RULE 497(b)
Registration No. 2-89264
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NEW YORK DAILY TAX FREE 600 FIFTH AVENUE
INCOME FUND, INC. NEW YORK, NY 10020
(212) 830-5220
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PROSPECTUS
September 1, 1996
New York Daily Tax Free Income Fund, Inc. (the "Fund") is a money market fund
designed 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. Because the Fund is concentrated in the securities issued by the State
of New York (the "State") or entities within the State and may invest a
significant percentage of its assets in a single issuer, an investment in the
Fund may therefore be riskier than an investment in other types of money market
funds.
This Prospectus sets forth concisely the information about the Fund that
prospective investors will find helpful in making their investment decisions. A
Statement of Additional Information about the Fund has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by calling or writing the Fund. The Statement of Additional Information
bears the same date as this Prospectus and is incorporated by reference into
this Prospectus in its entirety.
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.
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TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .30%
12b-1 Fees .20%
Other Expenses .34%
Administrative Services Fee .21% -----
Total Fund Operating Expenses .84%
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 $27 $47 $104
</TABLE>
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 figures reflected in
this example should not be considered to be a representation of past or
future expenses. Actual expenses may be greater or less than those shown
above.
SELECTED FINANCIAL INFORMATION
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,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $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......... .030 0.027 0.018 0.023 0.037 0.048 0.053 0.047 0.040 0.036
Less distributions:
Dividends from net investment income .030 0.027 0.018 0.023 0.037 0.048 0.053 0.047 0.040 0.036
------ ------- ------ ------ ------ ------ ------ ------ ------ -----
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.................... 3.08% 2.74% 1.84% 2.28% 3.73% 4.92% 5.48% 4.86% 4.01% 3.63%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $283,368 $254,422 $218,348 $210,486 $202,291 $191,622 $211,662 $181,060 $226,115 $215,703
Ratios to average net assets:
Expenses.................... 0.84%* 0.87% 0.89% 0.89% 0.87% 0.82%+ 0.77%+ 0.80%+ 0.79%+ 0.82%+
Net investment income....... 3.02% 2.71% 1.82% 2.25% 3.63% 4.82%+ 5.32%+ 4.73%+ 3.96%+ 3.61%+
* Includes expense offsets.
+ Net of management and shareholder servicing fees waived equivalent to
.07%, .10%, .02%, .02%, and .02% of average net assets.
</TABLE>
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INTRODUCTION
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, Reich & Tang Asset Management L.P. (the
"Manager"), is a registered investment adviser and currently acts as manager or
administrator to fifteen other open-end management investment companies. The
Fund's shares are distributed through Reich & Tang Distributors L.P. (the
"Distributor") with whom the Fund has entered into a Distribution Agreement and
a Shareholder Servicing Agreement 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.
MANAGEMENT OF THE FUND
The Fund's Board of Directors which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as investment
manager of the Fund. The Manager provides persons satisfactory to the Fund's
Board of Directors to serve as officers of the Fund. Such
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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, 1996,
investment manager, adviser or supervisor with respect to assets aggregating in
excess of $8.6 billion. The Manager acts as manager or administrator of fifteen
other investment companies and also advises pension trusts, profit-sharing
trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and owner of the
remaining .5% interest of the Manager. Reich & Tang Asset Management L.P.
succeeded NEICLP as the Manager of the Fund.
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 55.9%, of the
total partnership units outstanding of NEICLP, and Reich & Tang, Inc. owns
approximately 17.6% 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.
On August 30, 1996, The New England and Metropolitan Life Insurance Company
("MetLife") merged, with MetLife being the continuing company. The Manager
remains a wholly-owned subsidiary of NEICLP, but Reich & Tang Asset Management,
Inc., its sole general partner, is now an indirect subsidiary of MetLife. Also,
MetLife New England Holdings, Inc., a wholly-owned subsidiary of MetLife, owns
55% of the outstanding limited partnership interest of NEICLP.
MetLife is a mutual life insurance company with assets of $142.2 billion at
March 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded 1.2 trillion at March 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through eleven investment advisory/management
affiliates and two 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.; Harris Associates; Vaughan-Nelson, Scarborough & McConnell,
Inc.; and an affiliate, Capital Growth Management Limited Partnership. These
affiliates in the aggregate are investment advisors or managers to 42 other
registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Investment Management Contract relating to the fund. Under the Investment
Company Act of 1940, as amended, such an assignment caused the automatic
termination of this agreement. The Board of Directors approved a new Investment
Management
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Contract with the Manager effective August 30, 1996, the effective date of the
merger, which was presented to and approved by a requisite majority of the
Shareholders of the Fund, and contains the same terms and conditions governing
the Manager's investment management responsibilities as the Fund's previous
Investment Management Contract with the Manager, except as to the dates of
execution and termination.
The merger and the change in control of the Manager is not expected to have any
impact upon the Manager's performance of its responsibilities and obligations
under the new Investment Management Contract.
Pursuant to the new 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 new 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 new Investment Management Contract, 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 Fund pays the Manager the costs
of such personnel at rates which must be agreed upon between the Fund and the
Manager and provided that no payments shall be made for any services performed
by any officer of the general partner 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.)
DESCRIPTION OF COMMON STOCK
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 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.
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Under its Articles of Incorporation, the Fund has the right to redeem for cash
shares of stock owned by any shareholder to the extent and at such times as the
Fund's Board of Directors determines to be necessary or appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, 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.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
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. "Exempt-interest" dividends, however, 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 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 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
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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.
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 and notes, or "Aaa" and "Aa" by
Moody's in the case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by
Moody's in the case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2"
by Moody's in the case of tax-exempt commercial paper. The highest rating in the
case of variable and floating demand notes is "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
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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.
Reassessment is not required, however, if the security is disposed of or matures
within five business days of the Manager becoming aware of the new rating and
provided further that the Board of Directors is subsequently notified of the
Manager's actions.
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
+tatement of Additional Information) which may limit both the amounts and types
of loans and other financial commitments which may be made and interest rates
and fees which may be charged. The profitability of this industry is largely
dependent upon the availability and cost of capital funds for the purpose of
financing lending operations under prevailing money market conditions. Also,
general economic conditions play an important part in the operations of this
industry and exposure to credit losses arising from possible financial
difficulties of borrowers 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. The Fund intends, however, 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
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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. Payment of interest and preservation of principal, however, 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
Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations. (See "Investment Through
Participating Organizations" herein.) All other investors, and investors who
have accounts with Participating Organizations but who do not wish to invest in
the Fund through their Participating Organizations, may invest in the Fund
directly. (See "Other Purchase and Redemption Procedures" herein.) The minimum
initial investment in the Fund by Participating Organizations is $1,000 which
may be satisfied by initial investments aggregating $1,000 by a Participating
Organization on behalf of customers whose initial investments are less than
$1,000. The minimum initial investment for all other investors is $5,000.
Initial investments may be made in any amount in excess of the applicable
minimums. The minimum amount for subsequent investments is $100 unless the
investor is a client of a Participating Organization whose clients have made
aggregate subsequent investments of $100.
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The Fund sells and redeems its shares on a continuing basis at net asset value
and does not impose a sales charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from Participating Organizations
and from investors directly.
In order to maximize earnings on its Portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in funds of Federal Reserve member banks on deposit
at a Federal Reserve bank (commonly known as "Federal Funds"). Accordingly, the
Fund does not accept a subscription or invest an investor's payment in portfolio
securities until the payment is converted into Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share made after receipt of the investor's purchase order. The Fund
reserves the right to reject any purchase order for its shares. Certificates for
Fund shares will not be issued to an investor.
Shares are issued as of 12 noon, New York City time, on any Fund Business Day on
which an order for the shares and accompanying Federal Funds are received by the
Fund's transfer agent before 12 noon. Orders accompanied by Federal Funds and
received after 12 noon on a Fund Business Day will not result in share issuance
until the following Fund Business Day. Fund shares begin accruing income on the
day on which shares are issued to an investor.
There is no redemption charge, no minimum period of investment, no minimum
amount for redemption and no restriction on frequency of withdrawals. Proceeds
of redemptions are paid by check. 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 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 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, New
York City 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 redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization, and the Participating
Organization will be responsible for notifying the Participant Investor of the
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proposed mandatory redemption. During the notice period a shareholder or
Participating Organization who receives such a notice may avoid mandatory
redemption by purchasing sufficient additional shares to increase the total net
asset value to the minimum amount and thereby avoid such mandatory redemption.
The redemption of shares may result in the investor's receipt of more or less
than he paid for his shares and, thus, in a taxable gain or loss to the
investor.
INVESTMENT THROUGH PARTICIPATING ORGANIZATIONS
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Manager with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such confirmations and statements, will receive them from the Fund
directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. It is the Fund management's
position, however, 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. This is an unsettled area of the law, however, 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
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banks and financial institutions may be required to register as dealers pursuant
to state law.
Orders received by the Fund's transfer agent before 12 noon, New York City time,
on a Fund Business Day, with accompanying Federal Funds will result in the
issuance of shares on that day. Orders received by the Fund's transfer agent
after 12 noon with accompanying Federal Funds will result in the issuance of
shares on the following Fund Business Day. Participating Organizations are
responsible for instituting procedures to insure that purchase orders by their
respective clients are processed expeditiously.
DIRECT PURCHASE AND
REDEMPTION PROCEDURES
The following purchase and redemption procedures apply to investors who wish to
invest in the Fund directly and not through Participating Organizations. These
investors may obtain a current Prospectus and the subscription order form
necessary to open an account by telephoning the Fund at the following numbers:
Within New York State 212-830-5220
Outside New York State (TOLL FREE) 800-221-3079
All shareholders, other than certain Participant Investors, will receive from
the Fund individual confirmations of each purchase and redemption of Fund shares
(other than draft check redemptions) and a monthly statement listing the total
number of Fund shares owned as of the statement closing date, purchase and
redemptions of Fund shares during the month covered by the statement and the
dividends paid on Fund shares of each shareholder during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
INITIAL PURCHASES OF SHARES
Mail
Investors may send a check made payable to "New York Daily Tax Free Income Fund,
Inc." along with a completed subscription order form to:
New York Daily Tax Free Income Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
can normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's subscription will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number by telephoning
the Fund at 212-830-5220 (within New York State) or 800-221-3079 (outside New
York State) and then instruct a member commercial bank to wire their money
immediately to:
Investors Fiduciary Trust Company
ABA # 101003621
DDA # 890752-953-8
For New York Daily Tax Free
Income Fund, Inc.
Account of (Investor's Name)
Fund Account #0948
SS #/Tax ID #
The investor should then promptly complete and mail the subscription order form.
