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Registration No. 2-94184
Rule 497(c)
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REICH & TANG 600 FIFTH AVENUE
EQUITY FUND, INC. NEW YORK, NY 10020
(212) 830-5220
PROSPECTUS
May 1, 1998
Reich & Tang Equity Fund, Inc. (the "Fund") is a no-load, open-end diversified
management investment company. The Fund's investment objective is to seek growth
of capital and investments will be made based upon their potential for capital
growth. The Fund's investment philosophy is that of investment in equity
securities of companies which, based on fundamental research, the management of
the Fund believes to be undervalued. Current income will be secondary to the
objective of capital growth.
Reich & Tang Asset Management L.P. acts as manager of the Fund and Reich & Tang
Distributors, Inc. acts as distributor of the Fund's shares. Reich & Tang Asset
Management L.P. is a registered investment advisor. Reich & Tang Distributors,
Inc. is a registered broker-dealer and member of the National Association of
Securities Dealers, Inc.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
dated May 1, 1998, containing additional and more detailed information about the
Fund (the "Statement of Additional Information"), has been filed with the
Securities and Exchange Commission (the "SEC") and is hereby incorporated by
reference into this Prospectus. It is available without charge and can be
obtained by writing or calling the Fund at the address and telephone number set
forth above. The SEC maintains a website (http://www.sec.gov) that contains the
Statement of Additional information and other reports and information regarding
the Fund which has been filed electronically with the SEC.
Shares in the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not 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 SEC OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT BEING OFFERED VIA THE
INTERNET TO RESIDENTS OF PARTICULAR STATES.
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TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.80%
Other Expenses 0.41%
Administration Fees 0.20%
Total Fund Operating Expenses 1.21%
<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): $ 12 $ 38 $ 66 $141
</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 "The Manager" and
"Distribution and Service Plan" herein. The figures reflected in the example
should not be considered as a representation of past or future expenses. Actual
expenses may be greater or lesser than those shown above.
FINANCIAL HIGHLIGHTS
The following financial highlights of Reich & Tang Equity Fund, Inc. have been
audited by McGladrey & Pullen, LLP, Independent Certified Public Accountants,
whose report thereon is incorporated by reference in the Statement of Additional
Information.
Year Ended December 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding
throughout the period)
Net asset value, beginning
of period $18.10 $17.73 $15.39 $17.61 $16.92 $15.64 $13.05 $14.24 $14.11 $13.11
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income...... 0.11 0.15 0.22 0.24 0.21 0.23 0.36 0.35 0.43 0.44
Net realized and unrealized
gains (losses) on investments 2.38 2.83 4.10 0.05 2.12 2.31 2.63 (1.18) 2.08 2.53
----- ----- ----- ----- ----- ----- ----- ------ ---- ----
Total from investment
operations 2.49 2.98 4.32 0.29 2.33 2.54 2.99 (0.83) 2.51 2.97
----- ----- ----- ----- ----- ----- ----- ------ ---- ----
Less distributions:
Dividends from net investment
income ( 0.11) ( 0.15) ( 0.22) ( 0.24) (0.21) ( 0.23) ( 0.37) ( 0.36) ( 0.45) ( 0.44)
Dividends from net realized
gains on investments...... ( 3.23) ( 2.46) ( 1.76) (2.27) (1.43) ( 1.03) ( 0.03) -- ( 1.93) (1.53)
----- ----- ----- ---- ----- ---- ----- ----- ----- ----
Total distributions........... ( 3.34) (2.61) (1.98) ( 2.51) (1.64) (1.26) (0.40) ( 0.36) (2.38) (1.97)
------ ----- ----- ----- ----- ----- ---- ---- ---- ----
Net asset value, end of period $17.25 $18.10 $17.73 $15.39 $17.61 $16.92 $15.64 $13.05 $14.24 $14.11
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Total Return.................. 13.8% 16.9% 28.2% 1.7% 13.8% 16.3% 23.1% (5.8%) 17.9% 22.8%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted).......... $88,553 $91,300 $112,333 $90,639 $105,181 $92,702 $83,151 $97,085 $111,992 $102,391
Ratios to average net assets:
Expenses.................. 1.21%(a) 1.22%(a) 1.15% 1.17% 1.15% 1.15% 1.14% 1.12% 1.10% 1.11%
Net investment income..... .56% 0.79% 1.21% 1.35% 1.15% 1.35% 2.33% 2.56% 2.68% 2.87%
Portfolio turnover rate....... 29.59% 31.70% 27.69% 25.80% 26.69% 27.37% 43.41% 27.48% 47.90% 27.04%
Average commission rate paid
(per share) .0431(b) $.0455(b)
(a) Includes expenses paid indirectly, equivalent to .01% of average net assets.
(b) Required by regulations issued in 1995.
</TABLE>
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INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The investment objective of the Fund is to seek growth of capital and
investments will be made based upon their potential for capital appreciation.
Therefore, current income will be secondary to the objective of capital growth.
The Fund's investment objective of capital growth is fundamental and may not be
changed without stockholder approval.
There can be no assurance that the Fund's investment objective will be achieved.
The nature of the Fund's investment objective and policies may involve a
somewhat greater degree of short-term risk than would be present under other
investment approaches.
The Fund will under normal circumstances have substantially all of its assets
(i.e., more than 65%) invested in a diversified portfolio of equity securities
(common stocks or securities convertible into common stocks or rights or
warrants to subscribe for or purchase common stocks). The Fund at times may also
invest not more than 35% of its total assets in debt securities and preferred
stocks offering a significant opportunity for price appreciation. When the
Manager determines that adverse conditions warrant, the Fund may take a
defensive position and invest temporarily without limit in investment grade debt
securities or preferred stocks or in money market instruments. Low investment
grade debt securities may have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with other
debt security. The Fund will not necessarily dispose of a security that falls
below investment grade based upon the Manager's determination as to whether
retention of such a security is consistent with the Fund's investment
objectives. Money market instruments for this purpose include obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities
(including such obligations subject to repurchase agreements), commercial paper
rated in the highest grade by any nationally recognized rating agency and
certificates of deposit and bankers' acceptances issued by domestic banks having
total assets in excess of one billion dollars. A repurchase agreement is an
instrument under which an investor (e.g., the Fund) purchases a U.S. government
security from a vendor, with an agreement by the vendor to repurchase the
security at the same price, plus interest at a specified rate. Repurchase
agreements may be entered into with member banks of the Federal Reserve System
or "primary dealers" (as designated by the Federal Reserve Bank of New York) in
U.S. government securities. Repurchase agreements usually have a short duration,
often less than one week. In the event that a vendor defaulted on its repurchase
obligation, the Fund might suffer a loss to the extent that the proceeds from
the sale of the collateral were less than the repurchase price. If the vendor
becomes bankrupt, the Fund might be delayed, or may incur costs or possible
losses of principal and income, in selling the collateral.
The Fund will invest in both listed and unlisted securities and in foreign as
well as domestic securities. While the Fund has no present intention of
investing any significant portion of its assets in foreign securities, it
reserves the right to invest in foreign securities if purchase thereof at the
time of purchase would not cause more than 15% of the value of the Fund's total
assets to be invested in foreign securities. Investments in foreign securities
involve certain risk considerations which are not typically associated with
investments in domestic securities. These considerations include changes in
exchange rates and exchange control regulation, political and social
instability, expropriation, less liquid markets and less available information
than are generally the case in the United States, less government supervision of
exchanges and brokers and issuers, lack of uniform accounting and auditing
standards and greater price volatility. See Statement of Additional Information,
"Investment Policies."
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The Fund may invest in warrants which entitle the holder to buy equity
securities at a specific price for a specific period of time. The Fund will not,
however, purchase any warrant if, as a result of such purchase, 5% or more of
the Fund's total assets would be invested in warrants. Included within that
amount, but not to exceed 2% of the value of the Fund's total assets, may be
warrants which are not listed on the New York Stock or American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities may be deemed
to be without value. The Fund will not invest more than 5% of its total assets
in securities of issuers which together with their predecessors have a record of
less than three years continuous operations.
The Fund may invest in restricted securities and in other assets having no ready
market if such purchases at the time thereof would not cause more than 10% of
the value of the Fund's net assets to be invested in all such restricted or not
readily marketable assets. Restricted securities may be sold only in privately
negotiated transactions, in a public offering with respect to which a
registration statement is in effect under the Securities Act of 1933 or pursuant
to Rule 144 promulgated under such Act. Where registration is required, the Fund
may be obligated to pay all or part of the registration expense, and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If during such a period adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities will be valued in such manner as the
Board of Directors of the Fund in good faith deems appropriate to reflect their
fair market value.
