As filed with the Securities and Exchange Commission on May 31, 1995
Registration No. 2-96456
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.[ ]
Post-Effective Amendment No. 19 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 15 [X]
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212)830-5220
BERNADETTE N. FINN
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue,
New York, New York 10020
(Name and Address of Agent for Service)
Copy to: MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10020
(212) 856-6858
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 31, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on [date] pursuant to paragraph (a) of Rule 485
The Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to section 24(f) under the Investment Company
Act of 1940, as amended, and Rule 24f-2 thereunder, and the Registrant filed a
Rule 24f-2 Notice for its fiscal year ended January 31, 1995 on March 31, 1995.
<PAGE>
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
Registration Statement on Form N-1A
CROSS-REFERENCE SHEET
Pursuant to Rule 404(c)
Part A
Item No. Prospectus Heading
1. Cover Page Cover Page
2. Synopsis Introduction; Table of Fees and
Expenses
3. Condensed Financial Information Selected Financial Information
4. General Description of Registrant General Information; Investment
Objectives, Policies and Risks
5. Management of the Fund Management of the Fund; Custodian,
Transfer Agent and Dividend
Agent; Distribution and Service
Plan
6. Capital Stock and Other Securities Description of Common Stock;
How to Purchase and Redeem Shares;
General Information; Dividends and
Distributions; Federal Income Taxes
7. Purchase of Securities Being Offered How to Purchase and Redeem Shares;
Net Asset Value; Distribution and
Service Plan
8. Redemption or Repurchase How to Purchase and Redeem Shares
9. Legal Proceedings *
____________________
* Not Applicable.
<PAGE>
Part B Caption in Statement of
Item No. Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Manager; Management of the Fund
13. Investment Objectives and Policies Investment Objectives,
Policies and Risks
14. Management of the Registrant Manager; Management of the Fund
15. Control Persons and Principal
Holders of Securities Management of the Fund;
Description of Common Stock
16. Investment Advisory
and Other Services Manager; Management of the Fund;
Distribution and Service Plan;
Custodian and Transfer Agent;
Expense Limitation
17. Brokerage Allocation and
Other Practices Portfolio Transactions
18. Capital Stock and
Other Securities Description of Common Stock
19. Purchase, Redemption and Pricing
of Securities Being Offered How to Purchase and Redeem Shares;
Net Asset Value
20. Tax Status Federal Income Taxes;
Connecticut Income Taxes
21. Underwriters Distribution and Service Plan
22. Calculations of Yield
Quotations of Money Market Funds Yield Quotations
23. Financial Statements Independent Auditor's Report;
Statement of Net Assets (audited);
Statement of Operations (audited);
Statements of Changes in Net
Assets (audited); Notes to
Financial Statements (audited)
<PAGE>
_______________________________________________________________________________
CONNECTICUT 600 FIFTH AVENUE
DAILY TAX FREE NEW YORK, NY 10020
INCOME FUND, INC. (212) 830-5220
===============================================================================
PROSPECTUS
June 1, 1995
Connecticut Daily Tax Free Income Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company that is a short-term, tax-exempt money
market fund whose investment objectives are to seek as high a level of current
income, exempt from Federal income taxes and to the extent possible from
Connecticut personal income taxes, as is believed to be consistent with
preservation of capital, maintenance of liquidity and stability of principal. No
assurance can be given that these objectives will be achieved.
This Prospectus sets forth concisely the information about the Fund that
prospective investors will find helpful in making their investment decisions.
Additional information about the Fund has been filed with the Securities and
Exchange Commission and is available upon request and without charge by calling
or writing the Fund at the address or telephone number set forth above. The
"Statement of Additional Information" bears the same date as this Prospectus and
is incorporated by reference into this Prospectus in its entirety.
Reich & Tang Asset Management L.P. acts as Manager of the Fund and Reich & Tang
Distributors L.P. acts as Distributor of the Fund's shares. Reich & Tang Asset
Management L.P. is a registered investment adviser. Reich & Tang Distributors
L.P. is a registered broker-dealer and member of the National Association of
Securities Dealers, Inc.
Inc.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. The Fund intends to maintain a stable net asset value of $1.00 per
share although there can be no assurance that this value will be maintained.
Shares in the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency.
THIS PROSPECTUS SHOULD BE READ AND RETAINED BY INVESTORS FOR FUTURE REFERENCE.
_______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________________________________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
as a percentage of average net assets)
<S> <C> <C>
Management Fees .30%
12b-1 Fees-After Fee Waiver .19 %
Other Expenses .39%
Administration Fees .20%
Total Fund Operating Expenses .88%
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following expenses on a $1,000
investment, assuming 5% annual return
(cumulative through the end of each year) $9 $28 $49 $108
The purpose of the above fee table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. For a further discussion of these fees see
"Management of the Fund" and "Distribution and Service Plan" herein. The
Distributor has voluntarily waived a portion of the 12b-1 Fee; absent such
waiver, the 12b-1 Fee would have been .20% and Total Fund Operating Expenses
would have been .89%.
THE FIQURES REFLECTED IN THIS EXAMPLE SHOULD NOT BE CONSIDERED AS A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN ABOVE.
</TABLE>
_______________________________________________________________________________
2
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION
The following selected financial information of Connecticut Daily Tax Free
Income Fund, Inc. has been audited by McGladrey & Pullen, LLP, Independent
Certified Public Accountants, whose report thereon appears in the Statement of
Additional Information.
May 15, 1985
(Inception) to
Year Ended January 31, January 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding
throughout the period)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Income from investment operations:
Net investment income..... 0.0230 0.0170 0.0210 0.0350 0.0490 0.0540 0.0440 0.0380 0.0380 0.0320
Less distributions:
Dividends from net investment
income 0.0230)(0.0170) (0.0210) (0.0350 (0.0490)(0.0540) 0.0440) (0.0380) (0.0380) (0.0320
Net asset value, end of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return................ 2.29% 1.70% 2.12% 3.56% 5.01% 5.58% 4.53% 3.90% 3.88% 4.72%
Ratios/Supplemental Data
Net assets, end of
period (000's omitted) $81,801 $120,551 $129,297 $185,339 $178,335 $228,167 $245,529 $241,638 $248,193 $88,689
Ratios to average net assets:
Expenses................... 0.88% 0.87% 0.86%+ 0.79% 0.80% 0.78% 0.79% 0.76%+ 0.75%+ 0.56%*+
Net investment income..... 2.25% 1.68% 2.14%+ 3.51% 4.92% 5.44% 4.44% 3.83%+ 3.75%+ 4.70%*+
* Annualized.
+ Net of management, shareholder servicing and administration fees waived
equivalent to $.0006, $.0003, $.0009 and $.032 per share and .06%, .03%, .09%
and .46% of average net assets, respectively.
</TABLE>
3
<PAGE>
INTRODUCTION
Connecticut Daily Tax Free Income Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company that is a short-term, tax-exempt money
market fund whose investment objectives are to seek as high a level of current
income, exempt under current law from Federal income taxes and to the extent
possible from Connecticut personal income taxes, as is believed to be consistent
with preservation of capital, maintenance of liquidity and stability of
principal by investing principally in short-term, high quality debt obligations
of the State of Connecticut, its political subdivisions, and certain possessions
and territories of the United States, the interest on which is exempt from
Federal income tax under section 103 of the Internal Revenue Code (the "Code"),
as described under "Investment Objectives, Policies and Risks" herein. The Fund
also may invest in municipal securities of issuers located in jurisdictions
other than Connecticut, the interest income on which will be exempt from Federal
income tax, but will be subject to Connecticut dividends and interest income tax
for Connecticut residents. The Fund seeks to maintain an investment portfolio
with a dollar-weighted average maturity of 90 days or less, and to value its
investment portfolio at amortized cost and maintain a net asset value of $1.00
per share. The Fund intends to invest all of its assets in tax-exempt
obligations; however, it reserves the right to invest up to 20% of the value of
its net assets in taxable obligations. This is a summary of the Fund's
fundamental investment policies which are set forth in full under "Investment
Objectives, Policies and Risks" herein and in the Statement of Additional
Information and may not be changed without approval of a majority of the Fund's
outstanding shares. No assurance can be given that these objectives will be
achieved.
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"), which is a registered investment adviser and which currently acts as
manager or administrator to eighteen other open-end management investment
companies. The Fund's shares are distributed through Reich & Tang Distributors
L.P. (the "Distributor"), with whom the Fund has entered into a Distribution
Agreement and a Shareholder Servicing Agreement pursuant to the Fund's plan
adopted under Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended, (the "1940 Act"). (See "Distribution and Service Plan" herein.)
On any day on which the New York Stock Exchange, Inc. is open for trading ("Fund
Business Day"), investors may, without charge by the Fund, purchase and redeem
shares of the Fund's common stock at their net asset value next determined after
receipt of the order. An investor's purchase order will be accepted after the
payment is converted into Federal funds, and shares will be issued as of the
Fund's next net asset value determination which is made as of 12 noon, New York
City time, on each Fund Business Day. (See "How to Purchase and Redeem Shares"
and "Net Asset Value" herein.) Dividends from accumulated net income are
declared by the Fund on each Fund Business Day. The Fund generally pays interest
dividends monthly. Net capital gains, if any, will be distributed at least
annually and in no event later than within 60 days after the end of the Fund's
fiscal year. All dividends and distributions of capital gains are automatically
invested in additional shares of the Fund unless a shareholder has elected by
written notice to the Fund to receive either of such distributions in cash. (See
"Dividends and Distributions" herein.)
4
<PAGE>
The Fund intends that its investment portfolio will be concentrated in
Connecticut Municipal Obligations and bank participation certificates therein. A
summary of special risk factors affecting the State of Connecticut is set forth
under "Connecticut Risk Factors" herein and in the Statement of Additional
Information. Investment in the Fund should be made with an understanding of the
risks which an investment in Connecticut Municipal Obligations may entail.
Payment of interest and preservation of capital are dependent upon the
continuing ability of Connecticut issuers and/or obligors of state, municipal
and public authority debt obligations to meet their obligations thereunder.
Investors should consider the greater risk of the Fund's concentration versus
the safety that comes with a less concentrated portfolio and should compare
yields available on portfolios of Connecticut issues with those of more
diversified portfolios including out-of-state issues before making an investment
decision. The Fund's Board of Directors is authorized to divide the unissued
shares into separate series of stock, one for each of the Fund's separate
investment portfolios that may be created in the future.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The Fund is a non-diversified, open-end management investment company that is a
short-term, tax-exempt money market fund whose investment objectives are to seek
as high a level of current income, exempt from Federal income taxes and, to the
extent possible, from Connecticut personal income taxes (the "Connecticut
Personal Income Tax"), as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal. There can be no
assurance that the Fund will achieve its investment objectives.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of Connecticut, other states, territories
and possessions of the United States, and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which is, in the
opinion of bond counsel at the date of issuance, currently exempt from Federal
income taxation ("Municipal Obligations") and in participation certificates in
Municipal Obligations purchased from banks, insurance companies or other
financial institutions. Dividends paid by the Fund which are "exempt-interest
dividends" by virtue of being properly designated as derived from Municipal
Obligations and participation certificates in Municipal Obligations will be
exempt from Federal income tax provided the Fund complies with Section 852(b)(5)
of Subchapter M of the Code.
Although the Supreme Court has determined that Congress has the authority to
subject the interest on bonds such as the Municipal Obligations to regular
Federal income taxation, existing law excludes such interest from regular
Federal income tax. However, "exempt-interest dividends" may be subject to the
Federal alternative minimum tax. (See "Federal Income Taxes" herein.)
Exempt-interest dividends paid by the Fund correctly identified as derived from
obligations issued by or on behalf of the State of Connecticut or any political
subdivision thereof, or public instrumentality, state or local authority,
district, or similar public entity created under the laws of the State of
Connecticut or from obligations (such as certain obligations issued by or on
behalf of possessions or territories of the United States) the interest on which
Federal law prohibits the states from taxing ("Connecticut Municipal
Obligations") will be exempt from the Connecticut Personal Income Tax. (See
"Connecticut Income Taxes" herein.) To the extent suitable Connecticut Municipal
Obligations are not available for investment by the Fund, the Fund may purchase
Municipal Obligations issued by other states, their agencies and
instrumentalities or other obligations, the dividends designated as derived from
interest income on which will be exempt from Federal income tax but will be
subject to the Connecticut Personal Income Tax. However, except as a temporary
defensive measure during periods of adverse market conditions as determined by
the Manager, the Fund will invest at least 65% of its total assets in
Connecticut Municipal Obligations, the exempt-interest dividends derived from
which are exempt from the Connecticut Personal Income Tax, although the exact
5
<PAGE>
amount of the Fund's assets invested in such securities will vary from time to
time. The Fund's investments may include "when-issued" Municipal Obligations,
stand-by commitments and taxable repurchase agreements. Although the Fund will
attempt to invest 100% of its assets in Municipal Obligations, the Fund reserves
the right to invest up to 20% of the value of its net assets in securities, the
interest income on which is subject to Federal, state and local income tax. The
Fund expects to invest more than 25% of its assets in participation certificates
purchased from banks in industrial revenue bonds and other Connecticut Municipal
Obligations.
In view of this "concentration" in bank participation certificates in
Connecticut Municipal Obligations, an investment in the Fund should be made with
an understanding of the characteristics of the banking industry and the risks
which such an investment may entail, which include extensive governmental
regulation, changes in the availability and cost of capital funds, and general
economic conditions (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) The investment
objectives of the Fund described in this paragraph may not be changed unless
approved by the holders of a majority of the outstanding shares of the Fund that
would be affected by such a change. As used in this Prospectus, the term
"majority of the outstanding shares" of the Fund means, respectively, the vote
of the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy or (ii) more than 50% of the outstanding shares
of the Fund.
The Fund may only purchase Municipal Obligations that have been determined by
the Fund's Board of Directors to present minimal credit risks and that are
Eligible Securities at the time of acquisition. The term Eligible Securities
means (i) Municipal Obligations with remaining maturities of 397 days or less
and rated in the two highest short-term rating categories by any two nationally
recognized statistical rating organizations ("NRSROs") or in such categories by
the only NRSRO that has rated the Municipal Obligations (collectively, the
"Requisite NRSROs") (acquisition in the latter situation must also be ratified
by the Board of Directors); (ii) Municipal Obligations with remaining maturities
of 397 days or less but that at the time of issuance were long-term securities
(i.e., with maturities greater than 366 days) and whose issuer has received from
the Requisite NRSROs a rating with respect to comparable short-term debt in the
two highest short-term rating categories and (iii) unrated Municipal Obligations
determined by the Fund's Board of Directors to be of comparable quality. Where
the issuer of a long-term security with a remaining maturity which would
otherwise qualify it as an Eligible Security, does not have rated short-term
debt outstanding, the long-term security is treated as unrated but may not be
purchased if it has a long-term rating from any NRSRO that is below the two
highest long-term categories. A determination of comparability by the Board of
Directors is made on the basis of its credit evaluation of the issuer, which may
include an evaluation of a letter of credit, guarantee, insurance or other
credit facility issued in support of the Municipal Obligations or participation
certificates. (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) While there are
several organizations that currently qualify as NRSROs, two examples of NRSROs
are Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's"). The two highest ratings by S&P and Moody's are "AAA" and "AA" by
S&P in the case of long-term bonds or notes and "Aaa" and "Aa" by Moody's in the
case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the
case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's in
the case of tax-exempt commercial paper. The highest rating in the case of
variable and floating demand notes is "VMIG-1" by Moody's and "SP-1/AA" by S&P.
Such instruments may produce a lower yield than would be available from less
highly rated instruments. The Fund's Board of Directors has determined that
obligations which are backed by the credit of the Federal government (the
interest on which is not exempt from Federal income taxation) will be considered
to have a rating equivalent to Moody's "Aaa".
Subsequent to its purchase by the Fund, the quality of an investment may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. If this occurs, the Board of Directors of the Fund shall reassess
promptly whether the security presents minimal credit risks and shall cause the
Fund to take such action as the Board of Directors determines is in the best
interest of the Fund and its shareholders. However, reassessment is not required
if the security is disposed of or matures within five business days of the
Manager becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Manager's actions.
6
<PAGE>
In addition, in the event that a security (1) is in default, (2) ceases to be an
eligible investment under Rule 2a-7 or (3) is determined to no longer present
minimal credit risks, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. In the event that the security
is disposed of it shall be disposed of as soon as practicable consistent with
achieving an orderly disposition by sale, exercise of any demand feature or
otherwise. In the event of a default with respect to a security which
immediately before default accounted for 1/2 of 1% or more of the Fund's total
assets, the Fund shall promptly notify the Securities and Exchange Commission of
such fact and of the actions that the Fund intends to take in response to the
situation.
In view of the "concentration" of the Fund in bank participation certificates in
Connecticut Municipal Obligations, which may be secured by bank letters of
credit or guarantees, an investment in the Fund should be made with an
understanding of the characteristics of the banking industry and the risks which
such an investment may entail which include extensive governmental regulation,
changes in the availability and cost of capital funds and general economic
condition. (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) Banks are subject to
extensive governmental regulations which may limit both the amounts and types of
loans and other financial commitments which may be made and interest rates and
fees which may be charged. The profitability of this industry is largely
dependent upon the availability and cost of capital funds for the purpose of
financing lending operations under prevailing money market conditions. Also,
general economic conditions play an important part in the operations of this
industry and exposure to credit losses arising from possible financial
difficulties of borrowers might affect a bank's ability to meet its obligations
under a letter of credit. The Fund may invest 25% or more of the net assets of
any portfolio in securities that are related in such a way that an economic,
business or political development or change affecting one of the securities
would also affect the other securities including, for example, securities the
interest upon which is paid from revenues of similar type projects, or
securities the issuers of which are located in the same state.
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund's
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days. As a non-diversified investment
company, the Fund is not subject to any statutory restriction under the 1940 Act
with respect to investing its assets in one or relatively few issuers. This
non-diversification may present greater risks than in the case of a diversified
company. However, the Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Code. The Fund will be restricted in that, at
the close of each quarter of the taxable year, at least 50% of the value of its
total assets must be represented by cash, government securities, investment
company securities and other securities limited in respect of any one issuer to
not more than 5% in value of the total assets of the Fund and to not more than
10% of the outstanding voting securities of such issuers. In addition, at the
close of each quarter of its taxable year, not more than 25% in value of the
Fund's total assets may be invested in securities of one issuer other than
government securities. The limitations described in this paragraph are not
fundamental policies and may be revised to the extent applicable Federal income
tax requirements are revised. (See "Federal Income Taxes" herein.)
The primary purpose of investing in a portfolio of Connecticut Municipal
Obligations is the special tax treatment accorded Connecticut resident
individual investors. However, payment of interest and preservation of principal
is dependent upon the continuing ability of the issuers and/or obligors of
state, municipal and public authority debt obligations to meet their obligations
thereunder. Investors should consider the greater risk of the Fund's
concentration versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of Connecticut
issues with those of more diversified portfolios including out-of-state issues
before making an investment decision. The Fund's management believes that by
maintaining the Fund's investment portfolio in liquid, short-term, high quality
investments, including participation certificates and other variable rate demand
instruments that have high quality credit support from banks, insurance
companies or other financial institutions, the Fund is largely insulated from
the credit risks that may exist on long-term Connecticut Municipal Obligations.
For additional information, please refer to the Statement of Additional
Information.
7
<PAGE>
CONNECTICUT RISK FACTORS
Because of the Fund's concentration in investments in Connecticut Municipal
Obligations, the safety of an investment in the Fund will depend importantly on
the financial strength of Connecticut and its political subdivisions. The
Connecticut economy relies in part on activities that have been subject to
cyclical change, and the State is now in a recession the depth and duration of
which are uncertain. The State's General Fund suffered a deficit of $809,000,000
for the fiscal year ended June 30, 1991, alone. While the State's General Fund
reflected a surplus of $110,000,000 for the fiscal year ended June 30, 1992, and
a surplus of $113,500,000 for the fiscal year ended June 30, 1993, largely
because of the enactment of the Connecticut Personal Income Tax, contractions in
defense and other industries are adversely affecting Connecticut's economy, and
unemployment and poverty plague some of its cities and towns. There can be no
assurance that general economic difficulties or the financial circumstances of
Connecticut or its towns and cities will not adversely affect the market value
of their obligations or the ability of the obligors to pay debt service on such
obligations.
MANAGEMENT OF THE FUND
The Fund's Board of Directors which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as investment
manager of the Fund. The Manager provides persons satisfactory to the Fund's
Board of Directors to serve as officers of the Fund. Such officers, as well as
certain other employees and directors of the Fund, may be directors or officers
of Reich & Tang Asset Management, Inc., the sole general partner of the Manager,
or employees of the Manager or its affiliates. Due to the services performed by
the Manager, the Fund currently has no employees and its officers are not
required to devote 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 April 28, 1995
investment manager, adviser or supervisor for assets aggregating in excess of $7
billion. The Manager acts as investment manager or administrator of eighteen
other investment companies and also advises pension trusts, profit-sharing
trusts and endowments.
Effective October 1, 1994, the Board of Directors of the Fund approved the
re-execution of the Investment Management Contract and Administrative Services
Contract with the Manager. The Manager's predecessor, New England Investment
Companies, L.P. ("NEICLP") is the limited partner and owner of a 99.5% interest
in the newly created limited partnership, Reich & Tang Asset Management L.P.,
the Manager. Reich & Tang Asset Management, Inc. (a wholly-owned subsidiary of
NEICLP) is the general partner and owner of the remaining .5% interest of the
Manager. Reich & Tang Asset Management L.P. has succeeded NEICLP as the Manager
of the Fund. The re-execution of the Investment Management Contract did not
result in "assignment" of the Investment Management contract with NEICLP under
the 1940 Act, since there is no change in actual control or management of the
Manager caused by the re-execution. New England Investment Companies, Inc.
("NEIC"), a Massachusetts corporation, serves as the sole general partner of
NEICLP. The New England Mutual Life Insurance Company ("The New England") owns
approximately 68.1% of the total partnership units outstanding of NEICLP, and
Reich & Tang, Inc. owns approximately 22.8% of the outstanding partnership units
of NEICLP. In addition, NEIC is a wholly-owned subsidiary of The New England
which may be deemed a "controlling person" of the Manager. NEIC is a holding
company offering a broad array of investment styles across a wide range of asset
categories through eight investment advisory/management affiliates and three
distribution subsidiaries. These include, in addition to the Manager, Loomis,
Sayles & Company, L.P., Copley Real Estate Advisors, Inc., Back Bay Advisors,
L.P., Marlborough Capital Advisors, L.P., Westpeak Investment Advisors, L.P.,
Draycott Partners, Ltd., TNE Investment Services, L.P., New England Investment
Associates, Inc., and an affiliate, Capital Growth Management Limited
Partnership. These affiliates in the aggregate are investment advisors or
managers to 57 other registered investment companies.
The re-executed Investment Management Contract and Administrative Services
Contract contain the same terms and conditions governing the Manager's
investment management and administrative responsibilities as the Fund's previous
Investment Management Contract and Administrative Services Contract except for
(i) the dates of execution and (ii) the identity of the Manager.
Pursuant to the re-executed 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.
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For its services under the re-executed Investment Management Contract, the
Manager receives from the Fund a fee equal to .30% per annum of the Fund's
average daily net assets for managing the Fund's investment portfolio and
performing related services. In addition to its fees under the Investment
Management Contract, Reich & Tang Distributors L.P., (the "Distributor"),
receives a service fee equal to .20% per annum of the Fund's average daily net
assets under the Shareholder Servicing Agreement. The fees are accrued daily and
paid monthly.
Pursuant to the Administrative Services Contract for the Fund, the Manager
performs clerical, accounting supervision and office service functions for the
Fund and provides the Fund 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 services as the Fund may from time to
time request of the Manager. The personnel rendering such services may be
employees of the Manager or its affiliates. The Fund pays the Manager the costs
of such personnel at rates which must be agreed upon between the Fund and the
Manager and provided that no payment shall be made for any services performed by
any officer of the general partner of the Manager or its affiliates. The
Manager, at its discretion, may voluntarily waive all or a portion of the
administrative services fee. For its services under the Administrative Services
Contract, the Manager receives a fee equal to .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).
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on March 8, 1985. The authorized capital
stock of the Fund consists of twenty billion shares of stock having a par value
of one-tenth of one cent ($.001) per share. The Fund's Board of Directors is
authorized to divide the unissued shares into separate series of stock, each
series representing a separate, additional investment portfolio. Shares of all
series will have identical voting rights, except where, by law, certain matters
must be approved by a majority of the shares of the affected series. Each share
of any series of shares when issued has equal dividend, distribution,
liquidation and voting rights within the series for which it was issued, and
each fractional share has those rights in proportion to the percentage that the
fractional share represents of a whole share. Shares will be voted in the
aggregate. There are no conversion or preemptive rights in connection with any
shares of the Fund. All shares, when issued in accordance with the terms of the
offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholder.
Under its Articles of Incorporation the Fund has the right to redeem for cash
shares of stock owned by any shareholder to the extent and at such times as the
Fund's Board of Directors determines to be necessary or appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders. As of April 28,
1995, 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.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Certificates for Fund shares will
not be issued to an investor.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and generally pays dividends monthly. There is no fixed
dividend rate. In computing these dividends, interest earned and expenses are
accrued daily.
Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year.
All dividends and distributions of capital gains are automatically invested in
additional Fund shares immediately upon payment thereof unless a shareholder has
elected by written notice to the Fund to receive either of such distributions in
cash.
HOW TO PURCHASE AND REDEEM SHARES
Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations in accordance with the procedures
established by the Participating Organizations. (See "Investments
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<PAGE>
Through Participating Organizations" herein.) All other investors, and investors
who have accounts with Participating Organizations but who do not wish to invest
in the Fund through their Participating Organizations, may invest in the Fund
directly. (See "Direct Purchase and Redemption Procedures" herein.) The minimum
initial investment in the Fund by Participating Organizations is $1,000 which
may be satisfied by initial investments aggregating $1,000 by a Participating
Organization on behalf of customers whose initial investments are less than
$1,000. The minimum initial investment for securities brokers, financial
institutions and other industry professionals that are not Participating
Organizations is $1,000. The minimum initial investment for all other investors
is $5,000. Initial investments may be made in any amount in excess of the
applicable minimums. The minimum amount for subsequent investments is $100
unless the investor is a client of a Participating Organization whose clients
have made aggregate subsequent investments of $100.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from Participating Organizations
and from investors directly.
In order to maximize earnings on its portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in funds of Federal Reserve member banks on deposit
at a Federal Reserve Bank (commonly known as "Federal Funds"). Accordingly, the
Fund does not accept a subscription or invest an investor's payment in portfolio
securities until the payment has been converted into Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share made after acceptance of the investor's purchase order at the
net asset value per share next determined after receipt of the purchase order.
Shares begin accruing income dividends on the day they are purchased. The Fund
reserves the right to reject any subscription for its shares.
Shares are issued as of 12 noon, New York City time, on any Fund Business Day as
defined herein on which an order for the shares and accompanying Federal Funds
are received by the Fund's transfer agent before 12 noon. Orders accompanied by
Federal Funds and received after 12 noon, New York City time, on a Fund Business
Day will not result in share issuance until the following Fund Business Day.
Fund shares begin accruing income on the day the shares are issued to an
investor.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals. Unless
other instructions are given in proper form to the Fund's transfer agent, a
check for the proceeds of a redemption will be sent to the shareholder's address
of record. If a shareholder elects to redeem all the shares of the Fund he owns,
all dividends accrued to the date of such redemption will be paid to the
shareholder along with the proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the Securities and Exchange Commission determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
Securities and Exchange Commission) exists as a result of which disposal by the
Fund of its portfolio securities is not reasonably practicable or as a result of
which it is not reasonably practicable for the Fund fairly to determine the
value of its net assets, or for such other period as the Securities and Exchange
Commission may by order permit for the protection of the shareholders of the
Fund.
Redemption requests received by the Fund's transfer agent before 12 noon, New
York City time, on any Fund Business Day become effective at 12 noon that day.
Shares redeemed are not entitled to participate in dividends declared on the day
a redemption becomes effective. A redemption request received after 12 noon, New
York City time, on any Fund Business Day becomes effective on the next Fund
Business Day.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization, and the Participating
Organization will be responsible for notifying the Participant Investor of the
proposed mandatory redemption. During the notice period a shareholder or
Participating Organization who receives such a notice may avoid mandatory
redemption by purchasing sufficient additional shares to increase the total net
asset value to at least the minimum amount and thereby avoid such mandatory
redemption.