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon, New York City time, on
that same day. There may be a charge by the investor's bank for transmitting the
money by bank wire, and there also may be a charge for use of Federal Funds. The
Fund does not charge investors in the Fund for its receipt of wire transfers.
Payment in the form of a "bank wire" received prior to 12 noon, New York City
time, on a
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Fund Business Day will be treated as a Federal Funds payment received on that
day.
Personal Delivery
Deliver a check made payable to "New York Daily Tax Free Income Fund, Inc."
along with a completed subscription order form to:
Reich & Tang Funds
600 Fifth Avenue - 9th Floor
New York, New York 10020
ELECTRONIC FUNDS TRANSFERS (EFT),
PRE-AUTHORIZED CREDIT AND DIRECT DEPOSIT PRIVILEGE
You may purchase shares of the Fund (minimum of $100) by having salary, dividend
payments, interest payments or any other payments designated by you, or by
having federal salary, social security, or certain veteran's, military or other
payments from the federal government, automatically deposited into your Fund
account. You can also have money debited from your checking account. To enroll
in any one of these programs, you must file with the Fund a completed EFT
Application, Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form
for each type of payment that you desire to include in the Privilege. The
appropriate form may be obtained from your broker or the Fund. Death or legal
incapacity will automatically terminate your participation in the Privilege. You
may elect at any time to terminate your participation by notifying in writing
the appropriate depositing entity and/or federal agency. Further, the Fund may
terminate your participation upon 30 days' notice to you.
SUBSEQUENT PURCHASES OF SHARES
Subsequent purchases can be made by bank wire or personal delivery, as indicated
above, or by mailing a check to:
New York Daily Tax Free Income Fund, Inc.
Mutual Funds Group
Post Office Box 13232
Newark, New Jersey 07101-3232
There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number. Provided that the information
on the subscription order form on file with the Fund is still applicable, a
shareholder may reopen an account without filing a new subscription order form
at any time during the year the shareholder's account is closed or during the
following calendar year.
REDEMPTION OF SHARES
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share following
receipt by the Fund's transfer agent of the redemption order. Normally, payment
for redeemed shares is made on the same Fund Business Day after the redemption
is effected, provided the redemption request is received prior to 12 noon, New
York City time. However, redemption payments will not be made unless the check
(including a certified or cashier's check) used to purchase the shares has been
cleared for payment by the investor's bank and converted into Federal Funds. A
bank check is currently considered by the Fund to have cleared within 15 days
after it is deposited by the Fund.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and signed and guaranteed by an eligible
guarantor institution which includes a domestic bank, a domestic savings and
loan institution, a domestic credit union, a member bank of the Federal Reserve
system or a member firm of a national securities
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<PAGE>
exchange, pursuant to the Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund, accompanied by any certificate that may have been previously issued to
the shareholder, addressed to:
New York Daily Tax Free Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue
New York, New York 10020
All previously issued certificates submitted for redemption must be endorsed by
the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with signature guaranteed. Normally the redemption
proceeds are paid by check mailed to the shareholder of record.
Checks
By making the appropriate election on their subscription form, shareholders may
request a supply of checks which may be used to effect redemptions. The checks
which will be issued in the shareholder's name, are drawn on a special account
maintained by the Fund with the agent bank. Checks may be drawn in any amount of
$250 or more. When a check is presented to the Fund's agent bank, it instructs
the Fund's transfer agent to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. The use of
a check to make a withdrawal enables a shareholder in the Fund to receive
dividends on the shares to be redeemed up to the Fund Business Day on which the
check clears. Checks provided by the Fund may not be certified. Fund shares
purchased by check may not be redeemed by check for up to 15 days following the
date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank governing checking accounts. Checks
drawn on a jointly owned account may, at the shareholder's election, require
only one signature. Checks in amounts exceeding the value of the shareholder's
account at the time the check is presented for payment will not be honored. In
addition, the Fund reserves the right to charge the shareholder's account a fee
up to $20 for checks not honored as a result of an insufficient account value, a
check deemed not negotiable because it has been held longer than six months, an
unsigned check, a postdated check and a check written for an amount below the
Fund minimum of $250. Since the dollar value of the account changes daily, the
total value of the account may not be determined in advance and the account may
not be entirely redeemed by check. The Fund reserves the right to terminate or
modify the check redemption procedure at any time or to impose additional fees.
Investors wishing to avail themselves of this method of redemption should elect
it on their subscription order form. Individuals and joint tenants are not
required to furnish any supporting documentation. Corporations and other
entities making this election, however, are required to furnish a certified
resolution or other evidence of authorization in accordance with the Fund's
normal practices. Appropriate authorization forms will be sent by the Fund or
its agents to corporations and other shareholders who select this option. As
soon as the authorization forms are filed in good order with the Fund's agent
bank, it will provide the shareholder with a supply of checks. This checking
service may be terminated or modified at any time.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this
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<PAGE>
option. The proceeds of a telephone redemption may be sent to the shareholders
at their addresses or, if in excess of $1,000, to their bank accounts, both as
set forth in the subscription order form or in a subsequent written
authorization. The Fund may accept telephone redemption requests from any person
with respect to accounts of shareholders who elect this service and thus such
shareholders risk possible loss of principal and interest in the event of a
telephone redemption not authorized by them. The Fund will employ reasonable
procedures to confirm that telephone redemption instructions are genuine, and
will require that shareholders electing such option provide a form of personal
identification. The failure by the Fund to employ such procedures may cause the
Fund to be liable for any losses incurred by investors due to telephone
redemptions based upon unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York State at 800-221-3079, and state (i) the name of
the shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address, and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time and on the next Fund Business Day if the redemption
request is received after 12 noon, New York City time. The Fund reserves the
right to terminate or modify the telephone redemption service in whole or in
part at any time and will notify shareholders accordingly.
EXCHANGE PRIVILEGE
Shareholders of the Fund are entitled to exchange some or all of their shares in
the Fund for shares of certain other investment companies which retain Reich &
Tang Asset Management L.P. as investment adviser and which participate in the
exchange privilege program with the Fund. Currently the exchange privilege
program has been established between the Fund and California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Florida Daily Municipal Income Fund, Michigan Daily Tax Free
Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina
Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund,
Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc. In the future,
the exchange privilege program may be extended to other investment companies
which retain Reich & Tang Asset Management L.P. as investment adviser, manager
or administrator.
There is no charge for the exchange privilege or limitation as to frequency of
exchange. The minimum amount for an exchange is $1,000, except that shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Shares are exchanged at their respective net
asset values.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares may be exchanged only between
investment company accounts registered in identical names. Before making an
exchange, the investor should review the current prospectus of the investment
company into which the exchange is to be made. Prospectuses may be obtained by
contacting Reich & Tang Funds at the address or
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<PAGE>
telephone number set forth on the cover page of this Prospectus.
An exchange pursuant to the exchange privilege is treated for Federal income tax
purposes as a sale on which a shareholder may realize a taxable gain or loss.
Instructions for exchanges may be made by sending a signature guaranteed written
request to:
New York Daily Tax Free Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue
New York, New York 10020
or, for shareholders who have elected that option, by telephone. The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time upon notice to shareholders.
SPECIFIED AMOUNT AUTOMATIC WITHDRAWAL PLAN
Shareholders may elect to withdraw shares and receive payment from the Fund of a
specified amount of $50 or more automatically on a monthly, quarterly,
semi-annual, or annual basis in an amount approved and confirmed by the Manager.
The monthly withdrawal payments of the specified amount are made on the 23rd day
of each month and the quarterly payments are made on the 23rd day of March,
June, September and December. Whenever such 23rd day of a month is not a
business day, the payment date is the business day preceding the 23rd day of the
month. In order to make a payment, a number of shares equal in aggregate net
asset value to the payment amount are redeemed at their net asset value on the
Fund Business Day immediately preceding the date of payment. To the extent that
the redemptions to make plan payments exceed the number of shares purchased
through reinvestment of dividends and distributions, the redemptions reduce the
number of shares purchased on original investment, and may ultimately liquidate
a shareholder's investment.
The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by the
participant. Because the withdrawal plan involves the redemption of Fund shares,
such withdrawals may constitute taxable events to the shareholder but the Fund
does not expect that there will be any realizable capital gains.
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
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<PAGE>
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 new Investment Management Contract,
the Shareholder Servicing Agreement or the Administrative Services Contract in
effect for that year.
For the fiscal year ended April 30, 1996, the total amount spent pursuant to the
Plan was .35% 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 .15% 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 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
17
<PAGE>
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.
18
<PAGE>
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 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, New York
City 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, 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. Reich & Tang Services
L.P., 600 Fifth Avenue, New York, New York 10020, is transfer agent and dividend
agent for the shares of the Fund. The Fund's transfer agent and the Fund's
custodian do not assist in, and are not responsible for, investment decisions
involving assets of the Fund.
19
<PAGE>
TABLE OF CONTENTS
Table of Fees and Expenses........................2
Selected Financial Information....................2
Introduction......................................3
Management of the Fund............................3
Description of Common Stock.......................5 NEW YORK
Investment Objectives, Policies and Risks.........6 DAILY
Dividends and Distributions.......................9 TAX
How to Purchase and Redeem Shares.................9 FREE
Investment through INCOME
Participating Organizations...............11 FUND, INC.
Direct Purchase and
Redemption Procedures.....................12
Initial Purchases of Shares..................12
Electronic Funds Transfers (EFT), Pre-
authorized Credit and Direct Deposit
Privilege...................................13
Subsequent Purchases of Shares...............13 PROSPECTUS
Redemption of Shares.........................13 September 1, 1996
Exchange Privilege...........................15
Specified Amount Automatic
Withdrawal Plan..............................16
Distribution and Service Plan.....................16
Federal Income Taxes..............................17
General Information...............................18
Net Asset Value...................................19
Custodian, Transfer Agent
and Dividend Agent..........................19
<PAGE>
RULE 497(b)
Registration No. 2-89264
- --------------------------------------------------------------------------------
VICTORY SHARES OF
NEW YORK DAILY TAX FREE For current yield, purchase, and
INCOME FUND, INC. redemption information call
PROSPECTUS 800-KEY-FUND (800-539-3863)
September 1, 1996
- --------------------------------------------------------------------------------
New York Daily Tax Free Income Fund, Inc. (the "Fund") is a money market fund
designed 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. Because the Fund is concentrated in the securities issued by the State
of New York (the "State") or entities within the State and may invest a
significant percentage of its assets in a single issuer, an investment in the
Fund may therefore be riskier than an investment in other types of money market
funds. This Prospectus relates exclusively to the Victory Shares class of the
Fund ("Victory Shares").