Within this basic framework, the policy of the Fund will emphasize flexibility
in arranging its portfolio to seek the desired results. The Fund's investment
philosophy is that of investment in equity securities of companies which, based
on fundamental research, the management of the Fund believes to be undervalued.
Critical factors which will be considered in the selection of securities will
include the values of individual securities relative to other investment
alternatives, trends in the determinants of corporate profits, corporate cash
flow, balance sheet changes, management capability and practices, and the
economic and political outlook. Generally speaking, disposal of a security will
be based upon factors such as (i) increases in the price level of the security
or of securities generally which the Fund believes reflect earnings growth too
far in advance, (ii) changes in the relative opportunities offered by various
securities and (iii) actual or potential deterioration of the issuer's earning
power which the Fund believes may adversely affect the price of its securities.
Turnover will be influenced by sound investment practices, the Fund's investment
objective, and the need of funds for the redemption of the Fund's shares.
The Fund will not seek to realize profits by anticipating short-term market
movements and intends to purchase securities for long-term capital appreciation
under ordinary circumstances. While the rate of portfolio turnover will not be a
limiting factor when the investment advisor deems changes appropriate, it is
anticipated that given the Fund's investment objectives, its annual portfolio
turnover should not generally exceed 75%. (A portfolio turnover rate of 75%
would occur, for example, if three-fourths of the stocks in the Fund's portfolio
were replaced in a period of one year.)
The Fund's investment policies (unlike its investment objective) are not
fundamental and may be changed by the Fund's Board of Directors without
stockholder approval.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions which may not be changed
without the approval of the Fund's stockholders. Briefly, these restrictions
provide that the Fund may not:
1. Purchase the securities of any one issuer, other than the U.S. government
or any of its agencies or instrumentalities, if immediately after such
purchase more than 5% of the value
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of its total assets would be invested in such issuer or the Fund would own
more than 10% of the outstanding voting securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to such 5% and 10% limitations;
2. Invest more than 25% of the value of its total assets in any particular
industry;
3. Purchase securities on margin, but it may obtain such short-term credits
from banks as may be necessary for the clearance of purchases and sales of
securities;
4. Make loans of its assets to any person, except for the purchase of debt
securities as discussed under "Investment Objectives, Policies and Risks"
herein;
5. Borrow money except for (i) the short-term credits from banks referred to
in paragraph 3 above and (ii) borrowings from banks for temporary or
emergency purposes, including the meeting of redemption requests which
might require the untimely disposition of securities. Borrowing in the
aggregate may not exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5%, of the value of the Fund's total assets
(including the amount borrowed) less liabilities (not including the amount
borrowed) at the time the borrowing is made. Outstanding borrowings in
excess of 5% of the value of the Fund's total assets will be repaid before
any subsequent investments are made;
6. Mortgage, pledge or hypothecate any of its assets, except as may be
necessary in connection with permissible borrowings mentioned in paragraph
5 above;
7. Purchase the securities of any other investment company, except by purchase
in the open market where to the best information of the Fund no commission
or profit to a sponsor or dealer (other than the customary broker's
commission) results from such purchase, or except when such purchase is
part of a merger, consolidation or acquisition of assets; and
8. Act as an underwriter of securities of other issuers, except that the Fund
may acquire restricted or not readily marketable securities under
circumstances where, if such securities were sold, the Fund might be deemed
to be an underwriter for purposes of the Securities Act of 1933. The Fund
will not, however, invest more than 10% of the value of its net assets in
restricted securities and not readily marketable securities.
If a percentage restriction is adhered to at the time an investment is made, a
later change in percentage resulting from changes in the value of the Fund's
portfolio securities will not be considered a violation of the Fund's policies
or restrictions.
THE MANAGER
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed Reich & Tang Asset Management L.P.
(the "Manager") to serve as investment manager of the Fund. The Manager provides
persons satisfactory to the Fund's Board of Directors to serve as officers of
the Fund. Such officers, as well as certain other employees and directors of the
Fund, may be directors or officers of Reich & Tang Asset Management, Inc., the
sole general partner of the Manager, or employees of the Manager or its
affiliates. Due to the services performed by the Manager, the Fund currently has
no employees and its officers are not required to devote full-time to the
affairs of the Fund. The Statement of Additional Information contains general
background information regarding each director and principal officer of the
Fund.
The Manager is a Delaware limited partnership with its principal office at 600
Fifth Avenue, New York, New York 10020. The Manager was at March 31, 1998
investment manager, advisor or supervisor with respect to assets aggregating in
excess of $11.51 billion. The Manager acts as manager or administrator of
seventeen other registered investment companies and also advises pension trusts,
profit-sharing trusts and endowments.
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Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager due to a restructuring by New England Investment
Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998, Nvest
Companies L.P. ("Nvest Companies") due to a change in name of NEICOP, replaces
NEICOP as the limited partner and owner of a 99.5% interest in the Manager. The
name change did not result in a change in control of the manager and has no
impact upon the Manager's performance of its responsibilities and obligations.
Reich & Tang Asset Management, Inc. (a wholly-owned subsidiary of Nvest
Companies) is the sole general partner and owner of the remaining 0.5% interest
of the Manager. Nvest Corporation, a Massachusetts Corporation (formerly known
as New England Investment Companies, Inc.), serves as the managing general
partner of Nvest Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and its the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through thirteen subsidiaries, divisions
and affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the manager, include
Back Bay Advisors, L.P., Capital Growth Management, Limited Partnership,
Greystone Partners, L.P., Harris Associates, L.P., Jurika & Voyles, L.P.,
Loomis, Sayles & Company, L.P., New England Funds, L.P., Nvest Associates, Inc.,
Snyder Capital Management, L.P., Vaughan, Nelson, Scarborough & McCullough,
L.P., and Westpeak Investment Advisors, L.P. These affiliates in the aggregate
are investment advisors or managers to 80 other registered investment companies.
Robert F. Hoerle and Steven M. Wilson are primarily responsible for the
day-to-day investment management of the Fund. Mr. Hoerle is a Managing Director
of the Capital Management Division of the Manager, with which he has been
associated since September 1993. From July 1989 to September 1993, Mr. Hoerle
was Chairman of the Board, a Director and an officer of Reich & Tang, Inc. with
which he was associated with from February 1971 to September 1993. Mr. Wilson is
President of the Fund and is a Senior Vice President of the Capital Management
Division of the Manager, with which he has been associated since September 1993.
From August 1990 to September 1993, Mr. Wilson was a Senior Vice President of
Reich & Tang, Inc. with which he was associated with from July 1986 to September
1993. The Fund's annual report contains information regarding the Fund's
performance and will be provided, without charge, upon request.
Pursuant to the Investment Management Contract, the Manager is responsible for
the investment management of the Fund's assets, including the responsibility for
making investment decisions and placing orders for the purchase and sale of the
Fund's investments with the issuers or with brokers or dealers selected by it in
its discretion. Subject to the Fund's policy of seeking the most favorable
commission and the best price on each
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transaction, the Manager may effect transactions in the Fund's portfolio
securities through Reich & Tang Distributors, Inc. (the "Distributor"). In
addition, consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to seeking best execution, the Manager
may consider sales of shares of the Fund as a factor in the selection of brokers
to execute portfolio transactions for the Fund. The Manager also furnishes to
the Board of Directors periodic reports on the composition of the Fund's
portfolio securities.
The Manager may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients simultaneously
with the Fund. If transactions on behalf of more than one client during the same
period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price. It is the policy
of the Manager to allocate advisory recommendations and the placing of orders in
a manner which is deemed equitable by the Manager to the accounts involved,
including the Fund. When two or more of the clients of the Manager, including
the Fund, are purchasing the same security in a given day from the same
broker-dealer, such transactions may be averaged as to price.
For its services under the Investment Management Contract, the Manager receives
from the Fund a fee, payable monthly, at the annual rate of .80% of the Fund's
average daily net assets (the "Management Fee"). The rate of the advisory fee to
be paid by the Fund is higher than the rate paid by most similar registered
investment companies. In addition to management services with respect to the
purchase and sale of securities, the fee includes compensation for overall
management of the Fund. Pursuant to a distribution and service plan, the Manager
may use the management fee for distribution purposes including defraying the
costs of performing stockholder servicing functions on behalf of the Fund,
compensating others, including banks, broker-dealers and other organizations
whose customers or clients are Fund stockholders for providing assistance in
distributing the Fund's shares and defraying the costs of other promotional
activities. (See "Distribution and Service Plan" herein.)