The redemption of shares may result in the investor's receipt of more or less
than paid for the shares and, thus, in a taxable gain or loss to the investor.
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INVESTMENTS THROUGH
PARTICIPATING ORGANIZATIONS
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Manager with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased. No
certificates are issued with respect to investments made through Participating
Organizations.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such confirmations and statements will receive them from the Fund
directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Manager for providing such services. However, this is an unsettled area of the
law and if a determination contrary to the Fund management's position is made by
a bank regulatory agency or court concerning shareholder servicing and
administration payments to banks from the Manager, any such payments will be
terminated and any shares registered in the banks' names, for their underlying
customers, will be re-registered in the name of the customers at no cost to the
Fund or its shareholders. In addition, state securities laws may differ on this
issue from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as underwriters, distributors
or dealers pursuant to state law.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day provided that the Federal Funds required in connection with the orders
are received by the Fund's transfer agent before 4:00 p.m., New York City time,
on that day. Orders for which Federal Funds are received after 4:00 p.m., New
York City time, will not result in share issuance until the following Fund
Business Day. Participating Organizations are responsible for instituting
procedures to insure that purchase orders by their respective clients are
processed expeditiously.
DIRECT PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures apply to investors who wish to
invest in the Fund directly and not through Participating Organizations. These
investors may obtain a current prospectus and the subscription order form
necessary to open an account by telephoning the Fund at the following numbers:
Within New York State 212-830-5220
Outside New York State (TOLL FREE) 800-221-3079
All shareholders, other than certain Participant Investors, will receive from
the Fund individual confirmations of each purchase and redemption of Fund shares
(other than draft check redemptions) and a monthly statement listing the total
number of Fund shares owned as of the statement closing date, purchase and
redemptions of Fund shares during the month covered by the statement and the
dividends paid on Fund shares of each shareholder during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Certificates for Fund shares will not be issued to an investor.
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<PAGE>
Initial Purchases of Shares
Mail
Investors may send a check made payable to "Connecticut Daily Tax Free Income
Fund, Inc." along with a completed subscription order form to:
Connecticut Daily Tax Free Income Fund, Inc.
Reich & Tang Mutual Funds
600 Fifth Avenue
New York, New York 10020
Checks are accepted subject to collection at full face value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
can normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's subscription will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number by telephoning
the Fund at 212-830-5220 (within New York State) or at 800-221-3079 (outside New
York State). The investors should then instruct a member commercial bank to wire
their money immediately to:
Investors Fiduciary Trust Company
ABA # 101003621
DDA # 890752-953-8
For Connecticut Daily Tax Free
Income Fund, Inc.
Account of (Investor's Name)
Fund Account #0308
SS #/Tax ID #
The investor should then promptly complete and mail the subscription order form.
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon on that same day. There may
be a charge by the investor's bank for transmitting the money by bank wire, and
there also may be a charge for use of Federal Funds. The Fund does not charge
investors in the Fund for its receipt of wire transfers. Payment in the form of
a "bank wire" received prior to 12 noon, New York City time, on a Fund Business
Day will be treated as a Federal Funds payment received on that day.
Personal Delivery
Deliver a check made payable to "Connecticut Daily Tax Free Income Fund, Inc."
along with a completed subscription order form to:
Reich & Tang Mutual Funds
600 Fifth Avenue - 9th Floor
New York, New York 10020
Subsequent Purchases of Shares
Subsequent purchases can be made by bank wire or personal delivery, as indicated
above, or by mailing a check to:
Connecticut Daily Tax Free Income Fund, Inc.
Reich & Tang Mutual Funds
600 Fifth Avenue
New York, New York 10020
There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number. Provided that the information
on the subscription form on file with the Fund is still applicable, a
shareholder may reopen an account without filing a new subscription order form
at any time during the year the shareholder's account is closed or during the
following calendar year.
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<PAGE>
Redemption of Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share following
reciept by the Fund's transfer agent of the redemption order. Normally, payment
for redeemed shares is made on the same Fund Business Day after the redemption
is effected, provided the redemption request is received prior to 12 noon, New
York City time and on the next Fund Business Day if the redemption request is
received after 12 noon, New York City time. However, redemption requests will
not be effected unless the check (including a certified or cashier's check) used
to purchase the shares has been cleared for payment by the investor's bank,
currently considered by the Fund to occur within 15 days after investment.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee. When a
signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature, signed and guaranteed by an eligible
guarantor institution which includes a domestic bank, a domestic savings and
loan institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures (signature guarantees by
notaries public are not acceptable).
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund, accompanied by any certificate that may have been previously issued to
the shareholder, addressed to:
Connecticut Daily Tax Free Income Fund, Inc.
Reich & Tang Mutual Funds
600 Fifth Avenue
New York, New York 10020
All previously issued certificates submitted for redemption must be endorsed by
the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with signature guaranteed. Normally the redemption
proceeds are paid by check mailed to the shareholder of record.
Checks
By making the appropriate election on their subscription form, shareholders may
request a supply of checks which may be used to effect redemptions. The checks,
which will be issued in the shareholder's name, are drawn on a special account
maintained by the Fund with the agent bank. Checks may be drawn in any amount of
$250 or more. When a check is presented to the Fund's agent bank, it instructs
the Fund's transfer agent to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. The use of
a check to make a withdrawal enables a shareholder in the Fund to receive
dividends on the shares to be redeemed up to the Fund Business Day on which the
check clears. Checks provided by the Fund may not be certified. Fund shares
purchased by check may not be redeemed by check which could take up to 15 days
following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank. Checks drawn on a jointly owned
account may, at the shareholder's election, require only one signature. Checks
in amounts exceeding the value of the shareholder's account at the time the
check is presented for payment will not be honored. In addition, the Fund
reserves the right to charge the shareholder's account a fee up to $20 for
checks not honored as a result of an insufficient account value. Since the
dollar value of the account changes daily, the total value of the account may
not be determined in advance and the account may not be entirely redeemed by
check. The Fund reserves the right to terminate or modify the check redemption
procedure at any time or to impose additional fees.
Investors wishing to avail themselves of this method of redemption should elect
it on their subscription order form. Individuals and joint tenants are not
required to furnish any supporting documentation. Corporations and other
entities making this election, however, are required to furnish a certified
resolution or other evidence of authorization in accordance with the Fund's
normal practices. Appropriate authorization forms will be sent by the Fund or
its agents to corporations and other shareholders who select this option. As
soon as the authorization forms are filed in good order, the Fund will provide
the shareholder with a supply of checks. This checking service may be terminated
or modified at any time.
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<PAGE>
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption may be sent to the
shareholders at their addresses or, if in excess of $1,000, to their bank
accounts, both as set forth in the subscription order form or in a subsequent
written authorization. The Fund may accept telephone redemption instructions
from any person with respect to accounts of shareholders who elect this service
and thus such shareholders risk possible loss of principal and interest in the
event of a telephone redemption not authorized by them. The Fund will employ
reasonable procedures to confirm that telephone redemption instructions are
genuine, and will require that shareholders electing such option provide a form
of personal identification. The failure by the Fund to employ such procedures
may cause the Fund to be liable for any losses incurred by investors due to
telephone redemptions based upon unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5200; outside New York State at 800-221-3079 and state (i) the name of
the shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time and on the next Fund Business Day if the redemption
request is received after 12 noon, New York City time. The Fund reserves the
right to terminate or modify the telephone redemption service in whole or in
part at any time and will notify shareholders accordingly.
Exchange Privilege
Shareholders of the Fund are entitled to exchange some or all of their
shares in the Fund for shares of certain other investment companies which retain
Reich & Tang Asset Management L.P. as investment adviser and which participate
in the exchange privilege program with the Fund. Currently the exchange
privilege program has been established between the Fund and California Daily Tax
Free Income Fund, Inc., 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, Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc. In
the future, the exchange privilege program may be extended to other
investmentcompanies which retain Reich & Tang Asset Management L.P. as
investment adviser, manager or administrator. An exchange of shares in the Fund
pursuant to theexchange privilege is, in effect, a redemption of Fund shares (at
net asset value) followed by the purchase of shares of the investment company
into whichthe exchange is made (at net asset value) and may result in a
shareholder 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
exchange. The minimum amount for an exchange is $1,000, except that shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Shares are exchanged at their respective net
asset value.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares may be exchanged only between
investment company accounts registered in identical names. Before making an
exchange, the investor should review the current prospectus of the investment
company into which the exchange is to be made. Prospectuses may be obtained by
contacting the Mutual Funds Group at the address or telephone number set forth
on the cover page of this Prospectus.
An exchange pursuant to the exchange privilege is treated for Federal income tax
purposes as a sale on which a shareholder may realize a taxable gain or loss.
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<PAGE>
Instructions for exchanges may be made by sending a signature guaranteed written
request to:
Connecticut Daily Tax Free Income Fund, Inc.
Reich & Tang Mutual Funds
600 Fifth Avenue
New York, New York 10020
or, for shareholders who have elected that option, by telephone. The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time.
Specified Amount Automatic Withdrawal Plan
Shareholders may elect to withdraw shares and receive payment from the Fund of a
specified amount of $50 or more automatically on a monthly, quarterly,
semi-annual or annual basis in an amount approved and confirmed by the Manager.
A specified amount plan payment is made by the Fund on the 23rd day of each
month. Whenever such 23rd day of a month is not a Fund Business Day, the payment
date is the Fund Business Day preceding the 23rd day of the month. In order to
make a payment, a number of shares equal in aggregate net asset value to the
payment amount are redeemed at their net asset value on the Fund Business Day
immediately preceding the date of payment. To the extent that the redemptions to
make plan payments exceed the number of shares purchased through reinvestment of
dividends and distributions, the redemptions reduce the number of shares
purchased on original investment, and may ultimately liquidate a shareholder's
investment.
The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by the
participant. Because the withdrawal plan involves the redemption of Fund shares,
such withdrawals may constitute taxable events to the shareholder but the Fund
does not expect that there will be any realizable capital gains.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by the Rule. The Fund's Board of Directors has adopted a
distribution and service plan (the "Plan") and, pursuant to the Plan, the Fund
has entered into a Distribution Agreement with Reich & Tang Distributors L.P.
(the "Distributor") and a Shareholder Servicing Agreement with the Manager and
the Distributor.
Reich & Tang Asset Management, Inc. serves as the sole general partner for
both Reich & Tang Asset Management L.P. and New England Investment Companies,
L.P. and Reich & Tang Asset Management L.P. serves as the sole limited partner
of the Distributor.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
For its services under the Shareholder Servicing Agreement, the Distributor
receives from the Fund a service fee equal to .20% per annum of the Fund's
average daily net assets (the "Shareholder Servicing Fee"). The fee is accrued
daily and paid monthly and any portion of the fee may be deemed to be used by
the Distributor for purposes of distribution of Fund shares and for payments to
Participating Organizations with respect to servicing their clients or customers
who are shareholders of the Fund.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Manager and Distributor in carrying out their obligations under the
Shareholder Servicing Agreement and (ii) preparing, printing and delivering the
Fund's prospectus to existing shareholders of the Fund and preparing and
printing subscription application forms for shareholder accounts.
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<PAGE>
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the Management Fee and past profits for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements, for performing shareholder servicing and related
administrative functions on behalf of the Fund; (ii) to compensate certain
Participating Organizations for providing assistance in distributing the Fund's
shares; and (iii) to pay the costs of printing and distributing the Fund's
prospectus to prospective investors and to defray the cost of the preparation
and printing of brochures and other promotional materials, mailings to
prospective shareholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Fund's shares. The Distributor may also make payments
from time to time from its own resources, which may include the Shareholder
Servicing Fee and past profits, for the purposes enumerated in (i) above. The
Manager and the Distributor may make payments to Participating Organizations for
providing certain of such services up to a maximum of (on an annualized basis)
.40% of the average daily net asset value of the shares serviced through the
Participating Organization. However, the Distributor in its sole discretion,
will determine the amount of such payments made pursuant to the Plan, provided
that such payments will not increase the amount which the Fund is required to
pay to the Manager and the Distributor for any fiscal year under the Investment
Management Contract, the Shareholder Servicing Agreement in effect for that
year.
For the fiscal year ended January 31, 1995, the total amount spent pursuant to
the Plan was .22% of the average daily net assets of the Fund, of which .19% of
the average daily net assets was paid by the Fund to the Manager, pursuant to
the Shareholder Servicing Agreement and an amount representing .03% of the
average daily net assets was paid by the Manager (which may be deemed an
indirect payment by the Fund).
FEDERAL INCOME TAXES
The Fund has elected to qualify under the Code as a regulated investment company
that distributes "exempt-interest dividends" as defined in the Code. The Fund's
policy is to distribute as dividends each year 100% (and in no event less than
90%) of its tax-exempt interest income, net of certain deductions, and its
investment company taxable income (if any). If distributions are made in this
manner, dividends designated as derived from the interest earned on Municipal
Obligations are "exempt-interest dividends" and are not subject to regular
Federal income tax although such "exempt-interest dividends" may be subject to
Federal alternative minimum tax. Dividends paid from taxable income, if any, and
distributions of any realized short-term capital gains (whether from tax-exempt
or taxable obligations) are taxable to shareholders as ordinary income for
Federal income tax purposes, whether received in cash or reinvested in
additional shares of the Fund. The Fund does not expect to realize long-term
capital gains, and thus does not contemplate distributing "capital gain
dividends" or having undistributed capital gain income within the meaning of the
Code. The Fund will inform shareholders of the amount and nature of its income
and gains in a written notice mailed to shareholders not later than 60 days
after the close of the Fund's taxable year. For Social Security recipients,
interest on tax-exempt bonds, including tax-exempt interest dividends paid by
the Fund, is to be added to adjusted gross income for purposes of computing the
amount of Social Security benefits includible in gross income. The Revenue
Reconciliation Act of 1993 (P.L. 103-66) and other recent tax legislation
affects many of the Federal tax aspects of Municipal Obligations and makes many
important changes to the Federal income tax system, including an increase in
marginal tax rates. In addition to these changes, the Tax Reform Act of 1986
(P.L. 99-514) limited the annual amount of many types of tax-exempt bonds that a
state may issue and revised current arbitrage restrictions. P.L. 99-514 also
provided that interest on certain "private activity bonds" (generally, a bond
issue in which more than 10% of the proceeds are used for a non-governmental
trade or business and which meets the private security or payment test, or a
bond issue which meets the private loan financing test) issued after August 7,
1986 will constitute an item of tax preference subject to the individual
alternative minimum tax and P.L. 103-66 increases the alternative minimum tax
rate for taxpayers other than corporations to up to 28%. Further, corporations
will be required to include in alternative minimum taxable income, 75% of the
amount by which their adjusted current earnings (including generally, tax-exempt
interest) exceeds their alternative minimum taxable income (determined without
this item). Certain tax-exempt interest is also included in the tax base for the
additional corporate minimum tax imposed by the Superfund Amendments and
Reauthorization Act of 1986 for taxable years beginning before January 1, 1996.
In addition, in certain cases Subchapter S corporations with accumulated
earnings and profits from Subchapter C years will be subject to a tax on
"passive investment income," including tax-exempt interest.
16
<PAGE>
With respect to variable rate demand instruments, including participation
certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner thereof and that the interest on the underlying Municipal Obligations
will be tax-exempt from Federal income taxes to the Fund. Counsel has pointed
out that the Internal Revenue Service has announced that it will not ordinarily
issue advance rulings on the question of the ownership of securities or
participation interests therein subject to a put and could reach a conclusion
different from that reached by counsel. (See "Federal Income Taxes" in the
Statement of Additional Information.)
In South Carolina v. Baker, the U.S. Supreme Court held that the Federal
government may constitutionally require states to register bonds which they
issue and may subject the interest on such bonds to Federal tax if not
registered, and the Court further held that there is no constitutional
prohibition against the Federal government taxing the interest earned on state
or other municipal bonds. The Supreme Court decision affirms the authority of
the Federal government to regulate and control bonds such as the Municipal
Obligations and to tax such bonds in the future. The decision does not, however,
affect the current exemption from taxation of the interest earned on the
Municipal Obligations in accordance with Section 103 of the Code.
CONNECTICUT INCOME TAXES
The designation of all or a portion of a dividend paid by the Fund as an
"exempt-interest dividend" under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. However, in the opinion of Day, Berry & Howard, special Connecticut
tax counsel to the Fund, exempt-interest dividends correctly designated as
derived from Connecticut Municipal Obligations received by the Fund are not
subject to the Connecticut Personal Income Tax.
Exempt-interest dividends that are not derived from Connecticut Municipal
Obligations and any other dividends of the Fund treated as ordinary income for
Federal income tax purposes are includible in a taxpayer's tax base for the
purposes of the Connecticut Personal Income Tax.
While capital gain dividends are not anticipated by the Fund, capital gain
dividends and amounts, if any, in respect of undistributed long-term capital
gains of the Fund would be includible in a taxpayer's tax base for purposes of
the Connecticut Personal Income Tax, as would gains, if any, recognized upon the
redemption, sale, or exchange of shares of the Fund, except that capital gain
dividends derived from obligations issued by or on behalf of the State of
Connecticut, its political subdivisions, or any public instrumentality, state or
local authority, district or similar public entity created under Connecticut law
("Connecticut Obligations") are not subject to the tax.
Exempt-interest dividends, other than those derived from Connecticut Municipal
Obligations, that are subject to the Federal alternative minimum tax are subject
to the net Connecticut minimum tax.
All exempt-interest dividends are includible in gross income purposes of the
Connecticut Corporation Business Tax payable by corporations. However, the
Corporation Business Tax allows a deduction for a portion of amounts includible
in gross income thereunder to the extent they are treated as dividends other
than exempt-interest dividends or capital gain dividends for Federal income tax
purposes, but disallows deductions for expenses related to such amounts.
Shareholders are urged to consult their tax advisors with respect to the
treatment of distributions from the Fund in their own states and localities.
17
<PAGE>
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on March 8,
1985 and it is registered with the Securities and Exchange Commission as a
non-diversified, open-end management investment company.
The Fund prepares semi-annual unaudited and annual audited reports which include
a list of investment securities held by the Fund and which are sent to
shareholders.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-Laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of the revised
investment advisory contracts with respect to a particular class or series of
stock, (c) for approval of revisions to the Fund's distribution agreement with
respect to a particular class or series of stock, and (d) upon the written
request of holders or shares entitled to cast not less than 25% of all the votes
entitled to be cast at such meeting. Annual and other meetings may be required
with respect to such additional matters relating to the Fund as may be required
by the 1940 Act including the removal of Fund director(s) and communication
among shareholders, any registration of the Fund with the Securities and
Exchange Commission or any state, or as the Directors may consider necessary or
desirable. Each Director serves until the next meeting of the shareholders
called for the purpose of considering the election or reelection of such
Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such a meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's registration statement filed with the Securities
and Exchange Commission, including the exhibits thereto. The Registration
Statement and the exhibits thereto may be examined at the Securities and
Exchange Commission and copies thereof may be obtained upon payment of certain
duplicating fees.
NET ASSET VALUE
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. Fund Business Day means weekdays (Monday
through Friday) except customary business holidays and Good Friday. It is
computed by dividing the value of the Fund's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued but excluding capital stock and surplus) by the total number of shares
outstanding.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument is higher or lower
than the price an investment company would receive if the instrument were sold.
The Fund intends to maintain a stable net asset value at $1.00 per share
although there can be no assurance that this will be achieved.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is custodian for the Fund's cash and securities and is the transfer agent
and dividend agent for the shares of the Fund. The Fund's transfer agent and
custodian does not assist in, and is not responsible for, investment decisions
involving assets of the Fund.
18
<PAGE>
TABLE OF CONTENTS
Table of Fees and Expenses........................... CONNECTICUT
Selected Financial Information....................... DAILY TAX
Introduction......................................... FREE INCOME
Investments Objectives, FUND, INC.
Policies and Risks..............................
Management of the Fund...............................
Description of Common Stock..........................
Dividends and Distributions..........................
How to Purchase and Redeem Shares....................
Investments Through
Participating Organizations......................
Direct Purchase and
Redemption Procedures............................ PROSPECTUS
Initial Purchases of Shares........................ June 1, 1995
Subsequent Purchases of Shares.....................
Redemption of Shares...............................
Exchange Privilege.................................
Specified Amount Automatic Withdrawal Plan.........
Distribution and Service Plan........................
Federal Income Taxes.................................
Connecticut Income Taxes.............................
General Information..................................
Net Asset............................................
Custodian and Transfer Agent.........................
<PAGE>
______________________________________________________________________________
VISTA SELECT SHARES OF VISTA SERVICE CENTER
CONNECTICUT P.O. BOX 419392
DAILY TAX FREE KANSAS CITY MISSOURI
INCOME FUND, INC. 1-800-34-VISTA
===============================================================================
PROSPECTUS
June 1, 1995
Connecticut Daily Tax Free Income Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company that is a short-term, tax-exempt money
market fund whose investment objectives are to seek as high a level of current
income, exempt from Federal income taxes and to the extent possible from
Connecticut personal income taxes, as is believed to be consistent with
preservation of capital, maintenance of liquidity and stability of principal. No
assurance can be given that these objectives will be achieved. This Prospectus
relates exclusively to the Vista Select shares class of the Fund.
This Prospectus sets forth concisely the information about the Fund that
prospective investors will find helpful in making their investment decisions.
Investors should read this Prospectus and retain it for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission and is available upon request and without charge by calling
or writing the Fund at the address or telephone number set forth above. The
"Statement of Additional Information" bears the same date as this Prospectus and
is incorporated by reference into this Prospectus in its entirety.
Reich & Tang Asset Management L.P. acts as Manager of the Fund and Reich & Tang
Distributors L.P. acts as Distributor of the Fund's shares. Reich & Tang Asset
Management L.P. . is a registered investment adviser. Reich & Tang Distributors
L.P. is a registered broker-dealer and member of the National Association of
Securities Dealers, Inc.
Investors should be aware that the Vista Select shares may not be purchased
other than through certain securities dealers with whom Vista Broker-Dealer
Services, Inc. ("VBDS") has entered into agreements for this purpose, directly
from VBDS or through certain "Participating Organizations" (see "Investments
Through Participating Organizations") with whom they have accounts. Vista Select
shares have been created for the primary purpose of providing a Connecticut
tax-free money market fund product for shareholders of certain funds distributed
by VBDS. Shares of the Fund other than the Vista Select shares are offered
pursuant to a separate prospectus.
An investment in the Fund is neither insured nor guaranteed by the United States
Government. The Fund intends to maintain a stable net asset value of $1.00 per
share although there can be no assurance that this value will be maintained.
Shares in the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency.
THIS PROSPECTUS SHOULD BE READ AND RETAINED BY INVESTORS FOR FUTURE REFERENCE.
_______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________________________________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
as a percentage of average net assets)
<S> <C> <C>
Management Fees .30%
12b-1 Fees-After Fee Waiver .19 %
Other Expenses .39%
Administration Fees .20%
Total Fund Operating Expenses .88%
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following expenses on a $1,000
investment, assuming 5% annual return
(cumulative through the end of each year) $9 $28 $49 $108
The purpose of the above fee table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. For a further discussion of these fees see
"Management of the Fund" and "Distribution and Service Plan" herein. The
Distributor has voluntarily waived a portion of the 12b-1 Fee; absent such
waiver, the 12b-1 Fee would have been .20% and Total Fund Operating Expenses
would have been .89%.
THE FIQURES REFLECTED IN THIS EXAMPLE SHOULD NOT BE CONSIDERED AS A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN ABOVE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION
The following selected financial information of Connecticut Daily Tax Free
Income Fund, Inc. has been audited by McGladrey & Pullen, LLP, Independent
Certified Public Accountants, whose report thereon appears in the Statement of
Additional Information.
May 15, 1985
(Inception) to
Year Ended January 31, January 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding
throughout the period)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Income from investment operations:
Net investment income..... 0.0230 0.0170 0.0210 0.0350 0.0490 0.0540 0.0440 0.0380 0.0380 0.0320
Less distributions:
Dividends from net investment
income 0.0230)(0.0170) (0.0210) (0.0350 (0.0490)(0.0540) 0.0440) (0.0380) (0.0380) (0.0320
Net asset value, end of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return................ 2.29% 1.70% 2.12% 3.56% 5.01% 5.58% 4.53% 3.90% 3.88% 4.72%
Ratios/Supplemental Data
Net assets, end of
period (000's omitted) $81,801 $120,551 $129,297 $185,339 $178,335 $228,167 $245,529 $241,638 $248,193 $88,689
Ratios to average net assets:
Expenses................... 0.88% 0.87% 0.86%+ 0.79% 0.80% 0.78% 0.79% 0.76%+ 0.75%+ 0.56%*+
Net investment income..... 2.25% 1.68% 2.14%+ 3.51% 4.92% 5.44% 4.44% 3.83%+ 3.75%+ 4.70%*+
* Annualized.
+ Net of management, shareholder servicing and administration fees waived
equivalent to $.0006, $.0003, $.0009 and $.032 per share and .06%, .03%, .09%
and .46% of average net assets, respectively.
</TABLE>
3
<PAGE>
INTRODUCTION
Connecticut Daily Tax Free Income Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company that is a short-term, tax-exempt money
market fund whose investment objectives are to seek as high a level of current
income, exempt under current law from Federal income taxes and to the extent
possible from Connecticut personal income taxes, as is believed to be consistent
with preservation of capital, maintenance of liquidity and stability of
principal by investing principally in short-term, high quality debt obligations
of the State of Connecticut, its political subdivisions, and certain possessions
and territories of the United States, the interest on which is exempt from
Federal income tax under section 103 of the Internal Revenue Code (the "Code"),
as described under "Investment Objectives, Policies and Risks" herein. The Fund
also may invest in municipal securities of issuers located in jurisdictions
other than Connecticut, the interest income on which will be exempt from Federal
income tax, but will be subject to Connecticut dividends and interest income tax
for Connecticut residents. The Fund seeks to maintain an investment portfolio
with a dollar-weighted average maturity of 90 days or less, and to value its
investment portfolio at amortized cost and maintain a net asset value of $1.00
per share. The Fund intends to invest all of its assets in tax-exempt
obligations; however, it reserves the right to invest up to 20% of the value of
its net assets in taxable obligations. This is a summary of the Fund's
fundamental investment policies which are set forth in full under "Investment
Objectives, Policies and Risks" herein and in the Statement of Additional
Information and may not be changed without approval of a majority of the Fund's
outstanding shares. No assurance can be given that these objectives will be
achieved.
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"), which is a registered investment adviser and which currently acts as
manager or administrator to eighteen other open-end management investment
companies. The Fund's shares are distributed through Reich & Tang Distributors
L.P. (the "Distributor"), with whom the Fund has entered into a Distribution
Agreement and a Shareholder Servicing Agreement pursuant to the Fund's plan
adopted under Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended, (the "Act"). (See "Distribution and Service Plan".)
On any day on which the New York Stock Exchange, Inc. is open for trading ("Fund
Business Day"), investors may, without charge by the Fund, purchase and redeem
shares of the Fund's common stock at their net asset value next determined after
receipt of the order. An investor's purchase order will be accepted after the
payment is converted into Federal funds, and shares will be issued as of the
Fund's next net asset value determination which is made as of 12 noon, New York
City time, on each Fund Business Day. (See "How to Purchase and Redeem Shares"
and "Net Asset Value" herein.) Dividends from accumulated net income are
declared by the Fund on each Fund Business Day. The Fund generally pays interest
dividends monthly. Net capital gains, if any, will be distributed at least
annually and in no event later than within 60 days after the end of the Fund's
fiscal year. All dividends and distributions of capital gains are automatically
invested in additional shares of the Fund unless a shareholder has elected by
written notice to the Fund to receive either of such distributions in cash. (See
"Dividends and Distributions" herein.)
The Fund intends that its investment portfolio will be concentrated in
Connecticut Municipal Obligations and bank participation certificates therein. A
summary of special risk factors affecting the State of Connecticut is set forth
under "Connecticut Risk Factors" herein and in the Statement of Additional
Information. Investment in the Fund should be made with an understanding of the
risks which an investment in Connecticut Municipal Obligations may entail.
Payment of interest and preservation of capital are dependent upon the
continuing ability of Connecticut issuers and/or obligors of state, municipal
and public authority debt obligations to meet their obligations thereunder.
Investors should consider the greater risk of the Fund's concentration versus
the safety that comes with a less concentrated portfolio and should compare
yields available on portfolios of Connecticut issues with those of more
diversified portfolios including out-of-state issues before making an investment
decision. The Fund's Board of Directors is authorized to divide the unissued
shares into separate series of stock, one for each of the Fund's separate
investment portfolios that may be created in the future.