This Prospectus sets forth concisely the information about the Fund that
prospective investors will find helpful in making their investment decisions. A
Statement of Additional Information about the Fund has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by calling or writing the Fund. The Statement of Additional Information
bears the same date as this Prospectus and is incorporated by reference into
this Prospectus in its entirety.
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.
Investors should be aware that the Victory Shares may not be purchased other
than through certain securities dealers with whom Key Trust Company ("Key
Trust"), or its affiliates, have entered into agreements for this purpose,
directly from Key Trust, or its affiliates or through "Participating
Organizations" (see "Investments through Participating Organizations") with whom
they have accounts. Victory Shares have been created for the primary purpose of
providing a New York tax-free money market fund product for shareholders of The
Victory Portfolios ("The Victory Fund's") and clients of KeyCorp., and its
affiliates. Shares of the Fund other than the Victory Shares are offered
pursuant to a separate prospectus.
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 OF
THE FUND ARE:
NOT INSURED BY THE FDIC;
NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY KEYCORP BANK,
ANY OF ITS AFFILIATES, OR ANY
OTHER BANK; AND
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
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.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C> <C>
Table of Fees and Expenses.............................2 Subsequent Purchases of Shares.........................9
Selected Financial Information.........................2 Redemption of Shares...................................9
Introduction...........................................3 Exchange Privilege.....................................10
Management of The Fund.................................3 Distribution and Service Plan.............................10
Description of Common Stock............................4 Federal Income Taxes......................................11
Investment Objectives, Policies and Risks..............5 General Information.......................................11
Dividends and Distributions............................7 Net Asset Value...........................................12
How to Purchase and Redeem Shares......................7 Custodian, Transfer Agent and.............................
Investment Through Participating Organizations......8 Servicing Agent........................................12
Initial Purchases of Victory Shares.................8
</TABLE>
<PAGE>
TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .30%
12b-1 Fees .20%
Other Expenses .34%
Administrative Services Fee .21% -----
Total Fund Operating Expenses .84%
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 $27 $47 $104
</TABLE>
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 figures reflected in
this example should not be considered to be a representation of past or
future expenses. Actual expenses may be greater or less than those shown
above.
SELECTED FINANCIAL INFORMATION
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,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $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......... .030 0.027 0.018 0.023 0.037 0.048 0.053 0.047 0.040 0.036
Less distributions:
Dividends from net investment income .030 0.027 0.018 0.023 0.037 0.048 0.053 0.047 0.040 0.036
------ ------- ------ ------ ------ ------ ------ ------ ------ -----
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.................... 3.08% 2.74% 1.84% 2.28% 3.73% 4.92% 5.48% 4.86% 4.01% 3.63%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $283,368 $254,422 $218,348 $210,486 $202,291 $191,622 $211,662 $181,060 $226,115 $215,703
Ratios to average net assets:
Expenses.................... 0.84%* 0.87% 0.89% 0.89% 0.87% 0.82%+ 0.77%+ 0.80%+ 0.79%+ 0.82%+
Net investment income....... 3.02% 2.71% 1.82% 2.25% 3.63% 4.82%+ 5.32%+ 4.73%+ 3.96%+ 3.61%+
* Includes expense offsets.
+ Net of management and shareholder servicing fees waived equivalent to
.07%, .10%, .02%, .02%, and .02% of average net assets.
</TABLE>
2
<PAGE>
INTRODUCTION
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 fifteen 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.
Victory Shares have been created for the primary purpose of providing a New York
tax-free money market fund product for shareholders or persons qualified to buy
shares of The Victory Funds (see "Investments in Participating Organizations"
herein.) Victory Shares are identical to other shares of the Fund, which are
offered pursuant to a series of prospectuses, with respect to investment
objectives and yield, but differ with respect to certain other matters. For
example, shareholders who hold other shares of the Fund may not participate in
the exchange privilege described herein and have different arrangements for
redemptions by check.
MANAGEMENT OF THE FUND
The Fund's Board of Directors which is responsible for the overall management
and supervision of the Fund, has employed Reich & Tang Asset Management L.P.
(the "Manager") to serve as investment manager of the Fund. The Manager provides
persons satisfactory to the Fund's Board of Directors to serve as officers of
the Fund. Such officers, as well as certain other employees and directors of the
Fund, may be directors or officers of Reich & Tang Asset Management, Inc., the
sole general partner of the Manager, or employees of the Manager or its
affiliates. Due to the services performed by the Manager, the Fund currently has
no employees and its officers are not required to devote full-time to the
affairs of the Fund. The Statement of Additional Information contains general
background information regarding each Director and principal officer of the
Fund.
The Manager is a Delaware limited partnership with its principal offices at 600
Fifth Avenue, New York, New York 10020. The Manager was at June 30, 1996,
investment manager, adviser or supervisor with respect to assets aggregating in
excess of $8.6 billion. The Manager acts as manager or administrator of fifteen
other investment companies and also advises pension trusts, profit-sharing
trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and owner of the
remaining .5% interest of the Manager. Reich & Tang Asset Management L.P.
succeeded NEICLP as the Manager of the Fund.
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 55.9% of the
total partnership units outstanding of NEICLP and Reich & Tang, Inc. owns
approximately 17.6% 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.
On August 30, 1996, The New England and Metropolitan Life Insurance Company
("MetLife") merged, with MetLife being the continuing company. The Manager
remains a wholly-owned subsidiary of NEICLP, but Reich & Tang Asset Management,
Inc., its sole general partner, is now an indirect subsidiary of MetLife. Also,
MetLife New England Holdings, Inc., a wholly-owned subsidiary of MetLife, owns
55% of the outstanding limited partnership interest of NEICLP.
3
<PAGE>
MetLife is a mutual life insurance company with assets of $142.2 billion at
March 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded 1.2 trillion at March 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through eleven investment advisory/management
affiliates and two 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.; Harris Associates; Vaughan-Nelson, Scarborough & McConnell,
Inc.; and an affiliate, Capital Growth Management Limited Partnership. These
affiliates in the aggregate are investment advisors or managers to 42 other
registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Investment Management Contract relating to the fund. Under the Investment
Company Act of 1940, as amended, such an assignment caused the automatic
termination of this agreement. The Board of Directors approved a new Investment
Management Contract with the Manager effective August 30, 1996, the effective
date of the merger, which was presented to and approved by a requisite majority
of the Shareholders of the Fund, and contains the same terms and conditions
governing the Manager's investment management responsibilities as the Fund's
previous Investment Management Contract with the Manager, except as to the dates
of execution and termination.
The merger and the change in control of the Manger is not expected to have any
impact upon the Manager's performance of its responsibilities and obligations
under the new Investment Management Contract.
Pursuant to the new 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 new 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 new 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 Fund pays the Manager the costs
of such personnel at rates which must be agreed upon between the Fund and the
Manager and provided that no payments shall be made for any services performed
by any officer of the general partner 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).
For its services under the new Investment Management Contract, the Manager
receives from the Fund a fee equal to .30% per annum of the Fund's average daily
net assets (the "Management Fee") for managing the Fund's investment portfolio
and performing related administrative and clerical services.
DESCRIPTION OF COMMON STOCK
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 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.
Victory Shares have been created for the primary purpose of providing a New York
tax-free money market fund product for shareholders or persons qualified to buy
shares of The Victory Funds (see "Investments in Participating Organizations"
herein). Victory Shares are identical to other shares
4
<PAGE>
of the Fund, which are offered pursuant to a series of prospectuses, with
respect to investment objectives and yield, but differ with respect to certain
other matters. For example, shareholders who hold other shares of the Fund may
not participate in the exchange privilege described herein and have different
arrangements for redemptions by check.
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.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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 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 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 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 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.
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 and notes, or "Aaa" and "Aa" by
Moody's in the case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by
Moody's in the case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2"
by Moody's in the
5
<PAGE>
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 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. Payment of interest and preservation of principal, however, 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.
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DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and generally pays dividends monthly. There is no fixed
dividend rate. In computing these dividends, interest earned and expenses are
accrued daily.
Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year. All dividends
and distributions of capital gains are automatically invested in additional Fund
shares immediately upon payment thereof unless a shareholder has elected by
written notice to the Fund to receive either of such distributions in cash or
has elected to reinvest distributions in shares of The Victory Funds.
HOW TO PURCHASE AND REDEEM SHARES
Investors may invest in Victory Shares through Key Trust, its affiliates, or
through dealers with whom Key Trust or its affiliates have entered into
agreements for this purpose as described herein and those who have accounts with
Participating Organizations may invest in Victory Shares through their
Participating Organizations. (See "Investment Through Participating
Organizations" herein.) The minimum initial investment in Victory Shares is
$500. The minimum amount for subsequent investments is $25 unless the investor
is a client of a Participating Organization whose clients have made aggregate
subsequent investments of $100.
The Fund sells and redeems its shares on a continuing basis at net asset value
and does not impose a sales charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from Participating Organizations,
Key Trust and its affiliates, and from dealers with whom Key Trust, or its
affiliates have entered into agreements for this purpose.
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 an account application or invest an investor's payment in
portfolio securities until the payment is converted into Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share made after receipt of the investor's account application. The
Fund reserves the right to reject any purchase order for its shares.
Certificates for Fund shares will not be issued to an investor.
Shares are issued as of 12 noon, Eastern time, on any Fund Business Day on which
an order for the shares and accompanying Federal Funds are received by the
Fund's transfer agent before 12 noon. Orders accompanied by Federal Funds and
received after 12 noon on a Fund Business Day will not result in share issuance
until the following Fund Business Day. Fund shares begin accruing income on the
day on which shares are issued to an investor.
There is no redemption charge, no minimum period of investment, no minimum
amount for redemption and no restriction on frequency of withdrawals. Proceeds
of redemptions are paid by check unless specified otherwise. 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, only if the account was coded "reinvest" otherwise
dividends are paid out the next time the normal distribution date occurs.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days, after 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 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 redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 60 days
in advance to any shareholder whose account is to be redeemed. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization, and the Participating
Organization will be responsible for notifying the Participant Investor of the
proposed mandatory redemption. During the notice period a shareholder or
Participating Organization who receives such a notice may avoid mandatory
redemption by purchasing sufficient additional shares to increase the total net
asset value to the minimum amount and thereby avoid such mandatory redemption.
The redemption of shares may result in the investor's receipt of more or less
than he paid for his shares and, thus, is a taxable gain or loss to the
investor.
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<PAGE>
Investment Through Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Manager with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Victory Shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Victory Shares owned by each
customer as of the statement closing date, purchases and redemptions of Victory
Shares by each customer during the period covered by the statement and the
income earned by Victory Shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Victory Shares).