The Investment Management Contract has a term which extends to December 31, 1998
and may be continued in force thereafter for successive twelve-month periods
beginning each January 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.
For its services under the Administrative Services Contract, the Manager
receives a fee equal to .20% 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.)
Pursuant to the Administrative Services Contract for the Fund, the Manager
performs clerical, accounting supervision and related office service functions
for the Fund and provides the Fund the personnel to (i) supervise the
performance of bookkeeping and related services by Investors Fiduciary Trust
Company, the Fund's bookkeeping agent, (ii) prepare reports to and filings with
regulatory authorities and (iii) perform such other non-advisory services as the
Fund may from time to time request of the Manager. The personnel rendering those
services, who may act as officers of the Fund, 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 the year ended December 31, 1997, the Manager for its services under the
Investment Management Contract received an amount equal to .80% of the Fund's
average daily net assets. For the year ended December 31, 1997, the total
expenses for the Fund, including the management fee and administrative services
fee, were 1.21% of the Fund's average daily net assets.
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DISTRIBUTION AND SERVICE PLAN
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 ("1940 Act"),
regulates the circumstances under which an investment company may, directly or
indirectly, bear the expenses of distributing its shares. The Rule defines
distribution expenses to include the cost of "any activity which is primarily
intended to result in the sale of [fund] shares." The Rule provides, among other
things, that an investment company may bear distribution expenses only pursuant
to a plan adopted in accordance with the Rule. Because certain proposed
expenditures, described below, by the Fund, the Manager and the Distributor may
be deemed to involve payment of distribution expenses by the Fund, the Fund's
Board of Directors has adopted a distribution and service plan (the "Plan") and,
pursuant to the Plan, the Fund and the Distributor have entered into a
Distribution Agreement and the Fund and the Manager have entered into the
Investment Management Contract.
Reich & Tang Asset Management, Inc. serves as the sole general partner for Reich
& Tang Asset Management L.P.
Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares and, for the nominal consideration of $1 per year and as agent for
the Fund, will solicit orders for the purchase of the Fund's shares, provided
that any orders will not be binding on the Fund until accepted by the Fund as
principal.
The Investment Management Contract includes provisions allowing the Manager to
defray the cost of, or compensate other persons, including banks, broker-dealers
and other organizations whose customers or clients are Fund stockholders
("Intermediaries"), for performing stockholder, administrative and accounting
services to the Fund. Under the Investment Management Contract, the Manager may
also compensate the foregoing persons and organizations for providing assistance
in distributing the Fund's shares. The Investment Management Contract further
contemplates that the Manager may compensate sales personnel and pay for the
preparation and printing of brochures and other promotional materials, mailings
to prospective stockholders, advertising and other activities in connection with
the distribution of the Fund's shares. The Manager is not subject to any
percentage limitation with respect to the amounts it may expend for the
activities described in this paragraph.
The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. However, in the opinion of the
Manager based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the stockholder servicing and related
administrative functions referred to above. The Fund's Board of Directors will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution would result in loss to stockholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
Under the Plan, the Manager may make payments in connection with the
distribution of the Fund's shares from the Management Fee received from the
Fund, from the Manager's revenues (which may include management or advisory fees
received from other investment companies) and
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past profits. The Manager, in its sole discretion, will determine the amount of
its payments made pursuant to the Plan, but no such payment will increase the
amount which the Fund is required to pay to the Manager for any fiscal year
under the Investment Management Contract.
Under the Plan, the Fund may 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 stockholders, 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 payments made by the Fund for the
expenses referred to in this paragraph will not exceed in any year .05% of the
Fund's average daily net assets for the year.
For the year ended December 31, 1997, the Fund incurred $46,274 in expenses
pursuant to the Plan. During such year, the Manager spent pursuant to the Plan
an amount equal to 0.01% of the average daily net assets of the Fund for the
year. Of the total amount paid by the Manager, $6,497 was utilized for
Prospectus printing.
PURCHASE OF SHARES
Shares of the Fund are offered at the next determined net asset value without
any sales charge by the Distributor as an investment vehicle for individuals,
institutions, fiduciaries and retirement plans. Prospectuses, sales material and
applications can be obtained from the Distributor.
The minimum for an initial investment is $5,000, except that the minimum initial
investment for an Individual Retirement Account is $250. There is no minimum for
subsequent investments. All purchase payments will be invested in full and
fractional shares. The Fund or the Distributor is authorized to reject any
purchase order.
For each stockholder of record, the Fund's transfer agent, Reich & Tang
Services, Inc., establishes an open account to which all shares purchased are
credited, together with any dividends and capital gain distributions which are
paid in additional shares. (See "Dividends, Distributions and Taxes" herein.)
Although most stockholders elect not to receive stock certificates, certificates
for full shares can be obtained on specific written request to the Transfer
Agent. No certificates are issued for fractional shares.
If an investor purchases or redeems shares of the Fund through an investment
dealer, bank or other institution, that institution may impose charges for its
services; these charges would reduce the investor's yield or return. An investor
may purchase or redeem shares of the Fund directly from the Fund's Distributor
or its Transfer Agent without any such charges.
New Stockholders
Mail
To purchase shares of the Fund send a check made payable to "Reich & Tang Equity
Fund, Inc." and a completed subscription order form to the Fund at the following
address:
Reich & Tang Equity Fund
Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Checks are accepted subject to collection at full face value in United States
currency.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, an investor should first telephone the Fund at 212-830-5220 (within
New York State) or at 800-221-3079 (outside New York State) to obtain a new
account number. The investor should then instruct a member commercial bank to
wire funds to:
Investors Fiduciary Trust Company
ABA #101003621
DDA #890752-953-8
For Reich & Tang Equity Fund, Inc.
Account of (Investor's Name)
Fund Account #818
SS#/Tax ID#
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Then promptly complete and mail the subscription order form. There may be a
charge by your bank for transmitting the money by bank wire. The Fund does not
charge investors in the Fund for the receipt of wire transfers. If you are
planning to wire funds, it is suggested that you instruct your bank early in the
day so the wire transfer can be accomplished the same day. Payment in the form
of a "bank wire" received prior to 4 p.m., New York City time, on a Fund
Business Day will be treated as a Federal Funds payment received on that day.
Personal Delivery
Deliver a check made payable to "Reich & Tang Equity Fund, Inc." along with a
completed subscription order form to:
Reich & Tang Mutual Funds
600 Fifth Avenue - 9th Floor
New York, New York 10020
Present Stockholders
Subsequent purchases can be made by personal delivery or bank wire, as indicated
above, or by mailing a check to the Fund at:
Reich & Tang Equity Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
The stockholder's account number should be clearly indicated.
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, a Pre-authorized Credit Application, a voided copy of a check from
the Fund or a Direct Deposit Sign-Up Form for each type of payment that you
desire to include in the Privilege. The appropriate form may be obtained from
your broker or the Fund. You may elect at any time to terminate your
participation by notifying in writing the appropriate depositing entity and/or
federal agency. Death or legal incapacity will automatically terminate your
participation in the Privilege. Further, the Fund may terminate your
participation upon 30 days' notice to you.
REDEMPTION OF SHARES
Stockholders may make a redemption in any amount by sending a written request to
the Fund, accompanied by any certificate that may have been issued to the
stockholder, addressed to:
Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Upon receipt by the Fund of a redemption request in proper form, shares of the
Fund will be redeemed at their next determined net asset value. (See "Net Asset
Value" herein.)
The request must specify the name of the Fund, the dollar amount or number of
shares to be redeemed, and the account number. The request must be signed in
exactly the same way the account is registered (if there is more than one owner
of the shares, all must sign) and, if any, certificates are included in the
request, presentation of such certificates properly endorsed. In all cases, all
the signatures on a redemption request and/or certificates must be 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 (guarantees by
notaries public are not acceptable). Further documentation, such as copies of
corporate resolutions and instruments of authority,
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may be requested from corporations, administrators, executors, personal
representatives, trustees or custodians to evidence the authority of the person
or entity making the redemption request.
Checks for redemption proceeds normally will be mailed within seven days, but
will not be mailed until all checks (including a certified or cashier's check)
in payment for the purchase of the shares to be redeemed have been cleared,
currently considered by the Fund to occur up to 15 days after investment. Unless
other instructions are given in proper form, a check for the proceeds of a
redemption will be sent to the stockholder's address of record and generally
will be mailed within seven days after receipt of the request.