4
<PAGE>
Vista Select shares have been created for the primary purpose of providing a
Connecticut tax-free money market fund product for investors who purchase shares
directly from VBDS, through dealers with whom VBDS has entered into agreements
for this purpose, or through certain "Participating Organizations" (see
"Investments Through Participating Organizations" herein) with whom they have
accounts or who acquire Vista Select shares through the exchange of shares of
certain other investment companies as hereinafter described. Vista Select shares
are identical to other shares of the Fund, which are offered pursuant to a
separate prospectus, with respect to investment objectives and yield, but differ
with respect to certain other matters. For example, shareholders who hold other
shares of the Fund may not participate in the exchange privilege described
herein and have different arrangements for redemptions by check.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The Fund is a non-diversified, open-end management investment company that is a
short-term, tax-exempt money market fund whose investment objectives are to seek
as high a level of current income, exempt from Federal income taxes and to the
extent possible from Connecticut personal income taxes (the "Connecticut
Personal Income Tax"), as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal. There can be no
assurance that the Fund will achieve its investment objectives.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of Connecticut, other states, territories
and possessions of the United States, and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which is, in the
opinion of bond counsel at the date of issuance, currently exempt from Federal
income taxation ("Municipal Obligations") and in participation certificates in
Municipal Obligations purchased from banks, insurance companies or other
financial institutions. Dividends paid by the Fund which are "exempt-interest
dividends" by virtue of being properly designated as derived from Municipal
Obligations and participation certificates in Municipal Obligations will be
exempt from Federal income tax provided the Fund complies with Section 852(b)(5)
of Subchapter M of the Code.
Although the Supreme Court has determined that Congress has the authority to
subject the interest on bonds such as the Municipal Obligations to regular
Federal income taxation, existing law excludes such interest from regular
Federal income tax. However, "exempt-interest dividends" may be subject to the
Federal alternative minimum tax. (See "Federal Income Taxes" herein.)
Exempt-interest dividends paid by the Fund correctly identified as derived from
obligations issued by or on behalf of the State of Connecticut or any political
subdivision thereof, or public instrumentality, state or local authority,
district, or similar public entity created under the laws of the State of
Connecticut or from obligations (such as certain obligations issued by or on
behalf of possessions or territories of the United States) the interest on which
Federal law prohibits the states from taxing ("Connecticut Municipal
Obligations") will be exempt from the Connecticut Personal Income Tax. (See
"Connecticut Income Taxes" herein.) To the extent suitable Connecticut Municipal
Obligations are not available for investment by the Fund, the Fund may purchase
Municipal Obligations issued by other states, their agencies and
instrumentalities or other obligations, the dividends designated as derived from
interest income on which will be exempt from Federal income tax but will be
subject to the Connecticut Personal Income Tax. However, except as a temporary
defensive measure during periods of adverse market conditions as determined by
the Manager, the Fund will invest at least 65% of its assets in Connecticut
Municipal Obligations, the exempt-interest dividends derived from which are
exempt from the Connecticut Personal Income Tax, although the exact amount of
the Fund's assets invested in such securities will vary from time to time. The
Fund's investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements. Although the Fund will attempt to
invest 100% of its assets in Municipal Obligations, the Fund reserves the right
to invest up to 20% of the value of its total assets in securities, the interest
income on which is subject to Federal, state and local income tax. The Fund
expects to invest more than 25% of its assets in participation certificates
purchased from banks in industrial revenue bonds and other Connecticut Municipal
Obligations.
In view of this "concentration" in bank participation certificates in
Connecticut Municipal Obligations, an investment in the Fund should be made with
an understanding of the characteristics of the banking industry and the risks
which such an investment may entail, which include extensive governmental
regulation, changes in the availability and cost of capital funds, and general
economic conditions. (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) The investment
objectives of the Fund described in this paragraph may not be changed unless
approved by the holders of a majority of the outstanding shares of the Fund that
would be affected by such a change. As used in this Prospectus, the term
"majority of the outstanding shares" of the Fund means, respectively, the vote
of the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy or (ii) more than 50% of the outstanding shares
of the Fund.
5
<PAGE>
The Fund may only purchase Municipal Obligations that have been determined by
the Fund's Board of Directors to present minimal credit risks and that are
Eligible Securities at the time of acquisition. The term Eligible Securities
means (i) Municipal Obligations with remaining maturities of 397 days or less
and rated in the two highest short-term rating categories by any two nationally
recognized statistical rating organizations ("NRSROs") or in such categories by
the only NRSRO that has rated the Municipal Obligations (collectively, the
"Requisite NRSROs") (acquisition in the latter situation must also be ratified
by the Board of Directors); (ii) Municipal Obligations with remaining maturities
of 397 days or less but that at the time of issuance were long-term securities
(i.e., with maturities greater than 366 days) and whose issuer has received from
the Requisite NRSROs a rating with respect to comparable short-term debt in the
two highest short-term rating categories and (iii) unrated Municipal Obligations
determined by the Fund's Board of Directors to be of comparable quality. Where
the issuer of a long-term security with a remaining maturity which would
otherwise qualify it as an Eligible Security, does not have rated short-term
debt outstanding, the long-term security is treated as unrated but may not be
purchased if it has a long-term rating from any NRSRO that is below the two
highest long-term categories. A determination of comparability by the Board of
Directors is made on the basis of its credit evaluation of the issuer, which may
include an evaluation of a letter of credit, guarantee, insurance or other
credit facility issued in support of the Municipal Obligations or participation
certificates. (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) While there are
several organizations that currently qualify as NRSROs, two examples of NRSROs
are Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's"). The two highest ratings by S&P and Moody's are "AAA" and "AA" by
S&P in the case of long-term bonds or notes, and "Aaa" and "Aa" by Moody's in
the case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in
the case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's
in the case of tax-exempt commercial paper. The highest rating in the case of
variable and floating demand notes is "VMIG-1" by Moody's and "SP-1/AA" by
Standard and Poor's. Such instruments may produce a lower yield than would be
available from less highly rated instruments. The Fund's Board of Directors has
determined that obligations which are backed by the credit of the Federal
government (the interest on which is not exempt from Federal income taxation)
will be considered to have a rating equivalent to Moody's Aaa.
Subsequent to its purchase by the Fund, the quality of an investment may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. If this occurs, the Board of Directors of the Fund shall reassess
promptly whether the security presents minimal credit risks and shall cause the
Fund to take such action as the Board of Directors determines is in the best
interest of the Fund and its shareholders. However, reassessment is not required
if the security is disposed of or matures within five business days of the
Manager becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Manager's actions.
In addition, in the event that a security (1) is in default, (2) ceases to be an
eligible investment under Rule 2a-7 or (3) is determined to no longer present
minimal credit risks, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. In the event that the security
is disposed of it shall be disposed of as soon as practicable consistent with
achieving an orderly disposition by sale, exercise of any demand feature or
otherwise. In the event of a default with respect to a security which
immediately before default accounted for 1/2 of 1% or more of the Fund's total
assets, the Fund shall promptly notify the Securities and Exchange Commission of
such fact and of the actions that the Fund intends to take in response to the
situation.
In view of the "concentration" of the Fund in bank participation certificates in
Connecticut Municipal Obligations, which may be secured by bank letters of
credit or guarantees, an investment in the Fund should be made with an
understanding of the characteristics of the banking industry and the risks which
such an investment may entail which include extensive governmental regulation,
changes in the availability and cost of capital funds and general economic
condition. (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) Banks are subject to
extensive governmental regulations which may limit both the amounts and types of
loans and other financial commitments which may be made and interest rates and
fees which may be charged. The profitability of this industry is largely
dependent upon the availability and cost of capital funds for the purpose of
financing lending operations under prevailing money market conditions. Also,
general economic conditions play an important part in the operations of this
industry and exposure to credit losses arising from possible financial
difficulties of borrowers might affect a bank's ability to meet its obligations
under a letter of credit. The Fund may invest 25% or more of the net assets of
any portfolio in securities that are related in such a way that an economic,
business or political development or change affecting one of the securities
would also affect the other securities including, for example, securities the
interest upon which is paid from revenues of similar type projects, or
securities the issuers of which are located in the same state.
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All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund's
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the Act with respect to investing its assets in one
or relatively few issuers. This non-diversification may present greater risks
than in the case of a diversified company. However, the Fund intends to qualify
as a "regulated investment company" under Subchapter M of the Code. The Fund
will be restricted in that, at the close of each quarter of the taxable year, at
least 50% of the value of its total assets must be represented by cash,
Government securities, investment company securities and other securities
limited in respect of any one issuer to not more than 5% in value of the total
assets of the Fund and to not more than 10% of the outstanding voting securities
of such issuers. In addition, at the close of each quarter of its taxable year,
not more than 25% in value of the Fund's total assets may be invested in
securities of one issuer other than government securities. The limitations
described in this paragraph are not fundamental policies and may be revised to
the extent applicable Federal income tax requirements are revised. (See "Federal
Income Taxes" herein.)
The primary purpose of investing in a portfolio of Connecticut Municipal
Obligations is the special tax treatment accorded Connecticut resident
individual investors. However, payment of interest and preservation of principal
is dependent upon the continuing ability of the issuers and/or obligors of
state, municipal and public authority debt obligations to meet their obligations
thereunder. Investors should consider the greater risk of the Fund's
concentration versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of Connecticut
issues with those of more diversified portfolios including out-of-state issues
before making an investment decision. The Fund's management believes that by
maintaining the Fund's investment portfolio in liquid, short-term, high quality
investments, including participation certificates and other variable rate demand
instruments that have high quality credit support from banks, insurance
companies or other financial institutions, the Fund is largely insulated from
the credit risks that may exist on long-term Connecticut Municipal Obligations.
For additional information, please refer to the Statement of Additional
Information.
CONNECTICUT RISK FACTORS
Because of the Fund's concentration in investments in Connecticut Municipal
Obligations, the safety of an investment in the Fund will depend importantly on
the financial strength of Connecticut and its political subdivisions. The
Connecticut economy relies in part on activities that have been subject to
cyclical change, and the State is now in a recession the depth and duration of
which are uncertain. The State's General Fund suffered a deficit of $809,000,000
for the fiscal year ended June 30,1991, alone. While the State's General Fund
reflected a surplus of $110,000,000 for the fiscal year ended June 30, 1992, and
of $113,500,000 for the fiscal year ended June 30, 1993, largely because of the
enactment of the Connecticut Personal Income Tax, contractions in defense and
other industries are adversely affecting Connecticut's economy, and unemployment
and poverty plague some of its cities and towns. There can be no assurance that
general economic difficulties or the financial circumstances of Connecticut or
its towns and cities will not adversely affect the market value of their
obligations or the ability of the obligors to pay debt service on such
obligations.
MANAGEMENT OF THE FUND
The Fund's Board of Directors which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as investment
manager of the Fund. The Manager provides persons satisfactory to the Fund's
Board of Directors to serve as officers of the Fund. Such officers, as well as
certain other employees and directors of the Fund, may be directors or officers
of Reich & Tang Asset Management, Inc., the sole general partner of the Manager,
or employees of the Manager or its affiliates. Due to the services performed by
the Manager, the Fund currently has no employees and its officers are not
required to devote 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.
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The Manager is a Delaware limited partnership with its principal office at 600
Fifth Avenue, New York, New York 10020. The Manager was at April 28, 1995
investment manager, adviser or supervisor for assets aggregating in excess of $7
billion. The Manager acts as investment manager or administrator of eighteen
other investment companies and also advises pension trusts, profit-sharing
trusts and endowments.
Effective October 1, 1994, the Board of Directors of the Fund approved the
re-execution of the Investment Management Contract and Administrative Services
Contract with the Manager. The Manager's predecessor, New England Investment
Companies, L.P. ("NEICLP") is the limited partner and owner of a 99.5% interest
in the newly created limited partnership, Reich & Tang Asset Management L.P.,
the Manager. Reich & Tang Asset Management, Inc. (a wholly-owned subsidiary of
NEICLP) is the general partner and owner of the remaining .5% interest of the
Manager. Reich & Tang Asset Management L.P. has succeeded NEICLP as the Manager
of the Fund. The re-execution of the Investment Management Contract did not
result in "assignment" of the Investment Management contract with NEICLP under
the 1940 Act, since there is no change in actual control or management of the
Manager caused by the re-execution. New England Investment Companies, Inc.
("NEIC"), a Massachusetts corporation, serves as the sole general partner of
NEICLP. The New England Mutual Life Insurance Company ("The New England") owns
approximately 68.1% of the total partnership units outstanding of NEICLP, and
Reich & Tang, Inc. owns approximately 22.8% of the outstanding partnership units
of NEICLP. In addition, NEIC is a wholly-owned subsidiary of The New England
which may be deemed a "controlling person" of the Manager. NEIC is a holding
company offering a broad array of investment styles across a wide range of asset
categories through eight investment advisory/management affiliates and three
distribution subsidiaries. These include, in addition to the Manager, Loomis,
Sayles & Company, L.P., Copley Real Estate Advisors, Inc., Back Bay Advisors,
L.P., Marlborough Capital Advisors, L.P., Westpeak Investment Advisors, L.P.,
Draycott Partners, Ltd., TNE Investment Services, L.P., New England Investment
Associates, Inc., and an affiliate, Capital Growth Management Limited
Partnership. These affiliates in the aggregate are investment advisors or
managers to 57 other registered investment companies.
The re-executed Investment Management Contract and Administrative Services
Contract contain the same terms and conditions governing the Manager's
investment management and administrative responsibilities as the Fund's previous
Investment Management Contract and Administrative Services Contract except for
(i) the dates of execution and (ii) the identity of the Manager.
Pursuant to the re-executed 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.
For its services under the re-executed Investment Management Contract, the
Manager receives from the Fund a fee equal to .30% per annum of the Fund's
average daily net assets for managing the Fund's investment portfolio and
performing related services. In addition, the Distributor receives a fee equal
to .20% per annum of the Fund's average daily net assets under the Shareholder
Servicing Agreement. The fees are accrued daily and paid monthly. Any portion of
the total fees received by the Manager and the Distributor may be used to
provide shareholder and administrative services and for distribution of Fund
shares. (See "Distribution and Service Plan" herein.)
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<PAGE>
Pursuant to the Administrative Services Contract for the Fund, the Manager
performs clerical, accounting supervision and office service functions for the
Fund and provides the Fund the personnel to (i) supervise the performance of
accounting and related services by Investors Fiduciary Trust Company, the Fund's
bookkeeping agent; (ii) prepare reports to and filings with regulatory
authorities; and (iii) perform such other services as the Fund may from time to
time request of the Manager. The personnel rendering such services may be
employees of the Manager or its affiliates. The Fund pays the Manager the costs
of such personnel at rates which must be agreed upon between the Fund and the
Manager and provided that no payment shall be made for any services performed by
any officer of the general partner of the Manager or its affiliates. The
Manager, at its discretion, may voluntarily waive all or a portion of the
administrative services fee. For its services under the Administrative Services
Contract, the Manager receives a fee equal to .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).
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on March 8, 1985. The authorized capital
stock of the Fund consists of twenty billion shares of stock having a par value
of one-tenth of one cent ($.001) per share. The Fund's Board of Directors is
authorized to divide the unissued shares into separate series of stock, each
series representing a separate, additional investment portfolio. Shares of all
series will have identical voting rights, except where, by law, certain matters
must be approved by a majority of the shares of the affected series. Each share
of any series of shares when issued has equal dividend, distribution,
liquidation and voting rights within the series for which it was issued, and
each fractional share has those rights in proportion to the percentage that the
fractional share represents of a whole share. Shares will be voted in the
aggregate. There are no conversion or preemptive rights in connection with any
shares of the Fund. All shares, when issued in accordance with the terms of the
offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholder.
Vista Select shares have been created for the primary purpose of providing a
Connecticut tax-free money market fund product for investors who purchase shares
directly from VBDS, through dealers with whom VBDS has entered into agreements
for this purpose (see "Investments Through Participating Organizations" herein)
with whom they have accounts or who acquire Vista Select shares through the
exchange of shares of certain other investment companies as hereinafter
described. Vista Select shares are identical to other shares of the Fund, which
are offered pursuant to a separate prospectus, with respect to investment
objectives and yield, but differ with respect to certain other matters. For
example, shareholders who hold other shares of the Fund may not participate in
the exchange privilege described herein and have different arrangements for
redemptions by check.
Under its Articles of Incorporation the Fund has the right to redeem for cash
shares of stock owned by any shareholder to the extent and at such times as the
Fund's Board of Directors determines to be necessary or appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders. As of April 28,
1995, 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.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Unless specifically requested by an
investor who is a shareholder of record, the Fund does not issue certificates
evidencing Fund shares.
9
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and generally pays dividends monthly. There is no fixed
dividend rate. In computing these dividends, interest earned and expenses are
accrued daily. Net realized capital gains, if any, are distributed at least
annually and in no event later than 60 days after the end of the Fund's fiscal
year.
All dividends and distributions of capital gains are automatically invested in
additional Fund shares immediately upon payment thereof unless a shareholder has
elected by written notice to the Fund to receive either of such distributions in
cash.
HOW TO PURCHASE AND REDEEM SHARES
Investors may invest in Vista Select shares through VBDS or through dealers with
whom VBDS has entered into agreements for this purpose as described herein and
those who have accounts with Participating Organizations may invest in the Vista
Select shares through their Participating Organizations in accordance with the
procedures established by the Participating Organizations. (See "Investments
Through Participating Organizations" herein.) The minimum initial investment in
the Vista Select shares is $2,500. Initial investments may be made in any amount
in excess of the applicable minimums. The minimum amount for subsequent
investments is $100.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from Participating Organizations,
VBDS, and from dealers with whom VBDS has entered into agreements for this
purpose.
In order to maximize earnings on its portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in funds of Federal Reserve member banks on deposit
at a Federal Reserve Bank (commonly known as "Federal Funds"). Accordingly, the
Fund does not accept a subscription or invest an investor's payment in portfolio
securities until the payment has been converted into Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share made after acceptance of the investor's purchase order at the
net asset value per share next determined after receipt of the purchase order.
Shares begin accruing income dividends on the day they are purchased. The Fund
reserves the right to reject any subscription for its shares.
Shares are issued as of 12 noon, New York City time, on any Fund Business Day as
defined herein on which an order for the shares and accompanying Federal Funds
are received by the Fund's transfer agent before 12 noon. Orders accompanied by
Federal Funds and received after 12 noon, New York City time, on a Fund Business
Day will not result in share issuance until the following Fund Business Day.
Fund shares begin accruing income on the day the shares are issued to an
investor.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals. Unless
other instructions are given in proper form to the Fund's transfer agent, a
check for the proceeds of a redemption will be sent to the shareholders' address
of record. If a shareholder elects to redeem all the shares of the Fund he owns,
all dividends accrued to the date of such redemption will be paid to the
shareholder along with the proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the Securities and Exchange Commission determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
Securities and Exchange Commission) exists as a result of which disposal by the
Fund of its portfolio securities is not reasonably practicable or as a result of
which it is not reasonably practicable for the Fund fairly to determine the
value of its net assets, or for such other period as the Securities and Exchange
Commission may by order permit for the protection of the shareholders of the
Fund.
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<PAGE>
Redemption requests received by the Fund's transfer agent before 12 noon, New
York City time, on any Fund Business Day become effective at 12 noon that day.
Shares redeemed are not entitled to participate in dividends declared on the day
a redemption becomes effective. A redemption request received after 12 noon, New
York City time, on any Fund Business Day becomes effective on the next Fund
Business Day.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization, and the Participating
Organization will be responsible for notifying the Participant Investor of the
proposed mandatory redemption. During the notice period a shareholder or
Participating Organization who receives such a notice may avoid mandatory
redemption by purchasing sufficient additional shares to increase the total net
asset value to at least the minimum amount and thereby avoid such mandatory
redemption.
The redemption of shares may result in the investor's receipt of more or less
than he paid for his shares and, thus, in a taxable gain or loss to the
investor.
Initial Purchases of Vista Select Shares
Investors may obtain a current prospectus and the order form necessary to open
an account by telephoning the Vista Service Center at 1-800-34-VISTA.
Mail
Investors may send a check made payable to "Connecticut Daily Tax Free Income
Fund, Inc." along with a completed subscription order form to:
Connecticut Daily Tax Free Income Fund, Inc.
P.O. Box 419392
Kansas City, Missouri 64141-6392
Checks are accepted subject to collection at full face value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
can normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's subscription will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares using the wire system for
transmittal of money among banks, investors should first obtain a new account
number by telephoning the Fund at 1-800-34-VISTA to obtain a new account number.
The investors should then instruct a member commercial bank to wire their money
immediately to:
Investors Fiduciary Trust Co.
ABA #1010-0362-1
VISTA MUTUAL FUNDS
DDA # 751-1-629
For Connecticut Daily Tax Free
Income Fund, Inc.
Account of (Investor's Name)
Fund Account #
SS #/Tax ID #
The investor should then promptly complete and mail the subscription order form.
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon on that same day. There may
be a charge by the investor's bank for transmitting the money by bank wire, and
there also may be a charge for use of Federal Funds. The Fund does not charge
investors in the Fund for its receipt of wire transfers. Payment in the form of
a "bank wire" received prior to 12 noon, New York City time, on a Fund Business
Day will be treated as a Federal Funds payment received on that day.
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<PAGE>
Personal Delivery
Deliver a check made payable to "Connecticut Daily Tax Free Income Fund, Inc."
along with a completed subscription order form to:
Vista Mutual Funds
127 W.10th Street - 8th Floor
Kansas City, Missouri 64105
Subsequent Purchases of Shares
Subsequent purchases can be made by bank wire or personal delivery, as indicated
above, or by mailing a check to:
Vista Mutual Funds
P.O. Box 419392
Kansas City, Missouri 64141-6392
There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number. Provided that the information
on the subscription form on file with the Fund is still applicable, a
shareholder may reopen an account without filing a new subscription order form
at any time during the year the shareholder's account is closed or during the
following calendar year.
Redemption of Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share following
receipt by the Fund's transfer agent of the redemption order. Normally, payment
for redeemed shares is made on the same Fund Business Day after the redemption
is effected, provided the redemption request is received prior to 12 noon, New
York City time and on the next Fund Business Day if the redemption request is
received after 12 noon, New York City time. However, redemption requests will
not be effected unless the check (including a certified or cashier's check) used
to purchase the shares has been cleared for payment by the investor's bank,
currently considered by the Fund to occur within 15 days after investment.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee. When a
signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature, signed and guaranteed by an eligible
guarantor institution which includes a domestic bank, a domestic savings and
loan institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange, pursuant to the
fund's transfer agent's standard and procedures (signature guarantees by
notaries public are not acceptable).
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund addressed to:
Vista Mutual Funds
P.O. Box 419392
Kansas City, Missouri 64141-6392
Normally the redemption proceeds are paid by check mailed to the shareholder of
record.
Checks
By making the appropriate election on their subscription form, shareholders may
request a supply of checks which may be used to effect redemptions. The checks,
which will be issued in the shareholder's name, are drawn on a special account
maintained by the Fund with the agent bank. Checks may be drawn in any amount of
$500 or more. When a check is presented to the Fund's agent bank, it instructs
the Fund's transfer agent to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. The use of
a check to make a withdrawal enables a shareholder in the Fund to receive
dividends on the shares to be redeemed up to the Fund Business Day on which the
check clears. Checks provided by the Fund may not be certified. Vista Select
Shares purchased by check may not be redeemed by check which could take up to 15
days following the date of purchase.
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There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank. Checks drawn on a jointly owned
account may, at the shareholder's election, require only one signature. The
Fund's agent bank will not honor checks which are in amounts exceeding the value
of the shareholder's account at the time the check is presented for payment.
Since the dollar value of the account changes daily, the total value of the
account may not be determined in advance and the account may not be entirely
redeemed by check. The Fund reserves the right to terminate or modify the check
redemption procedure at any time. Investors wishing to avail themselves of this
method of redemption should elect it on their subscription order form.
Individuals and joint tenants are not required to furnish any supporting
documentation. Corporations and other entities making this election, however,
are required to furnish a certified resolution or other evidence of
authorization in accordance with the Fund's normal practices. Appropriate
authorization forms will be sent by the Fund or its agents to corporations and
other shareholders who select this option. As soon as the authorization forms
are filed in good order with the Fund's agent bank, it will provide the
shareholder with a supply of checks. This checking service may be terminated or
modified at any time.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption may be sent to the
shareholders at their addresses or, to their bank accounts, both as set forth in
the subscription order form or in a subsequent written authorization. However,
all telephone redemption requests in excess of $25,000 will be wired directly to
such previously designated bank account, for the protection of shareholders. The
Fund may accept telephone redemption instructions from any person with respect
to accounts of shareholders who elect this service and thus such shareholders
risk possible loss of principal and interest in the event of a telephone
redemption not authorized by them. To provide evidence of telephone
instructions, the transfer agent will record telephone conversations with
shareholders. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. The failure by the Fund to
employ such procedures may cause the Fund to be liable for any losses incurred
by investors due to telephone redemptions based upon unauthorized or fraudulent
instructions.
A shareholder making a telephone withdrawal should call the Fund at 800-34-VISTA
and state (i) the name of the shareholder appearing on the Fund's records, (ii)
the shareholder's account number with the Fund, (iii) the amount to be
withdrawn, (iv) whether such amount is to be forwarded to the shareholder's
designated bank account or address and (v) the name of the person requesting the
redemption. Usually the proceeds are sent to the designated bank account or
address on the same Fund Business Day the redemption is effected, provided the
redemption request is received before 12 noon, New York City time and on the
next Fund Business Day if the redemption request is received after 12 noon, New
York City time. The Fund reserves the right to terminate or modify the telephone
redemption service in whole or in part at any time and will notify shareholders
accordingly.
Exchange Privilege
Shareholders of the Vista Select shares of the Fund may exchange at relative net
asset value for Vista Shares of the Vista U.S. Government Money Market Fund, the
Vista Tax Free Money Market Fund, the Vista New York Tax Free Money Market Fund,
the Vista California Tax Free Money Market Fund and the Vista Select shares of
any Reich & Tang sponsored funds and may exchange at relative net asset value
plus any applicable sales charges, the Vista Select shares of the Fund for the
shares of the non-money market Vista Mutual Funds, in accordance with the terms
of the then-current prospectus of the fund being acquired. The prospectus of the
Vista Mutual Fund into which shares are being exchanged should be read carefully
prior to any exchange and retained for future reference. With respect to
exchanges into a fund which charges a front-end sales charge, such sales charge
will not be applicable if the shareholder previously acquired his Vista Select
shares by exchange from such fund. Under the Exchange Privilege, Vista Select
shares may be exchanged for shares of other funds only if those funds are
registered in the states where the exchange may legally be made. In addition,
the account registration for the Vista Mutual Funds into which Vista Select
shares are being exchanged must be identical to that of the account registration
for the Fund from which shares are being redeemed. Any such exchange may create
a gain or loss to be recognized for Federal income tax purposes. Normally,
shares of the fund to be acquired are purchased on the redemption date, but such
purchase may be delayed by either Fund up to five business days if the Fund
determines that it would be disadvantageous by an immediate transfer of the
proceeds. (This privilege may be amended or terminated at any time following 60
days' prior notice.) Arrangements have been made for the acceptance of
instructions by telephone to exchange shares if certain preauthorizations or
indemnifications are accepted and on file. Further information is available from
the Transfer Agent.
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Specified Amount Automatic Withdrawal Plan
Shareholders who own $10,000 or more of the shares of the Fund may elect to
withdraw shares and receive payment from the Fund of a specified amount of $100
or more automatically on a monthly or quarterly basis in an amount approved and
confirmed by the Manager. In order to make a payment, a number of shares equal
in aggregate net asset value to the payment amount are redeemed at their net
asset value so that the designated payment is received on approximately the 1st
or 15th day of the month following the end of the selected payment period. To
the extent that the redemptions to make plan payments exceed the number of
shares purchased through reinvestment of dividends and distributions, the
redemptions reduce the number of shares purchased on original investment, and
may ultimately liquidate a shareholder's investment.
The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by the
participant. Because the withdrawal plan involves the redemption of Fund shares,
such withdrawals may constitute taxable events to the shareholder but the Fund
does not expect that there will be any realizable capital gains.
