
If no boxes are checked, all dividends and capital gain distributions will be
reinvested.
CONTINUED ON REVERSE
<PAGE>
6. SYSTEMATIC WITHDRAWAL PLAN
(Minimum initial investment $10,000)
[ ] Systematic Withdrawal Plan
I, We request that the Fund or its transfer agent send a check for
$____________________________($75 minimum) monthly beginning
the 25th day of _____________________or [ ] quarterly beginning
month
the 25th day of ______________________. The check is to be drawn
to the order of ________________________________.
and mailed to:
- ---------------------------------------------------------
Name
- ---------------------------------------------------------
Address
- ---------------------------------------------------------
City State Zip
7. TELEPHONE EXCHANGE/REDEMPTION OPTION
(minimum $1,000 per transaction)
I, We authorize you to honor any telephone requests for the following:
[ ] Exchange existing shares of one of the Evergreen funds for shares of
any of the other Evergreen funds within the same class with no change
in registration.
Redemption Options (choose only one)
[ ] Mail redemption proceeds from a designated Evergreen fund or to the
name and address in which the fund account is registered.
or
[ ] Wire redemption proceeds from a designated Evergreen fund to an
account with the same registration as the registration
in the fund at the commercial bank you specify in the following text.
(Please attach a voided check for the account listed). If you would
like more than one bank file, please attach additional banking
information, including a voided check, for each bank listed.
- -----------------------------------------------------------
Name of Bank Account #
- -----------------------------------------------------------
Address
- -----------------------------------------------------------
City State Zip
The records of the Evergreen Funds and State Street Bank and Trust Company of
such instructions will be binding on all parties and neither the Evergreen Funds
nor State Street will be liable for any loss, expense or cost arising out of
such transactions.
X_________________________________________________________
Shareholder Signature
X_________________________________________________________
Joint Shareholder Signature, if any
8. CHECK WRITING SERVICES
[ ] Please open a check writing service account at State Street Bank and Trust
Company in my (our) name(s) as registered in Part I of this application and send
me (us) a supply of checks. I (we) understand that checks may not be drawn on
the account for less than $250.00. Please be sure to complete the attached
signature card. Checks cannot be issued until it is on file.
9. YOUR SIGNATURE
The undersigned warrants that he/she has full authority and is of legal age to
purchase shares of the Fund and has received and read a current Prospectus of
the Fund and agrees to its terms. The Fund's Transfer Agent will not be liable
for acting upon instructions it believes are genuine. Under penalties of
perjury, the undersigned whose Social Security (Tax I.D.) number is shown above
certifies (I) that number is my correct taxpayer identification number and (ii)
currently I am not under IRS notification that I am subject to back up
withholding (delete (ii) if under notification). If no such number is shown, the
undersigned further certifies, under penalties of perjury, that (a) no such
number has been issued, and a number has been or soon will be applied for; if a
number is not provided to you within sixty days, the undersigned understands
that all payments (including redemptions) are subject to 31% withholding under
Federal tax law, until a number is provided; or (b) that the undersigned is not
a citizen or resident of the U.S. and either does not expect to be in the U.S.
for 183 days during each calendar year and does not conduct a business in the
U.S. which would receive any gain from the Fund, or is exempt under an income
tax treaty. THE INVESTMENT ADVISOR TO THE EVERGREEN FUNDS IS REICH & TANG ASSET
MANAGEMENT LP. INVESTMENTS IN THE EVERGREEN FUNDS ARE NOT ENDORSED OR GUARANTEED
BY ANY BANK OR ANY SUBSIDIARIES OF ANY BANK, ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR ANY SUBSIDIARIES OF ANY BANK, ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE
EVERGREEN FUNDS ARE DISTRIBUTED BY EVERGREEN FUNDS DISTRIBUTOR, INC., WHICH IS
INDEPENDENT OF REICH & TANG ASSET MANAGEMENT LP.
X_________________________________________________________
Shareholder Signature (or Custodian) Date
X_________________________________________________________
Joint Shareholder Signature, if any Date
X_________________________________________________________
Corporate Officer, Partner, Trustee, etc.
__________________________________________________________
Title Date
<PAGE>
SYSTEMATIC INVESTMENT PLAN
12. SYSTEMATIC INVESTMENT PLAN
[ ] Systematic Investment Plan
This service allows you to regularly and automatically add to the Evergreen Fund
named below by debiting your checking account. Please allow 30 days for us to
establish this service.
I wish to make automatic investments of
$_________________________ in the
($25 Minimum investment)
- -------------------------------------------------------
Name of Evergreen Fund Class of shares
Please debit my account
(Please attach a voided check)
[ ] Monthly [ ] Quarterly
on the
[ ] 5th [ ] 20th
SIGNATURES AND ACCOUNT INFORMATION
- ------------------------------- -----------------------------
Shareholder Name (Please print) Name of Bank Account
X______________________________ _____________________________
Shareholder Signature Bank account number
- --------------------------------------------------
Joint Shareholder Name, if any (Please print)
X_________________________________________
Joint Shareholder Signature
- --------------------------------------------------
Investment Representative # and Full Name
SIGNATURE CARD FOR CHECKWRITING OPTION (Please Print)
(see part eight of application)
[ ] Evergreen Money Market Fund
[ ] Evergreen Tax Exempt Money Market Fund
[ ] Evergreen Treasury Money Market Fund
Only one signature will be required on checks unless
the box below is checked off
[ ] Check here only if you wish to have both signatures required on
checks.
- ------------------------------------------------------------------
Account Number Last Name First Middle Initial
- ------------------------------------------------------------------
Account Number Last Name First Middle Initial
BY SIGNING THIS SIGNATURE CARD THE UNDERSIGNED AGREE(S) TO BE SUBJECT TO THE
RULES AND REGULATIONS OF STATE STREET BANK & TRUST COMPANY, NOW OR HEREAFTER
PERTAINING THERETO AND AS AMENDED FROM TIME TO TIME, AND AS SET FORTH BELOW.
X_________________________________________________________
SIGNATURE
X_________________________________________________________
SIGNATURE
THE PAYMENT OF FUNDS ON THE CONDITIONS SET FORTH BELOW IS AUTHORIZED BY THE
SIGNATURE(S) APPEARING ABOVE. If this card is signed by two persons either
signature will be accepted on checks unless the box requiring tow signatures is
checked off. Each signatory guarantees the genuineness of the other's signature.
The Bank is hereby appointed agent by the person(s) signing this card
("Depositors") and, as such agent is directed to request redemption of shares of
the fund checked off above registered in the name of such person(s) upon receipt
of, and to the amount of checks drawn upon this checking account and to deposit
the proceeds of such redemptions in this checking account. In so acting the Bank
shall be liable only for its own negligence. Depositors will be subject to the
Bank's rules and regulations governing such checking accounts including the
right of the Bank not to honor checks in amounts exceeding the value of the
Depositor's shareholder account with the Fund checked off above the time the
check is presented for payment. It is further agreed as follows:
1. Deposits in this account may be made only from proceeds of
shares of the fund checked off above.
2. The Bank reserves the right to change, modify or terminate this
agreement at any time upon notification mailed to the address appearing
in the shareholder records of the fund checked off above.
<PAGE>
Registration No. 2-89264
Rule 497(b)
- --------------------------------------------------------------------------------
NEW YORK 600 FIFTH AVENUE, NEW YORK, NY 10020
DAILY TAX FREE (212) 830-5220
INCOME FUND, INC.
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
Relating to the New York Daily Tax Free Income Fund, Inc.
and the
Victory Shares of New York Daily Tax Free Income Fund, Inc.
Prospectuses dated September 1, 1995
and the
Evergreen Shares of New York Daily Tax Free Income Fund, Inc.
Prospectuses dated January 19, 1996
This Statement of Additional Information, although not in itself a Prospectus,
expands upon and supplements the information contained in the current Prospectus
of New York Daily Tax Free Income Fund, Inc. (the "Fund") and the Prospectus of
Victory Shares of the Fund both dated September 1, 1995, and the Prospectus of
the Evergreen Shares of the Fund dated January 19, 1996 and should be read in
conjunction with the respective Prospectus. The Fund's Prospectus may be
obtained from any Participating Organization or by writing or calling the Fund.
If you wish to invest in Victory Shares of the Fund you should obtain a separate
prospectus by writing to Primary Funds Service Corporation, P.O. Box 9741,
Providence, Rhode Island 02940-9741 or by calling (800) 539-FUND.
If you wish to invest in Evergreen Shares of the Fund you should obtain a
separate prospectus by writing to State Street Bank and Trust Company, P.O. Box
9021, Boston, Massachusetts 02205-9827 or by calling (800) 807-2840. This
Statement of Additional Information is incorporated by reference into the
respective Prospectus in its entirety.
<TABLE>
<CAPTION>
Table of Contents
<C> <C> <C> <C>
Investment Objectives, Yield Quotations..................13
Policies and Risks....................2 Manager 14
Description of Municipal Obligations...3 Management of the Fund............15
Variable Rate Demand Instruments Compensation Table................17
and Participation Certificates.......5 Counsel and Auditors..............17
When-Issued Securities................7 Distribution and Service Plan.....17
Stand-by Commitments..................7 Description of Common Stock.......18
Taxable Securities.....................8 Expense Limitation................19
Repurchase Agreements................8 Federal Income Taxes..............20
Special Factors Affecting New York.....9 Custodian,Transfer Agent
Investment Restrictions................11 Dividend Agent..............21
Portfolio Transactions.................12 Description of Ratings............22
How to Purchase and Redeem Shares......12 Taxable Equivalent Yield Table....24
Net Asset Value........................13 Independent Auditors Report.......25
Financial Statements..............26
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
As stated in the Prospectus, the Fund is a no-load, open-end, non-diversified,
management investment company whose investment objective is to provide investors
with a liquid, money market portfolio from which the interest income is exempt
from regular Federal, and to the extent possible, New York State and New York
City income taxes along with preservation of capital, maintenance of liquidity
and relative stability of principal. The following discussion expands upon the
description of the Fund's investment objectives and policies in the Prospectus.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of New York, other states, territories and
possessions of the United States, 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. Dividends paid by the Fund which are
attributable to interest income on tax-exempt obligations of the State of New
York and its political subdivisions, or by or on behalf of Puerto Rico or other
U.S. possessions or territories and their political subdivisions, the interest
on which is exempt from regular Federal income tax under section 103 of the
Internal Revenue Code (the "Code") and cannot be taxed by any state under
Federal law ("New York Municipal Obligations"), will be exempt from regular
Federal, New York State and New York City personal income taxes. Although the
Supreme Court has determined that Congress has the authority to subject the
interest on bonds such as the Municipal Obligations to Federal income taxation,
existing law excludes such interest from regular Federal income tax. However,
"exempt-interest" dividends may be subject to the Federal alternative minimum
tax. To the extent suitable New York Municipal Obligations are not available for
investment by the Fund, the Fund may purchase Municipal Obligations issued by
other states, their agencies and instrumentalities, the interest income on which
will be exempt from regular Federal income tax but will be subject to New York
State and New York City personal income taxes. Except when acceptable securities
are unavailable for investment by the Fund as determined by the Manager, the
Fund will invest at least 65% of its assets in New York Municipal Obligations,
although the exact amount of the Fund's assets invested in such securities will
vary from time to time. The Fund seeks to maintain an investment portfolio with
a dollar-weighted average maturity of 90 days or less and to value its
investment portfolio at amortized cost and maintain a net asset value at a $1.00
per share. There can be no assurance that this value will be maintained. The
Fund may hold uninvested cash reserves pending investment. The Fund's
investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements.
Although the Fund will attempt to invest 100% of its assets in tax-exempt
Municipal Obligations, the Fund reserves the right to invest up to 20% of the
value of its net assets in securities, the interest income on which is subject
to Federal, state and local income tax. The Fund expects to invest more than 25%
of its assets in participation certificates purchased from banks in industrial
revenue bonds and other New York Municipal Obligations. In view of this
"concentration" in bank participation certificates in New York 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 this
paragraph may not be changed unless approved by the holders of a majority of the
outstanding shares of the Fund that would be affected by such a change. As used
in this Statement of Additional Information, the term "majority of the
outstanding shares" of the Fund means, respectively, the vote of the lesser of
(i) 67% or more of the shares of the Fund present at a meeting, if the holders
of more than 50% of the outstanding shares of the Fund are present or
represented by proxy or (ii) more than 50% of the outstanding shares of the
Fund.