The Fund may suspend the right of redemption and postpone the date of payment
for more than seven days during any period when (i) trading on the New York
Stock Exchange is restricted or the Exchange is closed, other than customary
weekend and holiday closings, (ii) the SEC has by order permitted such
suspension or (iii) an emergency, as defined by rules of the SEC, exists making
disposal of portfolio investments or determination of the value of the net
assets of the Fund not reasonably practicable.
The proceeds of a redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for Federal income tax
purposes.
To be in a position to eliminate excessive expenses, the Fund reserves the right
to redeem upon not less than 30 days' notice all shares of the Fund in an
account (other than an IRA) which has a value below $500 not due to market
movement or the Fund may impose a monthly service charge of $10 on such
accounts. However, a stockholder will be allowed to make additional investments
prior to the date fixed for redemption to avoid liquidation of the account.
Systematic Withdrawal Plan
Any stockholder who owns shares of the Fund with an aggregate value of $10,000
or more may establish a Systematic Withdrawal Plan under which he offers to sell
to the Fund at net asset value the number of full and fractional shares which
will produce the monthly or quarterly payments specified (minimum $50.00 per
payment). Depending on the amounts withdrawn, systematic withdrawals may deplete
the investor's principal. Investors contemplating participation in this plan
should consult their tax advisors.
Stockholders wishing to utilize this plan may do so by completing an application
which may be obtained by writing or calling the Fund. No additional charge to
the stockholder is made for this service.
Telephone Redemption Privilege
The Fund accepts telephone requests for redemption from stockholders who elect
this option. Telephone requests for redemption may not exceed the sum of $25,000
per request per day. The proceeds of a telephone redemption will be sent to the
stockholder at his address or to his bank account as set forth in the
subscription order form or in a subsequent signature guaranteed written
authorization. The Fund may accept telephone redemption instructions from any
person with respect to accounts of stockholders who elect this service, and thus
stockholders risk possible loss of dividends 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 stockholders 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 the losses incurred by investors due to telephone
redemptions based upon unauthorized or fraudulent instructions.
RETIREMENT PLANS
The Fund has available a form of individual retirement account ("IRA") for
investment in the Fund's shares. In general, an individual can make an annual
contribution to an IRA in an amount equal to the lesser of $2000 or 100% of the
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<PAGE>
individual's earned income. In addition, in the case of a married couple filing
a joint return, annual IRA contributions of up to $2000 can generally be made
for each spouse, as long as the combined compensation of both spouses is at
least equal to the contributed amounts. IRA contribution can, in general, be
made to either regular deductible IRAs, regular non-deductible IRAs or
non-deductible Roth IRAs, a new type of IRA established by the Taxpayer Relief
Act of 1997. Contributions to a Roth IRA are not deductible, but qualified
distributions from a Roth IRA are not includable in income or subject to the
additional ten-percent tax on early withdrawals. A "qualified distribution" is a
distribution that is made after the end of the five taxable year period
beginning with the first taxable year in which the individual made a
contribution to a Roth IRA, and which is made on or after the date in which the
individual attains a 59 1/2, on or after the death of the individual or is
attributable to the disability of the individual, or is a distribution for
specified first-time home buyer expenses.
Contributions to regular deductible IRAs and Roth IRAs may be limited based on
adjusted gross income levels. The ability of a person who is an active
participant in an employer sponsored retirement plan to make deductible
contributions to a regular IRA is phased out based on the individual's adjusted
gross incomes. For 1998, the phase out occurs over a range of adjusted gross
incomes from $50,000 to $60,000 on a joint return and $30,000 to $40,000 on a
single return. The phase out range for a married individual who is not an active
participant but whose spouse is an active participant is between $150,000 and
$160,000.
The maximum annual contribution that can be made to a Roth IRA is also subject
to phase out rules that apply to married individuals filing joint returns when
adjusted gross income is between $150,000 and $1600,000 and to single
individuals when adjusted gross income is between $95,000 and $110,000.
For both regular deductible IRAs and Roth IRAs, the phase out range for married
individuals filing separate returns is from $0 to $10,000
The minimum investment required to open an IRA is $250. Generally, there are
penalties for premature distributions from an IRA before the attainment of age
59 1/2, except in the case of the participant's death or disability and certain
other circumstances including first-time home buyer expenses, and in the case of
regular IRAs, certain education expenses.
Fund shares may also be a suitable investment for assets of other types of
qualified pension or profit-sharing plans, including cash or deferred or salary
reduction "Section 401(k) plans" which give participants the right to defer
portions of their compensation for investment on a tax-deferred basis until
distributions are made from the plans.
Persons desiring information concerning investments by IRAs and other retirement
plans should write or telephone the Fund.
EXCHANGE PRIVILEGE
Stockholders 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 advisor or manager 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.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund 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 advisor or manager. An exchange of shares in the Fund pursuant to the
exchange privilege is, in effect, a redemption of Fund shares (at net asset
value) followed by the purchase of shares of the investment company into which
the exchange is made (at net asset value) and may
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<PAGE>
result in a stockholder realizing a taxable gain or loss for Federal income tax
purposes.
There is no charge for the exchange privilege or limitation as to frequency of
exchanges. The minimum amount for an exchange is $1,000, except that
stockholders who are establishing a new account with an investment company
through the exchange privilege must insure 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. The exchange privilege is
available to stockholders resident in any state in which shares of the
investment company being acquired may legally be sold. Before making an
exchange, the investor should review the current prospectus of the investment
company into which the exchange is being made. Prospectuses may be obtained by
contacting the Distributor at the address or telephone number listed on the
cover of this prospectus. Instructions for exchange may be made in writing to
the Transfer Agent at the appropriate address listed herein or, for stockholders
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each dividend and capital gains distribution, if any, declared by the Fund on
its outstanding shares will, at the election of each stockholder, be paid in
cash or in additional shares of common stock of the Fund having an aggregate net
asset value as of the payment date of such dividend or distribution equal to the
cash amount of such dividend or distribution. Election to receive dividends and
distributions in cash or shares is made at the time shares are subscribed for
and may be changed by notifying the Fund in writing at any time prior to the
record date for a particular dividend or distribution. If the stockholder makes
no election the Fund will make the distribution in shares. There is no sales or
other charge in connection with the reinvestment of dividends and capital gains
distributions.
While it is the intention of the Fund to distribute to its stockholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by the Fund of income and capital gains
from investments. Dividends will normally be paid quarterly. Capital gains
distributions, if any, will be made at least annually and usually at the end of
the Fund's fiscal year. There is no fixed dividend rate, and there can be no
assurance that the Fund will pay any dividends or realize any capital gains.
The Fund qualified for the fiscal year ended December 31, 1997 and intends for
each year thereafter to qualify for tax treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended. Qualification as a
regulated investment company relieves the Fund of Federal income tax on that
part of its net ordinary income and net realized capital gains which it pays out
to its stockholders. Dividends out of net ordinary income and distributions of
net short-term capital gains are taxable to the recipient stockholders as
ordinary income and are eligible, in the case of corporate stockholders, for the
dividends-received deduction to the extent that the Fund's income is derived
from qualifying dividends received by the Fund from domestic corporations. A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in the Fund at least 46 days. Furthermore, a
corporation's dividends-received deduction will be disallowed to the extent a
corporation's investment in shares of the Fund is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital losses
realized and distributed by the Fund to its stockholders as capital gains
distributions are taxable to the stockholders as long-term capital gains,
irrespective of the length of time a stockholder may have held his stock. Such
long-term capital gains distributions are not eligible for the
dividends-received deduction referred to above. If a stockholder held shares six
months or less and during that period received a distribution taxable to such
stockholder as long-term capital gain, any
13
<PAGE>
loss realized on the sale of such shares during such six-month period would be a
long-term capital loss to the extent of such distribution.
Any dividend or distribution received by a stockholder on shares of the Fund
shortly after the purchase of such shares by such stockholder will have the
effect of reducing the net asset value of such shares by the amount of such
dividend or distribution. Furthermore, such dividend or distribution, although
in effect a return of capital, is subject to applicable taxes to the extent that
the investor is subject to such taxes regardless of the length of time the
investor may have held the stock.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions and redemptions) paid
to stockholders who have not complied with IRS regulations. In connection with
this withholding requirement, a stockholder will be asked to certify on his
application that the social security or tax identification number provided is
correct and that the stockholder is not subject to 31% backup withholding for
previous underreporting to the IRS.