Investments Through Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Fund. When instructed by its customer to purchase
or redeem Fund shares, the Participating Organization, on behalf of the
customer, transmits to the transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased. No
certificates are issued with respect to investments in the Fund.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Vista Select Shares for the
customers' accounts. Also, Participating Organizations may send their customers
periodic account statements showing the total number of Vista Select shares
owned by each customer as of the statement closing date, purchases and
redemptions of Vista Select shares by each customer during the period covered by
the statement and the income earned by Vista Select shares of each customer
during the statement period (including dividends paid in cash or reinvested in
additional Vista Select shares).
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Vista Select shares may be
purchased and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Manager for providing such services. However, this is an unsettled area of the
law and if a determination contrary to the Fund management's position is made by
a bank regulatory agency or court concerning shareholder servicing and
administration payments to banks from the Manager, any such payments will be
terminated and any shares registered in the banks' names, for their underlying
customers, will be re-registered in the name of the customers at no cost to the
Fund or its shareholders. In addition, state securities laws may differ on this
issue from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as underwriters, distributors
or dealers pursuant to state law.
In the case of qualified Participating Organizations, orders received by the
transfer agent before 12 noon, New York City time, on a Fund Business Day,
without accompanying Federal Funds will result in the issuance of shares on that
day provided that the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 4:00 p.m, New York City time, on
that day. Orders for which Federal Funds are received after 4:00 p.m., New York
City time, will not result in share issuance until the following Fund Business
Day.
14
<PAGE>
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the Act, the Securities and Exchange Commission has
required that an investment company which bears any direct or indirect expense
of distributing its shares must do so only in accordance with a plan permitted
by the Rule. The Fund's Board of Directors has adopted a distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund has entered into a
Distribution Agreement with Reich & Tang Distributors L.P. (the "Distributor")
and a Shareholder Servicing Agreement with the Manager and the Distributor.
Reich & Tang Asset Management, Inc. serves as the sole general partner
for both Reich & Tang Asset Management L.P. and Reich & Tang Distributors L.P.,
and New England Investment Companies, L.P. serves as the sole limited partner of
the Distributor.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
For its services under the Shareholder Servicing Agreement, the Distributor
receives from the Fund a service fee equal to .20% per annum of the Fund's
average daily net assets (the "Shareholder Servicing Fee"). The fee is accrued
daily and paid monthly and any portion of the fee may be deemed to be used by
the Distributor for purposes of distribution of Fund shares and for payments to
Participating Organizations with respect to servicing their clients or customers
who are shareholders of the Fund.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Manager and Distributor in carrying out their obligations under the
Shareholder Servicing Agreement and (ii) preparing, printing and delivering the
Fund's prospectus to existing shareholders of the Fund and preparing and
printing subscription application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the Management Fee and past profits for the
following purposes: (i) defray the costs of, and to compensate others, including
Participating Organizations with whom the Distributor has entered into written
agreements, for performing shareholder servicing and related administrative
functions on behalf of the Fund; (ii) to compensate certain Participating
Organizations for providing assistance in distributing the Fund's shares; and
(iii) to pay the costs of printing and distributing the Fund's prospectus to
prospective investor, and to defray the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries and/or
commissions of sales personnel in connection with the distribution of the Fund's
shares. The Distributor may also make payments from time to time from its own
resources, which may include the Shareholder Servicing Fee and past profits, for
the purposes enumerated in (i) above. The Manager and the Distributor may make
payments to Participating Organizations for providing certain of such services
up to a maximum of (on an annualized basis) .40% of the average daily net asset
value of the shares serviced through the Participating Organization. However,
the Distributor in its sole discretion, will determine the amount of such
payments made pursuant to the Plan, provided that such payments will not
increase the amount which the Fund is required to pay to the Manager and the
Distributor for any fiscal year under the Investment Management Contract, the
Shareholder Servicing Agreement or the Administrative Services Contract in
effect for that year.
For the fiscal year ended January 31, 1995, the total amount spent pursuant to
the Plan was .22% of the average daily net assets of the Fund, of which .19% of
the average daily net assets was paid by the Fund to the Manager, pursuant to
the Shareholder Servicing Agreement and an amount representing .03% of the
average daily net assets was paid by the Manager (which may be deemed an
indirect payment by the Fund).
15
<PAGE>
FEDERAL INCOME TAXES
The Fund has elected to qualify under the Code as a regulated investment company
that intends to distribute "exempt-interest dividends" as defined in the Code.
The Fund's policy is to distribute as dividends each year 100% (and in no event
less than 90%) of its tax-exempt interest income, net of certain deductions, and
its investment company taxable income (if any). If distributions are made in
this manner, dividends designated as derived from the interest earned on
Municipal Obligations are "exempt-interest dividends" and are not subject to
regular Federal income tax although such "exempt-interest dividends" may be
subject to Federal alternative minimum tax. Dividends paid from taxable income,
if any, and distributions of any realized short-term capital gains (whether from
tax-exempt or taxable obligations) are taxable to shareholders as ordinary
income for Federal income tax purposes, whether received in cash or reinvested
in additional shares of the Fund. The Fund does not expect to realize long-term
capital gains, and thus does not contemplate distributing "capital gain
dividends" or having undistributed capital gain income within the meaning of the
Code. The Fund will inform shareholders of the amount and nature of its income
and gains in a written notice mailed to shareholders not later than 60 days
after the close of the Fund's taxable year. For Social Security recipients,
interest on tax-exempt bonds, including tax-exempt interest dividends paid by
the Fund, is to be added to adjusted gross income for purposes of computing the
amount of Social Security benefits includible in gross income. The Revenue
Reconciliation Act of 1993 (P.L. 103-66) and other recent tax legislation,
affects many of the Federal tax aspects of Municipal Obligations and makes many
important changes to the Federal income tax system, including an increase of
marginal tax rates. P.L. 99-514 also provided that interest on certain "private
activity bonds" (generally, a bond issue in which more than 10% of the proceeds
are used for a non-governmental trade or business and which meets the private
securities or payment test, or a bond issue which meets the private loan
financing test) issued after August 7, 1986 will constitute an item of tax
preference subject to the individual alternative minimum tax and increases the
individual alternative minimum tax rate and P.L. 103-66 increases the
alternative minimum tax rate for taxpayers other than corporations to 28%.
Further, corporations will be required to include as an item of tax preference
for purposes of the alternative minimum tax, 75% of the amount by which its
adjusted current earnings (including generally, tax-exempt interest) exceeds its
alternative minimum taxable income (determined without this tax preference
item). Certain tax-exempt interest is also included in the tax base for the
additional corporate minimum tax imposed by the Superfund Amendments and
Reauthorization Act of 1986 for taxable years beginning before January 1, 1996.
In addition, in certain cases Subchapter S corporations with accumulated
earnings and profits from Subchapter C years will be subject to a tax on
"passive investment income," including tax-exempt interest.
With respect to variable rate demand instruments, including participation
certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner thereof and that the interest on the underlying Municipal Obligations
will be tax-exempt from Federal income taxes to the Fund. Counsel has pointed
out that the Internal Revenue Service has announced that it will not ordinarily
issue advance rulings on the question of the ownership of securities or
participation interests therein subject to a put and could reach a conclusion
different from that reached by counsel. (See "Federal Income Taxes" in the
Statement of Additional Information.)
In South Carolina v. Baker, the U.S. Supreme Court held that the Federal
government may constitutionally require states to register bonds which they
issue and may subject the interest on such bonds to Federal tax if not
registered, and the Court further held that there is no constitutional
prohibition against the Federal government taxing the interest earned on state
or other municipal bonds. The Supreme Court decision affirms the authority of
the Federal government to regulate and control bonds such as the Municipal
Obligations and to tax such bonds in the future. The decision does not, however,
affect the current exemption from taxation of the interest earned on the
Municipal Obligations in accordance with Section 103 of the Code.
CONNECTICUT INCOME TAXES
The designation of all or a portion of a dividend paid by the Fund as an
"exempt-interest dividend" under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. However, in the opinion of Day, Berry & Howard, special Connecticut
tax counsel to the Fund, exempt-interest dividends correctly designated as
derived from Connecticut Municipal Obligations received by the Fund are not
subject to the Connecticut Personal Income Tax.
Exempt-interest dividends that are not derived from Connecticut Municipal
Obligations and any other dividends of the Fund treated as ordinary income for
Federal income tax purposes are includible in a taxpayer's tax base for
purposes of the Connecticut Personal Income Tax.
16
<PAGE>
While capital gain dividends are not anticipated by the Fund, capital gain
dividends and amounts, if any, in respect of undistributed long-term capital
gains of the Fund would be includible in a taxpayer's tax base for purposes of
the Connecticut Personal Income Tax, as would gains, if any, recognized upon the
redemption, sale, or exchange of shares of the Fund, except that capital gain
dividends derived from obligations issued by or on behalf of the State of
Connecticut, its political subdivisions, or any public instrumentality, state or
local authority, district or similar public entity created under Connecticut law
("Connecticut Obligations") are not subject to the tax.
Exempt-interest dividends, other than those derived from Connecticut Municipal
Obligations, that are subject to the Federal alternative minimum tax are subject
to the net Connecticut minimum tax, except that exempt-interest dividends
derived from Connecticut Obligations may not be subject to the net Connecticut
minimum tax.
All exempt-interest dividends are includible in gross income purposes of the
Connecticut Corporation Business Tax payable by corporations. However, the
Corporation Business Tax allows a deduction for a portion of amounts includible
in gross income thereunder to the extent they are treated as dividends other
than exempt-interest dividends or capital gain dividends for Federal income tax
purposes, but disallows deductions for expenses related to such amounts.
Shareholders are urged to consult their tax advisors with respect to the
treatment of distributions from the Fund in their own states and localities.
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on March 8,
1985 and it is registered with the Securities and Exchange Commission as a
non-diversified, open-end management investment company. The Fund prepares
semi-annual unaudited and annual audited reports which include a list of
investment securities held by the Fund and which are sent to shareholders. As a
general matter, the Fund will not hold annual or other meetings of the Fund's
shareholders. This is because the By-Laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of the revised
investment advisory contracts with respect to a particular class or series of
stock, (c) for approval of revisions to the Fund's distribution agreement with
respect to a particular class or series of stock, and (d) upon the written
request of holders or shares entitled to cast 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 Act including the removal of Fund director(s) and communication among
shareholders, any registration of the Fund with the Securities and Exchange
Commission or any state, or as the Directors may consider necessary or
desirable. Each Director serves until the next meeting of the shareholders
called for the purpose of considering the election or reelection of such
Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such a meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders. For further information with respect to the Fund and the shares
offered hereby, reference is made to the Fund's registration statement filed
with the Securities and Exchange Commission, including the exhibits thereto. The
Registration Statement and the exhibits thereto may be examined at the
Securities and Exchange Commission and copies thereof may be obtained upon
payment of certain duplicating fees.
NET ASSET VALUE
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. Fund Business Day means weekdays (Monday
through Friday) except customary business holidays and Good Friday. It is
computed by dividing the value of the Fund's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued but excluding capital stock and surplus) by the total number of shares
outstanding. The Fund's portfolio securities are valued at their amortized cost
in compliance with the provisions of Rule 2a-7 under the Investment Company Act
of 1940. Amortized cost valuation involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, except that if fluctuating interest rates cause the market value of the
Fund's portfolio to deviate more than 1/2 of 1% from the value determined on the
basis of amortized cost, the Board of Directors will consider whether any action
should be initiated. Although the amortized cost method provides certainty in
valuation, it may result in periods during which the value of an instrument is
higher or lower than the price an investment company would receive if the
instrument were sold. The Fund intends to maintain a stable net asset value at
$1.00 per share although there can be no assurance that this will be achieved.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is custodian for the Fund's cash and securities and is transfer agent and
dividend agent for the Vista Select 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.
17
<PAGE>
VISTA VISTA
SELECT SELECT
Vista Service Center
P.O. Box 419392
Kansas City, Missouri 64179
VISTA SELECT
SHARES OF
CONNECTICUT
DAILY TAX FREE
TABLE OF CONTENTS INCOME FUND, INC.
Table of Fees and Expenses......................2
Selected Financial Information..................3
Introduction....................................4
Investments Objectives,
Policies and Risks............................5
Connecticut Risk Factors.......................10
Management of the Fund.........................10
Description of Common Stock....................11
Dividends and Distributions....................12 Prospectus
How to Purchase and Redeem Shares..............13 and Application
Investment Through
Participating Organizations................14
Direct Purchase and
Redemption Procedures ....................15
Initial Purchases of Shares..................16
Subsequent Purchases of Shares...............16
Redemption of Shares.........................16
Exchange Privilege...........................18
Specific Amount Automatic
Withdrawal Plan...........................19
Distribution and Service Plan..................19
Federal Income Taxes...........................21
Connecticut Income Taxes.......................22
General Information ...........................22
Net Asset Value................................23
Custodian and Transfer Agent...................23
June 1, 1995
<PAGE>
_______________________________________________________________________________
FFB Shares of Connecticut Daily Tax Free Income Fund, Inc.
237 Park Avenue, New York, New York 10017
General and Account Information: (800) 437-8790
===============================================================================
PROSPECTUS
June 1, 1995
Connecticut Daily Tax Free Income Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company that is a short-term, tax-exempt, money
market fund whose investment objectives are to seek as high a level of current
income exempt from Federal income taxes and to the extent possible from
Connenticut income tax, as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal. No assurance can
be given that those objectives will be achieved. This Prospectus relates
exclusively to the FFB shares class of the Fund.
This Prospectus sets forth concisely the information about the Fund that
prospective investors will find helpful in making their investment decisions.
Additional information about the Fund has been filed with the Securities and
Exchange Commission and is available upon request and without charge by calling
or writing the Fund at the address and telephone number set forth above. The
"Statement of Additional Information" bears the same date as this Prospectus and
is incorporated by reference into this Prospectus in its entirety.
Reich & Tang Asset Management L.P. acts as manager of the Fund and Reich & Tang
Distributors L.P. acts as distributor of the Fund's shares. Reich & Tang Asset
Management L.P. is a registered investment adviser. Reich & Tang Distributors
L.P. is a registered broker-dealer and member of the National Association of
Securities Dealers,
Inc.
Investors should be aware that the FFB shares may not be purchased other than
through certain securities dealers with whom FFB Funds Distributor, Inc. ("FFB")
has entered into agreements for this purpose, directly from FFB or through
certain "Participating Organizations" (see "Investments Through Participating
Organizations") with whom they have accounts. FFB shares have been created for
the primary purpose of providing a Connecticut tax-free money market fund
product for shareholders of certain funds distributed by FFB. Shares of the Fund
other than the FFB shares are offered pursuant to a separate prospectus.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. The Fund intends to maintain a stable net asset value of $1.00 per
share although there can be no assurance that this value will be maintained.
Shares in the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency.
THIS PROSPECTUS SHOULD BE READ AND RETAINED BY INVESTORS FOR FUTURE REFERENCE.
________________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________________________________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
as a percentage of average net assets)
<S> <C> <C>
Management Fees .30%
12b-1 Fees-After Fee Waiver .19 %
Other Expenses .39%
Administration Fees .20%
Total Fund Operating Expenses .88%
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following expenses on a $1,000
investment, assuming 5% annual return
(cumulative through the end of each year) $9 $28 $49 $108
The purpose of the above fee table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. For a further discussion of these fees see
"Management of the Fund" and "Distribution and Service Plan" herein. The
Distributior has voluntarily waived a portion of the 12b-1 Fee; absent such
waiver, the 12b-1 Fee would have been .20% and Total Fund Operating Expenses
would have been .89%.
THE FIQURES REFLECTED IN THIS EXAMPLE SHOULD NOT BE CONSIDERED AS A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN ABOVE.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION
The following selected financial information of Connecticut Daily Tax Free
Income Fund, Inc. has been audited by McGladrey & Pullen, LLP, Independent
Certified Public Accountants, whose report thereon appears in the Statement of
Additional Information.
May 15, 1985
(Inception) to
Year Ended January 31, January 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding
throughout the period)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Income from investment operations:
Net investment income..... 0.0230 0.0170 0.0210 0.0350 0.0490 0.0540 0.0440 0.0380 0.0380 0.0320
Less distributions:
Dividends from net investment
income 0.0230)(0.0170) (0.0210) (0.0350 (0.0490)(0.0540) 0.0440) (0.0380) (0.0380) (0.0320
Net asset value, end of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return................ 2.29% 1.70% 2.12% 3.56% 5.01% 5.58% 4.53% 3.90% 3.88% 4.72%
Ratios/Supplemental Data
Net assets, end of
period (000's omitted) $81,801 $120,551 $129,297 $185,339 $178,335 $228,167 $245,529 $241,638 $248,193 $88,689
Ratios to average net assets:
Expenses................... 0.88% 0.87% 0.86%+ 0.79% 0.80% 0.78% 0.79% 0.76%+ 0.75%+ 0.56%*+
Net investment income..... 2.25% 1.68% 2.14%+ 3.51% 4.92% 5.44% 4.44% 3.83%+ 3.75%+ 4.70%*+
* Annualized.
+ Net of management, shareholder servicing and administration fees waived
equivalent to $.0006, $.0003, $.0009 and $.032 per share and .06%, .03%, .09%
and .46% of average net assets, respectively.
</TABLE>
3
<PAGE>
INTRODUCTION
Connecticut Daily Tax Free Income Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company that is a short-term, tax-exempt money
market fund whose investment objectives are to seek as high a level of current
income, exempt under current law from Federal income taxes and to the extent
possible from Connecticut personal income taxes, as is believed to be consistent
with preservation of capital, maintenance of liquidity and stability of
principal by investing principally in short-term, high quality debt obligations
of the State of Connecticut, its political subdivisions, and certain possessions
and territories of the United States, the interest on which is exempt from
Federal income tax under section 103 of the Internal Revenue Code of 1986, as
amended, (the "Code"), as described under "Investment Objectives, Policies and
Risks" herein. The Fund also may invest in municipal securities of issuers
located in jurisdictions other than Connecticut, the interest income on which
will be exempt from Federal income tax, but will be subject to Connecticut
dividends and interest income tax for Connecticut residents. The Fund seeks to
maintain an investment portfolio with a dollar-weighted average maturity of 90
days or less, and to value its investment portfolio at amortized cost and
maintain a net asset value of $1.00 per share. The Fund intends to invest all of
its assets in tax-exempt obligations; however, it reserves the right to invest
up to 20% of the value of its net assets in taxable obligations. This is a
summary of the Fund's fundamental investment policies which are set forth in
full under "Investment Objectives, Policies and Risks" herein and in the
Statement of Additional Information and may not be changed without approval of a
majority of the Fund's outstanding shares. No assurance can be given that these
objectives will be achieved.
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"), which is a registered investment adviser and which currently acts as
manager or administrator to eighteen other open-end management investment
companies. The Fund's shares are distributed through Reich & Tang Distributors
L.P. (the "Distributor"), with whom the Fund has entered into a Distribution
Agreement and a Shareholder Servicing Agreement pursuant to the Fund's plan
adopted under Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended, (the "1940 Act"). (See "Distribution and Service Plan" herein.)
On any day on which the New York Stock Exchange, Inc. is open for trading ("Fund
Business Day"), investors may, without charge by the Fund, purchase and redeem
shares of the Fund's common stock at their net asset value next determined after
receipt of the order. An investor's purchase order will be accepted after the
payment is converted into Federal funds, and shares will be issued as of the
Fund's next net asset value determination which is made as of 12 noon, New York
City time, on each Fund Business Day. (See "How to Purchase and Redeem Shares"
and "Net Asset Value" herein.) Dividends from accumulated net income are
declared by the Fund on each Fund Business Day. The Fund generally pays interest
dividends monthly. Net capital gains, if any, will be distributed at least
annually and in no event later than within 60 days after the end of the Fund's
fiscal year. All dividends and distributions of capital gains are automatically
invested in additional shares of the Fund unless a shareholder has elected by
written notice to the Fund to receive either of such distributions in cash. (See
"Dividends and Distributions" herein.)
The Fund intends that its investment portfolio will be concentrated in
Connecticut Municipal Obligations and bank participation certificates therein. A
summary of special risk factors affecting the State of Connecticut is set forth
under "Connecticut Risk Factors" herein and in the Statement of Additional
Information. Investment in the Fund should be made with an understanding of the
risks which an investment in Connecticut Municipal Obligations may entail.
Payment of interest and preservation of capital are dependent upon the
continuing ability of Connecticut issuers and/or obligors of state, municipal
and public authority debt obligations to meet their obligations thereunder.
Investors should consider the greater risk of the Fund's concentration versus
the safety that comes with a less concentrated portfolio and should compare
yields available on portfolios of Connecticut issues with those of more
diversified portfolios including out-of-state issues before making an investment
decision. The Fund's Board of Directors is authorized to divide the unissued
shares into separate series of stock, one for each of the Fund's separate
investment portfolios that may be created in the future.
4
<PAGE>
FFB shares have been created for the primary purpose of providing a Connecticut
tax-free money market fund product for investors who purchase shares directly
from FFB, through dealers with whom FFB has entered into agreements for this
purpose or through certain "Participating Organizations" (see "Investments
Through Participating Organizations" herein) with whom they have accounts or who
acquire FFB shares through the exchange of shares of certain other investment
companies as hereinafter described. FFB shares are identical to other shares of
the Fund, which are offered pursuant to a separate prospectus, with respect to
investment objectives and yield, but differ with respect to certain other
matters. For example, shareholders who hold other shares of the Fund may not
participate in the exchange privilege described herein and have different
arrangements for redemptions by check.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The Fund is a non-diversified, open-end management investment company that is a
short-term, tax-exempt money market fund whose investment objectives are to seek
as high a level of current income, exempt from Federal income taxes and, to the
extent possible, from Connecticut personal income taxes (the "Connecticut
Personal Income Tax"), as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal. There can be no
assurance that the Fund will achieve its investment objectives.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of Connecticut, other states, territories
and possessions of the United States, and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which is, in the
opinion of bond counsel at the date of issuance, currently exempt from Federal
income taxation ("Municipal Obligations") and in participation certificates in
Municipal Obligations purchased from banks, insurance companies or other
financial institutions. Dividends paid by the Fund which are "exempt-interest
dividends" by virtue of being properly designated as derived from Municipal
Obligations and participation certificates in Municipal Obligations will be
exempt from Federal income tax provided the Fund complies with Section 852(b)(5)
of Subchapter M of the Code.
Although the Supreme Court has determined that Congress has the authority to
subject the interest on bonds such as the Municipal Obligations to regular
Federal income taxation, existing law excludes such interest from regular
Federal income tax. However, "exempt-interest dividends" may be subject to the
Federal alternative minimum tax. (See "Federal Income Taxes" herein.)
Exempt-interest dividends paid by the Fund correctly identified as derived from
obligations issued by or on behalf of the State of Connecticut or any political
subdivision thereof, or public instrumentality, state or local authority,
district, or similar public entity created under the laws of the State of
Connecticut or from obligations (such as certain obligations issued by or on
behalf of possessions or territories of the United States) the interest on which
Federal law prohibits the states from taxing ("Connecticut Municipal
Obligations") will be exempt from the Connecticut Personal Income Tax. (See
"Connecticut Income Taxes" herein.) To the extent suitable Connecticut Municipal
Obligations are not available for investment by the Fund, the Fund may purchase
Municipal Obligations issued by other states, their agencies and
instrumentalities or other obligations, the dividends designated as derived from
interest income on which will be exempt from Federal income tax but will be
subject to the Connecticut Personal Income Tax. However, except as a temporary
defensive measure during periods of adverse market conditions as determined by
the Manager, the Fund will invest at least 65% of its total assets in
Connecticut Municipal Obligations, the exempt-interest dividends derived from
which are exempt from the Connecticut Personal Income Tax, although the exact
amount of the Fund's assets invested in such securities will vary from time to
time. The Fund's investments may include "when-issued" Municipal Obligations,
stand-by commitments and taxable repurchase agreements. Although the Fund will
attempt to invest 100% of its assets in Municipal Obligations, the Fund reserves
the right to invest up to 20% of the value of its net assets in securities, the
interest income on which is subject to Federal, state and local income tax. The
Fund expects to invest more than 25% of its assets in participation certificates
purchased from banks in industrial revenue bonds and other Connecticut Municipal
Obligations.
In view of this "concentration" in bank participation certificates in
Connecticut Municipal Obligations, an investment in the Fund should be made with
an understanding of the characteristics of the banking industry and the risks
which such an investment may entail, which include extensive governmental
regulation, changes in the availability and cost of capital funds, and general
economic conditions. (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) The investment
objectives of the Fund described in this paragraph may not be changed unless
approved by the holders of a majority of the outstanding shares of the Fund that
would be affected by such a change. As used in this Prospectus, the term
"majority of the outstanding shares" of the Fund means, respectively, the vote
of the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy or (ii) more than 50% of the outstanding shares
of the Fund.
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<PAGE>
The Fund may only purchase Municipal Obligations that have been determined by
the Fund's Board of Directors to present minimal credit risks and that are
Eligible Securities at the time of acquisition. The term Eligible Securities
means (i) Municipal Obligations with remaining maturities of 397 days or less
and rated in the two highest short-term rating categories by any two nationally
recognized statistical rating organizations ("NRSROs") or in such categories by
the only NRSRO that has rated the Municipal Obligations (collectively, the
"Requisite NRSROs") (acquisition in the latter situation must also be ratified
by the Board of Directors); (ii) Municipal Obligations with remaining maturities
of 397 days or less but that at the time of issuance were long-term securities
(i.e., with maturities greater than 366 days) and whose issuer has received from
the Requisite NRSROs a rating with respect to comparable short-term debt in the
two highest short-term rating categories and (iii) unrated Municipal Obligations
determined by the Fund's Board of Directors to be of comparable quality. Where
the issuer of a long-term security with a remaining maturity which would
otherwise qualify it as an Eligible Security, does not have rated short-term
debt outstanding, the long-term security is treated as unrated but may not be
purchased if it has a long-term rating from any NRSRO that is below the two
highest long-term categories. A determination of comparability by the Board of
Directors is made on the basis of its credit evaluation of the issuer, which may
include an evaluation of a letter of credit, guarantee, insurance or other
credit facility issued in support of the Municipal Obligations or participation
certificates. (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) While there are
several organizations that currently qualify as NRSROs, two examples of NRSROs
are Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's"). The two highest ratings by S&P and Moody's are "AAA" and "AA" by
S&P in the case of long-term bonds or notes and "Aaa" and "Aa" by Moody's in the
case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the
case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's in
the case of tax-exempt commercial paper. The highest rating in the case of
variable and floating demand notes is "VMIG-1" by Moody's and "SP-1/AA" by S&P.
Such instruments may produce a lower yield than would be available from less
highly rated instruments. The Fund's Board of Directors has determined that
obligations which are backed by the credit of the Federal government (the
interest on which is not exempt from Federal income taxation) will be considered
to have a rating equivalent to Moody's "Aaa".
Subsequent to its purchase by the Fund, the quality of an investment may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. If this occurs, the Board of Directors of the Fund shall reassess
promptly whether the security presents minimal credit risks and shall cause the
Fund to take such action as the Board of Directors determines is in the best
interest of the Fund and its shareholders. However, reassessment is not required
if the security is disposed of or matures within five business days of the
Manager becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Manager's actions.
In addition, in the event that a security (1) is in default, (2) ceases to be an
eligible investment under Rule 2a-7 or (3) is determined to no longer present
minimal credit risks, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. In the event that the security
is disposed of it shall be disposed of as soon as practicable consistent with
achieving an orderly disposition by sale, exercise of any demand feature or
otherwise. In the event of a default with respect to a security which
immediately before default accounted for 1/2 of 1% or more of the Fund's total
assets, the Fund shall promptly notify the Securities and Exchange Commission of
such fact and of the actions that the Fund intends to take in response to the
situation.
In view of the "concentration" of the Fund in bank participation certificates in
Connecticut Municipal Obligations, which may be secured by bank letters of
credit or guarantees, an investment in the Fund should be made with an
understanding of the characteristics of the banking industry and the risks which
such an investment may entail which include extensive governmental regulation,
changes in the availability and cost of capital funds and general economic
condition. (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) Banks are subject to
extensive governmental regulations which may limit both the amounts and types of
loans and other financial commitments which may be made and interest rates and
fees which may be charged. The profitability of this industry is largely
dependent upon the availability and cost of capital funds for the purpose of
financing lending operations under prevailing money market conditions. Also,
general economic conditions play an important part in the operations of this
industry and exposure to credit losses arising from possible financial
difficulties of borrowers might affect a bank's ability to meet its obligations
under a letter of credit. The Fund may invest 25% or more of the net assets of
any portfolio in securities that are related in such a way that an economic,
business or political development or change affecting one of the securities
would also affect the other securities including, for example, securities the
interest upon which is paid from revenues of similar type projects, or
securities the issuers of which are located in the same state.