The Fund may only purchase Municipal Obligations that have been determined by
the Fund's Board of Directors to present minimal credit risks and that are
Eligible Securities at the time of acquisition. The term Eligible Securities
means (i) Municipal Obligations with remaining maturities of 397 days or less
and rated in the two highest short-term rating categories by any two nationally
recognized statistical rating organizations ("NRSROs") or in such categories by
the only NRSRO that has rated the Municipal Obligations (collectively, the
"Requisite NRSROs") (acquisition in the latter situation must also be ratified
by the Board of Directors); (ii) Municipal Obligations with remaining maturities
of 397 days or less but that at the time of issuance were long-term securities
(i.e., with maturities greater than 366 days) and whose issuer has received from
the Requisite NRSROs a rating with respect to comparable short-term debt in the
two highest short-term rating categories and (iii) unrated Municipal Obligations
determined by the Fund's Board of Directors to be of comparable quality. Where
the issuer of a long-term security with a remaining maturity which would
otherwise qualify it as an Eligible Security, does not have rated short-term
debt outstanding, the long-term security is treated as unrated but may not be
purchased if it has a long-term rating from any NRSRO that is below the two
highest long-term categories. A determination of comparability by the Board of
Directors is made on the basis of its credit evaluation of the issuer, which
2
<PAGE>
may include an evaluation of a letter of credit, guarantee, insurance or other
credit facility issued in support of the Municipal Obligations or participation
certificates. (See "Variable Rate Demand Instruments and Participation
Certificates" herein.) While there are several organizations that currently
qualify as NRSROs, two examples of NRSROs are Standard & Poor's Corporation
("S&P") and Moody's Investors Service, Inc. ("Moody's"). The two highest ratings
by S&P and Moody's are "AAA" and "AA" by S&P in the case of long-term bonds or
notes 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's 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 "SP-1/A" by S&P and "VMIG-1" by Moody's. Such instruments may produce a
lower yield than would be available from less highly rated instruments. The
Fund's Board of Directors has determined that Municipal Obligations which are
backed by the credit of the Federal government will be considered to have a
rating equivalent to Moody's "Aaa". (See "Description of Ratings" herein.)
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund's
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the Investment Company Act of 1940 (the "1940 Act")
with respect to investing its assets in one or relatively few issuers. This
non-diversification may present greater risks than in the case of a diversified
company. However, the Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Code. The Fund will be restricted in that at
the close of each quarter of the taxable year, at least 50% of the value of its
total assets must be represented by cash, government securities, investment
company securities and other securities limited in respect of any one issuer to
not more than 5% in value of the total assets of the Fund and to not more than
10% of the outstanding voting securities of each issuer. In addition, at the
close of each quarter of its taxable year, not more than 25% in value of the
Fund's total assets may be invested in securities of one issuer other than
Government securities. The limitations described in this paragraph regarding
qualification as a "regulated investment company" are not fundamental policies
and may be revised to the extent applicable Federal income tax requirements are
revised. (See "Federal Income Taxes" herein.)
DESCRIPTION OF MUNICIPAL OBLIGATIONS
As used in this Statement of Additional Information, "Municipal Obligations"
include the following as well as "Variable Rate Demand Instruments and
Participation Certificates" herein.
1. Municipal Bonds with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. Municipal Bonds are debt
obligations of states, cities, counties, municipalities and municipal
agencies (all of which are generally referred to as "municipalities") which
generally have a maturity at the time of issue of one year or more and
which are issued to raise funds for various public purposes such as
construction of a wide range of public facilities, to refund outstanding
obligations and to obtain funds for institutions and facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its faith, credit and taxing power for the payment
of principal and interest. Issuers of general obligation bonds include
states, counties, cities, towns and other governmental units. The principal
of, and interest on, revenue bonds are payable from the income of specific
projects or authorities and generally are not supported by the issuer's
general power to levy taxes. In some cases, revenues derived from specific
taxes are pledged to support payments on a revenue bond.
In addition, certain kinds of "private activity bonds" are issued by public
authorities to provide funding for various privately operated industrial
facilities (hereinafter referred to as "industrial revenue bonds" or
"IRBs"). Interest on the IRBs is generally exempt, with certain exceptions,
from 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
3
<PAGE>
at the time of acquisition and provide the demand feature which may be
exercised by the Fund at anytime 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
number 6 (herein), the Fund is permitted to invest up to 10% of the
portfolio in high quality, short term Municipal Obligations (including
IRBs) meeting the definition of Eligible Securities at the time of
acquisition that may not be readily marketable or have a liquidity feature.
2. Municipal Notes with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. The principal kinds of
Municipal Notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes and project notes. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality or agency. Project notes
are issued by local agencies and are guaranteed by the United States
Department of Housing and Urban Development. Project notes are also secured
by the full faith and credit of the United States. The Fund's investments
may be concentrated in Municipal Notes of New York issuers.
3. Municipal Commercial Paper that is an Eligible Security at the time of
acquisition. Issues of Municipal Commercial Paper typically represent very
short-term, unsecured, negotiable promissory notes. These obligations are
often issued to meet seasonal working capital needs of municipalities or to
provide interim construction financing and are paid from general revenues
of municipalities or are refinanced with long-term debt. In most cases
Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the
event of default by the issuer of the commercial paper.
4. Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications
equipment and other capital assets. Municipal Leases frequently have
special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance
limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has
no obligation to make future payments under the lease or contract unless
money is appropriated for such purpose by the appropriate legislative body
on a yearly or other periodic basis. To reduce this risk, the Fund will
only purchase Municipal Leases subject to a non-appropriation clause where
the payment of principal and accrued interest is backed by an unconditional
irrevocable letter of credit, a guarantee, insurance or other comparable
undertaking of an approved financial institution. These types of municipal
leases may be considered illiquid and subject to the 10% limitation of
investments in illiquid securities set forth under "Investment
Restrictions" contained herein. The Board of Directors may adopt guidelines
and delegate to the Manager the daily function of determining and
monitoring the liquidity of municipal leases. In making such determination,
the Board and the Manager may consider such factors as the frequency of
trades for the obligation, the number of dealers willing to purchase or
sell the obligations and the number of other potential buyers and the
nature of the marketplace for the obligations, including the time needed to
dispose of the obligations and the method of soliciting offers. If the
Board determines that any municipal leases are illiquid, such lease will be
subject to the 10% limitation on investments in illiquid securities.
5. Any other Federal tax-exempt, and to the extent possible, New York State
and New York City tax-exempt obligations issued by or on behalf of states
and municipal governments and their authorities, agencies,
instrumentalities and political subdivisions, whose inclusion in the Fund
would be consistent with the Fund's "Investment Objectives, Policies and
Risks" and permissible under Rule 2a-7 under the 1940 Act.
Subsequent to its purchase by the Fund, a rated Municipal Obligation may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. If this occurs, the Board of Directors of the Fund shall reassess
promptly whether the Municipal Obligation presents minimal credit risks and
shall cause the Fund to take such action as the Board of Directors determines is
in the best interest of the Fund and its shareholders. However, reassessment is
not required if the Municipal Obligation is disposed of or matures within five
business days of the Manager becoming aware of the new rating and provided
further that the Board of Directors is subsequently notified of the Manager's
actions.
4
<PAGE>
In addition, in the event that a Municipal Obligation (1) is in default, (2)
ceases to be an Eligible Security or (3) there is a determination that it no
longer presents minimal credit risks, the Fund will dispose of the Municipal
Obligation absent a determination by the Fund's Board of Directors that disposal
of the Municipal Obligation would not be in the best interests of the Fund. In
the event that the Municipal Obligation is disposed of it shall be disposed of
as soon as practicable consistent with achieving an orderly disposition by sale,
exercise of any demand feature or otherwise. In the event of a default with
respect to a Municipal Obligation which immediately before default accounted for
1/2 of 1% or more of the Fund's total assets, the Fund shall promptly notify the
Securities and Exchange Commission of such fact and of the actions that the Fund
intends to take in response to the situation. Certain 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.
VARIABLE RATE DEMAND INSTRUMENTS AND PARTICIPATION CERTIFICATES
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations that provide for a periodic adjustment in the interest
rate paid on the 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 either
at any time or at specified intervals not exceeding 397 days depending upon the
terms of the instrument. The terms of the instruments provide that interest
rates are adjustable at intervals ranging from daily to up to 397 days and the
adjustments are based upon the "prime rate"* of a bank or other appropriate
interest rate adjustment index as provided in the respective instruments. The
Fund will decide which variable rate demand instruments it will purchase in
accordance with procedures prescribed by its Board of Directors to minimize
credit risk. A fund utilizing the amortized cost method of valuation under Rule
2a-7 of the 1940 Act may only purchase variable rate demand instruments only if
(i) the instrument is subject to an unconditional demand feature, exercisable by
the Fund in the event of a default in the payment of principal or interest on
the underlying securities, that is an Eligible Security, or (ii) the instrument
is not subject to an unconditional demand feature but does qualify as an
Eligible Security and has a long-term rating by the Requisite NRSROs in one of
the two highest rating categories, or if unrated, is determined to be of
comparable quality by the Fund's Board of Directors. The Fund's Board of
Directors may determine that an unrated variable rate demand instrument meets
the Fund's quality criteria if it is backed by a letter of credit or guarantee
or is insured by an insurer that meets the quality criteria for the Fund stated
herein or on the basis of a credit evaluation of the underlying obligor. If an
instrument is ever not deemed to be an Eligible Security, the Fund either will
sell it in the market or exercise the demand feature.
The variable rate demand instruments that the Fund may invest in include
participation certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Obligations (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations. The Fund will not purchase participation certificates
in fixed rate tax-exempt Municipal Obligations without obtaining an opinion of
counsel that the Fund will be treated as the owner thereof for Federal income
tax purposes. A participation certificate gives the Fund an undivided interest
in the Municipal Obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the Municipal Obligation and
provides the demand repurchase feature described below. Where the institution
issuing the participation does not meet the Fund's eligibility criteria, the
participation is backed by an irrevocable letter of credit or guaranty of a bank
(which may be the bank issuing the participation certificate, a bank issuing a
confirming letter of credit to that of the issuing bank, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
certificate of participation) or insurance policy of an insurance company that
the Board of Directors of the Fund has determined meets the prescribed quality
standards for the Fund. The Fund has the right to sell the participation
certificate back to the institution and draw on the letter of credit or
insurance after no more than 30 days
- -------------------------------------------------------------------------------
* 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
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notice either at any time or at specified intervals not exceeding 397 days
(depending on terms of participation), for all or any part of the full principal
amount of the Fund's participation interest in the security, plus accrued
interest. The Fund intends to exercise the demand only (1) upon a default under
the terms of the bond documents, (2) as needed to provide liquidity to the Fund
in order to make redemptions of Fund shares or (3) to maintain a high quality
investment portfolio. The institutions issuing the participation certificates
will retain a service and letter of credit fee where applicable and a fee for
providing the demand repurchase feature, in an amount equal to the excess of the
interest paid on the instruments over the negotiated yield at which the
participations were purchased by the Fund. The total fees generally range from
5% to 15% of the applicable prime rate or other interest rate index. With
respect to insurance, the Fund will attempt to have the issuer of the
participation certificate bear the cost of the insurance, although the Fund
retains the option to purchase insurance if necessary, in which case the cost of
insurance will be an expense of the Fund subject to the Fund's expense
limitation (see "Expense Limitation" herein). The Manager has been instructed by
the Fund's Board of Directors to continually monitor the pricing, quality and
liquidity of the variable rate demand instruments held by the Fund, including
the participation certificates, on the basis of published financial information
and reports of the rating agencies and other bank analytical services to which
the Fund may subscribe. Although these instruments may be sold by the Fund, the
Fund intends to hold them until maturity, except under the circumstances stated
above. (See "Federal Income Taxes" herein.)