NET ASSET VALUE
The Fund determines the net asset value per share of the Fund as of 4:00 p.m.,
New York City time, 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
number of shares outstanding at the time the determination is made. The Fund
determines its net asset value on each Fund Business Day. Fund Business Day for
this purpose means weekdays (Monday through Friday) except customary national
business holidays and Good Friday. Purchases and redemptions will be effected at
the time of determination of net asset value next following the receipt of any
purchase or redemption order in proper form. (See "Purchase of Shares" and
"Redemption of Shares" herein.)
Portfolio securities for which market quotations are readily available are
valued at market value. All other investment assets of the Fund are valued in
such manner as the Board of Directors of the Fund in good faith deems
appropriate to reflect their fair value.
GENERAL INFORMATION
Description of Common Stock
The Fund was incorporated in Maryland on October 15, 1984. The authorized
capital stock of the Fund consists of one hundred million shares of common stock
having a par value of one-tenth of one cent ($.001) per share. Each share has
equal dividend, distribution, liquidation and voting rights. 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 non-assessable.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's stockholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of revised
investment advisory contracts with respect to a particular class or series of
stock, (c) for approval of revisions to the Fund's distribution agreement with
respect to a particular class or series of stock, and (d) upon the written
request of shareholders entitled to cast not less than 25% of all the votes
entitled to be cast at such meeting. Annual and other meetings may be required
with respect to such additional matters relating to the Fund as may be required
by the 1940 Act including the removal of Fund director(s) and communication
among stockholders, any registration of the Fund with the SEC or any state, or
as the Directors may consider necessary or desirable. Each Director serves until
the next meeting of the stockholders 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 stockholders.
Performance
From time to time the Fund may distribute sales literature or publish
advertisements containing
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<PAGE>
"total return" quotations for the Fund. Such sales literature or advertisements
will disclose the Fund's average annual compounded total return for the Fund's
last one year period, five year period and the period since the Fund's
inception, and may include total return information for other periods. The
Fund's total return for each period is computed, through use of a formula
prescribed by the SEC, by finding the average annual compounded rates of return
over the period that would equate an assumed initial amount invested to the
value of the investment at the end of the period. For purposes of computing
total return, income dividends and capital gains distributions paid on shares of
the Fund are assumed to have been reinvested when received.
Year 2000 Issue
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur material costs
to be year 2000 compliant. Although the Manager does not anticipate that the
year 2000 issue will have a material impact of the Fund's ability to provide
service at current levels, there can be no assurance that steps taken in
preparation for the year 2000 will be sufficient to avoid an adverse impact on
the Fund.
Custodian and Transfer Agent
Investors Fiduciary Trust Company, 801 Pennsylvania , Kansas City, Missouri
64105, is the custodian for the Fund's cash and securities. Reich & Tang
Services, Inc., 600 Fifth Avenue, New York, New York 10020, is the transfer
agent and dividend agent for the shares of the Fund. The Fund's custodian and
transfer agent do not assist in and are not responsible for investment decisions
involving assets of the Fund.
Information for Stockholders
All stockholder inquiries should be directed to Reich & Tang Equity Fund, Inc.,
600 Fifth Avenue, New York, New York 10020 (telephone: 212-830-5220 or outside
New York State 800-221-3079).
The Fund sends to all its stockholders semi-annual unaudited and annual audited
reports, including a list of investment securities held.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's Registration Statement filed with the SEC,
including the exhibits thereto. The Registration Statement and the exhibits
thereto may be examined at the SEC and copies thereof may be obtained upon
payment of certain duplicating fees.
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TABLE OF CONTENTS
Table of Fees and Expenses........................2
Financial Highlights..............................2
Investment Objectives,
Policies and Risks...........................3 REICH & TANG
Investment Restrictions...........................4 EQUITY FUND, INC.
The Manager.......................................5
Distribution and Service Plan.....................8
Purchase of Shares................................9
New Stockholders.............................9
Present Stockholders........................10
Electronic Funds Transfers (EFT),
Pre-Authorized Credit and
Direct Deposit Privilege..................10
Redemption of Shares.............................10
Systematic Withdrawal Plan..................11 PROSPECTUS
Telephone Redemption Privilege..............11 MAY 1, 1998
Retirement Plans.................................11
Exchange Privilege...............................12
Dividends, Distributions and Taxes...............13
Net Asset Value..................................14
General Information .............................14
Description of Common Stock..................14
Performance..................................14
Year 2000 Issue..............................15
Custodian and Transfer Agent.................15
Information for Stockholders.................15
<PAGE>
REICH & TANG 600 FIFTH AVENUE, NEW YORK, NY 10020
EQUITY FUND, INC. (212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
Reich & Tang Equity Fund, Inc. (the "Fund") is a no-load, open-end diversified
management investment company. The Fund's investment objective is to seek growth
of capital and investments will be made based upon their potential for capital
growth. Current income will be secondary to the objective of capital growth.
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Fund's
prospectus dated May 1, 1998 (the "Prospectus"). This Statement of Additional
Information contains additional and more detailed information than that set
forth in the Prospectus and should be read in conjunction with the Prospectus,
additional copies of which may be obtained without charge by either writing or
telephoning the Fund at the address or telephone number set forth above.
Table of Contents
- --------------------------------------------------------------------------------
Investment Policies..............2 Redemption of Shares.....................8
Investment Restrictions..........2 Description of Common Stock..............9
Management.......................3 Performance..............................9
Compensation Table ..............5 Net Asset Value..........................9
Investment Management Contract...5 Counsel, Auditors, Custodian
Distribution and Service Plan....6 and Transfer Agent...................10
Expenses of the Fund.............7 Financial Statements....................10
Portfolio Transactions...........7
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<PAGE>
INVESTMENT POLICIES
Warrants
The Fund may invest in warrants which entitle the holder to buy equity
securities at a specific price for a specific period of time. Warrants may be
considered more speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with respect to the
securities which may be purchased nor do they represent any rights in the assets
of the issuing company. Also, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date.
Foreign Securities
Investments may be made in both domestic and foreign companies. While the Fund
has no present intention to invest any significant portion of its assets in
foreign securities, it reserves the right to invest not more than 15% of the
value of its total assets (at the time of purchase and after giving effect
thereto) in the securities of foreign issuers and obligors.
Investments in foreign companies involve certain considerations which are not
typically associated with investing in domestic companies. An investment may be
affected by changes in currency rates and in exchange control regulations. There
may be less publicly available information about a foreign company than about a
domestic company. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Foreign stock markets have substantially less
volume than the New York Stock Exchange and securities of some foreign companies
may be less liquid and more volatile than securities of comparable domestic
companies. There is generally less government regulation of stock exchanges,
brokers and listed companies than in the United States. In addition, with
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, political or social instability or diplomatic
developments which could affect investments in those countries. Individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Repurchase Agreements
When the Fund enters into a repurchase agreement, it requires the continual
maintenance of collateral (to be held by the Fund's custodian in a segregated
account) in an amount equal to, or in excess of, the vendor's repurchase
agreement commitment. The underlying securities are ordinarily U.S. Treasury or
other government obligations or high quality money market instruments. In the
event that a vendor defaulted on its repurchase obligation, the Fund might
suffer a loss to the extent that the proceeds from the sale of the collateral
were less than the repurchase price. If the vendor becomes bankrupt, the Fund
might be delayed, or may incur costs or possible losses of principal and income,
in selling the collateral. Repurchase agreements may be entered into with member
banks of the Federal Reserve System or "primary dealers" (as designated by the
Federal Reserve Bank of New York) in U.S. Government securities.
Other Matters
In addition, for purposes of complying with the securities regulations of
certain states, the Fund has adopted the following additional investment
restriction, which may be changed by the Fund's Board of Directors without
stockholder approval. The Fund may not purchase or retain the securities of any
issuer if the officers or directors of the Fund or Reich & Tang Asset
Management, Inc., the general partner of the Fund's advisor, owning beneficially
more than 1/2 of 1% of the securities together own beneficially more than 5% of
such securities.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which are in addition
to those described in the Prospectus. Under the following restrictions, which
may not be changed without the approval of the Fund's stockholders, the Fund may
not:
1. Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests in oil, gas or other mineral exploration
or development programs;
2. Sell securities short or invest in puts, calls, straddles, spreads or
combinations thereof;
3. Purchase or acquire commodities or commodity contracts;
4. Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security in connection with any permitted
borrowing;
5. Participate on a joint or a joint and several basis in any securities
trading account; and
6. Invest in companies for the purpose of exercising control.
2
<PAGE>
MANAGEMENT
Directors and Officers
The Directors and Executive Officers of the Fund, and their principal
occupations for the past five years, are listed below. The address of each such
person, unless otherwise indicated, is 600 Fifth Avenue, New York, New York
10020. Directors deemed to be "interested persons" of the Fund for the purposes
of the Investment Company Act of 1940 (the "1940 Act"), as amended are indicated
by an asterisk.