6
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All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund's
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the Act with respect to investing its assets in one
or relatively few issuers. This non-diversification may present greater risks
than in the case of a diversified company. However, the Fund intends to qualify
as a "regulated investment company" under Subchapter M of the Code. The Fund
will be restricted in that, at the close of each quarter of the taxable year, at
least 50% of the value of its total assets must be represented by cash,
government securities, investment company securities and other securities
limited in respect of any one issuer to not more than 5% in value of the total
assets of the Fund and to not more than 10% of the outstanding voting securities
of such issuers. In addition, at the close of each quarter of its taxable year,
not more than 25% in value of the Fund's total assets may be invested in
securities of one issuer other than government securities. The limitations
described in this paragraph are not fundamental policies and may be revised to
the extent applicable Federal income tax requirements are revised. (See "Federal
Income Taxes" herein.)
The primary purpose of investing in a portfolio of Connecticut Municipal
Obligations is the special tax treatment accorded Connecticut resident
individual investors. However, payment of interest and preservation of principal
is dependent upon the continuing ability of the issuers and/or obligors of
state, municipal and public authority debt obligations to meet their obligations
thereunder. Investors should consider the greater risk of the Fund's
concentration versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of Connecticut
issues with those of more diversified portfolios including out-of-state issues
before making an investment decision. The Fund's management believes that by
maintaining the Fund's investment portfolio in liquid, short-term, high quality
investments, including participation certificates and other variable rate demand
instruments that have high quality credit support from banks, insurance
companies or other financial institutions, the Fund is largely insulated from
the credit risks that may exist on long-term Connecticut Municipal Obligations.
For additional information, please refer to the Statement of Additional
Information.
CONNECTICUT RISK FACTORS
Because of the Fund's concentration in investments in Connecticut Municipal
Obligations, the safety of an investment in the Fund will depend importantly on
the financial strength of Connecticut and its political subdivisions. The
Connecticut economy relies in part on activities that have been subject to
cyclical change, and the State is now in a recession the depth and duration of
which are uncertain. The State's General Fund suffered a deficit of $809,000,000
for the fiscal year ended June 30, 1991, alone. While the State's General Fund
reflected a surplus of $110,000,000 for the fiscal year ended June 30, 1992, and
a surplus of $113,500,000 for the fiscal year ended June 30, 1993, largely
because of the enactment of the Connecticut Personal Income Tax, contractions in
defense and other industries are adversely affecting Connecticut's economy, and
unemployment and poverty plague some of its cities and towns. There can be no
assurance that general economic difficulties or the financial circumstances of
Connecticut or its towns and cities will not adversely affect the market value
of their obligations or the ability of the obligors to pay debt service on such
obligations.
MANAGEMENT OF THE FUND
The Fund's Board of Directors which is responsible for the overall management
and supervision of the Fund, has employed the Manager (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 April 28, 1995
investment manager, adviser or supervisor for assets aggregating in excess of $7
billion. The Manager acts as investment manager or administrator of eighteen
other investment companies and also advises pension trusts, profit-sharing
trusts and endowments.
Effective October 1, 1994, the Board of Directors of the Fund approved the
7
<PAGE>
re-execution of the Investment Management Contract and Administrative Services
Contract with the Manager. The Manager's predecessor, New England Investment
Companies, L.P. ("NEICLP") is the limited partner and owner of a 99.5% interest
in the newly created limited partnership, Reich & Tang Asset Management L.P.,
the Manager. Reich & Tang Asset Management, Inc. (a wholly-owned subsidiary of
NEICLP) is the general partner and owner of the remaining .5% interest of the
Manager. Reich & Tang Asset Management L.P. has succeeded NEICLP as the Manager
of the Fund. The re-execution of the Investment Management Contract did not
result in "assignment" of the Investment Management contract with NEICLP under
the 1940 Act, since there is no change in actual control or management of the
Manager caused by the re-execution. New England Investment Companies, Inc.
("NEIC"), a Massachusetts corporation, serves as the sole general partner of
NEICLP. The New England Mutual Life Insurance Company ("The New England") owns
approximately 68.1% of the total partnership units outstanding of NEICLP, and
Reich & Tang, Inc. owns approximately 22.8% of the outstanding partnership units
of NEICLP. In addition, NEIC is a wholly-owned subsidiary of The New England
which may be deemed a "controlling person" of the Manager. NEIC is a holding
company offering a broad array of investment styles across a wide range of asset
categories through eight investment advisory/management affiliates and three
distribution subsidiaries. These include, in addition to the Manager Loomis,
Sayles & Company, L.P., Copley Real Estate Advisors, Inc., Back Bay Advisors,
L.P., Marlborough Capital Advisors, L.P., Westpeak Investment Advisors, L.P.,
Draycott Partners, Ltd., TNE Investment Services, L.P., New England Investment
Associates, Inc., and an affiliate, Capital Growth Management Limited
Partnership. These affiliates in the aggregate are investment advisors or
managers to 57 other registered investment companies.
The re-executed Investment Management Contract and Administrative Services
Contract contain the same terms and conditions governing the Manager's
investment management and administrative responsibilities as the Fund's previous
Investment Management Contract and Administrative Services Contract except for
(i) the dates of execution and (ii) the identity of the Manager.
Pursuant to the re-executed 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.
For its services under the re-executed Investment Management Contract, the
Manager receives from the Fund a fee equal to .30 of 1% per annum of the Fund's
average daily net assets for managing the Fund's investment portfolio and
performing related services. In addition, the Distributor receives a fee equal
to .20 of 1% per annum of the Fund's average daily net assets under the
Shareholder Servicing Agreement. The fees are accrued daily and paid monthly.
Any portion of the total fees received by the Manager and the Distributor may be
used to provide shareholder and administrative services and for distribution of
Fund shares. (See "Distribution and Service Plan" herein).
Pursuant to the Administrative Services Contract for the Fund, the Manager
performs clerical, accounting supervision and office service functions for the
Fund and provides the Fund 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 services as the Fund may from time to
time request of the Manager. The personnel rendering such services may be
employees of the Manager or its affiliates. The Manager, at its discretion, may
voluntarily waive all or a portion of the administrative services fee. For its
services under the Administrative Services Contract, the Manager receives a fee
equal to .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.)
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on March 8, 1985. The authorized capital
stock of the Fund consists of twenty billion shares of stock having a par value
of one-tenth of one cent ($.001) per share. The Fund's Board of Directors is
authorized to divide the unissued shares into separate series of stock, each
series representing a separate, additional investment portfolio. Shares of all
series will have identical voting rights, except where, by law, certain matters
must be approved by a majority of the shares of the affected series. Each share
of any series of shares when issued has equal dividend, distribution,
liquidation and voting rights within the series for which it was issued, and
each fractional share has those rights in proportion to the percentage that the
fractional share represents of a whole share. Shares will be voted in the
aggregate. There are no conversion or preemptive rights in connection with any
shares of the Fund. All shares, when issued in accordance with the terms of the
offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholder.
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<PAGE>
Under its Articles of Incorporation the Fund has the right to redeem for cash
shares of stock owned by any shareholder to the extent and at such times as the
Fund's Board of Directors determines to be necessary or appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders. As of April 28,1995,
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.
FFB shares have been created for the primary purpose of providing a Connecticut
tax-free money market fund product for investors who purchase shares directly
from FFB, through dealers with whom FFB has entered into agreements for this
purpose (see "Investments Through Participating Organizations" herein) with whom
they have accounts, or who acquire FFB shares through the exchange of shares of
certain other investment companies as hereinafter described. FFB shares are
identical to other shares of the Fund, which are offered pursuant to a separate
prospectus, with respect to investment objectives and yield, but differ with
respect to certain other matters. For example, shareholders who hold other
shares of the Fund may not participate in the exchange privilege described
herein and have different arrangements for redemptions by check.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Certificates for Fund shares will
not be issued to an investor.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and generally pays dividends monthly. There is no fixed
dividend rate. In computing these dividends, interest earned and expenses are
accrued on the first business day.
Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year.
All dividends and distributions of capital gains are automatically invested in
additional Fund shares immediately upon payment thereof unless a shareholder has
elected by written notice to the Fund to receive either of such distributions in
cash.
HOW TO PURCHASE AND REDEEM SHARES
Investors may invest in FFB shares through FFB or through dealers with whom FFB
has entered into agreements for this purpose as described herein and those who
have accounts with Participating Organizations may invest in the FFB shares
through their Participating Organizations in accordance with the procedures
established by the Participating Organizations. (See "Investments Through
Participating Organizations" herein.) The minimum initial investment in the FFB
shares is $1,000. Initial investments may be made in any amount in excess of the
applicable minimums. The minimum amount for subsequent investments is $100.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from Participating Organizations,
FFB and from dealers with whom FFB has entered into agreements for this purpose.
In order to maximize earnings on its portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in funds of Federal Reserve member banks on deposit
at a Federal Reserve Bank (commonly known as "Federal Funds"). Accordingly, the
Fund does not issue accept a subscription or invest an investor's payment in
portfolio securities until the payment has been converted into Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share made after receipt of the investor's purchase order at the net
asset value per share next determined after receipt of the purchase order.
Shares begin accruing income dividends on the day they are purchased. The Fund
reserves the right to reject any subscription for its shares.
Shares are issued as of 12 noon, New York City time, on any Fund Business Day as
defined herein on which an order for the shares and accompanying Federal Funds
are received by the Fund's transfer agent before 12 noon. Orders accompanied by
Federal Funds and received after 12 noon, New York City time, on a Fund Business
Day will not result in share issuance until the following Fund Business Day.
Fund shares begin accruing income on the day the shares are issued to an
investor.
9
<PAGE>
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals. Unless
other instructions are given in proper form to the Fund's transfer agent, a
check for the proceeds of a redemption will be sent to the shareholder's address
of record. If a shareholder elects to redeem all the shares of the Fund he owns,
all dividends accrued to the date of such redemption will be paid to the
shareholder on the next regularly scheduled dividend payment date.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the Securities and Exchange Commission determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
Securities and Exchange Commission) exists as a result of which disposal by the
Fund of its portfolio securities is not reasonably practicable or as a result of
which it is not reasonably practicable for the Fund fairly to determine the
value of its net assets, or for such other period as the Securities and Exchange
Commission may by order permit for the protection of the shareholders of the
Fund.
Redemption requests received by the Fund's transfer agent before 12 noon, New
York City time, on any Fund Business Day become effective at 12 noon that day.
Shares redeemed are not entitled to participate in dividends declared on the day
a redemption becomes effective. A redemption request received after 12 noon, New
York City time, on any Fund Business Day becomes effective on the next Fund
Business Day.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization, and the Participating
Organization will be responsible for notifying the Participant Investor of the
proposed mandatory redemption. During the notice period a shareholder or
Participating Organization who receives such a notice may avoid mandatory
redemption by purchasing sufficient additional shares to increase the total net
asset value to at least the minimum amount and thereby avoid such mandatory
redemption.
The redemption of shares may result in the investor's receipt of more or less
than paid for the shares and, thus, in a taxable gain or loss to the investor.
Initial Purchase of FFB Shares
Investors may obtain a current prospectus and the order form necessary to open
an account by telephoning the FFB Funds at 1-800-437-8790.
Mail
To purchase shares, send a check made payable to "FFB Shares of Connecticut
Daily Tax Free Income Fund, Inc." along with a completed new account application
to:
FFB Funds
P.O. Box 4490
Grand Central Station
New York, N.Y. 10163
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member bank of the Federal Reserve
System can normally be converted into Federal Funds within two business days
after receipt of the check. Checks drawn on a non-member bank may take
substantially longer to convert into Federal Funds and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
Bank Wire
To purchase shares using the wire system for transmittal of money among banks,
investors should first telephone the Fund at 1-800-437-8790 to obtain a new
account number. The investor should then instruct a member commercial bank to
wire the money immediately to:
IFTC
Kansas City, Missouri 64105
ABA #: 101003621
ACCT #7512996
For credit of FFB shares of CDTFIF
Account of
Fund Account #
SS#/Tax ID#
The investor should then promptly complete and mail the new account application.
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<PAGE>
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon on that same day. There may
be a charge by the investor's bank for transmitting the money by bank wire, and
there also may be a charge for use of Federal Funds. The Fund does not charge
investors in the Fund for its receipt of wire transfers. Payment in the form of
a "bank wire" received prior to 12 noon, New York City time, on a Fund Business
Day will be treated as a Federal Funds payment received on that day.
Subsequent Purchases of Shares
Subsequent purchases can be made either by bank wire as indicated above, or by
mailing a check to:
FFB Funds
P.O. Box 4490
Grand Central Station
New York, N.Y. 10163
There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number. Provided that the information
on the new account application on file with the Fund is still applicable, a
shareholder may reopen an account without filing a new account application at
any time during the year the shareholder's account is closed or during the
following calendar year.
Redemption of Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share following
receipt by the Fund's transfer agent of the redemption order. Normally, payment
for redeemed shares is made on the same Fund Business Day after the redemption
is effected, provided the redemption request is received prior to 12 noon, New
York City time and on the next Fund Business Day if the redemption request is
received after 12 noon, New York City time. However, redemption payments will
not be effected unless the check (including a certified or cashier's check) used
for investment has been cleared for payment by the investor's bank, currently
considered by the Fund to occur within 15 days after investment.
A shareholder's original new account application permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original new account application by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee. When a
signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and guaranteed by an eligible guarantor
institution which includes a domestic bank, a domestic savings and loan
institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund addressed to:
FFB Funds
P.O. Box 4490
Grand Central Station
New York, N.Y. 10163
If shares to be redeemed have a value of $25,000 or more, the signature(s) must
be guaranteed by a commercial bank which is a member of the Federal Deposit
Insurance Corporation, a trust company, a member firm of a domestic stock
exchange or a foreign branch of any of the foregoing or an approved savings bank
or savings and loan association. A signature guarantee by a non-approved savings
bank or a notary public is not acceptable. Further documentation such as copies
of corporate resolutions and instruments of authority, 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. If shares to be redeemed are held in certificate form,
enclose the certificates with the letter. Do not sign the certificates and for
protection use registered mail.
Upon request, the proceeds of a redemption amounting to $1,000 or more will be
sent by wire to the shareholder's predesignated bank account. When proceeds of a
redemption are to be paid to someone other than the shareholder either by wire
or check, the signature(s) on the letter of instruction must be guaranteed
regardless of the amount of the redemption. Normally the redemption proceeds are
paid by check mailed to the shareholder of record.
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<PAGE>
Checks
By making the appropriate election on their new account application,
shareholders may request a supply of checks which may be used to effect
redemptions. The checks, which will be issued in the shareholder's name, are
drawn on a special account maintained by the Fund with the Fund's agent bank.
Checks may be drawn in any amount of $500 or more. When a check is presented to
the Fund's agent bank for payment, it instructs the transfer agent to redeem a
sufficient number of full and fractional shares in the shareholder's account to
cover the amount of the check. The use of a check to make a withdrawal enables a
shareholder in the Fund to receive dividends on the shares to be redeemed up to
the Fund Business Day on which the check clears. Checks provided by the Fund may
not be certified. Fund shares purchased by check may not be redeemed by check
which could take up to 15 days following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank governing checking accounts. Checks
drawn on a jointly owned account may, at the shareholder's election, require
only one signature. The Fund's agent bank will not honor checks which are in
amounts exceeding the value of the shareholder's account at the time the check
is presented for payment. Since the dollar value of the account changes daily,
the total value of the account may not be determined in advance and the account
may not be entirely redeemed by check. In addition, the Fund reserves the right
to charge the shareholder's account a fee up to $20 for checks not honored as a
result of an insufficient account value, a check deemed not negotiable because
it has been held longer than six months, an unsigned check and a post-dated
check. The Fund reserves the right to terminate or modify the check redemption
procedure at any time or to impose additional fees following notification to the
Fund's shareholders.
Investors wishing to avail themselves of this method of redemption should elect
it on their new account application. Individuals and joint tenants are not
required to furnish any supporting documentation. Corporations and other
entities making this election, however, are required to furnish a certified
resolution or other evidence of authorization in accordance with the Fund's
normal practices. Appropriate authorization forms will be sent by the Fund or
its agents to corporations and other shareholders who select this option. As
soon as the authorization forms are filed in good order with the Fund's agent
bank, it will provide the shareholder with a supply of checks. This checking
service may be terminated or modified at any time.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption may be sent to the
shareholders at their addresses or, if in excess of $1,000, to their bank
accounts, both as set forth in the new account application or in a subsequent
written authorization. The Fund may accept telephone redemption instructions
from any person with respect to accounts of shareholders who elect this service
and thus such shareholders risk possible loss of principal and interest in the
event of a telephone redemption not authorized by them. The Fund will employ
reasonable procedures to confirm that telephone redemption instructions are
genuine, and will require that shareholders electing such option provide a form
of personal identification. 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.
A shareholder making a telephone withdrawal should call the Fund at
1-800-437-8790 and state (i) the name of the shareholder appearing on the Fund's
records, (ii) the shareholder's account number with the Fund, (iii) the amount
to be withdrawn, (iv) whether such amount is to be forwarded to the
shareholder's designated bank account or address, (v) the name of the person
requesting the redemption. Usually the proceeds are sent to the designated bank
account or address on the same Fund Business Day the redemption is effected,
provided the redemption request is received before 12 noon, New York City time.
The Fund reserves the right to terminate or modify the telephone redemption
service in whole or in part at any time and will notify shareholders
accordingly.
12
<PAGE>
Exchange Privilege
Shareholders of the FFB shares who have held all or part of their shares for at
least seven days may exchange at relative net asset value, plus any applicable
sales charge, for FFB Shares of (i) any other mutual fund for which FFB,
National Association, New Jersey is the Advisor and FFB Funds Distributor, Inc.
is also the Distributor and (ii) the FFB shares of any New England Investment
Companies, L.P. sponsored funds. For additional information about exchanges and
copies of prospectuses of the funds available, shareholders should call or
write:
FFB Funds Distributor, Inc.
P.O. Box 4490
Grand Central Station
New York, N.Y. 10163
1-800-437-8790
The prospectus of the FFB Mutual Fund into which shares are being exchanged
should be read carefully prior to any exchange and retained for future
reference.
Exchanges may be made by writing the Transfer Agent or through the Participating
Organization. For shareholders to whom the minimum investment restrictions
apply, the minimum amount which may be exchanged into a Fund in which shares are
not held is $1,000; no partial exchange may be made if, as a result, such
shareholder's interest in the Fund from which the exchange is made would be
reduced to less than $1,000. There is no charge for exchanges. Before effecting
an exchange, shareholders should review the Prospectus (and, if applicable, the
Prospectus for any other Fund).
An exchange of shares is taxable as a redemption on which gain or loss may be
recognized for Federal income tax purposes. Ordinarily, there should not be any
gain or loss on the redemption of Fund shares because the Fund seeks to maintain
a constant net asset value of $1.00. See the Statement of Additional Information
for further details.
Specified Amount Automatic Withdrawal Plan
An owner of $12,000 or more of shares in the Fund may elect to withdraw shares
and receive payment from the Fund of a specified amount of $100 or more
automatically on a monthly or quarterly basis in an amount approved and
confirmed by the Manager. In order to make a payment, a number of shares equal
in aggregate net asset value to the payment amount are redeemed at their net
asset value. To the extent that the redemptions to make plan payments exceed the
number of shares purchased through reinvestment of dividends and distributions,
the redemptions reduce the number of shares purchased on original investment,
and may ultimately liquidate a shareholder's investment.
The election to receive automatic withdrawal payments may be made at the time of
the original investment by so indicating on the new account application. The
election may also be made, changed or terminated at any later time by the
participant. Because the withdrawal plan involves the redemption of Fund shares,
such withdrawals may constitute taxable events to the shareholder, but the Fund
does not expect that there will be any realizable capital gains.
Investments Through Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Fund. When instructed by its customer to purchase
or redeem Fund shares, the Participating Organization, on behalf of the
customer, transmits to the Fund's transfer agent a purchase or redemption order,
and in the case of a purchase order, payment for the shares being purchased. No
certificates are issued with respect to investments made in the Fund.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of FFB shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of FFB shares owned by each customer
as of the statement closing date, purchases and redemptions of FFB shares by
each customer during the period covered by the statement and the income earned
by FFB shares of each customer during the statement period (including dividends
paid in cash or reinvested in additional FFB shares).
13
<PAGE>
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which FFB shares may be purchased
and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Manager for providing such services. However, this is an unsettled area of the
law and if a determination contrary to the Fund management's position is made by
a bank regulatory agency or court concerning shareholder servicing and
administration payments to banks from the Manager, any such payments will be
terminated and any shares registered in the banks' names, for their underlying
customers, will be re-registered in the name of the customers at no cost to the
Fund or its shareholders. In addition, state securities laws may differ on this
issue from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as underwriters, distributors
or dealers pursuant to state law.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day provided that the Federal Funds required in connection with the orders
are received by the Fund's transfer agent before 4:00 p.m., New York City time,
on that day. Orders for which Federal Funds are received after 4:00 p.m., New
York City time, will not result in share issuance until the following Fund
Business Day.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by the Rule. The Fund's Board of Directors has adopted a
distribution and service plan (the "Plan") and, pursuant to the Plan, the Fund
has entered into a Distribution Agreement with Reich & Tang Distributors L.P.
(the "Distributor") and a Shareholder Servicing Agreement with the Manager and
the Distributor.
Reich & Tang Asset Management, Inc. serves as the sole general partner
for both Reich & Tang Asset Management L.P. and Reich & Tang Distributors L.P.
and New England Investment Companies, L.P. serves as the sole limited partner of
the Distributor.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
For its services under the Shareholder Servicing Agreement, the Distributor
receives from the Fund a service fee equal to .20 % per annum of the Fund's
average daily net assets (the "Shareholder Servicing Fee"). The fee is accrued
daily and paid monthly and any portion of the fee may be deemed to be used by
the Distributor for purposes of distribution of Fund shares and for payments to
Participating Organizations with respect to servicing their clients or customers
who are shareholders of the Fund.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Manager and Distributor in carrying out their obligations under the
Shareholder Servicing Agreement and (ii) preparing, printing and delivering the
Fund's prospectus to existing shareholders of the Fund and preparing and
printing subscription application forms for shareholder accounts.
14
<PAGE>
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the Management Fee and past profits for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements, for performing shareholder servicing and related
administrative functions on behalf of the Fund; (ii) to compensate certain
Participating Organizations for providing assistance in distributing the Fund's
shares; (iii) and to pay the costs of printing and distributing the Fund's
prospectus to prospective investors, and to defray the cost of the preparation
and printing of brochures and other promotional materials, mailings to
prospective shareholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Fund's shares. The Distributor may also make payments
from time to time from its own resources, which may include the Shareholder
Servicing Fee and past profits, for the purposes enumerated in (i) above. The
Manager and the Distributor may make payments to Participating Organizations for
providing certain of such services up to a maximum of (on an annualized basis)
.40% of the average daily net asset value of the shares serviced through the
Participating Organization. However, the Distributor in its sole discretion,
will determine the amount of such payments made pursuant to the Plan, provided
that such payments will not increase the amount which the Fund is required to
pay to the Manager and the Distributor for any fiscal year under the Investment
Management Contract, the Shareholder Servicing Agreement in effect for that
year.
For the fiscal year ended January 31, 1995, the total amount spent pursuant to
the Plan was .21% of the average daily net assets of the Fund, of which .20% of
the average daily net assets was paid by the Fund to the Manager, pursuant to
the Shareholder Servicing Agreement and an amount representing .01% of the
average daily net assets was paid by the Manager (which may be deemed an
indirect payment by the Fund).
FEDERAL INCOME TAXES
The Fund has elected to qualify under the Code as a regulated investment company
that distributes "exempt-interest dividends" as defined in the Code. The Fund's
policy is to distribute as dividends each year 100% (and in no event less than
90%) of its tax-exempt interest income, net of certain deductions, and its
investment company taxable income (if any). If distributions are made in this
manner, dividends designated as derived from the interest earned on Municipal
Obligations are "exempt-interest dividends" and are not subject to regular
Federal income tax although such "exempt-interest dividends" may be subject to
Federal alternative minimum tax. Dividends paid from taxable income, if any, and
distributions of any realized short-term capital gains (whether from tax-exempt
or taxable obligations) are taxable to shareholders as ordinary income for
Federal income tax purposes, whether received in cash or reinvested in
additional shares of the Fund. The Fund does not expect to realize long-term
capital gains, and thus does not contemplate distributing "capital gain
dividends" or having undistributed capital gain income within the meaning of the
Code. The Fund will inform shareholders of the amount and nature of its income
and gains in a written notice mailed to shareholders not later than 60 days
after the close of the Fund's taxable year. For Social Security recipients,
interest on tax-exempt bonds, including tax-exempt interest dividends paid by
the Fund, is to be added to adjusted gross income for purposes of computing the
amount of Social Security benefits includible in gross income. The Revenue
Reconciliation Act of 1993 (P.L. 103-66) and other recent tax legislation
affects many of the Federal tax aspects of Municipal Obligations and makes many
important changes to the Federal income tax system, including an increase in
marginal tax rates. In addition to these changes, the Tax Reform Act of 1986
(P.L. 99-514) limited the annual amount of many types of tax-exempt bonds that a
state may issue and revised current arbitrage restrictions. P.L. 99-514 also
provided that interest on certain "private activity bonds" (generally, a bond
issue in which more than 10% of the proceeds are used for a non-governmental
trade or business and which meets the private security or payment test, or a
bond issue which meets the private loan financing test) issued after August 7,
1986 will constitute an item of tax preference subject to the individual
alternative minimum tax and P.L. 103-66 increases the alternative minimum tax
rate for taxpayers other than corporations to up to 28%. Further, corporations
will be required to include in alternative minimum taxable income, 75% of the
amount by which their adjusted current earnings (including generally, tax-exempt
interest) exceeds their alternative minimum taxable income (determined without
this item). Certain tax-exempt interest is also included in the tax base for the
additional corporate minimum tax imposed by the Superfund Amendments and
Reauthorization Act of 1986 for taxable years beginning before January 1, 1996.
In addition, in certain cases Subchapter S corporations with accumulated
earnings and profits from Subchapter C years will be subject to a tax on
"passive investment income," including tax-exempt interest.
15
<PAGE>
With respect to variable rate demand instruments, including participation
certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner thereof and that the interest on the underlying Municipal Obligations
will be tax-exempt from Federal income taxes to the Fund. Counsel has pointed
out that the Internal Revenue Service has announced that it will not ordinarily
issue advance rulings on the question of the ownership of securities or
participation interests therein subject to a put and could reach a conclusion
different from that reached by counsel. (See "Federal Income Taxes" in the
Statement of Additional Information.)
In South Carolina v. Baker, the U.S. Supreme Court held that the Federal
government may constitutionally require states to register bonds which they
issue and may subject the interest on such bonds to Federal tax if not
registered, and the Court further held that there is no constitutional
prohibition against the Federal government taxing the interest earned on state
or other municipal bonds. The Supreme Court decision affirms the authority of
the Federal government to regulate and control bonds such as the Municipal
Obligations and to tax such bonds in the future. The decision does not, however,
affect the current exemption from taxation of the interest earned on the
Municipal Obligations in accordance with Section 103 of the Code.
CONNECTICUT INCOME TAXES
The designation of all or a portion of a dividend paid by the Fund as an
"exempt-interest dividend" under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. However, in the opinion of Day, Berry & Howard, special Connecticut
tax counsel to the Fund, exempt-interest dividends correctly designated as
derived from Connecticut Municipal Obligations received by the Fund are not
subject to the Connecticut Personal Income Tax.
Exempt-interest dividends that are not derived from Connecticut Municipal
Obligations and any other dividends of the Fund treated as ordinary income for
Federal income tax purposes are includible in a taxpayer's tax base for the
purposes of the Connecticut Personal Income Tax.
While capital gain dividends are not anticipated by the Fund, capital gain
dividends and amounts, if any, in respect of undistributed long-term capital
gains of the Fund would be includible in a taxpayer's tax base for purposes of
the Connecticut Personal Income Tax, as would gains, if any, recognized upon the
redemption, sale, or exchange of shares of the Fund, except that capital gain
dividends derived from obligations issued by or on behalf of the State of
Connecticut, its political subdivisions, or any public instrumentality, state or
local authority, district or similar public entity created under Connecticut law
("Connecticut Obligations") are not subject to the tax.
Exempt-interest dividends, other than those derived from Connecticut Municipal
Obligations, that are subject to the Federal alternative minimum tax are subject
to the net Connecticut minimum tax.