In view of the "concentration" of the Fund in bank participation certificates in
New York Municipal Obligations, secured by bank letters of credit or guarantees,
an investment in the Fund should be made with an understanding of the
characteristics of the banking industry and the risks which such an investment
may entail. Banks are subject to extensive governmental regulations which may
limit both the amounts and types of loans and other financial commitments which
may be made and interest rates and fees which may be charged. The profitability
of this industry is largely dependent upon the availability and cost of capital
funds for the purpose of financing lending operations under prevailing money
market conditions. Also, general economic conditions play an important part in
the operations of this industry and exposure to credit losses arising from
possible financial difficulties of borrowers might affect a bank's ability to
meet its obligations under a letter of credit. The Fund may invest 25% or more
of the net assets of any portfolio in securities that are related in such a way
that an economic, business or political development or change affecting one of
the securities would also affect the other securities including, for example,
securities the interest upon which is paid from revenues of similar type
projects, or securities the issuers of which are located in the same state.
The recent period has seen wide fluctuations in interest rates, particularly
"prime rates" charged by banks. While the value of the underlying variable rate
demand instruments may change with changes in interest rates generally, the
variable rate nature of the underlying variable rate demand instruments should
minimize changes in value of the instruments. Accordingly, as interest rates
decrease or increase, the potential for capital appreciation and the risk of
potential capital depreciation is less than would be the case with a portfolio
of fixed income securities. The portfolio may contain variable maximum rates set
by state law limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent it does, increases or decreases in
value may be somewhat greater than would be the case without such limits.
Additionally, the portfolio may contain variable rate demand participation
certificates in fixed rate Municipal Obligations. The fixed rate of interest on
these Municipal Obligations will be a ceiling on the variable rate of the
participation certificate. In the event that interest rates increased so that
the variable rate exceeded the fixed rate on the Municipal Obligations, the
Municipal Obligations could no longer be valued at par and may cause the Fund to
take corrective action, including the elimination of the instruments from the
portfolio. Because the adjustment of interest rates on the variable rate demand
instruments is made in relation to movements of the applicable banks' "prime
rates", or other interest rate adjustment index, the variable rate demand
instruments are not comparable to long-term fixed rate securities. Accordingly,
interest rates on the variable rate demand instruments may be higher or lower
than current market rates for fixed rate obligations of comparable quality with
similar maturities.
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (1) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment. The maturity of a variable rate demand instrument will be determined
in the same manner for purposes of computing the Fund's dollar-weighted average
portfolio maturity. If a variable rate demand
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instrument ceases to be an eligible security, it will be sold in the market or
through exercise of the repurchase demand feature to the issuer.
WHEN-ISSUED SECURITIES
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on the Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date of the Fund's
commitment to purchase. Although the Fund will only make commitments to purchase
when-issued Municipal Obligations with the intention of actually acquiring them,
the Fund may sell these securities before the settlement date if deemed
advisable by the Manager.
Municipal Obligations purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way, that is, both experiencing appreciation when interest rates
decline and depreciation when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
income tax.
STAND-BY COMMITMENTS
When the Fund purchases Municipal Obligations it may also acquire stand-by
commitments from banks and other financial institutions with respect to such
Municipal Obligations. Under a stand-by commitment, a bank or broker-dealer
agrees to purchase at the Fund's option a specified Municipal Obligation at a
specified price with same day settlement. A stand-by commitment is the
equivalent of a "put" option acquired by the Fund with respect to a particular
Municipal Obligation held in its portfolio.
The amount payable to the Fund upon its exercise of a stand-by commitment
normally would be (1) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (2) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank or dealer during the
time a stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment would be unconditional and
unqualified. A stand-by commitment would not be transferable by the Fund,
although it could sell the underlying Municipal Obligation to a third party at
any time.
The Fund expects that stand-by commitments generally will be available without
the payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio would not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after each stand-by
commitment was acquired.
The Fund would enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks and, where the issuer of the Municipal Obligation does not meet the
eligibility criteria, only where the issuer of the stand-by commitment has
received a rating which meets the eligibility criteria or, if not rated,
presents a minimal risk of default as determined by the Board of Directors. The
Fund's reliance upon the credit of these banks and broker-dealers would be
supported by the value of the underlying Municipal Obligations held by the Fund
that were subject to the commitment.
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The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income taxes
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment.
The acquisition of a stand-by commitment would not affect the valuation or
assumed maturity of the underlying Municipal Obligations which will continue to
be valued in accordance with the amortized cost method. Stand-by commitments
acquired by the Fund would be valued at zero in determining net asset value. In
those cases in which the Fund paid directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment is held by the Fund. Stand-by commitments
would not affect the dollar weighted average maturity of the Fund's portfolio.
The maturity of a security subject to a stand-by commitment is longer than the
stand-by repurchase date.
The stand-by commitments that the Fund may enter into are subject to certain
risks, which include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.
In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by 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 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 on which is subject
to Federal income tax, under any one or more of the following circumstances: (a)
pending investment of proceeds of sales of Fund shares or of portfolio
securities, (b) pending settlement of purchases of portfolio securities and (c)
to maintain liquidity for the purpose of meeting anticipated redemptions. In
addition, the Fund may temporarily invest more than 20% in such taxable
securities when, in the opinion of the Manager, it is advisable to do so because
of adverse market conditions affecting the market for Municipal Obligations. The
kinds of taxable securities in which the Fund may invest are limited to the
following short-term, fixed-income securities (maturing in 397 days or less from
the time of purchase): (1) obligations of the United States Government or its
agencies, instrumentalities or authorities; (2) commercial paper meeting the
definition of Eligible Security at the time of acquisition; (3) certificates of
deposit of domestic banks with assets of $1 billion or more; and (4) repurchase
agreements with respect to any Municipal Obligations or other securities which
the Fund is permitted to own. (See "Federal Income Taxes" herein.)
REPURCHASE AGREEMENTS
The Fund may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Fund would acquire an underlying
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the 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, and the
Fund or its custodian shall have possession of the collateral, which the Fund's
Board believes will give it a valid, perfected security interest in the
collateral. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur costs
in connection with the disposition of the collateral. The Fund's Board believes
that the collateral underlying repurchase agreements may be more susceptible to
claims of the seller's creditors than would be the case with securities owned by
the Fund. It is expected that repurchase agreements will give rise to income
which will not qualify as tax-exempt income when distributed by the Fund. The
Fund will not invest in a repurchase agreement maturing in more than seven days
if any such investment together with illiquid securities held by the Fund exceed
10% of
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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.
SPECIAL FACTORS AFFECTING NEW YORK
This summary is included for the purpose of providing a general description of
New York State and New York City credit and financial conditions. As stated
previously, the Fund will invest only in securities that are rated high quality
by either of the major rating services or that are unrated but are determined to
be of comparable quality by the Fund's Board of Directors on the basis of credit
enhancement features such as letters of credit, guarantees or insurance.
Economic Trends. Over the long term, the State of New York (the "State") and the
City of New York (the "City") face serious potential economic problems. The City
accounts for approximately 41% of the State's population and personal income,
and the City's financial health affects the State in numerous ways. The State
historically has been one of the wealthiest states in the nation. For decades,
however, the State has grown more slowly than the nation as a whole, gradually
eroding its relative economic affluence. Statewide, urban centers have
experienced significant changes involving migration of the more affluent to the
suburbs and an influx of generally less affluent residents. Regionally, the
older Northeast cities have suffered because of the relative success that the
South and the West have had in attracting people and business. The City has also
had to face greater competition as other major cities have developed financial
and business capabilities which make them less dependent on the specialized
services traditionally available almost exclusively in the City. In recent years
the State's economic position has improved in a manner consistent with that for
the Northeast as a whole.
The State has for many years had a very high State and local tax burden relative
to other states. The State and its localities have used these taxes to develop
and maintain their transportation networks, public schools and colleges, public
health systems, other social services and recreational facilities. Despite these
benefits, the burden of State and local taxation, in combination with the many
other causes of regional economic dislocation, has contributed to the decisions
of some businesses and individuals to relocate outside, or to not locate within,
the State.
Notwithstanding the numerous initiatives that the State and its localities may
take to encourage economic growth and achieve balanced budgets, reductions in
Federal spending could materially and adversely affect the financial condition
and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.3 million, is an
international center of business and culture. Its non-manufacturing economy is
broadly based, with the banking and securities, life insurance, communications,
publishing, fashion design, retailing and construction industries accounting for
a significant portion of the City's total employment earnings. Additionally, the
City is the nation's leading tourist destination. The City's manufacturing
activity is conducted primarily in apparel and publishing.
The national economic downturn which began in July 1990 adversely affected the
local economy, which had been declining since late 1989. As a result, the City
experienced job losses in 1990 and 1991 and real Gross City Product (GCP) fell
in those two years. Beginning in calendar year 1992, the improvement in the
national economy helped stabilize conditions in the City. Employment losses
moderated toward year-end and real GCP increased, boosted by strong wage gains.
For each of the 1981 through 1994 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"), and the City's 1995 fiscal year results are projected to be
balanced in accordance with GAAP. The City was required to close substantial
budget gaps in recent years in order to maintain balanced operating results. For
fiscal year 1995, the City has adopted a budget which has halted the trend in
recent years of substantial increases in City spending from each year to the
next. There can be no assurance that the City will continue to maintain a
balanced budget as required by State law without additional tax or other revenue
increases or reductions in City services, which could adversely affect the
City's economic base.
The City depends on the State for State aid both to enable the City to balance
its budget and to meet its cash requirements. There can be no assurance that
there will not be reductions in State aid to the City from amounts currently
projected or that State budgets in future fiscal years will be adopted and that
such reductions or delays will not have adverse effects on the City's cash flow
or expenditures.
New York State and its Authorities. The economic and financial condition of the
State may be affected by various financial, social, economic and political
factors. Those factors can be very complex, may vary from fiscal year to fiscal
year, and are frequently the result of actions taken not only by the State and
its agencies and instrumentalities, but also by entities, such as the Federal
government, that are not under the control of the State.
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The State Financial Plan is based upon forecasts of national and State economic
activity. Economic forecasts have frequently failed to predict accurately the
timing and magnitude of changes in the national and the State economies. Many
uncertainties exist in forecasts of both the national and State economies,
including consumer attitudes toward spending, Federal financial and monetary
policies, the availability of credit, and the condition of the world economy,
which could have an adverse effect on the State. There can be no assurance that
the State economy will not experience results in the current fiscal year that
are worse than predicted, with corresponding material and adverse effects on the
State's projections of receipts and disbursements.
As noted above, the financial condition of the State is affected by several
factors, including the strength of the State and regional economy and actions of
the Federal government, as well as State actions affecting the level of receipts
and disbursements. Owing to these and other factors, the State may, in future
years, face substantial potential budget gaps resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the future costs of maintaining State programs at current levels. Any such
recurring imbalance would be exacerbated if the State were to use a significant
amount of nonrecurring resources to balance the budget in a particular fiscal
year. To address a potential imbalance for a given fiscal year, the State would
be required to take actions to increase receipts and/or reduce disbursements as
it enacts the budget for that year, and under the State Constitution the
Governor is required to propose a balanced budget each year. To correct
recurring budgetary imbalances, the State would need to take significant actions
to align recurring receipts and disbursements in future fiscal years. There can
be no assurance, however, that the State's actions will be sufficient to
preserve budgetary balance in a given fiscal year or to align recurring receipts
and disbursements in future fiscal years.
The General Fund is the general operating fund of the State and is used to
account for all financial transactions, except those required to be accounted
for in another fund. It is the State's largest fund and receives almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1994-95 fiscal year, the General Fund is expected to account for
approximately 52% of total governmental-fund receipts and 51% of total
governmental-fund disbursements. General Fund moneys are also transferred to
other funds, primarily to support certain capital projects and debt service
payments in other fund types.
As a result of the national and regional economic recession, the State's tax
receipts for its 1991 and 1992 fiscal years were substantially lower than
projected, which resulted in reduction in State aid to localities for the
State's 1992 and 1993 fiscal years from amounts previously projected. The State
completed its 1993 fiscal year with a positive margin of $671 million in the
General Fund, which was deposited into a tax refund reserve account.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, action of the Federal government and other factors have created
structural budget gaps for the State. These gaps resulted from a significant
disparity between recurring revenues and the costs of maintaining or increasing
the level of support for State programs.