ROBERT F. HOERLE, 65*: Managing Director of the Capital Management Division of
the Manager with which he has been associated since September 1993. Mr. Hoerle
was formerly Executive Vice President and Chairman of Reich & Tang, Inc. with
which he was associated with from February 1971 to September 1993.
Dr. W. GILES MELLON, 67: Director of the Fund, has been a Professor of Business
Administration in the Graduate School of Management, Rutgers University with
which he has been associated since 1966. His address is Rutgers University
Graduate School of Management, 92 New Street, Newark, New Jersey 07102. Dr.
Mellon is also a Director of Back Bay Funds, Inc., California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Delafield Fund, Inc., Michigan Daily Tax Free Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pax World Money Market Fund, Inc., Short Term
Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc. and a Trustee
of Florida Daily Municipal Income Fund, Institutional Daily Income Fund and
Pennsylvania Daily Municipal Income Fund.
ROBERT STRANIERE, 57: Director of the Fund, has been a member of the New York
State Assembly and a partner in The Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., LifeCycle Funds Inc., Michigan Daily Tax Free Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pax World Money Market Fund, Inc., Short Term
Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc. and a Trustee
of Florida Daily Municipal Income Fund, Institutional Daily Income Fund and
Pennsylvania Daily Municipal Income Fund.
Dr. YUNG WONG, 59: Director of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly a General Partner
of Abacus Partners Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong has been a Director of Republic Telecom Systems
Corporation (a provider of telecommunications equipment) since January 1989 and
of TelWatch, Inc. (a provider of network management software) since August 1989.
Dr. Wong is also a Director of Back Bay Funds, Inc., California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Delafield Fund, Inc., Michigan Daily Tax Free Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pax World Money Market Fund, Inc., Short Term
Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc. and a Trustee
of Florida Daily Municipal Income Fund, Institutional Daily Income Fund and
Pennsylvania Daily Municipal Income Fund and Eclipse Financial Asset Trust.
STEVEN M. WILSON, 38: President of the Fund, is Senior Vice President of the
Capital Management Division of the Manager since September 1993. Mr. Wilson was
formerly Senior Vice President of Reich & Tang, Inc. with which he was
associated with from July 1986 to September 1993.
STEVEN W. DUFF, 44: Executive Vice President of the Fund, has been President of
the Mutual Funds division of the Manager since September 1994. Mr. Duff was
formerly Director of Mutual Fund Administration at NationsBank which he was
associated with from June 1981 to August 1994. Mr. Duff is also President and a
Director of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax
Free Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey
Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc.,
North Carolina Daily Municipal Income Fund, Inc., Short Term Income Fund, Inc.
and Virginia Daily Municipal Income Fund, Inc. Mr. Duff is also President and a
Trustee of Florida Daily Municipal Income Fund, Institutional Daily Income Fund
and Pennsylvania Daily Municipal Income Fund, and President and Chief Executive
Officer of Tax Exempt Proceeds Fund, Inc. and Director of Pax World Money Market
Fund, Inc.
BERNADETTE N. FINN, 50: Vice President and Secretary of the Fund has been Vice
President of the Mutual Funds division of the Manager since September 1993. Ms.
Finn was formerly Vice President and Assistant Secretary of Reich & Tang, Inc.
with which she was associated with from September 1970 to September 1993. Ms.
Finn is also Secretary of Back Bay Funds, Inc., California Daily Tax Free Income
Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc.,
Daily Tax Free Income Fund, Inc., Florida Daily Municipal
3
<PAGE>
Income Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund, Tax Exempt Proceeds Fund, Inc. and Virginia Daily Municipal Income Fund,
Inc. and a Vice President and Secretary of Delafield Fund, Inc., Institutional
Daily Income Fund, Pax World Money Market Fund, Inc. and Short Term Income Fund,
Inc.
MOLLY FLEWHARTY, 47: Vice President of the Fund has been Vice President of the
Mutual Funds division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. with which she was associated with
from December 1977 to September 1993. Ms. Flewharty is also a Vice President of
Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut
Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income
Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pax World Money Market
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Short Term Income Fund,
Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily Municipal Income Fund,
Inc.
LESLEY M. JONES, 49: Vice President of the Fund has been Senior Vice
President of the Mutual Funds division of the Manager since September 1993. Ms.
Jones was formerly Senior Vice President of Reich & Tang, Inc. with which she
was associated with from April 1973 to September 1993. Ms. Jones is also a Vice
President of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily
Income Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pax World Money Market Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Short Term Income Fund, Inc. and
Virginia Daily Municipal Income Fund, Inc.
DANA E. MESSINA, 41: Vice President of the Fund has been Executive Vice
President of the Mutual Funds division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. with which she was associated with from
December 1980 to September 1993. Ms. Messina is also Vice President of Back Bay
Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily
Income Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pax World Money Market Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Short Term Income Fund, Inc., Tax
Exempt Proceeds Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.
RICHARD De SANCTIS, 41: Treasurer of the Fund, has been Vice President and
Treasurer of the Manager since September 1993. Mr. De Sanctis was formerly
Controller of Reich & Tang, Inc. from January 1991 to September 1993. Mr. De
Sanctis is also Treasurer of Back Bay Funds, Inc., California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pax World Money Market
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Short Term Income Fund,
Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily Municipal Income Fund,
Inc. and Vice President and Treasurer of Cortland Trust, Inc.
ROSANNE D. HOLTZER, 33: Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she was
associated since from June 1986. She is also Assistant Treasurer of Back Bay
Funds, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income
Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily
Municipal Income Fund, Pax World Money Market Fund, Inc., Short Term Income
Fund, Inc., and Virginia Daily Municipal Income Fund, Inc. and is Vice President
and Assistant Treasurer of Cortland Trust, Inc.
Directors of the Fund not affiliated with the Manager receive from the Fund an
annual retainer of $2,000 and a fee of $500 for each Board of Directors meeting
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Directors who are affiliated with the Manager do
not receive compensation from the Fund.
4
<PAGE>
The Fund paid an aggregate remuneration of $12,000 to its Directors with respect
to the period ended December 31, 1997, all of which consisted of aggregate
director's fees paid to the three disinterested directors, pursuant to the terms
of the Investment Management Contract. See Compensation Table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Compensation Table
(1) (2) (3) (4) (5)
Name of Person, Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation
Position from Registrant for Benefits Accrued as Part Benefits upon from Fund and Fund
Fiscal Year of Fund Expenses Retirement Complex Paid to
Directors*
Dr. W. Giles Mellon, $4,000.00 0
Director 0 $52,000 (13 Funds)
Robert Straniere, $4,000.00 0
Director 0 $52,000 (13 Funds)
Dr. Yung Wong, $4,000.00 0
Director 0 $52,000 (13 Funds)
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending December 31, 1997 (and, with respect to certain of
the funds in the Fund Complex, estimated to be paid during the fiscal year
ending December 31, 1997). The parenthetical number represents the number of
investment companies (including the Fund) from which such person receives
compensation that are considered part of the same Fund complex as the Fund,
because, among other things, they have a common investment advisor.
</TABLE>
INVESTMENT MANAGEMENT CONTRACT
Pursuant to its Investment Management Contract with the Fund, Reich & Tang Asset
Management L.P. (the "Manager") is responsible for the investment management of
the Fund's assets, including the responsibility for making investment decisions
and placing orders for the purchase and sale of the Fund's investments directly
with the issuers or with brokers or dealers selected by it in its discretion.
(See "Portfolio Transactions" herein.) The Manager also furnishes to the Board
of Directors periodic reports on the investment performance of the Fund.
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020 (the "Manager"). The Manager was at March 31, 1998 manager,
advisor or supervisor with respect to assets aggregating in excess of $11.51
billion. The Manager acts as manager or administrator of seventeen other
investment companies and also advises pension trusts, profit sharing trusts and
endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P.
("NEICLP") as the limited partner and owner of such interest in the Manager due
to a restructuring by New England Investment Companies, Inc. ("NEIC").