All exempt-interest dividends are includible in gross income purposes of to the
Connecticut Corporation Business Tax payable by corporations. However, the
Corporation Business Tax allows a deduction for a portion of amounts includible
in gross income thereunder to the extent they are treated as dividends other
than exempt-interest dividends or capital gain dividends for Federal income tax
purposes, but disallows deductions for expenses related to such amounts.
Shareholders are urged to consult their tax advisors with respect to the
treatment of distributions from the Fund in their own states and localities.
16
<PAGE>
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on March 8,
1985 and it is registered with the Securities and Exchange Commission as a
non-diversified, open-end management investment company.
The Fund prepares semi-annual unaudited and annual audited reports which include
a list of investment securities held by the Fund and which are sent to
shareholders.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-Laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of the revised
investment advisory contracts with respect to a particular class or series of
stock, (c) for approval of revisions to the Fund's distribution agreement with
respect to a particular class or series of stock, and (d) upon the written
request of holders or shares entitled to cast 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 Act including the removal of Fund director(s) and communication among
shareholders, any registration of the Fund with the Securities and Exchange
Commission or any state, or as the Directors may consider necessary or
desirable. Each Director serves until the next meeting of the shareholders
called for the purpose of considering the election or reelection of such
Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such a meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's registration statement filed with the Securities
and Exchange Commission, including the exhibits thereto. The Registration
Statement and the exhibits thereto may be examined at the Securities and
Exchange Commission and copies thereof may be obtained upon payment of certain
duplicating fees.
NET ASSET VALUE
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. Fund Business Day means weekdays (Monday
through Friday) except customary business holidays and Good Friday. It is
computed by dividing the value of the Fund's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued but excluding capital stock and surplus) by the total number of shares
outstanding.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument is higher or lower
than the price an investment company would receive if the instrument were sold.
The Fund intends to maintain a stable net asset value at $1.00 per share
although there can be no assurance that this will be achieved.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is custodian for the Fund's cash and securities and Investors Financial
Service Company, 811 Main Street, Kansas City, Missouri 64105 is the transfer
agent and dividend agent for the shares of the Fund. The Fund's custodian and
transfer agent does not assist in, and is not responsible for, investment
decisions involving assets of the Fund.
17
<PAGE>
THE FFB FUNDS
THE FFB SHARES OF
CONNECTICUT
DAILY
TAX FREE
TABLE OF CONTENTS INCOME
FUND, INC.
Table of Fees and Expenses....................2
Selected Financial Information................2
Introduction..................................3
Investment Objectives, Policies and Risk
Considerations...........................4
Connecticut Risk Factors......................7
Management of the Fund........................9
Description of Common Stock..................10
Dividends and Distributions..................11 PROSPECTUS
How to Purchase and Redeem Shares............11
Initial Purchase of FFB Shares...........12 June 1, 1995
Subsequent Purchases of Shares...........13
Redemption of Shares.....................13
Exchange Privilege.......................15
Specified Amount
Automatic Withdrawal Plan................15
Investments Through Participating
Organizations........................ 15
Distribution and Service Plan................16
Federal Income Taxes.........................17
Connecticut Income Taxes.....................18
General Information..........................18
Net Asset Value..............................19
Custodian, Transfer Agent and
Dividend Agent............................19
No dealer, salesman, or other person has been authorized to give any information
or to make any representations, other than those contained in the Prospectus, in
connection with those contained in this Prospectus, and if given or made, such
other information or representations must not be relied upon as having been
authorized by the Trust, the Distributor or the Investement Adviser. This
Prospectus does not constitiute an offering in any state in which such offering
may not lawfully be made.
<PAGE>
________________________________________________________________________________
CONNECTICUT 600 FIFTH AVENUE
DAILY TAX FREE New York, NY 10020
INCOME FUND, INC. (212)830-5220
===============================================================================
STATEMENT OF ADDITIONAL INFORMATION
June 1, 1995
Relating to the Connecticut Daily Tax Free Income Fund, Inc.,
the
Vista Select Shares of Connecticut Daily Tax Free Income, Inc.
and the
FFB Shares of Connecticut Daily Tax Free Income Fund, Inc.
Prospectuses dated June 1, 1995
This Statement of Additional Information, although not in itself a
Prospectus, expands upon and supplements the information contained in the
current Prospectus of Connecticut Daily Tax Free Income Fund, Inc. (the "Fund"),
dated June 1, 1995 and should be read in conjunction with the Prospectus. The
Fund's Prospectus may be obtained from any Participating Organization or by
writing or calling the Fund. This Statement of Additional Information is
incorporated by reference into the respective Prospectus in its entirety.
If you wish to invest in Vista Select Shares of Connecticut Daily Tax Free
Income Fund, Inc., you should obtain a separate prospectus by writing to Vista
Service Center, P.O. Box 419392, Kansas City, Missouri 64141-6392 or by calling
(800) 34-VISTA.
Investors may obtain a current prospectus or invest in the FFB Shares of
Connecticut Daily Tax Free Income Fund, Inc. by writing to FFB Funds, P.O. Box
4490 Grand Central Station, New York, New York 10163 or by calling
(800)437-8790.
<TABLE>
<CAPTION>
Table of Contents
<C> <C>
Investment Objectives, Policies and Risks............. Manager.............................................
Description of Municipal Obligations.................. Expense Limitation.............................
Variable Rate Demand Instruments ... Management of the Fund..............................
and Participation Certificates.................... Compensation Table.............................
When-Issued Securities.............................. Counsel and Auditors...........................
Stand-by Commitments................................ Distribution and Service Plan.......................
Taxable Securities.................................. Description of Common Stock.........................
Repurchase Agreements............................ Federal Income Taxes................................
Connecticut Risk Factors............................ Connecticut Income Taxes.............................
Investment Restrictions............................... Custodian, Transfer Agent and
Portfolio Transactions............................... Dividend Agent.................................
How to Purchase and Redeem Shares..................... Description of Ratings..............................
Net Asset Value....................................... Tax Equivalent Yield Table..........................
Yield Quotations....................................... Independent Auditor's Report........................
Financial Statements................................
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
As stated in the Prospectus, the Fund is a non-diversified, open-end management
investment company that is a short-term, tax-exempt money market fund. The
Fund's investment objectives are to seek as high a level of current income,
exempt from Federal income taxes and, to the extent possible, from Connecticut
personal income taxes (the "Connecticut Personal Income Tax"), as is believed to
be consistent with preservation of capital, maintenance of liquidity and
stability of principal. No assurance can be given that these objectives will be
achieved. The following discussion expands upon the description of the Fund's
investment objectives and policies in the Prospectus.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of Connecticut, other states, territories
and possessions of the United States, and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which currently is
exempt from Federal income taxation ("Municipal Obligations") and in
participation certificates in Municipal Obligations purchased from banks,
insurance companies or other financial institutions. Dividends paid by the Fund
which are "exempt-interest dividends" by virtue of being properly designated as
derived from Municipal Obligations and participation certificates in Municipal
Obligations will be exempt from Federal income tax provided the Fund complies
with Section 852(b)(5) of Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code"). Although the Supreme Court has determined that Congress
has the authority to subject the interest on bonds such as the Municipal
Obligations to regular Federal income taxation, existing law excludes such
interest from regular Federal income tax. However, "exempt-interest dividends"
may be subject to the Federal alternative minimum tax. (See "Federal Income
Taxes" herein.) Exempt-interest dividends paid by the Fund correctly identified
as derived from obligations issued by or on behalf of the State of Connecticut,
any political subdivisions thereof, or public instrumentality, state or local
authority, district, or similar public entity created under the laws of
Connecticut or from obligations (such as certain obligations issued by or on
behalf of possessions or territories of the United States) the interest on which
Federal law prohibits the states from taxing ("Connecticut Municipal
Obligations") will be exempt from the Connecticut Personal Income Tax. (See
"Connecticut Income Taxes" herein.) To the extent suitable Connecticut Municipal
Obligations are not available for investment by the Fund, the Fund may purchase
Municipal Obligations issued by other states, their agencies and
instrumentalities or other obligations, the dividends designated as derived from
interest income on which will be exempt from Federal income tax but will be
subject to the Connecticut Personal Income Tax. Except as a temporary defensive
measure during periods of adverse market conditions as determined by the
Manager, the Fund will invest at least 65% of its assets in Connecticut
Municipal Obligations, the exempt-interest dividends derived from which are
exempt from the Connecticut Personal Income Tax, although the exact amount of
the Fund's assets invested in such securities will vary from time to time. The
Fund seeks to maintain an investment portfolio with a dollar-weighted average
maturity of 90 days or less and to value its investment portfolio at amortized
cost and maintain a net asset value at a $1.00 per share. There can be no
assurance that this value will be maintained. The Fund may hold uninvested cash
reserves pending investment. The Fund's investments may include "when-issued"
Municipal Obligations, stand-by commitments and taxable repurchase agreements.
2
<PAGE>
Although the Fund will attempt to invest 100% of its assets in Municipal
Obligations, the Fund reserves the right to invest up to 20% of the value of its
net assets in securities, the interest income on which is subject to Federal,
state and local income tax. The Fund expects to invest more than 25% of its
assets in participation certificates purchased from banks in industrial revenue
bonds and other Connecticut Municipal Obligations. In view of this
"concentration" in bank participation certificates in Connecticut Municipal
Obligations, an investment in Fund shares should be made with an understanding
of the characteristics of the banking industry and the risks which such an
investment may entail. (See "Variable Rate Demand Instruments and Participation
Certificates" herein.) The investment objectives of the Fund described in this
paragraph may not be changed unless approved by the holders of a majority of the
outstanding shares of the Fund that would be affected by such a change. As used
herein, the term "majority of the outstanding shares" of the Fund means,
respectively, the vote of the lesser of (i) 67% or more of the shares of the
Fund present at a meeting, if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy or (ii) more than 50% of
the outstanding shares of the Fund.
The Fund may only purchase Municipal Obligations that have been determined by
the Fund's Board of Directors to present minimal credit risks and that are
Eligible Securities at the time of acquisition. The term Eligible Securities
means (i) Municipal Obligations with remaining maturities of 397 days or less
and rated in the two highest short-term rating categories by any two nationally
recognized statistical rating organizations ("NRSROs") or in such categories by
the only NRSRO that has rated the Municipal Obligations (collectively, the
"Requisite NRSROs") (acquisition in the latter situation must also be ratified
by the Board of Directors); (ii) Municipal Obligations with remaining maturities
of 397 days or less but that at the time of issuance were long-term securities
(i.e., with maturities greater than 366 days) and whose issuer has received from
the Requisite NRSROs a rating with respect to comparable short-term debt in the
two highest short-term rating categories and (iii) unrated Municipal Obligations
determined by the Fund's Board of Directors to be of comparable quality. Where
the issuer of a long-term security with a remaining maturity which would
otherwise qualify it as an Eligible Security, does not have rated short-term
debt outstanding, the long-term security is treated as unrated but may not be
purchased if it has a long-term rating from any NRSRO that is below the two
highest long-term categories. A determination of comparability by the Board of
Directors is made on the basis of its credit evaluation of the issuer, which may
include an evaluation of a letter of credit, guarantee, insurance or other
credit facility issued in support of the Municipal Obligations or participation
certificates. (See "Variable Rate Demand Instruments and Participation
Certificates" herein.) While there are several organizations that currently
qualify as NRSROs, two examples of NRSROs are Standard & Poor's Corporation
("S&P") and Moody's Investors Service, Inc. ("Moody's"). The two highest ratings
by S&P and Moody's are "AAA" and "AA" by S&P in the case of long-term bonds and
notes and "Aaa" and "Aa" by Moody's in the case of bonds; "SP-1" and "SP-2" by
S&P or "MIG-1" and "MIG-2" by Moody's in the case of notes; "A-1" and "A-2" by
S&P or "Prime-1" and "Prime-2" by Moody's, in the case of tax-exempt commercial
paper. The highest rating in the case of variable and floating demand notes is
"VMIG-1" by Moody's and "SP-1/A" by S&P. Such instruments may produce a lower
yield than would be available from less highly rated instruments. The Fund's
Board of Directors has determined that Municipal Obligations which are backed by
the credit of the Federal Government will be considered to have a rating
equivalent to Moody's "Aaa." (See "Description of Ratings" herein.)
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the Investment Company Act of 1940 (the "1940 Act")
with respect to investing its assets in one or relatively few issuers. This
non-diversification may present greater risks than in the case of a diversified
company. However, the Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Code. The Fund will be restricted in that at
the close of each quarter of the taxable year, at least 50% of the value of its
total assets must be represented by cash, government securities, investment
company securities and other securities limited in respect of any one issuer to
not more than 5% in value of the total assets of the Fund and to not more than
10% of the outstanding voting securities of such issuer. In addition, at the
close of each quarter of its taxable year, not more than 25% in value of the
Fund's total assets may be invested in securities of one issuer other than
government securities. The limitations described in this paragraph are not
fundamental policies and may be revised to the extent applicable Federal income
tax requirements are revised. (See "Federal Income Taxes" herein.)
3
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DESCRIPTION OF MUNICIPAL OBLIGATIONS
As used in the Prospectus, "Municipal Obligations" include the following as well
as "Variable Rate Demand Instruments and Participation Certificates" discussed
herein.
1) Municipal Bonds with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. Municipal Bonds are debt
obligations of states, cities, counties, municipalities and municipal
agencies (all of which are generally referred to as "municipalities") which
generally have a maturity at the time of issue of one year or more and
which are issued to raise funds for various public purposes such as
construction of a wide range of public facilities, to refund outstanding
obligations and to obtain funds for institutions and facilities. The two
principal classifications of Municipal Bonds are "general obligation" and
"revenue" bonds. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal
and interest. Issuers of general obligation bonds include states, counties,
cities, towns and other governmental units. The principal of, and interest
on, revenue bonds are payable from the income of specific projects or
authorities and generally are not supported by the issuer's general power
to levy taxes. In some cases, revenues derived from specific taxes are
pledged to support payments on a revenue bond. In addition, certain kinds
of "private activity bonds" are issued by public authorities to provide
funding for various privately operated industrial facilities (hereinafter
referred to as "industrial revenue bonds" or "IRBs"). Interest on the IRBs
is generally exempt, with certain exceptions, from regular Federal income
tax pursuant to Section 103(a) of the Code, provided the issuer and
corporate obligor thereof continue to meet certain conditions. (See
"Federal Income Taxes" herein.) IRBs are, in most cases, revenue bonds and
do not generally constitute the pledge of the credit of the issuer of such
bonds. The payment of the principal and interest on IRBs usually depends
solely on the ability of the user of the facilities financed by the bonds
or other guarantor to meet its financial obligations and, in certain
instances, the pledge of real and personal property as security for
payment. If there is no established secondary market for the IRBs, the IRBs
or the participation certificates in IRBs purchased by the Fund will be
supported by letters of credit, guarantees or insurance that meet the
definition of Eligible Securities at the time of acquisition stated herein
and provide the demand feature which may be exercised by the Fund to
provide liquidity. Shareholders should note that the Fund may invest in
IRBs acquired in transactions involving a Participating Organization. In
accordance with investment restriction 6 herein, the Fund is permitted to
invest up to 10% of the portfolio in high quality, short-term Municipal
Obligations (including IRBs) meeting the definition of Eligible Securities
at the time of acquisition that may not be readily marketable or have a
liquidity feature.
2) Municipal Notes with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. The principal kinds of
Municipal Notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes and project notes. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality or agency. Project notes
are issued by local agencies and are guaranteed by the United States
Department of Housing and Urban Development. Project notes are also secured
by the full faith and credit of the United States. The Fund's investments
may be concentrated in Municipal Notes of Connecticut issuers.
3) Municipal Commercial Paper that is an Eligible Security at the time of
acquisition. Issues of Municipal Commercial Paper typically represent very
short-term, unsecured, negotiable promissory notes. These obligations are
often issued to meet seasonal working capital needs of municipalities or to
provide interim construction financing and are paid from general revenues
of municipalities or are refinanced with long-term debt. In most cases
Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the
event of default by the issuer of the commercial paper.
4) Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications
equipment and other capital assets. Municipal Leases frequently have
special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance
limitations of many state constitutions and
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statutes are deemed to be inapplicable because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. To reduce
this risk, the Fund will only purchase Municipal Leases subject to a
non-appropriation clause where thepayment of principal and accrued interest
is backed by an unconditional irrevocable letter of credit, a guarantee,
insurance or other comparable undertaking of an approved financial
institution. These types of municipal leases may be considered illiquid and
subject to the 10% limitation of investments in illiquid securities set
forth under "Investment Restrictions" contained herein. The Board of
Directors may adopt guidelines and delegate to the Manager the daily
function of determining and monitoring the liquidity of municipal leases.
In making such determination, the Board and the Manager may consider such
factors as the frequency of trades for the obligation, the number of
dealers willing to purchase or sell the obligations and the number of other
potential buyers and the nature of the marketplace for the obligations,
including the time needed to dispose of the obligations and the method of
soliciting offers. If the Board determines that any municipal leases are
illiquid, such lease will be subject to the 10% limitation on investments
in illiquid securities.
5) Any other Federal tax-exempt, and to the extent possible, Connecticut
Dividends and Interest tax-exempt obligations issued by or on behalf of
states and municipal governments and their authorities, agencies,
instrumentalities and political subdivisions, whose inclusion in the Fund
would be consistent with the Fund's "Investment Objectives, Policies and
Risks" and permissible under Rule 2a-7 under the 1940 Act.
Subsequent to its purchase by the Fund, a rated Municipal Obligation may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. If this occurs, the Board of Directors of the Fund shall reassess
promptly whether the Municipal Obligation presents minimal credit risks and
shall cause the Fund to take such action as the Board of Directors determines in
the best interest of the Fund and its shareholders. However, reassessment is not
required if the Municipal Obligation is disposed of or matures within five
business days of the Manager becoming aware of the new rating and provided
further that the Board of Directors is subsequently notified of the Manager's
actions.
In addition, in the event that a Municipal Obligation (1) is in default, (2)
ceases to be an Eligible Security or (3) there is a determination that it no
longer presents minimal credit risks, the Fund will dispose of the Municipal
Obligation absent a determination by the Fund's Board of Directors that disposal
of the Municipal Obligation would not be in the best interests of the Fund. In
the event that the Municipal Obligation is disposed of, it shall be disposed of
as soon as practicable consistent with achieving an orderly disposition by sale,
exercise of any demand feature or otherwise. In the event of a default with
respect to a Municipal Obligation which immediately before default accounted for
1/2 of 1% or more of the Fund's total assets, the Fund shall promptly notify the
Securities and Exchange Commission of such fact and of the actions that the Fund
intends to take in response to the situation. Certain Municipal Obligations
issued by instrumentalities of the United States government are not backed by
the full faith and credit of the United States Treasury but only by the
creditworthiness of the instrumentality. The Fund's Board of Directors has
determined that any Municipal Obligation that depends directly, or indirectly
through a government insurance program or other guarantee, on the full faith and
credit of the United States government will be considered to have a rating in
the highest category. Where necessary to ensure that the Municipal Obligations
are Eligible Securities, or where the obligations are not freely transferable,
the Fund will require that the obligation to pay the principal and accrued
interest be backed by an unconditional irrevocable bank letter of credit, a
guarantee, insurance or other comparable undertaking of an approved financial
institution that would qualify the investment as an Eligible Security.
Variable Rate Demand Instruments
and Participation Certificates
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations that provide for a periodic adjustment in the interest
rate paid on the instrument and permit the holder to demand payment of the
unpaid principal balance plus accrued interest at specified intervals upon a
specified number of days' notice either from the issuer or by drawing on a bank
letter of credit, a guarantee or insurance issued with respect to such
instrument.
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<PAGE>
The variable rate demand instruments in which the Fund may invest are payable on
demand on not more than thirty calendar days' notice and may be exercised either
at any time or at specified intervals not exceeding 397 days depending upon the
terms of the instrument. The terms of the instruments provide that interest
rates are adjustable at intervals ranging from daily to up to 397 days and the
adjustments are based upon the "prime rate"* of a bank or other appropriate
interest rate adjustment index as provided in the respective instruments. The
Fund will decide which variable rate demand instruments it will purchase in
accordance with procedures prescribed by its Board of Directors to minimize
credit risks. A fund utilizing the amortized cost method of valuation under Rule
2a-7 of the 1940 Act may only purchase variable rate demand instruments only if
(i) the instrument is subject to an unconditional demand feature, exercisable by
the Fund in the event of a default in the payment of principal or interest on
the underlying securities, that is an Eligible Security or (ii) the instrument
is not subject to an unconditional demand feature but does qualify as an
Eligible Security and has a long-term rating by the Requisite NRSROs in one of
the two highest rating categories, or if unrated, is determined to be of
comparable quality by the Fund's Board of Directors. The Fund's Board of
Directors may determine that an unrated variable rate demand instrument meets
the Fund's quality criteria if it is backed by a letter of credit or guarantee
or is insured by an insurer that meets the quality criteria for the Fund stated
herein or on the basis of a credit evaluation of the underlying obligor. If an
instrument is ever not deemed to be an Eligible Security, the Fund either will
sell it in the market or exercise the demand feature.
The variable rate demand instruments that the Fund may invest in include
participation certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Obligations (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations. The Fund will not purchase participation certificates
in fixed rate tax-exempt Municipal Obligations without obtaining an opinion of
counsel that the Fund will be treated as the owner thereof for Federal income
tax purposes. A participation certificate gives the Fund an undivided interest
in the Municipal Obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the Municipal Obligation and
provides the demand repurchase feature described below. Where the institution
issuing the participation does not meet the Fund's eligibility criteria, the
participation is backed by an irrevocable letter of credit or guaranty of a bank
(which may be the bank issuing the participation certificate, a bank issuing a
confirming letter of credit to that of the issuing bank, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
certificate of participation) or insurance policy of an insurance company that
the Board of Directors of the Fund has determined meets the prescribed quality
standards for the Fund. The Fund has the right to sell the participation
certificate back to the institution and draw on the letter of credit or
insurance after no more than 30 days' notice, either at any time or at specified
intervals not exceeding 397 days (depending on the terms of the participation),
for all or any part of the full principal amount of the Fund's participation
interest in the security, plus accrued interest. The Fund intends to exercise
the demand only (1) upon a default under the terms of the bond documents, (2) as
______________________
* The "prime rate" is generally the rate charged by a bank to its most
credit-worthy customers for short-term loans. The prime rate of a particular
bank may differ from other banks and will be the rate announced by each bank on
a particular day. Changes in the prime rate may occur with great frequency
and generally become effective on the date announced.
6
<PAGE>
needed to provide liquidity to the Fund in order to make redemptions of Fund
shares or (3) to maintain a high quality investment portfolio. The institutions
issuing the participation certificates will retain a service and letter of
credit fee and a fee for providing the demand repurchase feature, in an amount
equal to the excess of the interest paid on the instruments over the negotiated
yield at which the participations were purchased by the Fund. The total fees
generally range from 5% to 15% of the applicable prime rate or other interest
rate index. With respect to insurance, the Fund will attempt to have the issuer
of the participation certificate bear the cost of the insurance, although the
Fund retains the option to purchase insurance if necessary, in which case the
cost of insurance will be an expense of the Fund subject to the Fund's expense
limitation. (See "Expense Limitation" herein.) The Manager has been instructed
by the Fund's Board of Directors to continually monitor the pricing, quality and
liquidity of the variable rate demand instruments held by the Fund, including
the participation certificates, on the basis of published financial information
and reports of the rating agencies and other bank analytical services to which
the Fund may subscribe. Although these instruments may be sold by the Fund, the
Fund intends to hold them until maturity, except under the circumstances stated
above. (See "Federal Income Taxes" herein.)
In view of the "concentration" of the Fund in bank participation certificates in
Connecticut Municipal Obligations, which may be secured by bank letters of
credit or guarantees, an investment in the Fund should be made with an
understanding of the characteristics of the banking industry and the risks which
such an investment may entail. Banks are subject to extensive governmental
regulations which may limit both the amounts and types of loans and other
financial commitments which may be made and interest rates and fees which may be
charged. The profitability of this industry is largely dependent upon the
availability and cost of capital funds for the purpose of financing lending
operations under prevailing money market conditions. Also, general economic
conditions play an important part in the operations of this industry and
exposure to credit losses arising from possible financial difficulties of
borrowers might affect a bank's ability to meet its obligations under a letter
of credit. The Fund may invest 25% or more of the net assets of any portfolio in
securities that are related in such a way that an economic, business or
political development or change affecting one of the securities would also
affect the other securities including, for example, securities the interest upon
which is paid from revenues of similar type projects, or securities the issuers
of which are located in the same state.
The recent period has seen wide fluctuations in interest rates, particularly
"prime rates" charged by banks. While the value of the underlying variable rate
demand instruments may change with changes in interest rates generally, the
variable rate nature of the underlying variable rate demand instruments should
minimize changes in value of the instruments. Accordingly, as interest rates
decrease or increase, the potential for capital appreciation and the risk of
potential capital depreciation is less than would be the case with a portfolio
of fixed income securities. The portfolio may contain variable rate demand
instruments on which stated minimum or maximum rates, or maximum rates set by
state law limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent it does, increases or decreases in
value may be somewhat greater than would be the case without such limits.
Additionally, the portfolio may contain variable rate demand participation
certificates in fixed rate Municipal Obligations. The fixed rate of interest on
these Municipal Obligations will be a ceiling on the variable rate of the
participation certificate. In the event that interest rates increased so that
the variable rate exceeded the fixed rate on the Municipal Obligations, the
Municipal Obligations could no longer be valued at par and may cause the Fund to
take corrective action, including the elimination of the instruments from the
portfolio. Because the adjustment of interest rates on the variable rate demand
instruments is made in relation to movements of the applicable banks' "prime
rates", or other interest rate adjustment index, the variable rate demand
instruments are not comparable to long-term fixed rate securities. Accordingly,
interest rates on the variable rate demand instruments may be higher or lower
than current market rates for fixed rate obligations of comparable quality with
similar maturities.
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<PAGE>
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (1) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment. The maturity of a variable rate demand instrument will be determined
in the same manner for purposes of computing the Fund's dollar-weighted average
portfolio maturity. If a variable rate demand instrument ceases to be an
Eligible Security, it will be sold in the market or through exercise of the
repurchase demand feature.
When-Issued Securities
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on the Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date of the Fund's
commitment to purchase. Although the Fund will only make commitments to purchase
when-issued Municipal Obligations with the intention of actually acquiring them,
the Fund may sell these securities before the settlement date if deemed
advisable by the Manager.
Municipal Obligations purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way, that is, both experiencing appreciation when interest rates
decline and depreciation when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligation from then available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
income tax.
Stand-by Commitments
When the Fund purchases Municipal Obligations it may also acquire stand-by
commitments from banks and other financial institutions with respect to such
Municipal Obligations. Under a stand-by commitment, a bank or broker-dealer
agrees to purchase at the Fund's option a specified Municipal Obligation at a
specified price with same day settlement. A stand-by commitment is the
equivalent of a "put" option acquired by the Fund with respect to a particular
Municipal Obligation held in its portfolio.
8
<PAGE>
The amount payable to the Fund upon its exercise of a stand-by commitment
normally would be (1) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (2) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank or dealer during the
time a stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment would be unconditional and
unqualified. A stand-by commitment would not be transferable by the Fund,
although it could sell the underlying Municipal Obligation to a third party at
any time.
The Fund expects that stand-by commitments generally will be available without
the payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio would not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after each stand-by
commitment was acquired.
The Fund would enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks and, where the Municipal Obligation does not meet the eligibility
criteria, only where the issuer of the stand-by commitment has received a rating
which meets the eligibility criteria or if not rated, presents a minimal risk of
default as determined by the Board of Directors. The Fund's reliance upon the
credit of these banks and broker-dealers would be supported by the value of the
underlying Municipal Obligations held by the Fund that were subject to the
commitment.
The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income taxes
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment.
The acquisition of a stand-by commitment would not affect the valuation or
assumed maturity of the underlying Municipal Obligations which will continue to
be valued in accordance with the amortized cost method. Stand-by commitments
acquired by the Fund would be valued at zero in determining net asset value. In
those cases in which the Fund paid directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment is held by the Fund. Stand-by commitments
would not affect the dollar-weighted average maturity of the Fund's portfolio.
The maturity of a security subject to a stand-by commitment is longer than the
stand-by repurchase date.
The stand-by commitments that the Fund may enter into are subject to certain
risks which include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.
ln addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by commitments will be exempt from Federal income taxation. (See
"Federal Income Taxes" herein.) ln the absence of a favorable tax ruling or
opinion of counsel, the Fund will not engage in the purchase of securities
subject to stand-by commitments.