The fiscal stability of the State is related to the fiscal stability of its
authorities, which generally have responsibility for financing, constructing and
operating revenue-producing public benefit facilities. The authorities are
generally supported by revenues generated by the projects financed or operated,
such as fares, user fees on bridges, highway tolls and rentals for dormitory
rooms and housing. The authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. As of September 30, 1992 there were 18
authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 authorities was $63.5
billion as of September 30, 1993. As of March 31, 1994, aggregate public
authority debt outstanding as State-supported debt was $21.1 billion and as
State-related debt was $29.4 billion.
Ratings. In recent years, the State and certain of its municipalities and state
agencies (the "Agencies") and the City have experienced financial difficulties
which have jeopardized the credit standings and impaired the borrowing abilities
of the State and the respective Agencies, and have contributed to higher
interest rates on, and lower market prices for, debt obligations issued by them.
On November 19, 1987, S&P revised its rating of City bonds upward from "BBB+" to
"A-". On July 10, 1995, S&P revised downward its rating on City general
obligation bonds from A- to BBB+ and removed City bonds from CreditWatch. S&P
stated that "structural budgetary balance remains elusive because of persistent
softness in the City's economy, highlighted by weak job growth and a growing
dependence on the historically volatile financial services sector". Other
factors identified by S&P in lowering its rating on City bonds included a trend
of using one-time measures, including debt refinancings, to close projected
budget gaps, dependence on unratified labor savings to help balance the
Financial Plan, optimistic projections of additional federal and State aid or
mandate relief, a history of cash flow difficulties
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caused by State budget delays and continued high debt levels. In May 1988,
Moody's revised its rating of City bonds upward to "A" and again in February
1991 to "Baa1".. Fitch Investors Service, Inc. ("Fitch") continues to rate the
City general obligation bonds A-.
On January 13, 1992, S&P reduced its ratings on the State's general obligation
bonds from "A" to "A-" and, in addition, reduced its ratings on the State's
moral obligation, lease purchase, guaranteed and contractual obligation debt.
S&P also continued its negative rating outlook assessment on State general
obligation debt. On April 26, 1993, S&P revised the rating outlook assessment to
stable. On February 14, 1994, S&P raised its outlook to positive and, on July
13, 1995, confirmed its "A-" rating. On January 6, 1992, Moody's reduced its
ratings on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On July 3, 1995, Moody's reconfirmed its A rating on
the State's general obligation long-term indebtedness. The State's tax and
revenue anticipation notes issued in February 1991 and in June 1991 were rated
"MIG-2" by Moody's and "SP-1" by S&P. The State's tax and revenue anticipation
notes issued in June 1990 and in March 1990 were rated "MIG-2" by Moody's and
"SP-1" by S&P. For the meaning of ratings see "Description of Ratings" herein.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios and which may not be changed unless approved by a
majority of the outstanding shares of each series of the Fund's shares that
would be affected by such a change. The Fund may not:
1. Make portfolio investments other than as described under "Investment
Objectives, Policies and Risks" or any other form of Federal tax-exempt
investment which meets the Fund's quality criteria, as determined by the
Board of Directors and which is consistent with the Fund's objectives and
policies.
2. Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any investments. Interest paid on borrowings will reduce
net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options, except to the extent that securities subject to a demand
obligation and stand-by commitments may be purchased as set forth under
"Investment Objectives, Policies and Risks" herein.
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 total net
assets.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this
shall not prevent the Fund from investing in Municipal Obligations secured
by real estate or interests in real estate.
8. Make loans to others, except through the purchase of portfolio investments,
including repurchase agreements, as described under "Investment Objectives,
Policies and Risks" herein.
9. Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
10. Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that the Fund may invest more than 25% of its
assets in bank participation certificates and there shall be no limitation
on the purchase of those Municipal Obligations and other obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities. When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from those of
the government creating the issuing entity and a security is backed only by
the assets and revenues of the entity, the entity would be deemed to be the
sole
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issuer of the security. Similarly, in the case of an industrial revenue
bond, if that bond is backed only by the assets and revenues of the
non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. If, however, in either case, the creating government or
some other entity, such as an insurance company or other corporate obligor,
guarantees a security or a bank issues a letter of credit, such a guarantee
or letter of credit would be considered a separate security and would be
treated as an issue of such government, other entity or bank. With respect
to 75% of the total amortized cost value of the Fund's assets, not more
than 5% of the Fund's assets may be invested in securities that are subject
to underlying puts from the same institution, and no single bank shall
issue its letter of credit and no single financial institution shall issue
a credit enhancement covering more than 5% of the total assets of the Fund.
However, if the puts are exercisable by the Fund in the event of default on
payment of principal and interest on the underlying security, then the Fund
may invest up to 10% of its assets in securities underlying puts issued or
guaranteed by the same institution; additionally, a single bank can issue
its letter of credit or a single financial institution can issue a credit
enhancement covering up to 10% of the Fund's assets, where the puts offer
the Fund such default protection.
11. Invest in securities of other investment companies, except the Fund (i) 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 and (ii) may purchase securities as permitted by
section 12(d) of the 1940 Act.
12. Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with any permitted borrowing.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
PORTFOLIO TRANSACTIONS
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases participation
certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the participation certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In 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 underwriter. In addition, the Fund will not buy bankers'
acceptances, certificates of deposit or commercial paper from the Manager or its
affiliates.
HOW TO PURCHASE AND REDEEM SHARES
The material relating to the purchase and redemption of shares in the Prospectus
is herein incorporated by reference. The national and local holidays on which
the Fund will be closed and shares may not be purchased or redeemed are the
following:
12
<PAGE>
New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas.
NET ASSET VALUE
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. It is computed by dividing the value of
the Fund's net assets (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.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated, as
described in the following paragraph. Although the amortized cost method
provides certainty in valuation, it may result in periods during which the value
of an instrument is higher or lower than the price an investment company would
receive if the instrument were sold.
The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset value at $1.00 per share. 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. Should that deviation
exceed 1/2 of 1%, the Board will consider whether any action should be initiated
to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. The Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less, will not purchase any instrument with a remaining maturity
greater than 397 days, will limit portfolio investments, including repurchase
agreements, to those United States dollar-denominated instruments that the
Fund's Board of Directors determines present minimal credit risks, and will
comply with certain reporting and record keeping procedures. The Fund has also
established procedures to ensure compliance with the requirement that portfolio
securities are Eligible Securities. (See "Investment Objectives, Policies and
Risks" herein.)
YIELD QUOTATIONS
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the Securities and Exchange Commission. Under that
method, the Fund's yield figure, which is based on a chosen seven-day period, is
computed as follows: the Fund's return for the seven-day period (which is
obtained by dividing the net change in the value of a hypothetical account
having a balance of one share at the beginning of the period by the value of
such account at the beginning of the period (expected to always be $1.00) is
multiplied by (365/7) with the resulting annualized figure carried to the
nearest hundredth of one percent). For purposes of the foregoing computation,
the determination of the net change in account value during the seven-day period
reflects (i) dividends declared on the original share and on any additional
shares, including the value of any additional shares purchased with dividends
paid on the original share and (ii) fees charged to all shareholder accounts.
Realized capital gains or losses and unrealized appreciation or depreciation of
the Fund's portfolio securities are not included in the computation. Therefore
annualized yields may be different from effective yields quoted for the same
period.
The Fund's "effective yield" is obtained by adjusting its "current yield" to
give effect to the compounding nature of the Fund's portfolio, as follows: The
unannualized base period return is compounded and brought out to the nearest one
hundredth of one percent by adding one to the base period return, raising the
sum to a power equal to 365 divided by 7, and subtracting one from the result,
i.e., effective yield = (base period return + 1)365/7 - 1.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day. The Fund's yield for any given period is not an indication, or
representation by the Fund, of future yields or rates of return on the Fund's
shares, and may not provide a basis for comparison with bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors who
purchase the Fund's shares directly may realize a higher yield than Participant
Investors because they will not be subject to any fees or charges that may be
imposed by Participating Organizations.
The Fund may from time to time advertise its taxable equivalent yield. The tax
equivalent yield is computed based upon a 30-day (or one month) period ended on
the date of the most recent balance sheet included in this Statement of
Additional Information, computed by dividing that portion of the yield of the
Fund (as computed pursuant to the formulae previously
13
<PAGE>
discussed) which is tax exempt by one minus a stated income tax rate and adding
the product to that portion, if any, of the yield of the Fund that is not tax
exempt. The taxable equivalent yield for the Fund may also fluctuate daily and
does not provide a basis for determining future yields.
The Fund may from time to time advertise a taxable equivalent yield table which
shows the yield that an investor would need to receive from a taxable investment
in order to equal a tax-free yield from the Fund. (See "Taxable Equivalent Yield
Table" herein.)
The Fund's yield for the seven day period ending July 31, 1995 was 3.15% which
is equivalent to an effective yield of 3.20%.
MANAGER
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., with
principal offices at 600 Fifth Avenue, New York, New York 10020 (the "Manager").
In addition to the Fund, the Manager's advisory clients include, among others,
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, Lebenthal New York Tax Free Money Fund, Michigan Daily Tax Free Income
Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich &
Tang Equity Fund, Inc., Reich & Tang Government Securities Trust, Short Term
Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc. The Manager also advises
pension trusts, profit-sharing trusts and endowments.
Effective October 1, 1994, the Board of Directors of the Fund approved the
re-execution of the Investment Management Contract and Administrative Services
Contract with the Manager. The Manager's predecessor, New England Investment
Companies, L.P. ("NEICLP") is the limited partner and owner of a 99.5% interest
in the newly created limited partnership, Reich & Tang Asset Management L.P.,
the Manager. Reich & Tang Asset Management, Inc. (a wholly-owned subsidiary of
NEICLP) is the general partner and owner of the remaining .5% interest of the
Manager. Reich & Tang Asset Management L.P. has succeeded NEICLP as the Manager
of the Fund. The re-execution of the Investment Management Contract did not
result in "assignment" of the Investment Management Contract with NEICLP under
the 1940 Act, since there is no change in actual control or management of the
Manager caused by the re-execution.
New England Investment Companies, Inc. ("NEIC"), a Massachusetts corporation,
serves as the sole general partner of NEICLP. The New England Mutual Life
Insurance Company ("The New England") owns approximately 68.1% of the total
partnership units outstanding of NEICLP, and Reich & Tang, Inc. owns
approximately 22.8% of the outstanding partnership units of NEICLP.
NEIC is a wholly-owned subsidiary of The New England which may be deemed a
"controlling person" of the Manager. NEIC is a holding company offering a broad
array of investment styles across a wide range of asset categories through eight
investment advisory/management affiliates and three distribution subsidiaries.
These include Loomis, Sayles & Company, L.P.; Copley Real Estate Advisors, Inc.;
Westpeak Investment Advisors, L.P.; Draycott Partners, Ltd,; TNE Investment
Services, L.P.; New England Investment Associates, Inc.; and an affiliate, and
Capital Growth Management Limited Partnership. These affiliates in the aggregate
are investment advisors or managers of 57 other registered investment companies.
The Investment Management Contract contains the same terms and conditions
governing the Manager's investment management and administrative
responsibilities, respectively, as the Fund's previous Investment Management
Contract with Reich & Tang L.P. except for (i) the dates of execution and
termination and (ii) the identity of the Manager.
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 Manager also performs clerical, accounting supervision, office service and
related functions for the Fund and provides the Fund with personnel to (i)
supervise the performance of bookkeeping and 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. The Fund pays the Manager for
14
<PAGE>
such personnel and for rendering such services at rates which must be agreed
upon by the Fund and the Manager, provided that the Fund does not pay for
services performed by any such persons who are also officers of Reich & Tang,
Inc. It is intended that such rates will be the actual costs of the Manager.
The re-executed Investment Management Contract was approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the 1940 Act), of the Fund or the Manager, effective September 15,
1993. The re-executed Investment Management Contract has a term which extends to
April 30, 1996 and may be continued in force thereafter for successive
twelve-month periods beginning each May 1, provided that such continuance is
specifically approved annually by majority vote of the Fund's outstanding voting
securities or by its Board of Directors, and in either case by a majority of the
directors who are not parties to the Investment Management Contract or
interested persons of any such party, by votes cast in person at a meeting
called for the purpose of voting on such matter.