Subsequently, effective March 31, 1998, Nvest Companies, L.P. ("Nvest
Companies") due to a change in name of NEICOP, replaces NEICOP as the limited
partner and owner of a 99.5% interest in the Manager. Reich & Tang Asset
management, Inc. (a wholly-owned subsidiary of Nvest Companies) is the sole
general partner and owner of the remaining 0.5% interest of the Manager. Nvest
Corporation, a Massachusetts Corporation (formerly known as New England
Investment Companies, Inc.), serves as the managing general partner of Nvest
Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly or indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
5
<PAGE>
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through thirteen subsidiaries, division
and affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the manager, include
Back Bay Advisors, L.P., Capital Growth Management, Limited Partnership,
Greystone partners, L.P., Harris Associates, L.P., Jurika & Voyles, L.P.,
Loomis, Sayles & Company, L.P., Nvest Associates, Inc., Snyder Capital
Management, L.P., Vaughan, Nelson, Scarborough & McCullough, L.P., and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 80 other registered investment companies.
The Investment Management Contract has a term which extends to December 31, 1998
and may be continued in force thereafter for successive twelve-month periods
beginning each January 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 interest persons of
any such party, by votes cast in person at a meeting called for the purpose of
voting on such matter.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Manager provides persons satisfactory to the Board of Directors of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of Reich &
Tang Asset Management, Inc. the sole general partner of the Manager, or
employees of the Manager or its affiliates.
The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Directors,
or by the Manager on sixty days' written notice, and will automatically
terminate in the event of its assignment. The Management Contract provides that
in the absence of willful misfeasance, bad faith or gross negligence on the part
of the Manager, or of reckless disregard of its obligations thereunder, the
Manager shall not be liable for any action or failure to act in accordance with
its duties thereunder.
For its services under the Investment Management Contract, the Manager receives
from the Fund a fee, payable monthly, at the annual rate of .80% of the Fund's
average daily net assets. In addition to management services with respect to the
purchase and sale of securities, the fee includes compensation for overall
management of the Fund and for distributing the Fund's shares. For the Fund's
fiscal years ended December 31, 1995, 1996 and 1997, the Manager received
investment management fees of $839,005, $888,522 and $740,385 respectively.
Pursuant to the Administrative Services Contract with the Fund, the Manager
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of accounting related services by Investors Fiduciary Trust Company,
the Fund's bookkeeping or recordkeeping agent, (ii) prepare reports to and
filings with regulatory authorities and (iii) perform such other services as the
Fund may from time to time request of the Manager. The personnel rendering such
services may be employees of the Manager, of its affiliates or of other
organizations. For its services under the Administrative Services Contract, the
Manager receives from the Fund a fee equal to 020% per annum of the Fund's
average daily net assets. For the Fund's fiscal years ended December 31, 1995,
1996 and 1997, the Manager received an administrative services fee of $209,771,
$222,130 and $185,096, respectively.
DISTRIBUTION AND SERVICE PLAN
The Fund's Distribution and Service Plan (the "Plan") provides that all written
agreements relating to the Plan entered into between either the Fund and the
Manager, Reich & Tang Distributors, Inc. (the "Distributor") and organizations
whose customers or clients are Fund stockholders ("Intermediaries") must be in a
form satisfactory to the Fund's Board of Directors. Pursuant to the Plan, the
Fund has entered into a Distribution Agreement with the Distributor.
Reich & Tang Asset Management, Inc. serves as the sole general partner for Reich
& Tang Asset Management L.P.
The Plan requires the Fund and the Manager to prepare, at least quarterly,
written reports setting forth all amounts expended for distribution purposes by
the Fund and the Manager pursuant to the Plan and identifying the distribution
activities for which those expenditures were made. Such distribution activities
included the printing of prospectuses and subscription order forms and
promotional brochures and related promotional expenses. See "Investment
Management Contract" herein for information regarding fee arrangements and
termination provisions under the Investment Management Contract.
6
<PAGE>
The Plan provides that it will continue in effect for successive annual periods
provided that it must be approved by a vote of at least a majority of the
outstanding voting securities of the Fund and by a majority of the Board of
Directors, including those directors who are not "interested persons" of the
Fund (as defined in the 1940 Act) and who have no direct or indirect financial
interest in the Plan. The Plan must be approved at least annually by the Board
of Directors in the manner described in the foregoing sentence and may be
terminated at any time by a vote of a majority of the outstanding voting
securities of the Fund or a majority of those directors who are not "interested
persons" and who have no direct or indirect financial interest in the Plan. The
Plan was most recently approved by the Board of Directors on October 16, 1997
and shall continue in effect until December 31, 1998. The Plan was approved by
the shareholders of the Fund at their first meeting held on April 29, 1986.
The Plan further provides that it may not be amended to increase materially the
costs which may be incurred by the Fund for distribution pursuant to the Plan
without stockholder approval, and that all material amendments of the Plan must
be approved by a majority of the Board of Directors, including those who are not
"interested persons" of the Fund and who have no direct or indirect financial
interest in the Plan.
While the Plan is in effect, the selection and nomination of directors who are
not "interested persons" of the Fund (as defined in the 1940 Act) is committed
to the discretion of the directors who are not "interested persons" of the Fund.
The Distribution Agreement between the Fund and the Distributor provides that it
shall terminate automatically in the event of its assignment.
EXPENSES OF THE FUND
The Manager has agreed to reimburse the Fund for its expenses (exclusive of
interest, taxes, brokerage and extraordinary expenses) which in any year exceed
the limits prescribed by any state in which the Fund's shares are qualified for
sale. The Fund's expenses for distribution purposes pursuant to the Plan,
described above, are included within such expenses only to the extent required
by the state with the most restrictive expense limitation in which the Fund's
shares are qualified for sale. The Fund may elect not to qualify its shares for
sale in every state. For the purpose of this limitation, expenses shall include
the fee payable to the Manager and the amortization of organization expenses.
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. No such reimbursement was required for the
year ended December 31, 1997. As a result of the recent passage of the National
Securities Markets Improvement Act of 1996, all state expense limitations have
been eliminated at this time.
Subject to the Manager's obligations to pay for services performed by officers
of the Manager or its affiliates and for investment management services and
certain distribution and promotional expenses and to reimburse the Fund for its
excess expenses as described above, under the Investment Management Contract the
Fund has assumed responsibility for payment of all of its other expenses,
including (a) brokerage and commission expenses, (b) Federal, state and local
taxes, including issue and transfer taxes incurred by or levied on the Fund, (c)
commitment fees and certain insurance premiums, (d) interest charges on
borrowings, (e) charges and expenses of the Fund's custodian, (f) charges and
expenses of persons performing issuance, redemption, transfer and dividend
disbursing functions for the Fund, (g) recurring and nonrecurring legal and
accounting expenses, including the Fund's cost of the bookkeeping agent for the
determination of net asset value per share and the maintenance of portfolio and
general accounting records, (h) telecommunication expenses, (i) costs of
organizing and maintaining the Fund's existence as a corporation, (j)
compensation, including directors' fees, of any of the Fund's directors,
officers or employees who are not officers of Reich & Tang Asset Management,
Inc., the general partner of the Manager, and costs of other personnel providing
services to the Fund, (k) costs of stockholders' services including charges and
expenses of persons providing confirmations of transactions in Fund shares,
periodic statements to stockholders, and recordkeeping and stockholder services,
(l) costs of stockholders' reports, proxy solicitations, and corporate meetings,
(m) fees and expenses of registering the Fund's shares under the appropriate
Federal securities laws and of qualifying those shares under applicable state
securities laws, including expenses attendant upon the initial registration and
qualifications of the Fund's shares and attendant upon renewals of, or
amendments to, those registrations and qualifications, (n) expenses of preparing
and printing the Fund's prospectuses and statements of additional information
and of delivering them to stockholders of the Fund, (o) payment of fees and
expenses provided for in the Investment Management Contract, Administrative
Services Agreement and Distribution Agreement and (p) any other distribution or
promotional expenses pursuant to a distribution and service plan.