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Victory Shares may be
purchased and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. It is the Fund management's
position, however, 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. This is an unsettled area of the law, however, 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.
Orders received by the Fund's transfer agent before 12 noon, Eastern time, on a
Fund Business Day, with accompanying Federal Funds will result in the issuance
of shares on that day. Orders received by the Fund's transfer agent after 12
noon with accompanying Federal Funds will result in the issuance of shares on
the following Fund Business Day. Participating Organizations are responsible for
instituting procedures to insure that purchase orders by their respective
clients are processed expeditiously.
Initial Purchases of Victory Shares
Mail
A completed and signed application is required to invest in Victory Shares.
Additional paperwork may be required from corporations, associations and certain
fiduciaries. Contact the Fund's Servicing Agent, Boston Financial Data Services
toll free at 1-800-539-3863 for instructions and to obtain an account
application and other materials.
Investors may send a check made payable to "The Victory Funds" along with a
completed application to:
The Victory Funds
c/o Boston Financial Data Services
P.O. Box 8527
Boston, MA 02266-8527
Checks are accepted subject to collection at full value in United States
currency. Third party checks will not be accepted. Payment by a check drawn on
any member of the Federal Reserve System can normally be converted into Federal
Funds within two business days after receipt of the check. Checks drawn on a
non-member bank may take substantially longer to convert into Federal Funds. An
investor's purchase will not be accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of Victory Shares using the wire system for transmittal of
money among banks, investors should first obtain a new account number (initial
purchase only) and a wire control number by calling the Fund's Servicing Agent,
at 1-800-539-3863 and then instruct a member commercial bank to wire their money
immediately to:
State Street Bank & Trust Co.
ABA # 011000028
for credit to DDA# 9905-201-1
for further credit to:
Victory Account #
wire control #
The investor should then promptly complete and mail the account application.
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<PAGE>
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon, Eastern time, on that same
day. There may be a charge by the investor's bank for transmitting the money by
bank wire, and there also may be a charge for use of Federal Funds. The Fund
does not charge investors in the Fund for its receipt of wire transfers. Payment
in the form of a "bank wire" received prior to 12 noon, Eastern time, on a Fund
Business Day will be treated as a Federal Funds payment received on that day.
YOU MUST CALL THE TRANSFER AGENT BEFORE WIRING FUNDS AT 1-800-539-3863 TO OBTAIN
A WIRE CONTROL NUMBER.
SUBSEQUENT PURCHASES OF SHARES
Subsequent purchases can be made by bank wire, as indicated above, or by mailing
a check to:
The Victory Funds
c/o Boston Financial Data Services
P.O. Box 8527
Boston, MA 02266-8527
There is a $25 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number and name. Provided that the
information on the account application on file with the Fund is still
applicable, a shareholder may reopen an account without filing a new account
application at any time during the year the shareholder's account is closed or
during the following calendar year.
REDEMPTION OF SHARES
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share following
receipt by the Fund's transfer agent of the redemption order. Normally, payment
for redeemed shares is made on the same Fund Business Day after the redemption
is effected, provided the redemption request is received prior to 12 noon,
Eastern time. However, redemption payments will not be made unless the check
(including a certified or cashier's check) used to purchase the shares has been
cleared for payment by the investor's bank and converted into Federal Funds. A
bank check is currently considered by the Fund to have cleared within 15 days
after it is deposited by the Fund.
A shareholder's original account application permits the shareholder to redeem
by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original account application by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and signed and guaranteed by an eligible
guarantor institution which includes a domestic bank, a domestic savings and
loan institution, a domestic credit union, a member bank of the Federal Reserve
system or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund addressed to:
The Victory Funds
c/o Boston Financial Data Services
P.O. Box 8527
Boston, MA 02266-8527
All written requests for redemption must be signed by the shareholder. A
signature guaranteed is required if you wish to redeem more than $25,000 worth
of shares; if your account registration has changed within the last 60 days; if
the check is not being mailed to the address on your account; if the check is
not being made out to the account owner(s); or if the redemption proceeds are
being transferred to another account of The Victory Funds with a different
registration. A signature guarantee may not be provided by a Notary Public.
Banks, brokers, dealers, credit unions (if authorized under state law),
securities exchanges and associations, clearing agencies and savings
associations should be able to provide a signature guarantee. Normally the
redemption proceeds are paid by check mailed to the shareholder of record.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption may be sent to the
shareholders at their addresses or to their bank accounts, both as set forth in
the Fund account or in a subsequent written authorization. The Fund may accept
telephone redemption requests from any person with respect to accounts of
shareholders who elect this service and thus such shareholders risk possible
loss of principal and interest in the event of a telephone redemption not
authorized by them. The Fund and its agents will employ reasonable procedures to
confirm that telephone redemption instructions are genuine, and may require that
shareholders electing such option provide a form of personal identification. The
failure by the Fund to employ such procedures may cause the Fund to be liable
for any losses incurred by investors due to telephone redemptions based upon
unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund's Servicing
Agent at 1-800-539-3863 and state (i) the name of the shareholder appearing on
the Fund's records, (ii) the shareholder's account number with the Fund, (iii)
the amount to be withdrawn, (iv) whether such amount is
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<PAGE>
to be forwarded to the shareholder's designated bank account or address, and (v)
the name of the person requesting the redemption. Usually the proceeds are sent
to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, Eastern time and on the next Fund Business Day if the redemption request
is received after 12 noon, Eastern time. The Fund reserves the right to
terminate or modify the telephone redemption service in whole or in part at any
time and will notify shareholders accordingly.
Exchange Privilege
Shareholders of Victory Shares are entitled to exchange some or all of their
shares in the Fund for shares of The Victory Funds. Currently the exchange
privilege program has been established between the Fund and The Victory Funds.
There is presently no administrative charge for the exchange privilege or
limitation as to frequency of exchange, but the right to impose such a charge is
reserved. Shares are exchanged at their respective net asset values, and any
applicable sales charge.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares may be exchanged only between
investment company accounts registered in identical names. Before making an
exchange, the investor should review the current prospectus of the investment
company into which the exchange is to be made. When an exchange of all the
Victory Fund shareholder's shares is made, all declared but unpaid distributions
shall also be invested in the fund exchanged into, unless the shareholder
otherwise specifies at the time the exchange is requested or unless cash payment
has been elected under the dividend payment options.
Investors should note that exchange transactions actually involve the redemption
of Victory Shares in one fund and an investment of the redemption proceeds into
the other fund.
An exchange pursuant to the exchange privilege is treated for Federal income tax
purposes as a sale on which a shareholder may realize a taxable gain or loss.
Instructions for exchanges may be made by sending a signature guaranteed written
request to:
The Victory Funds
c/o Boston Financial Data Services
P.O. Box 8527
Boston, MA 02266-8527
or, for shareholders who have elected that option, by telephone. The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege upon 60 days notice.
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 applications 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 and Administration 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 and
Administration Agreement and the Shareholder Servicing Agreements and (ii)
preparing, printing and delivering the Fund's Prospectus to existing
shareholders of the Fund and preparing and printing account 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
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<PAGE>
Fund's shares; (iii) to pay the costs of printing and distributing the Fund's
prospectus to prospective investors; and (iv) 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 new
Investment Management Contract the Shareholder Servicing Agreement or the
Administrative Services Contract in effect for that year.
For the fiscal year ended April 30, 1996, the total amount spent pursuant to the
Plan was .35% 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 .15% 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 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. (See "Federal Income Taxes" in the
Statement of Additional Information.)
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)
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<PAGE>
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 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, TRANSFER AGENT AND SERVICING AGENT
State Street Bank and Trust Company, the Fund's transfer agent, subcontracts all
services to Boston Financial Data Services. Boston Financial Data Services, P.O.
Box 8527, Boston, Massachusetts 02266-8527 is the Fund's servicing agent for the
Victory shares of the Fund. Investors Fiduciary Trust Company, 127 West 10th
Street, Kansas City, Missouri 64105 is custodian for its cash and securities.
The Fund's transfer agent, servicing agent and custodian do not assist in, and
are not responsible for, investment decisions involving assets of the Fund.
12
<PAGE>
RULE 497(b)
Registration No. 2-89264
- --------------------------------------------------------------------------------
EVERGREEN SHARES OF
NEW YORK DAILY TAX FREE
INCOME FUND, INC.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
PROSPECTUS
September 1, 1996
New York Daily Tax Free Income Fund, Inc. (the "Fund") is a money market fund
designed 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. Because the Fund is concentrated in the securities issued by the State
of New York (the "State") or entities within the State and may invest a
significant percentage of its assets in a single issuer, an investment in the
Fund may therefore be riskier than an investment in other types of money market
funds. 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>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
TABLE OF FEES AND EXPENSES 3 HOW TO PURCHASE AND REDEEM SHARES 9
SELECTED FINANCIAL INFORMATION 3 How to Buy Shares 9
INTRODUCTION 4 How to Redeem Shares 9
MANAGEMENT OF THE FUND 4 SHAREHOLDER SERVICES 10
DESCRIPTION OF COMMON STOCK 6 Effect of Banking Laws 11
INVESTMENT OBJECTIVES, DISTRIBUTION AND SERVICE PLAN 12
POLICIES AND RISKS 6 FEDERAL INCOME TAXES 13
DIVIDENDS AND DISTRIBUTIONS 8 GENERAL INFORMATION 13
NET ASSET VALUE 14
CUSTODIAN AND TRANSFER AGENT 14
</TABLE>
2
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF FEES AND EXPENSES
- -------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .30%
12b-1 Fees .20%
Other Expenses .34%
Administrative Services Fee .21% -----
Total Fund Operating Expenses .84%
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 $27 $47 $104
</TABLE>
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 figures reflected in
this example should not be considered to be a representation of past or
future expenses. Actual expenses may be greater or less than those shown
above.
SELECTED FINANCIAL INFORMATION
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,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $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......... .030 0.027 0.018 0.023 0.037 0.048 0.053 0.047 0.040 0.036
Less distributions:
Dividends from net investment income .030 0.027 0.018 0.023 0.037 0.048 0.053 0.047 0.040 0.036
------ ------- ------ ------ ------ ------ ------ ------ ------ -----
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.................... 3.08% 2.74% 1.84% 2.28% 3.73% 4.92% 5.48% 4.86% 4.01% 3.63%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $283,368 $254,422 $218,348 $210,486 $202,291 $191,622 $211,662 $181,060 $226,115 $215,703
Ratios to average net assets:
Expenses.................... 0.84%* 0.87% 0.89% 0.89% 0.87% 0.82%+ 0.77%+ 0.80%+ 0.79%+ 0.82%+
Net investment income....... 3.02% 2.71% 1.82% 2.25% 3.63% 4.82%+ 5.32%+ 4.73%+ 3.96%+ 3.61%+
* Includes expense offsets.