The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Directors,
or by the Manager on sixty days' written notice, and will automatically
terminate in the event of its assignment. The Investment Management Contract
provides that in the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or of reckless disregard of its
obligations thereunder, the Manager shall not be liable for any action or
failure to act in accordance with its duties thereunder.
For its services under the Investment Management Contract, the Manager receives
from the Fund a fee equal to .30% per annum of the Fund's average daily net
assets for managing the Fund's investment portfolio and performing related
administrative and clerical services. The fees are accrued daily and paid
monthly. Any portion of the total fees received by the Manager may be used by
the Manager to provide shareholder and administrative services. (See
"Distribution and Service Plan" herein.)
For the Fund's fiscal years ended April 30, 1995, April 30, 1994 and April 30,
1993, the fee paid to the Manager under the Investment Management Contract was
$702,867, $824,707 and $1,060,765, respectively. The Fund's net assets at the
close of business on April 30, 1995 totaled $254,421,613. The Manager may waive
its rights to any portion of the management fee and may use any portion of the
management fee for purposes of shareholder and administrative services and
distribution of the Fund's shares.
Pursuant to the Administrative Services Contract with the Fund, the Manager
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of bookkeeping and related services by Investors Fiduciary Trust
Company, the Fund's bookkeeping agent, (ii) prepare reports to and filings with
regulatory authorities and (iii) perform such other services as the Fund may
from time to time request of the Manager. The personnel rendering such services
may be employees of the Manager, of its affiliates or of other organizations. It
is intended that such rates will be the actual costs of the Manager. 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.
For the Fund's fiscal year ended April 30, 1995, the Manager received a fee of
$468,578.
MANAGEMENT OF THE FUND
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. The address of each such person unless
otherwise indicated is 600 Fifth Avenue, New York, N.Y. 10020. Mr. Duff may be
deemed an "interested person" of the Fund, as defined in the 1940 Act, on the
basis of his affiliation with the Manager.
STEVEN W. DUFF, 41 - President of the Fund, is President of the Mutual Funds
Division of the Manager since September 1994. Mr. Duff was formerly Director of
Mutual Fund Administration at NationsBank which he was associated with from June
1981 to August 1994. Mr. Duff is President and a Director of California Daily
Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily
Tax Free Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc. and Short Term Income
Fund, Inc., Senior Vice President of Lebenthal Funds, Inc., President and a
Trustee of Florida Daily Municipal Income Fund, Institutional Daily Income Fund,
Pennsylvania Daily Municipal Income Fund, Executive Vice President and a
Director of Reich & Tang Equity Fund, Inc., and President and Chief Executive
Officer of Tax Exempt Proceeds Fund, Inc.
15
<PAGE>
EDWARD A. KUCZMARSKI, 46 - Director of the Fund, Trustee of The Empire Builder
Tax Free Bond Fund; Certified Public Accountant and Partner of Hays & Company
since 1980. His address is 477 Madison Avenue, New York, N.Y. 10022-5892.
MILTON R. NEAMAN, 83 - Director of the Fund, Trustee of The Empire Builder Tax
Free Bond Fund; Retired Attorney; Chairman of the Board of Metrocare, Inc. until
March 12, 1986. His address is 1010 Waltham St., Lexington, MA. 02173-8044.
CAROLINE E. NEWELL, 55 - Director of the Fund, Trustee of The Empire Builder Tax
Free Bond Fund; Director, International Preschools, Inc. Her address is
International Preschools, Inc., 330 East 45th Street, New York, N.Y. 10017.
JOHN P. STEINES, 47 - Director of the Fund, Trustee of The Empire Builder Tax
Free Bond Fund; Professor of Law, New York University School of Law. His address
is New York University School of Law, 40 Washington Square South, New York, N.Y.
10012.
LESLEY M. JONES, 47 - Vice President of the Fund, is Senior Vice President of
the Reich & Tang Mutual Funds Division of the Manager since September 1993. Ms.
Jones was formerly Senior Vice President of Reich & Tang, Inc. with which she
was associated with from April 1973 to September 1993. Ms. Jones is also a Vice
President of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Florida Daily Municipal Income Fund, Institutional Daily Income Fund, Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal
Income Fund, Reich & Tang Equity Fund, Inc., Reich & Tang Government Securities
Trust and Short Term Income Fund, Inc.
BERNADETTE N. FINN, 47 - Secretary of the Fund, is Vice President and Assistant
Secretary of the Reich & Tang Mutual Funds Division of the Manager since
September 1993. Ms. Finn was formerly Vice President and Assistant Secretary of
Reich & Tang, Inc. with which she was associated with from September 1970 to
September 1993. Ms. Finn is also Secretary of California Daily Tax Free Income
Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc.,
Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal
Income Fund, Institutional Daily Income Fund, Lebenthal Funds, Inc., Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal
Income Fund and Tax Exempt Proceeds Fund, Inc., a Vice President and Secretary
of Reich & Tang Equity Fund, Inc., Reich & Tang Government Securities Trust and
Short Term Income Fund, Inc.
MOLLY FLEWHARTY, 44 - Vice President of the Fund, is Vice President of the Reich
& Tang Mutual Funds Division of the Manager since September 1993. Ms. Flewharty
was formerly Vice President of Reich & Tang, Inc. with which she was associated
with from December 1977 to September 1993. Ms. Flewharty is also Vice President
of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free
Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily
Income Fund, Lebenthal Funds, Inc., Michigan Daily Tax Free Income Fund, Inc.,
New Jersey Daily Municipal Income Fund, Inc., North Carolina Daily Municipal
Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity
Fund, Inc., Reich & Tang Government Securities Trust and Short Term Income Fund,
Inc.
DANA E. MESSINA, 38 - Vice President of the Fund, is Executive Vice President of
the Mutual Funds Division of the Manager since September 1993. Ms. Messina was
formerly Vice President of Reich & Tang, Inc. with which she was associated with
from December 1980 to September 1993. Ms. Messina is Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, Lebenthal Funds, Inc., Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Reich & Tang Government Securities Trust, Short Term Income Fund, Inc.,
and of Tax Exempt Proceeds Fund, Inc.
RICHARD DE SANCTIS, 38 - Treasurer of the Fund, is Assistant Treasurer of NEIC
since September 1993. Mr. De Sanctis was formerly Controller of Reich & Tang,
Inc. from January 1991 to September 1993 and Vice President and Treasurer of
Cortland Financial Group, Inc. and Vice President of Cortland Distributors, Inc.
from 1989 to December 1990. Mr. DeSanctis is Treasurer of California Daily Tax
Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax
Free Income Fund, Inc. Delafield Fund, Inc., Florida Daily Municipal Income
Fund, Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich &
Tang Equity Fund, Inc.,
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<PAGE>
Reich & Tang Government Securities Trust, Tax Exempt Proceeds Fund, Inc. and
Short Term Income Fund, Inc. and Vice President and Treasurer of Cortland Trust,
Inc.
The Fund paid an aggregate remuneration of $22,000 to its directors with respect
to the period ended April 30, 1995, all of which consisted of aggregate
directors' fees paid to the four disinterested directors, pursuant to the terms
of the Investment Management Contract. (See "Manager" herein.)
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Aggregate Pension or Estimated Annual Total Compensation
Name of Compensation from Retirement Benefits Benefits upon from Fund and Fund
Person, Registrant for Fiscal Accrued as Part of Retirement Complex Paid to
Position Year Fund Expenses Directors
- -------- ----------- ---------- ----------- ---------------
Edward A. Kuczmarski, $5,500.00 0 0 $5,500 (1 Fund)
Director
Milton R. Neaman, $5,500.00 0 0 $5,500 (1 Fund)
Director
Caroline E. Newell, $5,500.00 0 0 $5,500 (1 Fund)
Director
John P.Steines $5,500.00 0 0 $5,500 (1 Fund)
Director
_______________________________________________________________________________
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending April 30, 1995 and, with respect to certain of the funds
in the Fund Complex, estimated to be paid during the fiscal year ending April
30, 1995. The parenthetical number represents the number of investment companies
(including the Fund) from which such person receives compensation that are
considered part of the same Fund complex as the Fund, because, among other
things, they have a common investment advisor.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Messrs. Battle Fowler LLP, 75 East 55th Street, New York, N.Y.
10022.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, N.Y. 10017, independent
certified public accountants, have been selected as auditors for the Fund.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 (the "Rule") under the 1940 Act, the Securities and
Exchange Commission has required that an investment company which bears any
direct or indirect expense of distributing its shares must do so only in
accordance with a plan permitted by the Rule. The Fund's Board of Directors has
adopted a distribution and service plan (the "Plan") and, pursuant to the Plan,
the Fund has entered into a Distribution Agreement and a Shareholder Servicing
Agreement with Reich & Tang Distributors L.P., (the "Distributor") as
distributor of the Fund's shares.
Reich & Tang Asset Management, Inc. serves as the sole general partner for both
Reich & Tang Asset Management L.P. and Reich & Tang Distributors L.P., and Reich
& Tang Asset Management L.P. serves as the sole limited partner of the
Distributor. The Board of Directors approved the re-execution of the
Distribution Agreement and the execution of the Shareholder Servicing Agreement.
For its services under the Shareholder Servicing Agreement, the Manager receives
from the Fund a service fee equal to .20% per annum of the Fund's average daily
net assets (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 Fund shares and for payments to Participating
Organizations with respect to servicing their clients or customers who are
17
<PAGE>
shareholders of the Fund. For the Fund's fiscal year ended April 30, 1995, the
amount payable to the Distributor under the Distribution Plan and Shareholder
Servicing Agreement adopted thereunder pursuant to Rule 12b-1 under the 1940
Act, totaled $468,578 of which $22,126 was spent on sales personnel and related
expenses, $2,612 was spent on travel and entertainment, $8,447 was spent on
prospectus, application and miscellaneous printing and $1,042 was spent on
miscellaneous expenses. During the same period, the Manager made total payments
under the Plan to or on behalf of Participating Organizations of $660,683. The
excess of such payments over the total payments the Manager and Distributor
received from the Fund under the Plan represents distribution expenses funded by
the Manager from its own resources including the Management Fee.
Under the Distribution Agreement, the Distributor, as agent for the Fund, will
solicit orders for the purchase of the Fund's shares, provided that any
subscriptions and orders will not be binding on the Fund until accepted by the
Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Manager, 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 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 Manager has entered into written agreements, for performing shareholder
servicing and related administrative functions on behalf of the Fund; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the Fund's shares; (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 and past profits for the
purposes enumerated in (i) above. The Distributor, in its sole discretion, will
determine the amount of such payments made pursuant to the Plan, provided that
such payments will not increase the amount which the Fund is required to pay to
the Manager and Distributor for any fiscal year under either the Investment
Management Contract, the Shareholder Servicing Agreement or the Administrative
Services Contract in effect for that year.
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 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 Board of Directors has approved the
continuance of the Plan until May 1, 1996. The Plan was approved by a majority
of the Fund's shareholders at the Annual Meeting on November 13, 1985. The Plan
further provides that it may not be amended to increase materially the costs
which may be spent by the Fund for distribution pursuant to the Plan without
shareholder approval, and the other material amendments must be approved by the
directors in the manner described in the preceding sentence. The Plan may be
terminated at any time by a vote of a majority of the disinterested directors of
the Fund or the Fund's shareholders.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Fund, which was incorporated on January 31,
1984 in Maryland, consists of twenty billion shares of stock having a par value
of one tenth of one cent ($.001) per share. Each share has equal dividend,
distribution, liquidation and voting rights and a fractional share has those
rights in proportion to the percentage that the fractional share represents of a
whole share. 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
nonaccessible. Shares are redeemable at net asset value, at the option of the
shareholder. On July 31, 1995 there were 280,808,995 shares of the Fund
outstanding. As of July 31, 1995, the amount of shares owned
18
<PAGE>
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 July 31, 1995:
Nature of
Name and address % of Class Ownership
Fundtech Services L.P. 63.99% Record
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York, N.Y. 10020
Neuberger & Berman 19.60% Record
as Agent for Customer
11 Broadway
Operations Control Dept.