PORTFOLIO TRANSACTIONS
The Manager makes the Fund's portfolio decisions and determines the broker to be
used in each specific transaction with the objective of negotiating a
combination of the most favorable commission and the best price
7
<PAGE>
obtainable on each transaction (generally defined as best execution). When
consistent with the objective of obtaining best execution, brokerage may be
directed to persons or firms supplying investment information to the Manager or
portfolio transactions may be effected by the Manager. Neither the Fund nor the
Manager has entered into agreements or understandings with any brokers regarding
the placement of securities transactions because of research services they
provide. To the extent that such persons or firms supply investment information
to the Manager for use in rendering investment advice to the Fund, such
information may be supplied at no cost to the Manager and, therefore, may have
the effect of reducing the expenses of the Manager in rendering advice to the
Fund. While it is impossible to place an actual dollar value on such investment
information, its receipt by the Manager probably does not reduce the overall
expenses of the Manager to any material extent. Consistent with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., and
subject to seeking best execution, the Manager may consider sales of shares of
the Fund as a factor in the selection of brokers to execute portfolio
transactions for the Fund.
The investment information provided to the Manager is of the type described in
Section 28(e) of the Securities Exchange Act of 1934 and is designed to augment
the Manager's own internal research and investment strategy capabilities.
Research services furnished by brokers through which the Fund effects securities
transactions are used by the Manager in carrying out its investment management
responsibilities with respect to all its clients' accounts. There may be
occasions where the transaction cost charged by a broker may be greater than
that which another broker may charge if the Manager determines in good faith
that the amount of such transaction cost is reasonable in relation to the value
of brokerage and research services provided by the executing broker. During the
year ended December 31, 1997, the Manager did not place any portfolio
transactions for the Fund with firms supplying investment information to the
Manager.
The Fund may deal in some instances in securities which are not listed on a
national securities exchange but are traded in the over-the-counter market. It
may also purchase listed securities through the third market. Where transactions
are executed in the over-the-counter market or third market, the Fund will seek
to deal with the primary market makers; but when necessary in order to obtain
best execution, it will utilize the services of others. In all cases the Fund
will attempt to negotiate best execution.
The Distributor may from time to time effect transactions in the Fund's
portfolio securities. In such instances, the placement of orders with the
Distributor would be consistent with the Fund's objective of obtaining best
execution. With respect to orders placed with the Distributor for execution on a
national securities exchange, commissions received must conform to Section
17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which permit an
affiliated person of a registered investment company (such as the Fund) to
receive brokerage commissions from such registered investment company provided
that such commissions are reasonable and fair compared to commissions received
by other brokers in connection with comparable transactions involving similar
securities during a comparable period of time. In addition, pursuant to Section
11(a) of the Securities Exchange Act of 1934, the Distributor is restricted as
to the nature and extent of the brokerage services it may perform for the Fund.
The Securities and Exchange Commission has adopted rules under Section 11(a)
which permit a distributor to a registered investment company to receive
compensation for effecting, on a national securities exchange, transactions in
portfolio securities of such investment company, including causing such
transactions to be transmitted, executed, cleared and settled and arranging for
unaffiliated brokers to execute such transactions. To the extent permitted by
such rules, the Distributor may receive compensation relating to transactions in
portfolio securities of the Fund provided that the Fund enters into a written
agreement, as required by such rules, with the Distributor authorizing it to
retain compensation for such services. Transactions in portfolio securities
placed with the Distributor which are executed on a national securities exchange
must be effected in accordance with procedures adopted by the Board of Directors
of the Fund pursuant to Rule 17e-1.
During the years ended December 31, 1995, 1996 and 1997, the Fund paid a total
of $77,970, $95,366 and $81,019 respectively, in brokerage commissions, $22,919,
$23,623 and $25,226 respectively, of which was paid to the Distributor. During
the years ended December 31, 1995, 1996 and 1997, the brokerage commissions paid
to the Distributor represented approximately 29.39%, 24.77% and 31.14%,
respectively, of the total brokerage commissions paid by the Fund during such
years and were paid on account of transactions having an aggregate dollar value
equal to approximately 47.46%, 42.83% and 49.58%, respectively, of the aggregate
dollar value of all portfolio transactions of the Fund during such years for
which commissions were paid. The Fund's portfolio turnover rate for the years
ended December 31, 1996 and 1997 was 31.70%, and 29.59%, respectively.
REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed may be made either in cash
or in portfolio securities (selected in the discretion of the Board of Directors
of the Fund and taken at their value used in determining the Fund's net asset
value per share as described under "Net Asset Value" herein), or partly in cash
and partly in portfolio securities. However, payments will be made wholly in
cash unless the Board of Directors believes that
8
<PAGE>
economic conditions exist which would make such a practice detrimental to the
best interests of the Fund. If payment for shares redeemed is made wholly or
partly in portfolio securities, brokerage costs may be incurred by the investor
in converting the securities to cash. The Fund will not distribute in kind
portfolio securities that are not readily marketable. The Fund has filed a
formal election with the Securities and Exchange Commission pursuant to which
the Fund will only effect a redemption in portfolio securities where the
particular stockholder of record is redeeming more than $250,000 or 1% of the
Fund's total net assets, whichever is less, during any 90-day period. In the
opinion of the Fund's management, however, the amount of a redemption request
would have to be significantly greater than $250,000 or 1% of total net assets
before a redemption wholly or partly in portfolio securities was made.
DESCRIPTION OF COMMON STOCK
On March 31, 1998 there were 4,824,060 shares of the Fund's common stock
outstanding. As of March 31, 1998, the amount of shares owned by all officers
and directors of the Fund, as a group, was less than 1% of the outstanding
shares of the Fund. Set forth below is certain information as to persons who
owned 5% or more of the Fund's outstanding common stock as of March 31, 1998:
Nature of
Name and Address % of Shares Ownership
NEIC Master Retirement Trust 9.32% Record
399 Boylston Street
Boston, MA. 02116-3305
Nancy T. Francis & 5.39% Record
Arthur Francis
42 Atherton Avenue
Atherton, CA 94027-4019
PERFORMANCE
From time to time the Fund may distribute sales literature or publish
advertisements containing "total return" quotations for the Fund. Such sales
literature or advertisements will disclose the Fund's average annual compounded
total return for the Fund's last one year period, five year period and the
period since the Fund's inception, and may include total return information for
other periods. The Fund's total return for each period is computed by finding,
through the use of a formula prescribed by the Securities and Exchange
Commission, the average annual compounded rates of return over the period that
would equate an assumed initial amount invested to the value of such investment
at the end of the period. For purposes of computing total return, income
dividends and capital gains distributions paid on shares of the Fund are assumed
to have been reinvested when received.
The Fund's total return for the twelve months ended December 31, 1997 was 13.8%.
The Fund's average annual compounded total return for the five year period ended
December 31, 1997 was 14.55%. The Fund's average annual compounded total return
from January 4, 1985 (inception) to December 31, 1997 was 15.36%.
The Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in the Fund's portfolio and the Fund's expenses. Total return
information is useful in reviewing the Fund's performance but such information
may not provide a basis for comparison with bank deposits or other investments
which pay a fixed return for a stated period of time. An investor's principal
invested in the Fund is not fixed and will fluctuate in response to prevailing
market conditions.
NET ASSET VALUE
The Fund does not determine its net asset value per share on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
For purposes of determining the Fund's net asset value per share, readily
marketable portfolio securities listed on the New York Stock Exchange are
valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then the
security is valued by such method as the Board of Directors shall determine in
good faith to reflect its fair market value. Readily marketable securities not
listed on the New York Stock Exchange but listed on other national securities
exchanges
9
<PAGE>
or admitted to trading on the National Association of Securities Dealers
Automated Quotations, Inc. ("NASDAQ") National List are valued in like manner.
Portfolio securities traded on more than one national securities exchange are
valued at the last sale price on the business day as of which such value is
being determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by the Manager to be
over-the-counter but excluding securities admitted to trading on the
NASDAQ National List, are valued at the mean of the current bid and asked prices
as reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Directors deems appropriate to reflect their fair market value.
U.S. Government obligations and other debt instruments having sixty days or less
remaining until maturity are stated at amortized cost. All other investment
assets, including restricted and not readily marketable securities, are valued
in such manner as the Board of Directors in good faith deems appropriate to
reflect their fair market value.
COUNSEL, AUDITORS, CUSTODIAN AND TRANSFER AGENT
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
Venable, Baetjer and Howard, Baltimore, Maryland, has provided an opinion for
matters relating to Maryland law.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected to audit the financial
statements of the Fund.
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri
64105, is the custodian for the Fund's cash and securities. Reich & Tang
Services, Inc., 600 Fifth Avenue, New York, New York 10020 is the transfer agent
and dividend agent for the shares of the Fund. The Fund's custodian and transfer
agent do not assist in and are not responsible for investment decisions
involving assets of the Fund.
FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended December
31, 1997 and the report thereon of McGladrey & Pullen, LLP are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.
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