+ Net of management and shareholder servicing fees waived equivalent to
.07%, .10%, .02%, .02%, and .02% of average net assets.
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
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 fifteen other open-end management investment
companies. The Fund's shares are distributed through Reich & Tang Distributors
L.P. (the "Distributor"), with whom the Fund has entered into a Distribution
Agreement and a Shareholder Servicing Agreement 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."
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The Fund's Board of Directors which is responsible for the overall
management and supervision of the Fund, has employed the Manager to serve as
investment manager of the Fund. The Manager provides persons satisfactory to the
Fund's Board of Directors to serve as officers of the Fund. Such officers, as
well as certain other employees an 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, 1996
investment manager, adviser or supervisor with respect to assets aggregating in
excess of $8.6 billion. The Manager acts as manager or administrator of fifteen
other investment companies and also advises pension trusts, profit-sharing
trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner
and owner of a 99.5% interest in the Manager. Reich & Tang Asset Management,
Inc. (a wholly-owned subsidiary of NEICLP) is the
4
<PAGE>
general partner and owner of the remaining .5% interest of the Manager. Reich &
Tang Asset Management L.P. succeeded NEICLP as the Manager of the Fund
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
55.9%, of the total partnership units outstanding of NEICLP, and Reich & Tang,
Inc. owns approximately 17.6% 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.
On August 30, 1996, The New England and Metropolitan Life Insurance Company
("MetLife") merged, with MetLife being the continuing company. The Manager
remains a wholly-owned subsidiary of NEICLP, but Reich & Tang Asset Management,
Inc., its sole general partner, is now an indirect subsidiary of MetLife. Also,
MetLife New England Holdings, Inc., a wholly-owned subsidiary of MetLife, owns
55% of the outstanding limited partnership interest of NEICLP.
MetLife is a mutual life insurance company with assets of $142.2 billion at
March 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded 1.2 trillion at March 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles
across a wide range of asset categories through eleven investment
advisory/management affiliates and two 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.; Harris Associates; Vaughan-Nelson,
Scarborough & McConnell, Inc.; and an affiliate, Capital Growth Management
Limited Partnership. These affiliates in the aggregate are investment advisors
or managers to 42 other registered investment companies.
Pursuant to the new 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 merger between The New England and MetLife resulted in an "assignment"
of the Investment Management Contract relating to the fund. Under the Investment
Company Act of 1940, as amended, such an assignment caused the automatic
termination of this agreement. The Board of Directors approved a new Investment
Management Contract with the Manager effective August 30, 1996, the effective
date of the merger, which was presented to and approved by a requisite majority
of the Shareholders of the Fund, and contains the same terms and conditions
governing the Manager's investment management responsibilities as the Fund's
previous Investment Management Contract with the Manager, except as to the dates
of execution and termination.
The merger and the change in control of the Manager is not expected to have
any impact upon the Manager's performance of its responsibilities and
obligations under the new Investment Management Contract.
Pursuant to the new 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 new 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.)
5
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
- --------------------------------------------------------------------------------
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
6
<PAGE>
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.
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 and notes, or "Aaa" and "Aa" by
Moody's in the case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by
Moody's in the case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2"
by Moody's in the case of tax-exempt commercial paper. The highest rating in the
case of variable and floating demand notes is "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.
7
<PAGE>
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 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.
8
<PAGE>
- --------------------------------------------------------------------------------
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 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
9
<PAGE>
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 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 $75. 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.
10
<PAGE>
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 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. It is the Fund management's
position, however, that banks are not prohibited from
11
<PAGE>
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. This is an unsettled
area of the law, however, 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.
- --------------------------------------------------------------------------------
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 (iv) 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 new Investment Management Contract,
the Shareholder Servicing Agreement or the Administrative Services Contract in
effect for that year.
For the fiscal year ended April 30, 1996, the total amount spent pursuant
to the Plan was .35% 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 .15% of the
average daily net assets was paid by the Manager (which may be deemed an
indirect payment by the Fund).
12
<PAGE>
- --------------------------------------------------------------------------------
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 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.
13
<PAGE>
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 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 Evergreen 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>
RULE 497(b)
Registration No. 2-89264
- ------------------------------------------------------------------------------
NEW YORK
DAILY TAX FREE 600 FIFTH AVENUE, NEW YORK, NY 10020
INCOME FUND, INC. (212) 830-5220
===============================================================================
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.
and the
Evergreen Shares of New York Daily Tax Free Income Fund, Inc.
Prospectuses dated September 1, 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., Victory Shares of New York Daily
Tax Free Income Fund, Inc., and Evergreen Shares of New York Daily Tax Free
Income Fund, Inc., (each the "Fund") 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. This Statement of
Additional Information is incorporated by reference into the respective
Prospectus in its entirety.
If you wish to invest in Victory Shares of the Fund you should obtain a separate
prospectus by writing to The Victory Funds, c/o Boston Financial Data Services,
P.O. Box 8527, Boston, Massachusetts 02266-8527 or by calling (800) KEY-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.
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Table of Contents
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Investment Objectives................................ Yield Quotations.........................................12
Policies and Risks................................2 Manager .................................................13
Description of Municipal Obligations..................3 Management of the Fund...................................15
Variable Rate Demand Instruments Compensation Table....................................16
and Participation Certificates...............5 Counsel and Auditors.................................16
When-Issued Securities............................6 Distribution and Service Plan............................16
Stand-by Commitments..............................7 Description of Common Stock..............................18
Taxable Securities....................................7 Expense Limitation.......................................18
Repurchase Agreements.............................8 Federal Income Taxes.....................................19
Special Factors Affecting New York....................8 Custodian, Transfer Agent and Dividend Agent.............20
Investment Restrictions..............................10 Description of Ratings....................................21
Portfolio Transactions...............................11 Taxable Equivalent Yield Table............................23
How to Purchase and Redeem Shares....................12 Independent Auditors Report...............................24
Net Asset Value......................................12 Financial Statements......................................25
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
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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 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 and notes or "Aaa" and "Aa" by Moody's in
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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, as amended (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 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
3
<PAGE>
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.
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.
4
<PAGE>
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 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
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* Prime rate is generally the rate charged by a bank to its most creditworthy
customers for short-term loans. The prime rate of a particular bank may differ
from other banks and will be the rate announced by each bank on a particular
day. Changes in the prime rate may occur with great frequency and generally
become effective on the date announced.
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5
<PAGE>
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 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.
6
<PAGE>
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.
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
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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 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. The
information set forth below is derived from the official statements and/or
preliminary drafts of preliminary statements prepared in connection with the
issuance of New York State and New York City municipal bonds. 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.
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.
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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.
After noticeable improvements in the City's economy during calendar year 1994,
however, economic growth slowed in calendar year 1995, and the City's current
four-year financial plan assumes the economic growth will continue to slow in
calendar year 1996, with local employment increasing modestly.
For each of the 1981 through 1995 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("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. The State's 1995-1996 Financial
Plan projects a balanced General Fund. 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 State Financial Plan is based on a
projection by the State Division of the Budget ("DOB") of national and State
economic activity. DOB forcasted that national economic growth would weaken, but
not turn negative, during the course of 1995 before beginning to rebound by the
end of the year. This dynamic is often described as a "soft landing". The
national economy achieved the desired "soft landing" in 1995, as growth slowed
from 6.2 percent in 1994 to a rate sufficiently slow to inhibit the buildup of
inflationary pressures. This was achieved without any material pause in the
economic expansion, although recession worries flared in the late spring and
early summer. Growth in the national economy is expected to moderate during
1996, with the nation's gross domestic product projected to expand by 4.6
percent in 1996 versus 5.0 percent in 1995. Declining short-term interest rates,
slowing employment growth and continued moderate inflation also characterize the
projected path for the nation's economy in the year ahead.
The annual growth rates of most economic indicators for the State improved from
1994 to 1995, as the pace of the private sector employment expansion and
personal income and wage growth all accelerated. Government employment fell as
workforce reductions were implemented at Federal, State and local levels.
Similar to the nation, some moderation of growth is expected the year ahead.
Private sector employment is expected to continue to rise, although somewhat
more slowly than in 1995, while public employment should continue to fall,
reflecting government budget cutbacks. Anticipated continued restraint in wage
settlements, a lower rate of employment growth and falling interest rates are
expected to slow personal income growth significantly.
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 principal 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 1995-96 fiscal year, the General Fund is expected to account for
approximately 49% of total governmental-fund receipts and 69% 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.
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 1995-96 enacted budget combines
significant tax and program
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reductions which will, in the current and future years, lower both the recurring
receipts base (before the effect of any economic stimulus from such tax
reductions) and the historical annual growth in State program spending. The
three year plan to reduce State personal income taxes will decrease State tax
receipts by an estimated $1.7 billion in State fiscal year 1996-97 in addition
to the amount of reduction in State fiscal year 1995-96. Further significant
reductions in the personal income tax are scheduled for the 1997-98 State fiscal
year. Other tax reductions enacted in 1994 and 1995 are estimated to cause an
additional reduction in receipts of over $500 million in 1996-97, as compared to
the level of receipts in 1995-96. Similarly, many actions taken to reduce
disbursements in the State's 1995-96 fiscal year are expected to provide greater
reductions in State fiscal year 1996-97. These include actions to reduce the
State workforce, reduce Medicaid and welfare expenditures and slow community
mental hygiene program development. The net impact of these and other factors is
expected to produce a potential imbalance in receipts and disbursements in State
fiscal year 1996-97. The Governor has indicated that in the 1996-97 Executive
Budget he will propose to close this potential imbalance primarily through
General Fund expenditure reductions and without increases in taxes or deferrals
of scheduled tax reductions. On October 2, 1995, the State Comptroller released
a report in which he reaffirmed his estimate that the State will face a budget
gap of at least $2.7 billion for the 1996-97 fiscal year and a projected gap of
at least $3.9 billion for the 1997-98 fiscal year.
RATINGS. On July 10, 1995, Standard & Poor's revised downward its rating on City
general obligation bonds from A- to BBB+ and removed City bonds from
CreditWatch. Standard & Poor's 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 Standard &
Poor's 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 caused by State budget delays and continued
high debt levels.
On March 1, 1996, Moody's stated that the rating for City general obligation
bonds remains under review pending the outcome of the adoption of the City's
budget for the 1997 fiscal year, and, in light of the status of the debate on
public assistance and Medicaid reform; the enactment of a State budget, upon
which major assumptions regarding State aid are dependent, which may be
extensively delayed; and the seasoning of the City's economy with regard to its
strength and direction in the face of a potential national economic slow down.