New York, NY 10004
Under its Articles of Incorporation the Fund has the right to redeem for cash
shares of stock owned by any shareholder to the extent and at such times as the
Fund's Board of Directors determines to be necessary or appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of the Fund's
revised investment avisory agreement with respect to a particular class or
series of stock, (c) for approval of the Fund's distribution agreement with
respect to a particular class or series of stock, and (d) upon the written
request of holders of shares entitled to cast not less than 25% of all the votes
entitled to be cast at such meeting. Annual and other meetings may be required
with respect to such additional matters relating to the Fund as may be required
by the 1940 Act, any registration of the Fund with the Securities and Exchange
Commission or any state, or as the Directors may consider necessary or
desirable. Each director serves until the next meeting of the shareholders
called for the purpose of considering the election or re-election of such
Director or a successor to such Director, and until the election and
qualification of his or her successor, elected at such a meeting or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders. On August 31, 1990 the Fund's shareholders voted to amend the
Fund's Articles of Incorporation to change the name of the Fund to the New York
Daily Tax Free Income Fund, Inc.
EXPENSE LIMITATION
The Manager has agreed to reimburse the Fund for its expenses (exclusive of
interest, taxes, brokerage, and extraordinary expenses) which in any year exceed
the lesser of (i) 1 1/2% of the Fund's average annual net assets or (ii) the
limits on investment company expenses prescribed by any state in which the
Fund's shares are qualified for sale. For the purpose of this obligation to
reimburse expenses, the Fund's annual expenses are estimated and accrued daily,
and any appropriate estimated payments are made to it on a monthly basis.
Subject to the obligations of the Manager to reimburse the Fund for its excess
expenses as described above, the Fund has, under the Investment Management
Contract, confirmed its obligation for payment of all its other expenses,
including 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 New England Investment Companies,
Inc., the general partner of the Manager or its affiliates, costs of investor
services, shareholders' reports and corporate meetings, Securities and Exchange
Commission registration fees and expenses, state securities laws registration
fees and expenses, expenses of preparing and printing the Fund's prospectus for
delivery to existing
19
<PAGE>
shareholders and of printing application forms for shareholder accounts, the
fees payable to the Distributor under the Shareholder Servicing Agreement and
the Distribution Agreement and all other costs borne by the Fund pursuant to the
Distribution Plan.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein, and the management of the Fund intends to do
so whenever it appears advantageous to the Fund. The Fund's expenses for
employees and for such services are among the expenses subject to the expense
limitation described above.
FEDERAL INCOME TAXES
The Fund has elected to qualify under the Code, as amended, and under New York
law as a "regulated investment company" that distributes "exempt-interest
dividends". The Fund intends to continue to qualify for regulated investment
company status so long as such qualification is in the best interests of its
shareholders. Such qualification relieves the Fund of liability for Federal
income taxes to the extent its earnings are distributed in accordance with the
applicable provisions of the Code.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its tax-exempt interest income and other income, net of certain
deductions. Exempt-interest dividends, as defined in the Code, are dividends or
any part thereof (other than capital gain dividends) paid by the Fund that are
attributable to interest on obligations, the interest on which is exempt from
regular Federal income tax and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders not later than
60 days after the close of its taxable year. The percentage of the total
dividends paid by the Fund during any taxable year that qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends during the year.
Exempt-interest dividends are to be treated by the Fund's shareholders as items
of interest excludible from their gross income under Section 103(a) of the Code.
If a shareholder receives an exempt-interest dividend with respect to any share
and such share has been held for six months or less, then any loss on the sale
or exchange of such share will be disallowed to the extent of the amount of such
exempt-interest dividend. The Code provides that interest on indebtedness
incurred, or continued, to purchase or carry certain tax-exempt securities such
as shares of the Fund is not deductible. Therefore, among other consequences, a
certain proportion of interest on indebtedness incurred, or continued, to
purchase or carry securities on margin may not be deductible during the period
an investor holds shares of the Fund. P.L. 99-514 expands the application of
this rule as it applies to financial institutions, effective with respect to
taxable years ending after December 31, 1986. For Social Security recipients,
interest on tax-exempt bonds, including exempt-interest dividends paid by the
Fund, is to be added to adjusted gross income for purposes of computing the
amount of social security benefits includible in gross income. Under P.L.
99-514, as amended by the Technical and Miscellaneous Revenue Act of 1988 (P.L.
100-647) and the Revenue Reconciliation Act of 1990 (P.L. 101-508), the amount
of such interest received will have to be disclosed on the shareholders' Federal
income tax returns. Further, under P.L. 99-514, taxpayers other than
corporations are required to include as an item of tax preference for purposes
of the Federal alternative minimum tax, all tax-exempt interest on "private
activity" bonds (generally, a bond issue in which more than 10% of the proceeds
are used in a non-governmental trade or business) (other than Section 501(c)(3)
bonds) issued after August 7, 1986. Thus, this provision will apply to the
portion of the exempt-interest dividends from the Fund's assets, if any, that
are attributable to such post-August 7, 1986 private activity bonds, if any such
bonds are acquired by the Fund. Corporations are required to increase their
alternative minimum tax by 75% of the amount by which the adjusted current
earnings (which will include tax-exempt interest) of the corporation exceeds the
alternative minimum taxable income (determined without this item). Further,
interest on the Municipal Obligations is includable in a 0.12% additional
corporate minimum tax imposed by the Superfund Amendments and Reauthorization
Act of 1986. In addition, in certain cases, Subchapter S corporations with
accumulated earnings and profits from Subchapter C years are subject to a
minimum tax on excess "passive investment income" which includes tax-exempt
interest. The Fund may realize ordinary income upon the maturity or disposition
of securities acquired at discounts resulting from market fluctuations.
A shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain the exclusion under Section 103(a) of the Code
if such shareholder would be treated as a "substantial user" or "related person"
under Section 147(a) of the Code with respect to some or all of the "private
activity bonds," if any, held by the Fund.
Although it is not intended, it is possible that the Fund may realize short-term
or long-term capital gains or losses from its portfolio transactions. Short-term
capital gains will be taxable to shareholders as ordinary income when they are
distributed. Any net capital gains (the excess of its net realized long-term
capital gain over its net realized short-term capital loss) will be distributed
annually to the Fund's shareholders. The Fund will have no tax liability with
respect to
20
<PAGE>
distributed net capital gains and the distributions will be taxable to
shareholders as long-term capital gains regardless of how long the shareholders
have held Fund shares. However, Fund shareholders who at the time of 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 net capital gain
distribution. Distributions of net capital gains 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. Under P.L.
99-514, effective as of January 1, 1988, net capital gain was taxable at the
same rates as ordinary income. However, P.L. 101-508 restored preferential
treatment for net capital gains by placing a 28% ceiling on the marginal tax
rate applicable to net capital gains realized by individuals.
The Fund intends to distribute at least 90% of its investment company taxable
income (taxable income subject to certain adjustments exclusive of the excess of
its net long-term capital gain over its net short-term capital loss) for each
taxable year. The Fund will be subject to Federal income tax on any
undistributed investment company taxable income. To the extent such income is
distributed it will be taxable to shareholders as ordinary income. Expenses paid
or incurred by the Fund will be allocated between tax-exempt and taxable income
in the same proportion as the amount of the Fund's tax-exempt income bears to
the total of such exempt income and its gross income (excluding from gross
income the excess of capital gains over capital losses). If the Fund does not
distribute at least 98% of its ordinary income and 98% of its capital gain net
income for a taxable year, the Fund will be subject to a non-deductable 4%
excise tax on the excess of such amounts over the amounts actually distributed.
If a shareholder fails to provide the Fund with a current taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
interest and 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 is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner thereof and the interest on the underlying Municipal Obligations will
be tax-exempt to the Fund. Counsel has pointed out that the Internal Revenue
Service has announced that it will not ordinarily issue advance rulings on the
question of ownership of securities or participation interests therein subject
to a put and, as a result, the Internal Revenue Service could reach a conclusion
different from that reached by counsel.
From time to time, proposals have been introduced before Congress to restrict or
eliminate the Federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund would re-evaluate its investment objectives and policies and
consider changes in the structure. Many important changes were made to the
Federal income tax system by P.L. 103-66, The Omnibus Budget Reconciliation Act
of 1993, including an increase in marginal tax rates.
In South Carolina vs. Baker, the U.S. Supreme Court held that the Federal
government may constitutionally require states to register bonds they issue and
may subject the interest on such bonds to Federal tax if not registered, and
that there is no constitutional prohibition against the Federal government's
taxing the interest earned on state or other municipal bonds. The Supreme Court
decision affirms the authority of the Federal government to regulate and control
bonds such as the Municipal Obligations and to tax such bonds in the future. The
decision does not, however, affect the current exemption from taxation of the
interest earned on the Municipal Obligations in accordance with Section 103 of
the Code.
The exemption for Federal income tax purposes of dividends derived from interest
on Municipal Obligations does not necessarily result in an exemption under the
income or other tax laws of any state or local taxing authority. However, to the
extent that dividends are derived from interest on New York Municipal
Obligations, the dividends will also be excluded from a New York shareholder's
gross income for New York State and New York City personal income tax purposes.
This exclusion will not result in a corporate shareholder being exempt for New
York Sate and New York City franchise tax purposes. Shareholders are advised to
consult with their tax advisers concerning the application of state and local
taxes to investments in the Portfolio which may differ from the Federal income
tax consequences described above.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105 is custodian for the Fund's cash and securities and, is transfer agent and
dividend agent for the shares of the Fund. Primary Funds Service Corporation,
P.O. Box 9741, Providence, Rhode Island 02940 is transfer agent for the Victory
Shares of the Fund. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 is the registrar, transfer agent and dividend
disbursing agent for the Evergreen shares of the Fund The Fund's transfer agent
and custodian do not assist in, and are not responsible for, investment
decisions involving assets of the Fund.
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 (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S TWO HIGHEST RATINGS OF STATE
AND MUNICIPAL NOTES AND OTHER SHORT-TERM LOANS:
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:
MIG-1 - Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2 - Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S 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 in small degree.
Plus ( + ) or Minus (-): The AA rating may be modified by the addition of a plus
or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
- ------------
* As described by the rating agencies.
22
<PAGE>
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S 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.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S TWO HIGHEST MUNICIPAL NOTE
RATINGS:
SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
23
<PAGE>
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT YIELD TABLE
- --------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Single 23,350- 25,001- 56,551- 60,001- 117,951- 256,501
Return 25,000 56,550 60,000 117,950 256,500 and over
- --------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
Joint 39,000- 45,001- 94,251- 108,001- 143,601- 256,501
Return 45,000 94,250 108,000 143,600 256,500 and over
- --------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- --------------------------------------------------------------------------------------------------------------------
Federal
Tax 28.0% 28.0% 31.0% 31.0% 36.0% 39.6%
Bracket
- ---------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
State
Tax 7.59% 7.59% 7.59% 7.59% 7.59% 7.59%
Bracket
- ---------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
City Tax
Bracket 4.389% 4.40% 4.40% 4.457% 4.457% 4.457%
- ---------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
Combined
Tax 36.625% 36.633% 39.273% 39.313% 43.710% 46.877%
Bracket
- --------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields
With Taxable Income Yields
- --------------------------------------------------------------------------------------------------------------------
Tax Equivalent Taxable Investment Yield
Exempt Required to Match Tax Exempt Yield
Yield
- ---------- ---------------------------------------------------------------------------------------------------------
2.0% 3.16% 3.16% 3.29% 3.30% 3.55% 3.76%
- ---------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
2.5% 3.94% 3.95% 4.12% 4.12% 4.44% 4.71%
- ---------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
3.0% 4.73% 4.73% 4.94% 4.94% 5.33% 5.65%
- ---------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
3.5% 5.52% 5.52% 5.76% 5.77% 6.22% 6.59%
- ---------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
4.0% 6.31% 6.31% 6.59% 6.59% 7.11% 7.53%
- ---------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
4.5% 7.10% 7.10% 7.41% 7.42% 7.99% 8.47%
- ---------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
5.0% 7.89% 7.89% 8.23% 8.24% 8.88% 9.41%
- ---------- ----------------- ---------------- ------------------ ----------------- --------------- -----------------
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
- -------------------------------------------------------------------------------
24
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
INDEPENDENT AUDITOR'S REPORT
===============================================================================
The Board of Directors and Shareholders
New York Daily Tax Free Income Fund, Inc.