9
<PAGE>
TAXABLE SECURITIES
Although the Fund will attempt to invest 100% of its net assets in Municipal
Obligations, the Fund may invest up to 20% of the value of its total assets in
securities of the kind described below, the interest income on which is subject
to Federal income tax, under any one or more of the following circumstances: (a)
pending investment of proceeds of sales of Fund shares or of portfolio
securities, (b) pending settlement of purchases of portfolio securities and (c)
to maintain liquidity for the purpose of meeting anticipated redemptions. In
addition, the Fund may temporarily invest more than 20% in such taxable
securities when, in the opinion of the Manager, it is advisable to do so because
of adverse market conditions affecting the market for Municipal Obligations. The
kinds of taxable securities in which the Fund may invest are limited to the
following short-term, fixed-income securities (maturing in 397 days or less from
the time of purchase): (1) obligations of the United States government or its
agencies, instrumentalities or authorities; (2) commercial paper meeting the
definition of Eligible Securities at the time of acquisition; (3) certificates
of deposit of domestic banks with assets of $1 billion or more; and (4)
repurchase agreements with respect to any Municipal Obligations or other
securities which the Fund is permitted to own. (See "Federal Income Taxes"
herein.)
Repurchase Agreements
The Fund may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Fund would acquire an underlying
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the 1940 Act. All repurchase agreements entered
into by the Fund shall be fully collateralized at all times during the period of
the agreement in that the value of the underlying security shall be at least
equal to the amount of the loan, including the accrued interest thereon, and the
Fund or its custodian shall have possession of the collateral, which the Fund's
Board believes will give it a valid, perfected security interest in the
collateral. ln the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur costs
in connection with the disposition of the collateral. The Fund's Board believes
that the collateral underlying repurchase agreements may be more susceptible to
claims of the seller's creditors than would be the case with securities owned by
the Fund. It is expected that repurchase agreements will give rise to income
which will not qualify as tax-exempt income when distributed by the Fund. The
Fund will not invest in a repurchase agreement maturing in more than seven days
if any such investment together with illiquid securities held by the Fund exceed
10% of the Fund's total net assets. (See Investment Restriction Number 6
herein.) Repurchase agreements are subject to the same risks described herein
for stand-by commitments.
CONNECTICUT RISK FACTORS
As referred to in the Prospectus, the safety of an investment in the Fund
depends importantly on the fiscal stability of Connecticut and its subdivisions,
agencies, instrumentalities or authorities, which issue the Connecticut
Municipal Obligations in which the Fund's investments are concentrated.
10
<PAGE>
Manufacturing has traditionally been of prime economic importance to
Connecticut. The manufacturing industry is diversified, with transportation
equipment (primarily aircraft engines, helicopters and submarines) the dominant
industry, followed by fabricated metal products, non-electrical machinery and
electrical machinery. From 1970 to 1993, however, a substantial rise in
employment in service-related industries occurred. During this period,
manufacturing employment declined 33.5%, while the number of persons employed in
other non-agricultural establishments (including government) increased 63.3%. In
1993, manufacturing accounted for only 19.2% of total non-agricultural
employment in Connecticut. Defense-related business plays an important role in
the Connecticut economy, and defense awards to Connecticut have traditionally
been among the highest in the nation on a per capita basis, with the result that
recent reductions in defense spending have had a substantial adverse impact on
Connecticut's economy. Moreover, the State's largest defense contractors have
announced substantial planned labor force reductions scheduled to occur over the
next four years.
The annual average unemployment rate (seasonally adjusted) in Connecticut
decreased from 6.9% in 1982 to a low of 3.0% in 1988 but rose to 7.2% in 1992.
While the rates were lower than those recorded for the United States as a whole
for the same periods, as of May 1993, the estimated rate of unemployment in
Connecticut on a seasonly adjusted basis reached 7.4%, compared to only 6.9% for
the United States nationwide, and pockets of significant unemployment and
poverty exist in some of Connecticut's cities and towns. Moreover, Connecticut
is now in a recession the depth and duration of which are uncertain.
The State derives over 70% of its revenues from taxes imposed by the State. The
two major taxes have been the sales and use tax and the corporation business
tax, each of which is sensitive to changes in the level of economic activity in
the State, but the Connecticut Personal Income Tax enacted in 1991, on
individuals, trusts and estates, has superseded each of them in importance.
The State's General Fund budget for the year ended June 30, 1988, anticipated
appropriations and revenues of approximately $4,915,800,000. However, the
General Fund ended that year with a deficit of $115,600,000. The General Fund
budget for the year ended June 30, 1989, anticipated that General Fund
expenditures of $5,551,000,000 and certain educational expenses of $206,700,000
not previously paid through the General Fund would be financed in part from
surpluses of prior years and in part from higher tax revenues projected to
result from tax laws previously in effect and stricter enforcement thereof.
Largely because of tax law changes that took effect before the end of the year,
the General Fund ended that year with a deficit of only $28,000,000. The General
Fund budget for the year ending June 30, 1990, anticipated appropriations of
approximately $6,224,500,000 and, by virtue of tax increases enacted to take
effect generally at the beginning of the year, revenues slightly exceeding such
amount. However, largely because of tax revenue shortfalls, the General Fund
ended the year with an operating deficit for the year of $259,000,000, wiping
out reserves for such events built up in prior years. The General Fund budget
for the year ended June 30, 1991, anticipated expenditures of $6,433,000,000,
but no significant new or increased taxes were enacted. Primarily because of
significant declines in tax revenues and unanticipated expenditures reflective
of economic adversity, the General Fund experienced a further deficit for the
year alone of $809,000,000. A General Fund budget was not enacted for the year
ending June 30, 1992, until August 22, 1991. This budget anticipated General
Fund expenditures of $7,007,861,328 and revenues of $7,426,390,000. Anticipated
decreases in revenues resulting from a 25% reduction in the sales tax rate
effective October 1, 1991, the repeal of the taxes on the capital gains and
interest and dividend income of resident individuals for years starting after
1991, and the phase-out of the corporation business tax surcharge over two years
commencing with years starting after 1991 were expected to be more than offset
by a new general income tax imposed at effective rates not to exceed 4.5% on the
Connecticut taxable income of resident and non-resident individuals, trusts, and
estates. The General Fund experienced operating surpluses of $110,000,000 for
the year ended June 30, 1992 and $113,500,000 for the year ended June 30, 1993.
Balanced General Fund budgets for the biennium ending June 30, 1995, were
adopted appropriating expenditures of $7,829,000,000 for the year ending June
30, 1994, and $8,266,000,000 for the year ending June 30, 1995. The General Fund
experienced an operating surplus of $19,700,000 for the year ended June 30,
1994. In 1994 the budgeted General Fund appropriations for the year ending June
30, 1995 were increased to $8,567,200,000.
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<PAGE>
The primary method for financing capital projects by the State is
through the sale of its general obligation bonds. These bonds are backed by the
full faith and credit of the State. As of March 1, 1995, there was a total
legislatively authorized bond indebtedness of $10,194,811,925 of which
$8,673,257,266 had been approved for issuance by the State Bond Commission and
$7,334,468,633.09 had been issued.
To fund operating cash requirements, prior to the year ending June 30, 1992, the
State borrowed up to $750,000,000 pursuant to authorization to issue commercial
paper and on July 29, 1991, it issued $200,000,000 General Obligation Temporary
Notes, none of which temporary borrowings were outstanding as of March 31, 1993.
To fund the cumulative General Fund deficit for the year ended June 30, 1990 and
1991, the legislation enacted August 22, 1991, authorized the State Treasurer to
issue Economic Recovery Notes up to the aggregate amount of such deficit, which
must be payable no later than June 30, 1996; at least $50,000,000 of such Notes,
but not more than a cap amount, is to be retired each fiscal year commencing
with the year ending June 30, 1992 and any unappropriated surplus up to
$205,000,000 in the General Fund at the end of each of the three fiscal years
commencing with the year ending June 30, 1992 must be applied to retire such
Notes as may remain outstanding at those times. On September 25, 1991 and
October 24, 1991, the State issued $640,710,000 and $325,000,000, respectively,
of such Economic Recovery Notes, of which $455,610,000 remained outstanding as
of March 1, 1995.
The repair and maintenance of the State's highways and bridges will require
major expenditures projected to total $9.4 billion over the twelve years
commencing July 1, 1984. The State expects to issue $3.7 billion of bonds as the
method to finance its $4.1 billion share of the costs. These would be supported
through a fund comprised of motor vehicle and other transportation-related taxes
and fees.
The State's budget problems led to the ratings of its general obligation bonds
being reduced by S&P from AA+ to AA on March 29, 1990 and by Moody's from Aa-1
to Aa on April 9, 1990. Because of concerns over Connecticut's lack of a plan to
deal during the current fiscal year with the accumulated deficits in its General
Fund, on September 13, 1991, S&P further reduced the ratings of the State's
general obligation bonds and certain other obligations that depend in part on
the creditworthiness of the State to AA-. On March 7, 1991, Moody's downgraded
its ratings of the revenue bonds of four Connecticut hospitals because of the
effects of the State's restrictive controlled reimbursement environment under
which they have been operating. Fitch downgraded its rating of the State's
general obligation bonds from AA= to AA in March, 1995.
General obligation bonds issued by municipalities are payable primarily from ad
valorem taxes on property subject to taxation by the municipality. Certain
Connecticut municipalities have experienced severe fiscal difficulties and have
reported operating and accumulated deficits in recent years. The most notable of
these is the City of Bridgeport, which filed a bankruptcy petition on June 7,
1991. The State opposed the petition. The United States Bankruptcy Court for the
District of Connecticut has held that Bridgeport has authority to file such a
petition but that its petition should be dismissed on the grounds that
Bridgeport was not insolvent when the petition was filed.
The effect of these factors on the abilitythe State and its political
subdivisions to pay interest and principal on their obligations remains unclear.
12
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios and which may not be changed unless approved by a
majority of the outstanding shares of each series of the Fund's shares that
would be affected by such a change. The Fund may not:
1. Make portfolio investments other than as described under "Investment
Objectives, Policies and Risks" or any other form of Federal tax-exempt
investment which meets the Fund's high quality criteria, as determined by
the Board of Directors and which is consistent with the Fund's objectives
and policies.
2. Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any investments. lnterest paid on borrowings will reduce
net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options, except to the extent that securities subject to a demand
obligation and stand-by commitments may be purchased as set forth under
"Investment Objectives, Policies and Risks."
5. Underwrite the securities of other issuers, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
6. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may
purchase variable rate demand instruments which contain a demand feature.
The Fund will not invest in a repurchase agreement maturing in more than
seven days if any such investment together with securities that are not
readily marketable held by the Fund exceed 10% of the Fund's total net
assets.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this
shall not prevent the Fund from investing in Municipal Obligations secured
by real estate or interests in real estate.
8. Make loans to others, except through the purchase of portfolio investments,
including repurchase agreements, as described under "Investment Objectives,
Policies and Risks."
9. Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
10. Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that the Fund may invest more than 25% of its
assets in bank participation certificates and there shall be no limitation
on the purchase of those Municipal Obligations and other obligations issued
or guaranteed by the United States government, its agencies or
instrumentalities. When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from those of
the government creating the issuing entity and a security is backed only by
the assets and revenues of the entity, the entity would be deemed to be the
sole issuer of the security. Similarly, in the case of an industrial
revenue bond, if that bond is backed only by the assets and revenues of the
non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. If, however, in either case, the creating government or
some other entity, such as an insurance company or other corporate obligor,
guarantees a security or a bank issues a letter of credit, such a guarantee
or letter of credit would be considered a separate security and would be
treated as an issue of such government, other entity or bank. With respect
to 75% of the total amortized cost value of the Fund's assets, not more
than 5% of the Fund's assets may be invested in securities that are subject
to underlying puts from the same institution, and no single bank shall
issue its letter of credit and no single financial institution shall issue
a credit enhancement covering more than 5% of the total assets of the Fund.
However, if the puts are exercisable by the Fund in the event of default on
payment of principal and interest on the underlying security, then the Fund
may invest up to 10% of its assets in securities underlying puts issued or
guaranteed by the same institution; additionally, a single bank can issue
its letter of credit or a single financial institution can issue a credit
enhancement covering up to 10% of the Fund's assets, where the puts offer
the Fund such default protection.
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<PAGE>
11. Invest in securities of other investment companies, except the Fund may
purchase unit investment trust securities where such unit trusts meet the
investment objectives of the Fund and then only up to 5% of the Fund's net
assets, except as they may be acquired as part of a merger, consolidation
or acquisition of assets.
12. Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with any permitted borrowing.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
PORTFOLIO TRANSACTIONS
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases participation
certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the participation certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
HOW TO PURCHASE AND REDEEM SHARES
The material relating to the purchase and redemption of shares in the respective
Prospectus is herein incorporated by reference.
NET ASSET VALUE
The Fund does not determine net asset value per share on the following holidays:
New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. It is computed by dividing the value of
the Fund's net assets (i.e., the value of its securities and other assets less
its liabilities, including expenses payable or accrued but excluding capital
stock and surplus) by the total number of shares outstanding.
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<PAGE>
The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost
valuation involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, except that if
fluctuating interest rates cause the market value of the Fund's portfolio to
deviate more than 1/2 of 1% from the value determined on the basis of amortized
cost, the Board of Directors will consider whether any action should be
initiated, as described in the following paragraph. Although the amortized cost
method provides certainty in valuation, it may result in periods during which
the value of an instrument is higher or lower than the price an investment
company would receive if the instrument were sold.
The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset value at $1.00 per share. These procedures include a review of the
extent of any deviation of net asset value per share, based on available market
rates, from the Fund's $1.00 amortized cost per share. Should that deviation
exceed 1/2 of 1%, the Board will consider whether any action should be initiated
to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. The Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less, will not purchase any instrument with a remaining maturity
greater than 397 days, will limit portfolio investments, including repurchase
agreements, to those United States dollar-denominated instruments that the
Fund's Board of Directors determines present minimal credit risks, and will
comply with certain reporting and recordkeeping procedures. The Fund has also
established procedures to ensure compliance with the requirement that portfolio
securities are Eligible Securities. (See "Investment Objectives, Policies and
Risks" herein.)
YIELD QUOTATIONS
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the Securities and Exchange Commission. Under that
method, the Fund's yield figure, which is based on a chosen seven-day period, is
computed as follows: the Fund's return for the seven-day period (which is
obtained by dividing the net change in the value of a hypothetical account
having a balance of one share at the beginning of the period by the value of
such account at the beginning of the period [expected to always be $1.00]) is
multiplied by (365/7) with the resulting annualized figure carried to the
nearest hundredth of one percent. For purposes of the foregoing computation, the
determination of the net change in account value during the seven-day period
reflects (i) dividends declared on the original share and on any additional
shares, including the value of any additional shares purchased with dividends
paid on the original share, and (ii) fees charged to all shareholder accounts.
Realized capital gains or losses and unrealized appreciation or depreciation of
the Fund's portfolio securities are not included in the computation. Therefore
annualized yields may be different from effective yields quoted for the same
period.
The Fund's "effective yield" is obtained by adjusting its "current yield" to
give effect to the compounding nature of the Fund's portfolio, as follows: the
unannualized base period return is compounded and brought out to the nearest one
hundredth of one percent by adding one to the base period return, raising the
sum to a power equal to 365 divided by 7 and subtracting one from the result,
i.e., effective yield = (base period return + 1)365/7 - 1.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day. The Fund's yield for any given period is not an indication, or
representation by the Fund, of future yields or rates of return on the Fund's
shares, and may not provide a basis for comparison with bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors who
purchase the Fund's shares directly may realize a higher yield than Participant
Investors because they will not be subject to any fees or charges that may be
imposed by Participating Organizations.
The Fund may from time to time advertise its tax equivalent yield. The tax
equivalent yield is computed based upon a 30-day (or one month) period ended on
the date of the most recent balance sheet included in this Statement of
Additional Information, computed by dividing that portion of the yield of the
Fund (as computed pursuant to the formulae previously discussed) which is
tax-exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the yield of the Fund that is not tax-exempt. The tax
equivalent yield for the Fund may also fluctuate daily and does not provide a
basis for determining future yields.
The Fund may from time to time advertise a taxable equivalent yield table which
shows the yield an investor would need to receive from a taxable investment in
order to equal a tax-free yield from the Fund. (See the Taxable Equivalent Yield
Table appearing herein.)
The Fund's yield for the seven day period ended April 28, 1995 was 3.68% which
is equivalent to an effective yield of 3.74%.
15
<PAGE>
MANAGER
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 April 28, 1995
investment manager, adviser, or supervisor with respect to assets aggregating in
excess of $7 billion. In addition to the Fund, the Manager acts as investment
manager and administrator of eighteen other investment companies and also
advises pension trusts, profit-sharing trust and endowments.
Effective October 1, 1994, the Board of Directors of the Fund approved the
re-execution of the Investment Management Contract and Administrative Services
Contract with the Manager. The Manager's predecessor, New England Investment
Companies, L.P. ("NEICLP") is the limited partner and owner of a 99.5% interest
in the newly created limited partnership, Reich & Tang Asset Management L.P.,
the Manager. Reich & Tang Asset Management, Inc. (a wholly-owned subsidiary of
NEICLP) is the general partner and owner of the remaining .5% interest of the
Manager. Reich & Tang Asset Management L.P. has succeeded NEICLP as the Manager
of the Fund. The re-execution of the Investment Management Contract did not
result in "assignment" of the Investment Management Contract with NEICLP under
the 1940 Act, since there is no change in actual control or management of the
Manager caused by the re-execution.
New England Investment Companies, Inc. ("NEIC"), a Massachusetts corporation,
serves as the sole general partner of NEICLP. The New England Mutual Life
Insurance Company ("The New England") owns approximately 68.1% of the total
partnership units outstanding of NEICLP, and Reich & Tang, Inc. Owns
approximately 22.8% of the outstanding partnership units of NEICLP.
NEIC is a wholly-owned subsidiary of The New England which may be deemed a
"controlling person" of the Manager. NEIC is a holding company offering a broad
array of investment styles across a wide range of asset categories through eight
investment advisory/management affiliates and three distribution subsidiaries.
These include, in addition to the Manager Loomis, Sayles & Company, L.P., Copley
Real Estate Advisors, Inc., Westpeak Investment Advisors, L.P., Draycott
Partners, Ltd., TNE Investment Services, L.P., New England Investment
Associates, Inc. and an affiliate, Capital Growth Management Limited
Partnership. These affiliates in the aggregate are investment advisors or
managers of 57 other registered investment companies.
The Investment Management Contract contains the same terms and conditions
governing the Manager's investment management and administrative
responsibilities, respectively, as the Fund's previous Investment Management
Contract and Administrative Services Contract except for (i) the dates of
execution and (ii) the identity of the Manager.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Manager provides persons satisfactory to the Board of Directors of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of Reich &
Tang Asset Management, Inc., the sole general partner of the Manager or
employees of the Manager or its affiliates.
The re-executed Investment Management Contract was approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the 1940 Act), of the Fund or the Manager, effective October 1, 1994.
The new Investment Management Contract has a term which extends to January 31,
1996, and may be continued in force thereafter for successive twelve-month
periods beginning each February 1, provided that such continuance is
specifically approved annually by majority vote of the Fund's outstanding voting
securities or by its Board of Directors, and in either case by a majority of the
directors who are not parties to the Investment Management Contract or
interested persons of any such party, by votes cast in person at a meeting
called for the purpose of voting on such matter. The Investment Management
Contract was approved by a majority of the Fund's shareholders at the meeting
held on July 21, 1993.
The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Directors,
or by the Manager on sixty days' written notice, and will automatically
terminate in the event of its assignment. The Investment Management Contract
provides that in the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or of reckless disregard of its
obligations thereunder, the Manager shall not be liable for any action or
failure to act in accordance with its duties thereunder.
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<PAGE>
For its services under the Investment Management Contract, the Manager receives
from the Fund a fee equal to .30 of 1% per annum of the Fund's average daily net
assets (the "Management Fee") for managing the Fund's investment portfolio and
performing related administrative and clerical services. Pursuant to the
Investment Management Contract, for the fiscal years ended January 31, 1993,
1994 and 1995, the Manager received fees of $744,800, $520,579 and $239,914,
respectively. The fees are accrued daily and paid monthly. Any portion of the
total fees received by the Manager may be used by the Manager to provide
shareholder and administrative services. (See "Distribution and Service Plan"
herein.)
Pursuant to the Administrative Services Contract with the Fund, the Manager
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of bookkeeping and related services by Investors Fiduciary Trust
Company, the Fund's bookkeeping agent, (ii) prepare reports to and filings with
regulatory authorities and (iii) perform such other services as the Fund may
from time to time request of the Manager. The personnel rendering such services
may be employees of the Manager, of its affiliates or of other organizations.
The Fund pays the Manager for such personnel and for rendering such services at
rates which must be agreed upon by the Fund and the Manager, provided that the
Fund does not pay for services performed by any such persons who are also
officers of the general partner of the Manager. It is intended that such rates
will be the actual costs of the Manager. For its services under the
Administrative Services Contract, the Manager receives from the Fund a fee equal
to 20% per annum of the Fund's average daily net assets. For the Fund's fiscal
year ended January 31, 1995, the Manager under the Administrative Services
Contract received fees of $159,943.
Expense Limitation
The Manager has agreed to reimburse the Fund for its expenses (exclusive of
interest, taxes, brokerage and extraordinary expenses) which in any year exceed
the limits on investment company expenses prescribed by any state in which the
Fund's shares are qualified for sale. For the purpose of this obligation to
reimburse expenses, the Fund's annual expenses are estimated and accrued daily,
and any appropriate estimated payments are made to it on a monthly basis.
Subject to the obligations of the Manager to reimburse the Fund for its excess
expenses as described above, the Fund has, under the Investment Management
Contract, confirmed its obligation for payment of all its other expenses,
including taxes, brokerage fees and commissions, commitment fees, certain
insurance premiums, interest charges and expenses of the custodian, transfer
agent and dividend disbursing agent's fees, telecommunications expenses,
auditing and legal expenses, accounting services or recordkeeping agent fees,
costs of forming the corporation and maintaining corporate existence,
compensation of directors, officers and employees of the Fund and costs of other
personnel performing services for the Fund who are not officers of the general
partner of the Manager or its affiliates, costs of investor services,
shareholders' reports and corporate meetings, Securities and Exchange Commission
registration fees and expenses, state securities laws registration fees and
expenses, expenses of preparing and printing the Fund's prospectus for delivery
to existing shareholders and of printing application forms for shareholder
accounts, and the fees payable to the Manager under the Investment Management
Contract.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein, and the management of the Fund intends to do
so whenever it appears advantageous to the Fund. The Fund's expenses for
employees and for such services are among the expenses subject to the expense
limitation described above.
17
<PAGE>
MANAGEMENT OF THE FUND
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. The address of each such person, unless
otherwise indicated is 600 Fifth Avenue, New York, New York 10020. Mr. Duff may
be deemed an "interested person" of the Fund, as defined in the 1940 Act, on the
basis of his affiliation with the Manager.
Steven W. Duff, 41 - President and Director of the Fund, is President of Mutual
Funds Division of the Manager since September 1994. Mr. Duff was formerly
Director of Mutual Fund Administration at NationsBank which he was associated
with from June 1981 to August 1994. Mr. Duff is President and a Director of
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc. and Short Term Income Fund, Inc., Senior Vice
President of Lebenthal Funds, Inc., President and a Trustee of Florida Daily
Municipal Income Fund, Institutional Daily Income Fund, Pennsylvania Daily
Municipal Income Fund, Executive Vice President and a Director of Reich & Tang
Equity Fund, Inc., President and Chairman of Reich & Tang Government Securities
Trust and President and Chief Executive Officer of Tax Exempt Proceeds Fund,
Inc.
Dr. W. Giles Mellon, 64 - Director of the Fund, is Professor of Business
Administration and Area Chairman of Economics 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 California 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., Reich & Tang
Equity Fund, Inc. and Short Term Income Fund, Inc. and a Trustee of Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, Pennsylvania Daily
Municipal Income Fund and Reich & Tang Government Securities Trust.
Robert Straniere, 53 - Director of the Fund, has been a member of the New York
State Assembly and a partner with the law firm of Straniere & Straniere since
1981. His address is 182 Rose Avenue, Staten Island, New York 10306. Mr.
Straniere is also a Director of California 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., Reich & Tang Equity Fund, Inc. and Short Term
Income Fund, Inc. and a Trustee of Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, Pennsylvania Daily Municipal Income Fund and
Reich & Tang Government Securities Trust.
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<PAGE>
Dr. Yung Wong, 56 - Director of the Fund, is General Partner of Abacus Partners
Limited Partnership (a general partner of a venture capital investment firm)
since 1984. His address is 29 Alden Road, Greenwich, Connecticut 06831. Dr. Wong
is a Director of Republic Telecom Systems Corporation (provider of
telecommunications equipment) since January 1989 and of TelWatch, Inc. (provider
of network management software) since August 1989. Dr. Wong is also a Director
of California 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., Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc. and
a Trustee of Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, Pennsylvania Daily Municipal Income Fund and Reich & Tang Government
Securities Trust.
Molly Flewharty, 44 - Vice President of the Fund, is Vice President of the Reich
& Tang Mutual Funds Division of the Manager since September 1993. Ms. Flewharty
was formerly Vice President of Reich & Tang, Inc. which she was associated with
from December 1977 to September 1993. Ms. Flewharty is also Vice President of
California Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax
Free Income Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income
Fund, Institutional Daily Income Fund, Lebenthal Funds, Inc., Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Government
Securities Trust and Short Term Income Fund, Inc.
Lesley M. Jones, 46 - Vice President of the Fund, is Senior Vice President of
the Reich & Tang Mutual Funds Division of the Manager since September 1993. Ms.
Jones was formerly Senior Vice President of Reich & Tang, Inc. which she was
associated with from April 1973 to September 1993. Ms. Jones is also a Vice
President of California Daily Tax Free Income Fund, Inc., 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, Reich & Tang Equity Fund, Inc., Reich & Tang Government
Securities Trust and Short Term Income Fund, Inc.
Dana E. Messina, 38 - Vice President of the Fund, is Executive Vice President of
the Reich & Tang Mutual Funds Division of the Manager since September 1993. Ms.
Messina was formerly Vice President of Reich & Tang, Inc. which she was
associated with from December 1980 to September 1993. Ms. Messina is also Vice
President of California 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.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Reich
& Tang Government Securities Trust and Short Term Income Fund, Inc., is
Treasurer, Chief Accounting Officer and Chief Financial Officer of Tax Exempt
Proceeds Fund, Inc., and is Vice President and Treasurer of Lebenthal Funds,
Inc.
Bernadette N. Finn, 47 - Secretary of the Fund, is Vice President and Assistant
Secretary of the Reich & Tang Mutual Funds Division of the Manager since
September 1993. Ms. Finn was formerly Vice President and Assistant Secretary of
Reich & Tang, Inc. which she was associated with from September 1970 to
September 1993. Ms. Finn is also Secretary of California Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, Lebenthal Funds, Inc., Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., 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., a Vice President and
Secretary of Institutional Daily Income Fund, Reich & Tang Equity Fund, Inc.,
Reich & Tang Government Securities Trust and Short Term Income Fund, Inc.
19
<PAGE>
Richard De Sanctis, 38 - Treasurer of the Fund, is Assistant Treasurer of NEIC
since September 1993. Mr. De Sanctis was formerly Controller of Reich & Tang,
Inc. from January 1991 to September 1993 and Vice President and Treasurer of
Cortland Financial Group, Inc. and Vice President of Cortland Distributors, Inc.
from 1989 to December 1990. He is also Treasurer of California 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, Reich & Tang Equity Fund,
Inc., Reich & Tang Government Securities Trust and Short Term Income Fund, Inc.
and is Vice President and Treasurer of Cortland Trust, Inc.
The Fund paid an aggregate remuneration of $15,000 to its directors with respect
to the fiscal year ended January 31, 1995, all of which consisted of aggregate
directors' fees paid to the three disinterested directors, pursuant to the terms
of the Investment Management Contract. (See "Manager" herein.) See Compensation
Table below.