Since July 15, 1993, Fitch Investors Service, L.P. ("Fitch") has rated city
bonds A-. On February 28, 1996, Fitch placed the City's general obligation bonds
on FitchAlert with negative implications.
On January 13, 1992, Standard & Poor's reduced its ratings on the State's
general obligation bonds from A to Aand, in addition, reduced it's ratings on
the State's moral obligation, lease purchase, guaranteed and contractual
obligation debt. Standard & Poor's also continued it's negative rating outlook
assessment on State general obligation debt. On April 26, 1993, Standard &
Poor's revised the rating outlook assessment to stable. On February 14, 1994,
Standard & Poor's raised its outlook to positive and, on October 3, 1995,
confirmed its A- rating. On January 6, 1992, Moody's reduced it's ratings on
outstanding limited-liability State lease purchase and contractual obligations
from A to Baa1. On October 2, 1995, Moody's reconfirmed its A rating on the
State's general obligation long- term indebtedness.
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.
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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 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.
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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: 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.
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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 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 August 31, 1996 was 2.84% which
is equivalent to an effective yield of 2.88%.
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, 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., Short
Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc. The Manager also
advises pension trusts, profit-sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and owner of the
remaining .5% interest of the Manager. Reich & Tang Asset Management L.P. has
succeeded NEICLP as the Manager of the Fund.
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 55.9% of the total
partnership units outstanding of NEICLP, and Reich & Tang, Inc. owns
approximately 17.6% of the outstanding partnership units of NEICLP.
On August 30, 1996, The New England and Metropolitan Life Insurance Company
("MetLife") merged, with MetLife being the continuing company. The Manager
remains a wholly-owned subsidiary of NEICLP, but Reich & Tang Asset Management,
Inc., its sole general partner, is now an indirect subsidiary of MetLife. Also,
MetLife New England Holdings, Inc., a wholly-owned subsidiary of MetLife, owns
55% of the outstanding limited partnership interest of NEICLP.
MetLife is a mutual life insurance company with assets of $142.2 billion at
March 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded 1.2 trillion at March 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a 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
eleven investment advisory/management affiliates and two 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.; Harris
Associates; Vaughan-Nelson; Scarborough & McConnell, Inc.; and an affiliate, and
Capital Growth Management Limited Partnership. These affiliates in the aggregate
are investment advisors or managers of 42 other registered investment companies.
13
<PAGE>
The merger between The New England and MetLife resulted in an "assignment" of
the Investment Management Contract relating to the Fund. Under the Investment
Company Act of 1940, as amended, such an assignment caused the automatic
termination of this agreement. The Board of Directors approved a new Investment
Management Contract with the Manager effective August 30, 1996, the effective
date of the merger, which was presented to and approved by a requisite majority
of the Shareholders of the Fund, and contains the same terms and conditions
governing the Manager's investment management responsibilities as the Fund's
previous Investment Management Contract with the Manager, except as to the dates
of execution and termination.
The merger and the change in control of the Manager is not expected to have any
impact upon the Manager's performance of its responsibilities and obligations
under the new Investment Management Contract.
Pursuant to the new 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 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 new Investment Management Contract was most recently approved on March 5,
1996 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 and
became effective on August 30, 1996. The Investment Management Contract has a
term which extends to April 30, 1998 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 new 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 new 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, 1996, April 30, 1995, and April 30,
1994, the fee paid to the Manager under the Investment Management Contract was
$819,852, $702,867, and $824,707, respectively. The Fund's net assets at the
close of business on April 30, 1996 totaled $283,368,043. 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.
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, 1996, the Manager
received a fee of $558,233.
14
<PAGE>
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, 42 - 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., President and a Trustee of Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, and Pennsylvania Daily Municipal Income Fund,
President of Cortland Trust, Inc., Executive Vice President of Reich & Tang
Equity Fund, Inc., and President and Chief Executive Officer of Tax Exempt
Proceeds Fund, Inc.
Edward A. Kuczmarski, 42 - 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.
Caroline E. Newell, 56 - 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, 48 - 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, 48 - Vice President of the Fund, is Senior Vice President of
the Mutual Funds Division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. with which she was
associated 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., and Short Term Income Fund, Inc.
Bernadette N. Finn, 48 - Secretary of the Fund, is Vice President of the Mutual
Funds Division of the Manager since September 1993. Ms. Finn was formerly Vice
President and Assistant Secretary of Reich & Tang, Inc. with which she was
associated 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.,
Florida Daily Municipal 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 and Tax Exempt
Proceeds Fund, Inc., a Vice President and Secretary of Delafield Fund, Inc.,
Institutional Daily Income Fund, Reich & Tang Equity Fund, Inc., Reich & Tang
Government Securities Trust and Short Term Income Fund, Inc.
Molly Flewharty, 45 - Vice President of the Fund, is Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. with which she was associated with
from December 1977 to September 1993. Ms. Flewharty is also Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., and Tax Exempt Proceeds Fund, Inc.
Dana E. Messina, 39 - Vice President of the Fund, is Executive Vice President of
the Mutual Funds Division of the Manager since January 1995, and was Vice
President from September 1993 to January 1995. Ms. Messina was formerly Vice
President of Reich & Tang, Inc. with which she was associated with from December
1980 to September 1993. Ms. Messina is Vice President of California Daily Tax
Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland
Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc., and Tax
Exempt Proceeds Fund, Inc.
Richard De Sanctis, 39 - 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
15
<PAGE>
Cortland Financial Group, Inc. and Vice President of Cortland Distributors, Inc.
from 1989 to December 1990. Mr. De Sanctis 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., 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 $20,000 to its directors with respect
to the period ended April 30, 1996, 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>
<S> <C> <C> <C> <C>
COMPENSATION TABLE
(1) (2) (3) (4) (5)
Aggregate Pension or Total Compensation
Name of Person, Compensation from Retirement Benefits Estimated Annual from Fund and Fund
Position Registrant for Fiscal Accrued as Part of Benefits upon Complex Paid to
-------- Year Fund Expenses Retirement Directors*
---- ------------- ---------- ----------
Edward A.
Kuczmarski, $5,000.00 0 0 $5,000 (1 Fund)
Director
Milton R. Neaman, $5,000.00 0 0 $5,000 (1 Fund)
Director
Caroline E. Newell, $5,000.00 0 0 $5,000 (1 Fund)
Director
John P. Steines, $5,000.00 0 0 $5,000 (1 Fund)
Director
</TABLE>
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, 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
shareholders of the Fund. 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").
16
<PAGE>
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. For the Fund's fiscal
year ended April 30, 1996, 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 $546,568 of which $19,946 was
spent on sales personnel and related expenses, $4,668 was spent on travel and
entertainment, $22,527 was spent on prospectus, application and miscellaneous
printing and $1,116 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 $906,744. 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. For
the Fund's fiscal year ended April 30, 1994, 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 $443,903
of which $11,962 was spent on sales personnel and related expenses, $1,381 was
spent on travel and entertainment, $10,294 was spent on prospectus, application
and miscellaneous printing and $778 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 $602,648. 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.. 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 (iv) 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, 1997. 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.
17
<PAGE>
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 August 31, 1996 there were 279,556,737 shares of the Fund
outstanding. As of August 31, 1996, the amount of shares owned by all officers
and directors of the Fund, as a group, was less than 1% of the outstanding
shares. Set forth below is certain information as to persons who owned 5% or
more of the Fund's outstanding shares as of August 31, 1996:
Nature of
Name and address % of Class Ownership
Reich & Tang Services L.P. 64.24% Record
agent for various beneficial owners
600 Fifth Avenue
New York, N.Y. 10020
Neuberger & Berman 18.82% Record
as agent for customer
11 Broadway Operations Con
New York, N.Y. 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
18
<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. The amount of
such interest received will have to be disclosed on the shareholders' Federal
income tax returns. Taxpayers other than corporations are required to include as
an item of tax preference for purposes of the Federal alternative minimum tax,
all tax-exempt interest on "private activity" bonds (generally, a bond issue in
which more than 10% of the proceeds are used in a non-governmental trade or
business) (other than Section 501(c)(3) bonds) issued after August 7, 1986.
Thus, this provision will apply to the portion of the exempt-interest dividends
from the Fund's assets, 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). 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 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.
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
19
<PAGE>
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.
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. Reich & Tang Services
L.P., 600 Fifth Avenue, New York, New York 10020 is transfer agent and dividend
agent for the shares of the Fund. State Street Bank and Trust Company, the
transfer agent for Victory Shares of the Fund, subcontracts all services to
Boston Financial Data Services at P.O. Box 8527, Boston, Massachusetts
02266-8527. Boston Financial Data Services is also the servicing 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 custodian and
transfer agents do not assist in, and are not responsible for, investment
decisions involving assets of the Fund.
20
<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.
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.
* As described by the rating agencies.
21
<PAGE>
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.
22
<PAGE>
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective Until December 31, 1996)
_______________________________________________________________________________
1. If Your Taxable Income Bracket Is . . .
_______________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Single 24,001- 25,001- 58,151- 60,101- 121,301- 263,751