We have audited the accompanying statement of net assets of New York Daily Tax
Free Income Fund, Inc. as of April 30, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the selected financial
information for each of the five years in the period then ended. These financial
statements and selected financial information are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and selected financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of April 30, 1995, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of New York Daily Tax Free Income Fund, Inc. as of April 30, 1995, the
results of its operations, the changes in its net assets and the selected
financial information for the periods indicated, in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
May 19, 1995
- -------------------------------------------------------------------------------
25
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS
APRIL 30, 1995
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Tax Exempt Investments (15.23%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,000,000 Brentwood NY USFD TAN (c) 06/30/95 3.75 % $ 5,005,529
4,000,000 Elmira NY GO BAN 08/11/95 3.95 4,005,369 MIG-1
5,000,000 Longwood CSD NY TAN (c) 06/23/95 3.65 5,003,848
2,000,000 Monroe County, NY Public Improvement Bond
AMBAC Insured 06/01/95 3.58 2,005,350 Aaa AAA
3,500,000 Onondaga County, NY BAN (c) 10/27/95 4.16 3,504,894
500,000 Onondaga County, NY GO Bond 05/01/95 3.75 500,000 Aa AA
3,975,000 Orange County, NY BAN (c) 11/22/95 4.44 3,985,671
3,800,000 Oswego County BOCES RAN (c) 06/27/95 3.80 3,802,286
2,000,000 Suffolk County, NY TAN
LOC National Westminster Bank PLC 09/14/95 4.02 2,003,002 MIG-1
2,435,000 Syracuse NY BAN (c) 06/16/95 3.75 2,435,574
4,000,000 Town of Hempstead NY BAN 08/17/95 4.10 4,003,782 MIG-1
2,500,000 Town of Islip NY BAN (c) 08/22/95 4.14 2,502,207
---------- ----------
38,710,000 Total Other Tax Exempt Investments 38,757,512
---------- ----------
<CAPTION>
Other Variable Rate Demand Instruments (b) (70.41%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,300,000 Counties of Warren & Washington IDA IDRB Series 94
(Griffith Micro Science Inc. Project)
LOC First Chicago 12/01/14 4.90 % $ 5,300,000 A1
3,000,000 Franklin County, NY IDA IDRB
(KES Chatauqua Project)
LOC Bank of Tokyo, Ltd. 07/01/21 4.50 3,000,000 A1+
1,300,000 Glen Falls, NY IDA IDRB (Broad Street Plaza)
LOC Fleet National Bank 12/01/06 4.40 1,300,000 P1 A1
1,000,000 Islip, NY IDA IDRB (Brentwood Distribution)
LOC Bankers Trust Company 05/01/09 4.75 1,000,000 Aa2
7,000,000 Metropolitan Transportation Authority - Series 1991A
LOC Morgan Guar./Morgan Del./Bank of Tokyo/
Mitsubishi/Sumitomo/Ind. Bk. Japan/Nat West 07/01/21 4.55 7,000,000 VMIG-1 A1
520,000 Monroe County, NY IDA IDRB (Brazil Merk Partnership)
LOC Fleet National Bank 01/01/06 3.80 520,000 P1 A1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
26
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
APRIL 30, 1995
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,900,000 NY Local Govt Assistance Corp (LGAC) 1994
Series B VRB's
LOC Swiss Bank Corp. 04/01/23 4.35 % $ 5,900,000 VMIG-1 A1+
8,000,000 NY Medical Care Facilities Financial Authority
LOC Chemical Bank 11/01/15 4.40 8,000,000 VMIG-1
3,000,000 NYC GO 1993 Series E-3
LOC Morgan Guaranty Trust Company 08/01/23 5.00 3,000,000 VMIG-1 A1+
3,100,000 NYC GO Series D
LOC Citibank 08/01/95 5.10 3,100,000 P1 A1+
2,700,000 NYS Dormitory Authority
Miriam Osborn Memorial Home Association
LOC Banque Paribas 07/01/24 4.40 2,700,000 VMIG-1 A1
1,500,000 NYS Medical Care Pooled Equipment Authority Series 94A
LOC Chemical Bank 11/01/03 4.50 1,500,000 VMIG-1
1,000,000 Nassau County, NY IDA
(Cold Spring Harbor Laboratory Project)
LOC Morgan Guaranty Trust Company 07/01/19 4.90 1,000,000 A1+
1,000,000 Nassau County, NY IDA IDRB
(Manhassett Association)
LOC Bankers Trust Company 12/01/99 5.08 1,000,000 Aa2
2,500,000 New York City Cultural Resources Trust RB
(Solomon R. Guggenheim Foundation) - Series 90B
LOC Swiss Bank Corp. 12/01/15 4.85 2,500,000 A1+
3,300,000 New York City Trust Cultural Resource RB
(Jewish Museum)
LOC Sumitomo Bank, Ltd. 12/01/21 4.60 3,300,000 VMIG-1 A1+
2,400,000 New York City Trust Cultural Resource RB
(Museum of Broadcasting)
LOC Sumitomo Bank, Ltd. 05/01/14 4.60 2,400,000 VMIG-1 A1+
3,000,000 New York City, NY - Series A5
LOC Kredietbank 08/01/16 5.00 3,000,000 VMIG-1 A1
2,500,000 New York City, NY - Subseries E4
LOC State Street Bank & Trust Co. 08/01/21 5.00 2,500,000 VMIG-1 A1+
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
27
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
APRIL 30, 1995
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,200,000 New York City, NY GO Bond - Subseries E6
FGIC Insured 08/01/19 5.00 % $ 3,200,000 VMIG-1 A1+
700,000 New York City, NY GO Bond - Series B
FGIC Insured 10/01/21 5.30 700,000 VMIG-1 A1+
3,100,000 New York City, NY GO Bond - Series B
FGIC Insured 10/01/22 5.30 3,100,000 VMIG-1 A1+
3,000,000 New York City, NY GO Bond 1993 Subseries E - 5
LOC Sumitomo Bank, Ltd. 08/01/10 5.10 3,000,000 VMIG-1 A1
3,400,000 New York City, NY HDC (East 17th St.) - Series A
LOC Chemical Bank 01/01/23 5.00 3,400,000 A1
6,500,000 New York City, NY HDC (East 96th St.) - Series A
LOC Mitsubishi Bank, Ltd. 08/01/15 4.35 6,500,000 VMIG-1
3,000,000 New York City, NY HDC - Series 1989A
Upper Fifth Avenue Project
LOC Bankers Trust Company 01/01/16 4.60 3,000,000 VMIG-1
3,200,000 New York City, NY IDA (JFK Field Hotel Associates)
LOC Banque Indosuez 12/01/15 4.40 3,200,000 VMIG-1 A1+
200,000 New York City, NY IDA (LaGuardia Associates)
LOC Banque Indosuez 12/01/15 4.40 200,000 VMIG-1 A1+
10,100,000 New York City, NY IDA (Nippon Cargo Airlines Co.)
LOC Industrial Bank of Japan, Ltd. 11/01/15 5.67 10,100,000 A1+
500,000 New York City, NY IDRB (Airport Project)
LOC Bayerische Landesbank Girozentrale 04/01/00 4.60 500,000 P1 A1+
2,100,000 New York City, NY Municipal Water Finance Authority
& Sewer System - Series 1994G
FGIC Insured 06/15/24 5.00 2,100,000 VMIG-1 A1+
1,900,000 New York City, NY Municipal Water Finance Authority
& Sewer System - Series 1992C
FGIC Insured 06/15/22 5.10 1,900,000 VMIG-1 A1+
1,500,000 New York State Dormitory Authority (Cornell University)
Series B 07/01/25 4.85 1,500,000 VMIG-1 SP-1+
4,200,000 New York State ERDA PCRB
(Hudson Gas & Electric) - Series A
LOC J.P. Morgan 11/01/20 4.10 4,200,000 P1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
28
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
APRIL 30, 1995
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,000,000 New York State ERDA PCRB
(Hudson Gas & Electric) - Series B
LOC Deutsche Bank A.G. 11/01/20 4.30 % $ 2,000,000 P1 A1+
3,100,000 New York State ERDA PCRB
(Niagara Mohawk Power Corp.)
LOC Toronto-Dominion Bank 12/01/25 4.95 3,100,000 P1
4,300,000 New York State ERDA PCRB
(Niagara Mohawk Power Corp.) - Series 1985C
LOC Canadian Imperial Bank of Commerce 12/01/25 4.95 4,300,000 P1
10,300,000 New York State ERDA PCRB
(Niagara Mohawk Power Corp.) - Series B
LOC Toronto-Dominion Bank 12/01/26 5.05 10,300,000 P1
1,700,000 New York State ERDA PCRB
(Orange & Rockland County)
FGIC Insured 10/01/14 4.30 1,700,000 VMIG-1 A1+
2,700,000 New York State ERDA PCRB
(Rochester Gas & Electric) - Series 1984
LOC The Bank of New York 10/01/14 3.80 2,700,000 P1
540,000 New York State JDA 03/01/05 5.35 540,000 VMIG-1
1,300,000 New York State JDA - Series A-1
LOC Fuji Bank, Ltd. 03/01/03 5.50 1,300,000 VMIG-1
765,000 New York State JDA - Series D
LOC Sumitomo Bank, Ltd. 03/01/99 3.85 765,000 VMIG-1 A1
910,000 New York State JDA - Series G
LOC Sumitomo Bank, Ltd. 03/01/99 3.85 910,000 VMIG-1 A1
12,600,000 New York State Local Government Assistance Corp.
LOC Credit Suisse/Swiss Bank/
Union Bank of Switzerland 04/01/22 4.50 12,600,000 VMIG-1 A1+
3,000,000 New York State Thruway Authority,
General RB VRDN
FGIC Insured 01/01/24 4.90 3,000,000 VMIG-1 A1+
3,500,000 New York, NY Series B Subseries B-6
MBIA Insured 08/15/05 5.40 3,500,000 VMIG-1 A1+
6,700,000 Oswego County, NY IDA PCRB
(Philip Morris Companies Inc.) 12/01/08 4.65 6,700,000 P1 A1
3,100,000 Port Authority of New York & New Jersey - Series 1 08/01/28 4.95 3,100,000 VMIG-1 A1+
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
29
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
APRIL 30, 1995
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 Puerto Rico Industrial Medical
& Environmental PCFA PCRB
LOC Lloyds Bank PLC 12/01/15 4.55 % $ 500,000 A1+
500,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/97 4.70 500,000 P1 A1+
200,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/95 4.70 200,000 P1 A1+
500,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/98 4.70 500,000 P1 A1+
500,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/99 4.70 500,000 P1 A1+
500,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/00 4.70 500,000 P1 A1+
3,000,000 Suffolk County NY Water Authority BAN 12/14/99 4.50 3,000,000 VMIG-1
7,300,000 Suffolk County, NY IDA (Nissequogue Cogen Partners)
LOC Toronto-Dominion Bank 12/15/23 4.65 7,300,000 VMIG-1 A1+
5,000,000 Suffolk County, NY IDA (Target Rock Corp.)
LOC Bank of Nova Scotia 02/01/07 4.40 5,000,000 P1 A1+
----------- -----------
179,135,000 Total Other Variable Rate Demand Instruments 179,135,000
----------- -----------
<CAPTION>
Put Bonds (2.23%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,000,000 Albany County, NY IDA (West Eagle Co.)
LOC Key Bank, N.A. 08/15/95 4.65 % $ 2,000,000 P1 A1
430,000 Fulton County, NY IDA (LCM Properties Realty Trust)
LOC The Bank of New York 06/15/95 4.25 430,000 P1 A1
1,750,000 New York State ERDA (NYS Electric & Gas Corp.)
LOC Union Bank of Switzerland 12/01/95 4.60 1,750,000 A1+
1,500,000 Puerto Rico Industrial Medical
& Environmental PCFA PCRB (Reynolds Metals Co.)
LOC ABN-AMRO Bank N.V. 09/01/95 4.00 1,500,000 VMIG-1 A1+
----------- ---------
5,680,000 Total Put Bonds 5,680,000
----------- ---------
<CAPTION>
Tax Exempt Commercial Paper (0.60%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,525,000 Port Authority of NY & NJ 07/06/95 3.95 % $ 1,525,000 P1 A1+
---------- ---------
1,525,000 Total Tax Exempt Commercial Paper 1,525,000
---------- ---------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
30
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTIUED)
APRIL 30, 1995
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Variable Rate Demand Instruments - Participations (b) (7.74%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 33,750 1985 Standard Paper Box Co.
LOC Chemical Bank 12/01/95 5.85 % $ 33,750 P1 A1
375,000 BSE Corp. Project
LOC Chemical Bank 07/01/01 5.85 375,000 P1 A1
439,963 Centennial Associates/W&H Stampings, Inc.
LOC Chemical Bank 10/01/00 5.85 439,963 P1 A1
482,759 Datagraphic Inc.
LOC Chemical Bank 10/01/98 5.85 482,759 P1 A1
1,533,344 Duralab Equipment Corporation 1985
LOC Dai-Ichi Kangyo Bank, Ltd. 12/01/95 5.85 1,533,344 P1 A1
1,780,000 Executive Square Business Park
LOC Chemical Bank 06/01/01 5.85 1,780,000 P1 A1
327,586 Faden Paper Supply Co.
LOC Chemical Bank 01/01/00 5.85 327,586 P1 A1
186,666 Ferrara Bros. Building
LOC Chemical Bank 01/01/97 5.85 186,666 P1 A1
1,269,000 GL II Associates
LOC Chemical Bank 01/01/99 5.85 1,269,000 P1 A1
1,915,000 Giaquinto Joint Venture
LOC Chemical Bank 07/01/02 5.85 1,915,000 P1 A1
420,125 I.G. Federal Electric
LOC Chemical Bank 11/01/99 5.85 420,125 P1 A1
625,000 Ja-Cole Realty Co./IHM Systems Inc.
LOC Dai-Ichi Kangyo Bank, Ltd. 12/01/95 5.85 625,000 P1 A1
797,840 Metro Seliger Industries, Inc. 1984
LOC Chemical Bank 08/10/99 5.85 797,840 P1 A1
1,100,000 Miteq Realty Association
LOC Dai-Ichi Kangyo Bank, Ltd. 09/01/95 5.85 1,100,000 P1 A1
321,250 One Crouse Medical Plaza 1983
LOC Chemical Bank 12/10/98 5.85 321,250 P1 A1
548,000 Parrtown Facility
LOC Dai-Ichi Kangyo Bank, Ltd. 12/01/95 5.85 548,000 P1 A1
1,615,000 Penn-Plax Plastics, Nassau County
LOC Dai-Ichi Kangyo Bank, Ltd. 01/01/00 5.85 1,615,000 P1 A1
4,763,202 Puntillo Limited Partner
LOC Dai-Ichi Kangyo Bank, Ltd. 10/01/04 5.85 4,763,202 P1 A1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
31
<PAGE>
- ------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
APRIL 30, 1995
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------- ------- ------
Variable Rate Demand Instruments - Participations (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 74,999 Ram Realty Co. Project
LOC The Bank of New York 02/01/99 5.40 % $ 74,999 P1 A1
182,100 Rozal Properties Project
LOC Chemical Bank 09/01/96 5.85 182,100 P1 A1
536,642 Texpak, Inc. 1985
LOC Chemical Bank 01/01/01 5.85 536,642 P1 A1
361,726 Unitel Video Service 82
LOC Chemical Bank 10/01/97 5.85 361,726 P1 A1
----------- -----------
19,688,952 Total Variable Rate Demand Instruments - Participations 19,688,952
----------- -----------
<CAPTION>
Variable Rate Demand Instruments - Private Placements (b) (3.82%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 741,306 Adirondack Transit Lines
LOC Key Bank, N.A. 02/01/01 5.40 % $ 741,306 P1 A1
3,500,000 Blaser Real Estate 1990
LOC Union Bank of Switzerland 09/01/21 5.85 3,500,000 P1 A1
3,000,000 Blaser Real Estate Inc. 1986
LOC Union Bank of Switzerland 09/01/21 5.85 3,000,000 P1 A1
756,000 FTS Systems Inc.
LOC Key Bank, N.A. 01/15/09 4.16 756,000 P1 A1
358,750 J. Treffeletti & Sons
LOC Key Bank, N.A. 09/01/00 5.40 358,750 P1 A1
328,750 Troy Mall Associates - Series 1985B
LOC Key Bank, N.A. 07/01/15 5.40 328,750 P1 A1
1,023,750 Troy Mall Associates - Series 1985C
LOC Key Bank, N.A. 04/01/16 5.40 1,023,750 P1 A1
---------- ------------
9,708,556 Total Variable Rate Demand Instruments - Private Placements 9,708,556
---------- ------------
Total Investments (100.03%) (Cost $254,495,020+) 254,495,020
Liabilities in Excess of Cash and Other Assets (-0.03%) ( 73,407)
------------
Net Assets (100.00%), 254,423,867 Shares Outstanding (Note 3) $ 254,421,613
=============
Net Asset Value, offering and redemption price per share $ 1.00
=============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
32
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS
APRIL 30, 1995
===============================================================================
FOOTNOTES:
(a) The ratings noted for variable rate demand instruments are those of the
bank whose letter of credit secures such instruments or the guarantor of
the bond. P1 and A1+ are the highest ratings assigned for tax exempt
commercial paper.
(b) Securities payable on demand at par including accrued interest (usually
with seven days notice) and where indicated are unconditionally secured as
to principal and interest by a bank letter of credit. The interest rates
are adjustable and are based on bank prime rates or other interest rate
adjustment indices. The rate shown is the rate in effect at the date of
this statement.
(c) Securities that are not rated which the Fund's Board of Directors has
determined to be of comparable quality to those rated securities in which
the Fund invests.
<TABLE>
<CAPTION>
KEY:
<S> <C> <C> <C> <C> <C>
BAN = Bond Anticipation Note PCFA = Pollution Control Finance Authority
CI = Certificate of Indebtedness PCRB = Pollution Control Revenue Bond
CLN = Construction Loan Note RAN = Revenue Anticipation Note
CRRB = Cultural Resource Revenue Bond RAW = Revenue Anticipation Warrant
ERDA = Energy and Research Development Authority RB = Revenue Bond
FAN = Fund Anticipation Note RN = Revenue Note
GAN = Grant Anticipation Note TAN = Tax Anticipation Note
HDC = Housing Development Corporation TLN = Tax Loan Note
HRB = Hospital Revenue Bond TRAN = Tax and Revenue Anticipation Note
IDA = Industrial Development Authority VRB = Variable Rate Bond
IDRB = Industrial Development Revenue Bond VRDN = Variable Rate Demand Note
JDA = Job Development Authority
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
33
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1995
===============================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Income:
Interest............................................................. $ 8,403,877
-------------
Expenses: (Note 2)
Investment management fee............................................ 702,867
Administration Fee................................................... 468,578
Shareholder servicing fee............................................ 468,578
Custodian, shareholder servicing and
related shareholder expenses..................................... 258,167
Legal, compliance and filing fees.................................... 28,646
Audit and accounting................................................. 71,027
Directors' fees and expenses......................................... 21,427
Other expenses....................................................... 27,247
-------------
Total expenses..................................................... 2,046,537
-------------
Net investment income.................................................... 6,357,340
REALIZED GAIN (LOSS) ON INVESTMENTS...................................... 284
-------------
Increase in net assets from operations................................... $ 6,357,624
=============
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
34
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED APRIL 30, 1995 AND 1994
===============================================================================
<TABLE>
<CAPTION>
1995 1994
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income......................................... $ 6,357,340 $ 4,035,611
Net realized gain (loss) on investments....................... 284 1,369
--------------- ---------------
Increase in net assets from operations............................ 6,357,624 4,036,980
Dividends to shareholders from net investment income.............. ( 6,357,340)* ( 4,035,611)*
Capital share transactions (Note 3)............................... 36,073,321 7,860,179
--------------- ---------------
Total increase (decrease)..................................... 36,073,605 7,861,548
Net assets:
Beginning of year............................................. 218,348,008 210,486,460
--------------- ---------------
End of year................................................... $ 254,421,613 $ 218,348,008
=============== ===============
* Designated as exempt-interest dividends for federal income tax purposes.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
35
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. Summary of Accounting Policies
New York Daily Tax Free Income Fund, Inc. is a no-load, non-diversified,
open-end management investment company registered under the Investment Company
Act of 1940. The Fund's financial statements are prepared in accordance with
generally accepted accounting principles for investment companies as follows:
a) Valuation of Securities -
Investments are valued at amortized cost. Under this valuation method, a
portfolio instrument is valued at cost and any discount or premium is
amortized on a constant basis to the maturity of the instrument. The
maturity of variable rate demand instruments is deemed to be the longer of
the period required before the Fund is entitled to receive payment of the
principal amount or the period remaining until the next interest rate
adjustment.
b) Federal Income Taxes -
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its tax exempt and taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c) Dividends and Distributions -
Dividends from investment income (excluding capital gains and losses, if
any, and amortization of market discount) are declared daily and paid
monthly. Distributions of net capital gains, if any, realized on sales of
investments are made after the close of the Fund's fiscal year, as declared
by the Fund's Board of Directors.
d) General -
Securities transactions are recorded on a trade date basis. Interest income
is accrued as earned. Realized gains and losses from securities
transactions are recorded on the identified cost basis.
2. Investment Management Fees and Other Transactions with Affiliates
Under the Investment Management Contract, the Fund pays an investment management
fee to Reich & Tang Asset Management L.P. (Manager), equal to .30% of the Fund's
average daily net assets. The Manager is required to reimburse the Fund for its
expenses (exclusive of interest, taxes, brokerage, and extraordinary expenses)
to the extent that such expenses, including the investment management and the
shareholder servicing and administration fees, for any fiscal year exceed the
lesser of (i) 1 1/2% of the Fund's average net assets or (ii) the limits on
investment company expenses prescribed by any state in which the Fund's shares
are qualified for sale. No such reimbursement was required for the year ended
April 30, 1995.
Pursuant to an Administrative Services Agreement, the Fund pays to the Manager
an annual fee of .20% of the Fund's average daily net assets.
Pursuant to a Distribution Plan adopted under Securities and Exchange Commission
Rule 12b-1, the Fund and Reich & Tang Distributors L.P. (the Distributor) have
entered into a Distribution Agreement and a Shareholder Servicing Agreement. For
its services under the Shareholder Servicing Agreement, the Distributor receives
from the Fund a fee equal to .20% of the Fund's average daily net assets. There
were no additional expenses borne by the Fund pursuant to the Distribution Plan.
- -------------------------------------------------------------------------------
36
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
2. Investment Management Fees and Other Transactions with Affiliates (Continued)
Included in the Statement of Operations under the caption "Custodian,
shareholder servicing and related shareholder expenses" are fees of $29,552 paid
to Fundtech Services L.P., an affiliate of the Manager as servicing agent for
the Fund.
Fees are paid to Directors who are unaffiliated with the Manager on the basis of
$3,000 per annum plus $500 per meeting attended.
3. Capital Stock
At April 30, 1995, 20,000,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $254,422,178. Transactions in capital
stock, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Year Year
Ended Ended
April 30, 1995 April 30, 1994
-------------- --------------
<S> <C> <C>
Sold................................... 448,737,421 418,063,703
Issued on reinvestment of dividends.... 5,640,644 3,873,172
Redeemed............................... ( 418,304,744) ( 414,076,696)
------------ ------------
Net increase (decrease)................ 36,073,321 7,860,179
============ ============
</TABLE>
4. Sales of Securities
Accumulated undistributed realized losses at April 30, 1995 amounted to $565.
Such losses represent tax basis net capital losses which may be carried forward
to offset future capital gains. Such losses expire April 30, 2002.
5. Concentration of Credit Risk
The Fund invests primarily in obligations of political subdivisions of the State
of New York and, accordingly, is subject to the credit risk associated with the
non-performance of such issuers. Approximately 72% of these investments are
further secured, as to principal and interest, by letters of credit issued by
financial institutions. The Fund maintains a policy of monitoring its exposure
by reviewing the credit worthiness of the issuers, as well as that of the
financial institutions issuing the letters of credit, and by limiting the amount
of holdings with letters of credit from one financial institution.
6. Selected Financial Information.
Reference is made to page 2 of the Prospectus for the Selected Financial
Information.
- --------------------------------------------------------------------------------
37