Return 25,000 58,150 60,000 121,301 263,750 and over
Single 40,101- 45,001- 96,901- 108,801- 147,701- 263,751
Return 45,000 96,900 108,000 147,700 263,750 and over
________________________________________________________________________________
2. Then Your Combined Income Tax Bracket Is . . .
________________________________________________________________________________
Federal 28.00% 28.00% 31.00% 31.0% 36.0% 39.6
Tax Bracket
________________________________________________________________________________
State 7.125% 7.125% 7.125% 7.125% 7.125% 7.125
Tax Bracket
________________________________________________________________________________
City 4.39% 4.40% 4.40% 4.46% 4.46% 4.46
Tax Bracket
________________________________________________________________________________
Combined 36.291% 36.298% 38.952% 38.994% 43.414% 46.597
Tax Bracket
________________________________________________________________________________
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
Tax Exempt Equivalent Taxable Investment Yield
Yield Required to Match Tax Exempt Yield
________________________________________________________________________________
2.0% 3.14% 3.14% 3.28% 3.28% 3.53% 3.75%
________________________________________________________________________________
2.5% 3.92% 3.92% 4.10% 4.10% 4.42% 4.68%
________________________________________________________________________________
3.0% 4.71% 4.71% 4.91% 4.92% 5.30% 5.62%
________________________________________________________________________________
3.5% 5.49% 5.49% 5.73% 5.74% 6.19% 6.55%
________________________________________________________________________________
4.0% 6.28% 6.28% 6.55% 6.56% 7.07% 7.49%
________________________________________________________________________________
4.5% 7.06% 7.06% 7.37% 7.38% 7.95% 8.43%
________________________________________________________________________________
5.0% 7.85% 7.85% 8.19% 8.20% 8.84% 9.36%
________________________________________________________________________________
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
23
<PAGE>
- -------------------------------------------------------------------------------
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, 1996, 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, 1996, 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, 1996, 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 28, 1996
24
<PAGE>
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS
APRIL 30, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Tax Exempt Investments (16.80%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 5,000,000 Brentwood, NY UFSD (Suffolk County, NY) TAN (c) 06/28/96 3.93% $ 5,003,810
5,000,000 Central Islip, NY UFSD TAN (c) 06/28/96 3.79 5,004,196
4,000,000 City of Cortland, NY School District
(Cortland & Tompkins Counties) RAN (c) 06/28/96 3.79 4,001,674
4,000,000 Dutchess County, NY BAN 08/02/96 3.71 4,004,698 MIG-1
2,950,000 Dutchess County, NY BAN - Series B (c) 02/28/97 3.09 2,958,277
3,000,000 NYC GO - Series B
Escrowed in U.S. Treasury Securities (c) 12/01/96 3.08 3,123,284
1,115,000 New York Medical Care Finance Agency RB
(Mental Health Services Facility) - Series A
MBIA Insured 02/15/97 3.34 1,125,717 Aaa AAA
3,900,000 Oswego County, NY
Board of Cooperative Educational Services (c) 06/25/96 3.80 3,902,145
3,062,000 Rochester, NY BAN (c) 10/31/96 3.74 3,069,932
7,200,000 Rockland County, NY Sewer BAN (c) 03/07/97 3.18 7,222,504
8,130,000 Westchester County, NY GO - Series A 12/15/96 3.42 8,184,223 Aaa AAA
- ----------- -----------
47,357,000 Total Other Tax Exempt Investments 47,600,460
- ----------- -----------
<CAPTION>
Other Variable Rate Demand Instruments (b) (66.25%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 5,300,000 Counties of Warren & Washington IDA IDRB
(Griffith Micro Science Inc. Project) - Series 1994
LOC First Chicago 12/01/14 4.20% $ 5,300,000 A1
3,000,000 Franklin County, NY IDA IDRB (Kes Chatauqua Project)
LOC Bank of Tokyo, Ltd. 07/01/21 4.10 3,000,000 A1
1,185,000 Glen Falls, NY IDA IDRB (Broad Street Plaza)
LOC Fleet National Bank 12/01/06 3.80 1,185,000 P1 A1
1,000,000 Islip, NY IDA IDRB (Brentwood Distribution) (c)
LOC Fleet National Bank 05/01/09 3.65 1,000,000
1,580,000 Metropolitan Museum of Art
(Dormitory Authority of New York) RB 1993 07/01/15 4.00 1,580,000 VMIG-1 A1+
6,900,000 Metropolitan Transportation Authority - Series 1991A
LOC Morgan Guaranty/Bk of Tokyo/Mitsubishi Bk/Sumitomo
Bk/Industrial Bk of Japan/Natwest 07/01/21 3.90 6,900,000 VMIG-1 A1
470,000 Monroe County, NY IDA IDRB (Brazil Merk Partnership)
LOC Fleet National Bank 01/01/06 3.70 470,000 P1 A1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
25
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
APRIL 30, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
------------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 1,000,000 Nassau County, NY IDA IDRB (Manhassett Association) (c)
LOC Bankers Trust Company 12/01/99 4.10% $ 1,000,000
2,200,000 New York City GO 1993 - Series E-3
LOC Morgan Guaranty 08/01/23 4.00 2,200,000 VMIG-1 A1+
2,800,000 New York City Trust Cultural Resource RB (Jewish Museum)
LOC Sumitomo Bank, Ltd. 12/01/21 4.20 2,800,000 VMIG-1 A1
2,300,000 New York City Trust Cultural Resource RB
(Museum of Broadcasting)
LOC Sumitomo Bank, Ltd. 05/01/14 4.20 2,300,000 VMIG-1 A1
5,000,000 New York City, NY - Subseries E-4
LOC State Street Bank & Trust Co. 08/01/21 4.00 5,000,000 VMIG-1 A1+
3,600,000 New York City, NY GO - Series E2
LOC Industrial Bank of Japan, Ltd. 08/01/21 4.15 3,600,000 VMIG-1 A1
1,900,000 New York City, NY GO - Series E5
LOC Sumitomo Bank, Ltd. 08/01/16 4.15 1,900,000 VMIG-1 A1
2,500,000 New York City, NY GO Bond - Series B
FGIC Insured 10/01/22 4.20 2,500,000 VMIG-1 A1+
7,000,000 New York City, NY GO Bond - Series E-4
LOC State Street Bank & Trust Co. 08/01/22 4.00 7,000,000 VMIG-1 A1+
7,200,000 New York City, NY GO Bond - Subseries A-7
LOC Morgan Guaranty 08/01/20 4.00 7,200,000 VMIG-1 A1+
1,500,000 New York City, NY GO Bond - Subseries E-6
FGIC Insured 08/01/19 4.00 1,500,000 VMIG-1 A1+
2,000,000 New York City, NY HDC (East 17th St.) - Series A
LOC Chemical Bank 01/01/23 4.00 2,000,000 A1+
6,500,000 New York City, NY HDC (East 96th St.) - Series 1990A
LOC Bank of Tokyo - Mitsubishi Trust Bank 08/01/15 3.60 6,500,000 VMIG-1
3,000,000 New York City, NY HDC
(Upper Fifth Avenue Project) - Series 1989A
LOC Bankers Trust Company 01/01/16 3.90 3,000,000 VMIG-1
11,100,000 New York City, NY IDA (Nippon Cargo Airlines Company)
LOC Industrial Bank of Japan, Ltd. 11/01/15 4.75 11,100,000 A1
5,200,000 New York City, NY IDRB (Airport Project) - Series 1985
LOC Bayerische Landesbank Girozentrale 04/01/00 4.00 5,200,000 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, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 1,300,000 New York State Dormitory Authority RB
LOC Wachovia Bank & Trust Co., N.A. 07/01/23 4.30% $ 1,300,000 VMIG-1
4,200,000 New York State ERDA PCRB
(Central Hudson Gas & Electric) - Series A
LOC Morgan Guaranty 11/01/20 3.45 4,200,000 P1
2,000,000 New York State ERDA PCRB
(Central Hudson Gas & Electric) - Series B
LOC Deutsche Bank A.G. 11/01/20 3.45 2,000,000 P1 A1+
2,400,000 New York State ERDA PCRB
(Niagara Mohawk Power Corp.) (c)
LOC Toronto-Dominion Bank 03/01/27 4.30 2,400,000
6,400,000 New York State ERDA PCRB
(Niagara Mohawk Power Corp.) - Series 1988A
LOC Morgan Guaranty 12/01/23 4.15 6,400,000 A1+
1,400,000 New York State ERDA PCRB
(Niagara Mohawk Power Corporation) - Series 1985C
LOC Canadian Imperial Bank of Commerce 12/01/25 4.00 1,400,000 P1
10,700,000 New York State ERDA PCRB
(Niagara Mohawk Power Corporation) - Series A
LOC Toronto-Dominion Bank 12/01/26 4.10 10,700,000 P1
2,700,000 New York State ERDA PCRB
(Rochester Gas & Electric) - Series 1984
LOC The Bank of New York 10/01/14 3.30 2,700,000 P1
505,000 New York State JDA - Series B 03/01/05 4.40 505,000 VMIG-1
685,000 New York State JDA - Series D
LOC Sumitomo Bank, Ltd. 03/01/99 3.50 685,000 VMIG-1 A1
800,000 New York State JDA - Series G
LOC Sumitomo Bank, Ltd. 03/01/99 3.50 800,000 VMIG-1 A1
3,300,000 New York State JDA Special Purpose RB 03/01/02 4.40 3,300,000 VMIG-1 A1
12,400,000 New York State (LGAC)
LOC Credit Suisse/Swiss Bank/Union Bank of Switzerland 04/01/22 3.85 12,400,000 VMIG-1 A1+
4,900,000 New York State (LGAC) - Series E
LOC Canadian Imperial Bank of Commerce 04/01/25 4.00 4,900,000 VMIG-1 A1+
4,900,000 New York State (LGAC) - Series G
LOC National Westminster Bank PLC 04/01/25 3.85 4,900,000 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, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 5,800,000 New York State (LGAC) RB - Series 1994B
LOC Swiss Bank Corporation 04/01/23 3.80% $ 5,800,000 VMIG-1 A1+
8,000,000 New York State Medical Care Facilities Financial Authority
LOC Chemical Bank 11/01/15 4.05 8,000,000 VMIG-1
1,400,000 New York State Medical Care
Pooled Equipment Authority - Series 1994A
LOC Chemical Bank 11/01/03 4.05 1,400,000 VMIG-1
4,600,000 New York, NY - Series B Subseries B-6
MBIA Insured 08/15/05 4.00 4,600,000 VMIG-1 A1+
6,700,000 Oswego County, NY IDA PCRB
(Philip Morris Companies Incorporated) 12/01/08 4.05 6,700,000 P1 A1
100,000 Port Authority of New York & New Jersey Versatile
Structured Obligations - Series 3 06/01/20 3.90 100,000 VMIG-1 A1+
500,000 Puerto Rico Industrial Medical & Environmental PCFA PCRB
(Ana Mendez Foundation)
LOC Bank of Tokyo, Ltd. 12/01/15 4.15 500,000 A1
500,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/97 4.10 500,000 P1 A1+
500,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/96 4.10 500,000 P1 A1+
500,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/98 4.10 500,000 P1 A1+
500,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/99 4.10 500,000 P1 A1+
500,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/00 4.10 500,000 P1 A1+
200,000 Southeast, NY IDA (1989 Unilock, NY)
LOC National Bank of Detroit 11/01/01 4.10 200,000 P1 A1+
7,100,000 Suffolk County, NY IDA
(Nissequogue Cogen Partners) - Series 1993
LOC Toronto-Dominion Bank 12/15/23 4.25 7,100,000 VMIG-1 A1+
8,000,000 Suffolk County, NY Water Authority BAN 12/06/99 4.10 8,000,000 VMIG-1
- ----------- -----------
187,725,000 Total Other Variable Rate Demand Instruments 187,725,000
- ----------- -----------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
- -------------------------------------------------------------------------------
28
<PAGE>
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
APRIL 30, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Put Bonds (d) (4.32%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 390,000 Fulton County, NY IDA (LCM Properties Realty Trust) (c)
LOC The Bank of New York 06/15/96 4.15% $ 390,000
5,000,000 New York State ERDA (Rochester Gas & Electric)
LOC Credit Suisse 11/15/96 3.75 5,000,000 Aa2
6,865,000 New York State ERDA PCRB (Long Island Lighting Co.)
LOC Deutsche Bank A.G. 03/01/97 3.25 6,865,000 VMIG-1
- ----------- -----------
12,255,000 Total Put Bonds 12,255,000
- ----------- -----------
<CAPTION>
Tax Exempt Commercial Paper (3.39%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 2,100,000 NYC Muni Water
LOC Credit Suisse 05/03/96 3.30% $ 2,100,000 P1 A1+
2,500,000 New York City Municipal Water - Series E
LOC Toronto-Dominion Bank/Bank of Nova Scotia 05/08/96 3.30 2,500,000 P1 A1+
5,000,000 New York City GO
MBIA Insured 08/07/96 3.20 5,000,000 MIG-1 A1+
- ----------- -----------
9,600,000 Total Tax Exempt Commercial Paper 9,600,000
- ----------- -----------
<CAPTION>
Variable Rate Demand Instruments - Participations (b) (5.08%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 230,014 Auburn, NY IDA IDRB
(Bo-Mer Manufacturing Company Incorporated)
LOC Chemical Bank 10/01/00 5.36% $ 230,014 P1 A1
315,000 BSE Corporation Project
LOC Chemical Bank 07/01/01 5.36 315,000 P1 A1
359,959 Centennial Associates/W & H Stampings, Incorporated
LOC Chemical Bank 10/01/00 5.36 359,959 P1 A1
344,828 Datagraphic Incorporated
LOC Chemical Bank 10/01/98 5.36 344,828 P1 A1
1,575,000 Executive Square Business Park
LOC Chemical Bank 06/01/01 5.36 1,575,000 P1 A1
258,620 Faden Paper Supply Company
LOC Chemical Bank 01/01/00 5.36 258,620 P1 A1
80,000 Ferrara Brothers Building Materials Corporation - Series 1981
LOC Chemical Bank 01/01/97 5.36 80,000 P1 A1
930,600 GL II Associates
LOC Chemical Bank 01/01/99 5.36 930,600 P1 A1
1,732,500 Giaquinto Joint Venture
LOC Chemical Bank 07/01/02 5.36 1,732,500 P1 A1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
- -------------------------------------------------------------------------------
29
<PAGE>
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
APRIL 30, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Variable Rate Demand Instruments - Participations (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 328,457 I.G. Federal Electric Supply Corporation 1984
LOC Chemical Bank 11/01/99 5.36% $ 328,457 P1 A1
613,760 Metro Seliger Industries, Incorporated 1984
LOC Chemical Bank 08/10/99 5.36 613,760 P1 A1
237,364 Nassau County, NY IDA IDRB
(Steven Klein/Normandie Metal Fabricators)
LOC Chemical Bank 11/01/99 5.36 237,364 P1 A1
239,972 New York City, IDA IDRB (Precision Plating Incorporated)
LOC Chemical Bank 09/01/00 5.36 239,972 P1 A1
438,925 New York City, NY
(Seybert-Nicholas Printing Corporation/Kenner Printing)
LOC Chemical Bank 06/01/00 5.36 438,925 P1 A1
188,888 New York City, NY IDA IDRB
(Abigail Press, Incorporated Project)
LOC Chemical Bank 02/01/99 5.36 188,888 P1 A1
67,500 New York City, NY IDA IDRB (Zaro's Bakeshop Incorporated)
LOC Chemical Bank 11/01/96 5.36 67,500 P1 A1
235,583 One Crouse Medical Plaza
LOC Chemical Bank 12/10/98 5.36 235,583 P1 A1
1,275,000 Penn-Plax Plastics, Nassau County
LOC Dai-Ichi Kangyo Bank, Ltd. 01/01/00 5.36 1,275,000 P1 A1
4,261,814 Puntillo Limited Partner
LOC Dai-Ichi Kangyo Bank, Ltd. 10/01/04 5.55 4,261,814 P1 A1
55,000 Ram Realty Company Project
LOC The Bank of New York 02/01/99 4.95 55,000 P1 A1
60,668 Rozal Properties Project
LOC Chemical Bank 09/01/96 5.36 60,668 P1 A1
443,306 Texpak Incorporated Project
LOC Chemical Bank 01/01/01 5.36 443,306 P1 A1
118,615 Ulster County, NY IDA IDRB (Fin Pan Incorporated Project)
LOC Chemical Bank 11/01/99 5.36 118,615 P1 A1
- ----------- -----------
14,391,373 Total Variable Rate Demand Instruments - Participations 14,391,373
- ----------- -----------
<CAPTION>
Variable Rate Demand Instruments - Private Placements (b) (3.65%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 631,340 Adirondack Transit Lines
LOC Key Bank, N.A. 02/01/01 4.95% $ 631,340 P1 A1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
- -------------------------------------------------------------------------------
30
<PAGE>
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
APRIL 30, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Variable Rate Demand Instruments - Private Placements (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 6,500,000 Blazer Real Estate 1990
LOC Union Bank of Switzerland 09/01/21 5.36% $ 6,500,000 P1 A1
723,000 FTS Systems Incorporated
LOC Key Bank, N.A. 01/15/09 5.36 723,000 P1 A1
301,000 J. Treffiletti & Sons
LOC Key Bank, N.A. 09/01/00 4.95 301,000 P1 A1
900,000 Rockland County, NY IDA
(Bendix Mouldings Incorporated Project) - Series 1985
LOC Standard Charter Bank 12/01/01 4.95 900,000 P1 A1
312,083 Troy Mall Associates - Series 1985B
LOC Key Bank, N.A. 07/01/15 4.95 312,083 P1 A1
973,750 Troy Mall Associates - Series 1985C
LOC Key Bank, N.A. 04/01/16 4.95 973,750 P1 A1
- ----------- -----------
10,341,173 Total Variable Rate Demand Instruments - Private Placements 10,341,173
- ----------- -----------
Total Investments (99.49%) (Cost 281,913,006+) 281,913,006
Cash and Other Assets, Net of Liabilities (0.51%) 1,455,037
-----------
Net Assets (100.00%), 283,370,297 Shares Outstanding (Note 3) $283,368,043
===========
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.
31
<PAGE>
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
APRIL 30, 1996
===============================================================================
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.
(d) The maturity date indicated is the next put date.
<TABLE>
<CAPTION>
KEY:
<C> <C> <C> <C> <C> <C>
BAN = Bond Anticipation Note LGAC = Local Government Assistance Corporation
ERDA = Energy and Research Development Authority PCFA = Pollution Control Financial Authority
GO = Government Obligation PCRB = Pollution Control Revenue Bond
HDC = Housing Development Corporation RAN = Revenue Anticipation Note
IDA = Industrial Development Authority RB = Revenue Bond
IDRB = Industrial Development Revenue Bond TAN = Tax Anticipation Note
JDA = Job Development Authority UFSD = Unified School District
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
32
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
===============================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<C> <C>
Income:
Interest........................................................ $ 10,561,894
--------------
Expenses: (Note 2)
Investment management fee........................................ 819,852
Administration fee............................................... 558,233
Shareholder servicing fee........................................ 546,568
Custodian expenses............................................... 33,167
Shareholder servicing and
related shareholder expenses................................ 190,802
Legal, compliance and filing fees................................ 38,463
Audit and accounting............................................. 80,398
Directors' fees and expenses..................................... 20,000
Other expenses................................................... 15,933
-------------
Total expenses.............................................. 2,303,416
Less: Expenses paid indirectly.............................. ( 7,781)
-------------
Net expenses..................................... 2,295,635
-------------
Net investment income.............................................. 8,266,259
<CAPTION>
REALIZED GAIN (LOSS) ON INVESTMENTS
<C> <C>
Net realized gain (loss) on investments............................ -0-
-------------
Increase in net assets from operations............................. $ 8,266,259
=============
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
33
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED APRIL 30, 1996 AND 1995
===============================================================================
<TABLE>
<CAPTION>
1996 1995
-------- --------
<C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income....................................... $ 8,266,259 $ 6,357,340
Net realized gain (loss) on investments..................... -- 284
--------------- ---------------
Increase in net assets from operations.......................... 8,266,259 6,357,624
Dividends to shareholders from net investment income............ ( 8,266,259)* ( 6,357,340)*
Capital share transactions (Note 3)............................. 28,946,430 36,073,321
--------------- ---------------
Total increase (decrease)................................... 28,946,430 36,073,605
Net assets:
Beginning of year........................................... 254,421,613 218,348,008
--------------- ---------------
End of year................................................. $ 283,368,043 $ 254,421,613
=============== ===============
* Designated as exempt-interest dividends for federal income tax purposes.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
34
<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 is a short-term, tax exempt money market fund. 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) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
e) 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, 1996.
Pursuant to an Administrative Services Agreement, the Fund pays to the Manager
an annual fee of .21% of the Fund's average daily net assets. Prior to December
1, 1995, the administration fee was .20%.
- -------------------------------------------------------------------------------
35
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
2. Investment Management Fees and Other Transactions with Affiliates
(Continued)
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.
The Manager is a wholly-owned subsidiary of New England Investment Companies,
L.P. ("NEIC"). On August 16, 1995, New England Mutual Life Insurance Company
("The New England"), the owner of NEIC's general partner and a majority owner of
the limited partnership interest in NEIC, entered into an agreement to merge
with Metropolitan Life Insurance Company ("MetLife"), with MetLife to be the
survivor of the merger. The merger is subject to several conditions, including
the required approval, by shareholders of the Fund of a proposed 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.
Included in the Statement of Operations under the caption "Shareholder servicing
and related shareholder expenses" are fees of $38,036 paid to Reich & Tang
Services L.P., an affiliate of the Manager as servicing agent for the Fund.
Included in the Statement of Operations under the captions "Custodian expenses"
and "Shareholder servicing and related shareholder expenses" are expense offsets
of $7,781.
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, 1996, 20,000,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $283,368,608. Transactions in capital
stock, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Year Year
Ended Ended
April 30, 1996 April 30, 1995
-------------- --------------
<C> <C> <C>
Sold................................... 452,103,464 448,737,421
Issued on reinvestment of dividends.... 7,544,314 5,640,644
Redeemed............................... ( 430,701,348) ( 418,304,744)
------------- ------------
Net increase (decrease)................ 28,946,430 36,073,321
============= =============
</TABLE>
4. Sales of Securities
Accumulated undistributed realized losses at April 30, 1996 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.
- -------------------------------------------------------------------------------
36
<PAGE>
- -------------------------------------------------------------------------------
NEW YORK DAILY TAX FREE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
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 71% 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
37