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Annual Total Compensation
Person, Compensation from Retirement Benefits Benefits upon from Fund and Fund
Position Registrant for Fiscal Accrued as Part of Retirement Complex Paid to
Year Fund Expenses Directors
W. Giles
Mellon, $3,000.00 0 0 $48,791.67 (14 Funds)
Director
Robert $3,000.00 0 0 $48,791.67 (14 Funds)
Straniere,
Director
Yung $3,000.00 0 0 $48,791.67 (14 Funds)
Wong,
Director
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending January 31, 1995 (and, with respect to certain of the
funds in the Fund Complex, estimated to be paid during the fiscal year ending
January 31, 1995). The parenthetical number represents the number of investment
companies (including the Fund) from which such person receives compensation that
are considered part of the same Fund complex as the Fund, because, among other
things, they have a common investment advisor.
</TABLE>
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Messrs. Battle Fowler LLP, 75 East 55th Street, New York, New
York 10022.
Matters in connection with Connecticut tax law are passed upon by Messrs. Day,
Berry and Howard, Cityplace, Hartford, Connecticut 06103.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 (the "Rule") under the 1940 Act, the Securities and
Exchange Commission has required that an investment company which bears any
direct or indirect expense of distributing its shares must do so only in
accordance with a plan permitted by the Rule. The Fund's Board of Directors has
adopted a distribution and service plan (the "Plan") and, pursuant to the Plan,
the Fund and the Distributor have entered into a Distribution Agreement and a
Shareholder Servicing Agreement with Reich & Tang Distributors L.P. (the
"Distributor") as distributor of the Fund's shares.
20
<PAGE>
Reich & Tang Asset Management, Inc. serves as the sole general partner for
both Reich & Tang Asset Management L.P. and Reich & Tang Distributors L.P., and
New England Investment Companies, L.P. serves as the sole limited partner of the
Distributor. The Board of Directors approved the re-execution of the
Distribution Agreement and Shareholder Servicing Agreement.
For its services under the Shareholder Servicing Agreement, the Distributor
receives from the Fund a fee equal to .20% per annum of the Fund's average daily
net assets (the "Shareholder Servicing Fee"). The fee is accrued daily and paid
monthly and any portion of the fee may be deemed to be used by the Distributor
for purposes of distribution of Fund shares and for payments to Participating
Organizations with respect to servicing their clients or customers who are
shareholders of the Fund.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Manager and Distributor in carrying out their obligations under the
Shareholder Servicing Agreement and (ii) preparing, printing and delivering the
Fund's prospectus to existing shareholders of the Fund and preparing and
printing subscription application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from its
own resources which may include the Management Fee and past profits for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements, for performing shareholder servicing and related
administrative functions on behalf of the Fund; (ii) to compensate certain
Participating Organizations for providing assistance in distributing the Fund's
shares; to pay the costs of printing and distributing the Fund's prospectus to
prospective investors; and (iii) to defray the cost of the preparation and
printing of brochures and other promotional materials, mailings to prospective
shareholders, advertising, and other promotional activities, including the
salaries and/or commissions of sales personnel in connection with the
distribution of the Fund's shares. The Distributor may also make payments from
time to time from its own resources, which may include the Shareholder Servicing
Fee and past profits for the purposes enumerated in (i) above. The Distributor,
in its sole discretion, will determine the amount of such payments made pursuant
to the Plan, provided that such payments will not increase the amount which the
Fund is required to pay to the Manager and Distributor for any fiscal year under
the Investment Management Contract, the Shareholder Servicing Agreement or the
Administrative Services Contract in effect for that year.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Directors. In addition, the Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
21
<PAGE>
For the Fund's fiscal year ended January 31, 1995, the amount payable to the
Distributor under the Distribution and Service Plan and Shareholder Servicing
Agreement adopted thereunder pursuant to the Rule under the 1940 Act, totalled
$159,943, of which $5,049 was waived. During this same period the Manager and
Distributor made payments under the Plan totalling $271,738, of which $249,889
was paid to or on behalf of Participating Organizations. The excess of such
payments over the total payments the Distributor received from the Fund
represents distribution expenses funded by the Manager and Distributor from
their own resources including the Management Fee.
The Plan provides that it may continue in effect for successive annual periods
provided it is approved by the shareholders or by the Board of Directors,
including a majority of directors who are not interested persons of the Fund and
who have no direct or indirect interest in the operation of the Plan or in the
agreements related to the Plan. The Plan further provides that it may not be
amended to increase materially the costs which may be spent by the Fund for
distribution pursuant to the Plan without shareholder approval, and the other
material amendments must be approved by the directors in the manner described in
the preceding sentence. The Plan may be terminated at any time by a vote of a
majority of the disinterested directors of the Fund or the Fund's shareholders.
The Board of Directors initially approved the Plan on April 29, 1985 and most
recently approved the Plan on January 26, 1995 to continue in effect until
December 31, 1995.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Fund, which was incorporated on March 8,
1985 in Maryland, consists of twenty billion shares of stock having a par value
of one-tenth of one cent ($.001) per share. Each share has equal dividend,
distribution, liquidation and voting rights and a fractional share has those
rights in proportion to the percentage that the fractional share represents of a
whole share. Shares will be voted in the aggregate. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares, when
issued in accordance with the terms of the offering will be fully paid and
non-assessable. Shares are redeemable at net asset value, at the option of the
shareholder. As of April 28, 1995 there were 82,262,878 shares of the Fund
outstanding. As of April 28, 1995, 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 shares as of April 28, 1995.
Nature of
Name and Address % of class ownership
Fundtech Services L.P. 79.40% Record
As Agent for Various
Beneficial Owners
Three University Plaza
Hackensack, NJ 07601
Neuberger & Berman 6.27% Record
Attn.: Steve Gallaro
11 Broadway
New York, NY 10004-1302
Under its Articles of Incorporation the Fund has the right to redeem for cash
shares of stock owned by any shareholder to the extent and at such times as the
Fund's Board of Directors determines to be necessary or appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Unless specifically requested by an
investor, the Fund will not issue certificates evidencing Fund shares.
22
<PAGE>
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of the Fund's
revised investment advisory agreement with respect to a particular class or
series of stock, (c) for approval of revisions to the Fund's distribution
agreement with respect to a particular class or series of stock and (d) upon the
written request of holders of shares entitled to cast not less than 25% of all
the votes entitled to be cast at such meeting. Annual and other meetings may be
required with respect to such additional matters relating to the Fund as may be
required by the 1940 Act, any registration of the Fund with the Securities and
Exchange Commission or any state, or as the Directors may consider necessary or
desirable. Each Director serves until the next meeting of shareholders called
for the purpose of considering the election or re-election of such Director or
of a successor to such Director, and until the election and qualification of his
or her successor, elected at such meeting, or until such Director sooner dies,
resigns, retires or is removed by the vote of the shareholders.
FEDERAL INCOME TAXES
The Fund has elected to qualify under the Code as a "regulated investment
company" that distributes "exempt-interest dividends". The Fund intends to
continue to qualify for regulated investment company status so long as such
qualification is in the best interests of its shareholders. Such qualification
relieves the Fund of liability for Federal income taxes to the extent its
earnings are distributed in accordance with the applicable provisions of the
Code.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its tax-exempt interest income, net of certain deductions.
Exempt-interest dividends, as defined in the Code, are dividends or any part
thereof (other than capital gain dividends) paid by the Fund that are
attributable to interest on obligations the interest on which is exempt from
regular Federal income tax and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders not later than
60 days after the close of its taxable year. The percentage of the total
dividends paid by the Fund during any taxable year that qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends during the year.
Exempt-interest dividends are to be treated by the Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code.
If a shareholder receives an exempt-interest dividend with respect to any share
and such share has been held for six months or less, then any loss on the sale
or exchange of such share will be disallowed to the extent of the amount of such
exempt-interest dividend. The Code provides that interest on indebtedness
incurred, or continued, to purchase or carry certain tax-exempt securities such
as shares of the Fund is not deductible. Therefore, among other consequences, a
certain proportion of interest on indebtedness incurred, or continued, to
purchase or carry securities on margin may not be deductible during the period
an investor holds shares of the Fund. For Social Security recipients, interest
on tax-exempt bonds, including exempt-interest dividends paid by the Fund, is to
be added to adjusted gross income for purposes of computing the amount of social
security benefits includible in gross income. Under the Tax Reform Act of 1986
(P.L. 99-514), as amended by the Technical and Miscellaneous Revenue Act of 1988
(P.L. 100-647) and the Revenue Reconciliation Act of 1990 (P.L. 101-508), the
amount of such interest received must be disclosed on the shareholders' Federal
income tax returns. Further, under P.L. 99-514, taxpayers other than
corporations are required to include as an item of tax preference for purposes
of the Federal alternative minimum tax all tax-exempt interest on "private
activity" bonds (generally, a bond issue in which more than 10% of the proceeds
are used in a non-governmental trade or business) (other than Section 501(c)(3)
bonds) issued after August 7, 1986. Thus, this provision will apply to the
portion of the exempt-interest dividends from the Fund's assets that are
attributable to such post-August 7, 1986 private activity bonds, if any such
bonds are acquired by the Fund. Corporations are required to increase their
alternative minimum taxable income by 75% of the amount by which the adjusted
current earnings (which will include tax-exempt interest) of the corporation
exceeds the alternative minimum taxable income (determined without this
provision). Further, interest on the Municipal Obligations is includible in a
0.12% additional corporate minimum tax imposed by the Superfund Amendments and
Reauthorization Act of 1986. In addition, in certain cases, Subchapter S
corporations with accumulated earnings and profits from Subchapter C years are
subject to a minimum tax on excess "passive investment income" which includes
tax-exempt interest. A shareholder is advised to consult his tax adviser with
respect to whether exempt-interest dividends retain the exclusion under Section
103(a) of the Code if such shareholder would be treated as a "substantial user"
or "related person" under Section 147(a) of the Code with respect to some or all
of the "private activity bonds," if any, held by the Fund.
23
<PAGE>
Although it is not intended, it is possible that the Fund may realize short-term
or long-term capital gains or losses from its portfolio transactions. The Fund
may also realize short-term or long-term capital gains upon the maturity or
disposition of securities acquired at discounts resulting from market
fluctuations. Short-term capital gains will be taxable to shareholders as
ordinary income when they are distributed. Any net capital gains (the excess of
its net realized long-term capital gain over its net realized short-term capital
loss) will be distributed annually to the Fund's shareholders. The Fund will
have no tax liability with respect to distributed net capital gains and the
distributions will be taxable to shareholders as long-term capital gains
regardless of how long the shareholders have held Fund shares. However, Fund
shareholders who at the time of a net capital gain distribution have not held
their Fund shares for more than six months, and who subsequently dispose of
those shares at a loss, will be required to treat such loss as a long-term
capital loss, to the extent of such net capital gain distribution. Distributions
of net capital gain will be designated as a "capital gain dividend" in a written
notice mailed to the Fund's shareholders not later than 60 days after the close
of the Fund's taxable year. Under P.L. 99-514, effective as of January 1, 1988,
net capital gain was taxable at the same rates as ordinary income. However, P.L.
101-508 restored preferential treatment for net capital gains by placing a 28%
ceiling on the marginal tax rate applicable to net capital gains realized by
individuals.
The Fund intends to distribute at least 90% of its investment company taxable
income (taxable income subject to certain adjustments exclusive of the excess of
its net long-term capital gain over its net short-term capital loss) for each
taxable year. The Fund will be subject to Federal income tax on any
undistributed investment company taxable income. To the extent such income is
distributed it will be taxable to shareholders as ordinary income. Expenses paid
or incurred by the Fund will be allocated between tax-exempt and taxable income
in the same proportion as the amount of the Fund's tax-exempt income bears to
the total of such exempt income and its gross income (excluding from gross
income the excess of capital gains over capital losses). If the Fund does not
distribute at least 98% of its ordinary income and 98% of its capital gain net
income for a taxable year, the Fund will be subject to a nondeductible 4% excise
tax on the excess of such amounts over the amounts actually distributed.
If a shareholder fails to provide the Fund with a current taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
interest, dividend payments and proceeds from the redemption of shares of the
Fund.
Dividends and distributions to shareholders will be treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund.
With respect to the variable rate demand instruments, including participation
certificates therein, the Fund is relying on the opinion of Messrs. Battle
Fowler LLP, counsel to the Fund, that it will be treated for Federal income tax
purposes as the owner thereof and the interest on the underlying Municipal
Obligations will be tax-exempt to the Fund. Counsel has pointed out that the
Internal Revenue Service has announced that it will not ordinarily issue advance
rulings on the question of ownership of securities or participation interests
therein subject to a put, and as a result, the Internal Revenue Service could
reach a conclusion different from that reached by counsel.
From time to time, proposals have been introduced before Congress to restrict or
eliminate the Federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund would re-evaluate its investment objectives and policies and
consider changes in the structure. The Revenue Reconciliation Act of 1993 (P.L.
103-66) and other recent tax legislation affects many of the Federal tax aspects
of Municipal Obligations and makes many important changes to the Federal income
tax system, including an increase in marginal tax rates. In addition to these
changes, the Tax Reform Act of 1986 (P.L. 99-514) limited the annual amount of
many types of tax-exempt bonds that a state may issue and revised current
arbitrage restrictions. P.L. 99-514 also provided that interest on certain
"private activity bonds" (generally, a bond issue in which more than 10% of the
proceeds are used for a non-governmental trade or business and which meets the
private security or payment test, or a bond issue which meets the private loan
financing test) issued after August 7, 1986 will constitute an item of tax
preference subject to the individual alternative minimum tax and P.L. 103-66
increases the alternative minimum tax rate for taxpayers other than corporations
to up to 28%.
In South Carolina v. Baker, the U.S. Supreme Court held that the Federal
government may constitutionally require states to register bonds they issue and
may subject the interest on such bonds to Federal income tax if not registered,
and that there is no constitutional prohibition against the Federal government's
taxing the interest earned on state or other municipal bonds. The Supreme Court
decision affirms the authority of the Federal government to regulate and control
bonds such as the Municipal Obligations and to tax such bonds in the future. The
decision does not, however, affect the current exemption from taxation of the
interest earned on the Municipal Obligations in accordance with Section 103 of
the Code.
24
<PAGE>
CONNECTICUT INCOME TAXES
The designation of all or a portion of a dividend paid by the Fund as an
"exempt-interest dividend" under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. With respect to "exempt-interest dividends" that are paid by the
Fund, in the opinion of Day, Berry & Howard, special Connecticut tax counsel to
the Fund, exempt-interest dividends correctly designated as derived from
Connecticut Municipal Obligations received by the Fund are not subject to the
Connecticut Personal Income Tax on individuals, trusts and estates.
Exempt-interest dividends that are not derived from Connecticut Municipal
Obligations and any other dividends of the Fund (including, if any, capital gain
dividends) are includible in the tax base for the Connecticut Personal Income
Tax on individuals, trusts and estates, except that capital gain dividends
derived from obligations issued by or on behalf of the State of Connecticut, its
political subdivisions, or any public instrumentality, state or local authority,
district or similar public entity created under Connecticut law ("Connecticut
Obligations") are not subject to the tax.
Exempt-interest dividends, including those derived from Connecticut Municipal
Obligations, that are subject to the Federal alternative minimum tax are subject
to the net Connecticut minimum tax, except that exempt-interest dividends
derived from Connecticut Obligations are not subject to the net Connecticut
minimum tax.
Exempt-interest dividends derived from Connecticut Municipal Obligations are not
exempt from Connecticut Corporation Business Tax payable by corporations.
Shareholders are urged to consult their tax advisors with respect to the
treatment of distributions from the Fund in their own states and localities.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is custodian for the Fund's cash and securities and is transfer agent and
dividend disbursing agent for the shares of the Fund.
25
<PAGE>
DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s two highest municipal bond
ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. (_____) - Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc.'s two highest ratings of state
and municipal notes and other short-term loans:
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:
MIG-1 - Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2 - Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Corporation's two highest debt ratings:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
Plus (+ ) or Minus (-): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
__________________
* As described by the rating agencies.
26
<PAGE>
Description of Standard & Poor's Corporation's two highest commercial paper
ratings:
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2 - Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Moody's Investors Service Inc.'s two highest commercial paper
ratings:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues: Prime-1, highest
quality; Prime-2, higher quality.
27
<PAGE>
- -------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELD TABLE
- -------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------
Single 0- $23,351- $56,551- $117,951- $256,501-
Return 23,350 56,550 117,950 256,500 and over
- ----------------------------------------------------------------
Joint 0- $39,001- $94,251- $143,601- $256,501-
Return 39,000 94,250 143,600 256,500 and over
- ----------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- -----------------------------------------------------------------
Federal
Tax Rate 15.0% 28.0% 31.0% 36.0% 39.0%
- -----------------------------------------------------------------
State
Tax Rate 4.5% 4.5% 4.5% 4.5% 4.5%
- -----------------------------------------------------------------
Combined
Tax Rate 18.83% 31.24% 34.11% 38.88% 42.32%
- ------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield
Yield Requires to Match Tax Exempt Yield
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2.0% 2.46% 2.91% 3.04% 3.27% 3.47%
- -----------------------------------------------------------------------------------------------------------------------------------
2.5% 3.08% 3.64% 3.79% 4.09% 4.33%
- -----------------------------------------------------------------------------------------------------------------------------------
3.0% 3.70% 4.36% 4.55% 4.91% 5.20%
- -----------------------------------------------------------------------------------------------------------------------------------
3.5% 4.31% 5.09% 5.31% 5.73% 6.07%
- -----------------------------------------------------------------------------------------------------------------------------------
4.0% 4.93% 5.82% 6.07% 6.54% 6.93%
- -----------------------------------------------------------------------------------------------------------------------------------
4.5% 5.54% 6.54% 6.83% 7.36% 7.80%
- -----------------------------------------------------------------------------------------------------------------------------------
5.0% 6.16% 7.27% 7.59% 8.18% 8.67%
- -----------------------------------------------------------------------------------------------------------------------------------
5.5% 6.78% 8.00% 8.35% 9.00% 9.54%
- -----------------------------------------------------------------------------------------------------------------------------------
6.0% 7.39% 8.73% 9.11% 9.82% 10.40%
- -----------------------------------------------------------------------------------------------------------------------------------
6.5% 8.01% 9.45% 9.86% 10.63% 11.27%
- -----------------------------------------------------------------------------------------------------------------------------------
7.0% 8.62% 10.18% 10.62% 11.45% 12.14%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
- -------------------------------------------------------------------------------
28
<PAGE>
_______________________________________________________________________________
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
INDEPENDENT AUDITORS REPORT
===============================================================================
The Board of Directors and Shareholders
Connecticut Daily Tax Free Income Fund, Inc.
We have audited the accompanying statement of net assets of Connecticut Daily
Tax Free Income Fund, Inc. as of January 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the selected financial
information for each of the five years in the period then ended. These financial
statements and selected financial information are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and selected financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of January 31, 1995, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of Connecticut Daily Tax Free Income Fund, Inc. as of January 31, 1995,
the results of its operations, the changes in its net assets and the selected
financial information for the periods indicated, in conformity with generally
accepted accounting principles.
/s/McGladrey & Pullen, LLP
New York, New York
March 6, 1995
29
<PAGE>
<TABLE>
<CAPTION>
_______________________________________________________________________________
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS
JANUARY 31, 1995
===============================================================================
Ratings (a)
Face Maturity Standard
Amount Date Yield Value Moody's & Poor's
Other Tax Exempt Investments (8.35%)
<C> <C> <C> <C> <C> <C>
$1,000,000 Cheshire, Connecticut BAN 08/10/95 3.94 % $1,001,233
1,000,000 Connecticut State Special Tax Obligation RB 02/01/95 6.60 1,000,000
1,000,000 East Lyme, Connecticut BAN 08/03/95 3.75 1,000,237
2,000,000 East Lyme, Connecticut BAN 08/03/95 3.94 2,002,353
1,135,000 Montville, Connecticut BAN 10/05/95 3.99 1,135,292
692,500 Southeastern CT, Water Authority 03/24/95 3.21 692,325
------- -------
6,827,500 Total Other Tax Exempt Investments 6,831,440
--------- ---------
Other Variable Rate Demand Investments (b) (58.73%)
$3,700,000 Connecticut Development Authority
(Corporation for Independent Living Project)
LOC Credit Commercial de France 07/01/15 3.60 % $3,700,000 VMIG-1
6,800,000 Connecticut Development Authority (Light & Power)
Series 93A
LOC Deutsche Bank A.G. 09/01/28 3.60 6,800,000 VMIG-1 A1+
3,500,000 Connecticut Development Authority
(Western Mass Electric Co.) - Series 1993A
LOC Union Bank of Switzerland 09/01/25 3.50 3,500,000 VMIG-1 A1+
1,400,000 Connecticut Development Authority IDRB
(Columbia Diamond Ring)
LOC Barclays Bank PLC 09/01/08 4.30 1,400,000 P1 A1+
6,000,000 Connecticut Development Authority IDRB
(Gerber Scientific Inc.)
LOC Wachovia Bank & Trust Co., N.A. 12/01/14 3.85 6,000,000 A1+
3,500,000 Connecticut Development Authority IDRB
(R.K. Bradley Assoc. Ltd.)
LOC Daiwa Bank, Ltd./Royal Bank of Canada 12/01/20 3.45 3,500,000 VMIG-1
500,000 Connecticut Development Authority IDRB
(Solid Waste Exeter Project)
LOC Sanwa Bank, Ltd. 12/01/19 3.60 500,000 A1+
1,500,000 Connecticut Development Authority IDRB
(Solid Waste Exeter Project)
LOC Chase Manhattan Bank, N.A. 08/01/23 3.30 1,500,000 P1 A1
1,400,000 Connecticut Development Authority IDRB
(Vitta Corp. Project)
LOC Barclays Bank PLC 09/01/09 4.30 1,400,000 P1 A1+
_______________________________________________________________________________
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
<TABLE>
<CAPTION>
Ratings(a )
Face Maturity Standard
Amount Date Yield Value Moody's & Poor's
Other Variable Rate Demand Instruments (b) (Continued)
<C> <C> <C> <C> <C> <C>
$7,800,000 Connecticut Economic Recovery Note - Series B 06/01/96 3.60 % $7,800,000 VMIG-1 A1+
2,700,000 Connecticut Special Assessment Unemployment
Compensation Advance Fund
LOC Mitsubishi Bank, Ltd. 11/01/01 3.65 2,700,000 VMIG-1 A1+
4,000,000 Connecticut Special Tax Obligation RB
(Second Lien Trans. Infrastructure)
LOC Industrial Bank of Japan, Ltd. 12/01/10 3.65 4,000,000 VMIG-1 A1
3,845,000 Hartford, CT RDA (Underwood Tower Project)
LOC Financial Security Assurance, Inc. 06/01/20 3.70 3,845,000 Aaa AAA
1,400,000 Connecticut HEFA, Series A
LOC Credit Commercial de France 07/01/24 2.70 1,400,000 VMIG-1
---------
48,045,000 Total Other Variable Rate Demand Instruments 48,045,000
---------- ----------
Put Bonds (20.29%)
$1,900,000 Connecticut HEFA (Yale University) - Series E
FGIC Insured 06/01/95 3.70% $1,900,000 VMIG-1 A1+
6,500,000 Connecticut HFA Housing Mortgage Finance Bonds
Series G, Subseries G-1 05/15/95 3.55 6,500,000 VMIG-1 A1+
4,055,000 Connecticut Resource Recovery Authority
(Wallingford Resource Recovery) 86 Bond
LOC National Westminster Bank PLC 11/15/95 4.40 4,055,000 P1 A1+
1,000,000 Connecticut Special Assessment
Unemployment Compensation Advance Fund RB
FGIC Insured 07/01/95 5.13 994,703 VMIG-1 A1+
3,145,000 New Haven, Connecticut Industrial Facilities RB
(Government Center Thermal Energy)
LOC Lloyds Bank PLC 07/01/95 4.13 3,145,000 P1 A1+
---------
16,594,703 Total Put Bonds 16,594,703
---------- ----------
Revenue Bonds (2.44%)
$1,000,000 Connecticut HFA Housing Mortgage Finance Program Bonds
Series E-2 11/15/95 4.50% $1,000,000 VMIG-1 A1+
1,000,000 Connecticut HFA Housing Mortgage Finance Program Bonds
Series H-1 09/01/95 4.30 1,000,000 VMIG-1 A1+
---------
2,000,000 Total Revenue Bonds 2,000,000
--------- ---------
_______________________________________________________________________________
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
<TABLE>
<CAPTION>
_______________________________________________________________________________
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF NET ASSETS
JANUARY 31, 1995 (CONTINUED)
===============================================================================
Ratings(a )
Face Maturity Standard
Amount Date Yield Value Moody's & Poor's
Tax Exempt Commercial Paper (10.12%)
<S> <C> <C> <C> <C> <C> <C>
$980,000 Connecticut Housing Finance Authority
Mortgage Project 1989 - Series D 02/01/95 3.90% $980,000 A1+
1,000,000 Connecticut Housing Finance Authority
Mortgage Project 1990 - Series C 03/10/95 3.90 1,000,000 VMIG-1 A1+
1,550,000 Connecticut Health and Education Facilities Authority
(Yale University) Series M 02/10/95 3.65 1,550,000 VMIG-1 A1+
1,250,000 Connecticut Health and Education Facilities Authority
(Yale University) Series M 03/07/95 3.70 1,250,000 VMIG-1 A1+
3,500,000 Government Development Bank of Puerto Rico 02/07/95 3.05 3,500,000 A1+
--------- ---------
8,280,000 Total Tax Exempt Commercial Paper 8,280,000
--------- ---------
Variable Rate Demand Instruments - Participations (b) (2.54%)
$109,507 Connecticut Development Authority IDRB (Air Express International)
LOC Chemical Bank 12/01/96 5.53% $109,507 P1 A1
628,688 Connecticut Development Authority IDRB (Finlay Bros.)
LOC Chemical Bank 10/01/00 5.53 628,688 P1 A1
1,000,658 Connecticut Development Authority IDRB (Nefco Holding)
LOC Chemical Bank 11/01/00 5.53 1,000,658 P1 A1
334,884 Puerto Rico - Darby Drug
LOC Chemical Bank 01/01/96 5.53 334,884 P1 A1
-------
2,073,737 Total Variable Rate Demand Instruments - Participations 2,073,737
--------- ---------
Variable Rate Demand Instruments - Private Placements (b) (1.28%)
$342,825 Connecticut Development Authority IDRB (Kanthal Finance Prod.)
LOC Chemical Bank 12/31/97 5.53% $342,825 P1 A1
89,088 Connecticut Development Authority IDRB (The Finlay Bros. Project)
LOC Chemical Bank 10/01/95 5.53 89,088 P1 A1
611,068 Connecticut Development Authority IDRB (Waterbury Rolling Mills)
LOC Chemical Bank 12/01/95 5.53 611,068 P1 A1
-------
1,042,981 Total Variable Rate Demand Instruments - Private Placements 1,042,981
--------- ---------
Total Investments (103.75%) (Cost $84,867,862) 84,867,862
Liabilities, in Excess of Cash and Other Assets (-3.75%) (3,067,002 )
--------
Net Assets (100%), 81,821,496 Shares Outstanding (Note 3) $81,800,860
==========
Net Asset Value, offering and redemption price per share $1.00
=====
<FN>
+Aggregate cost for federal income tax purposes is $84,865,906.
</FN>
_______________________________________________________________________________
</TABLE>
See Notes to Financial Statements.
32
<PAGE>
FOOTNOTES:
(a) The ratings noted for variable rate demand instruments are those of the bank
whose letter of credit secures such instruments or the guarantor of the bond. P1
and A1+ are the highest ratings assigned for tax exempt commercial paper. The
Fund's Board of Directors has determined that securities which are not rated are
comparable quality to rated securities.
(b) Securities payable on demand at par including accrued interest (usually with
seven days notice) and unconditionally secured as to principal and interest by
bank letter of credit. The interest rates are adjustable and are based on bank
prime rates or other interest rate adjustment indices. The rate shown is the
rate in effect at the date of this statement.
<TABLE>
<CAPTION>
KEY:
<S> <C> <C> <C>
BAN = Bond Anticipation Note RAN = Revenue Anticipation Note
CI = Certificate of Indebtedness RAW = Revenue Anticipation Warrant
CLN = Construction Loan Note RB = Revenue Bond
FAN = Fund Anticipation Note RDA = Revenue Development Authority
GAN = Grant Anticipation Note RN = Revenue Note
HEFA = Health and Education Facilities Authority TAN = Tax Anticipation Note
HFA = Housing Finance Authority TLN = Tax Loan Note
HRB = Hospital Revenue Bond TRAN = Tax and Revenue Anticipation Note
IDRB = Industrial Development Revenue Bond
PCFA = Pollution Control Finance Authority
PCRB = Pollution Control Revenue Bond
_______________________________________________________________________________
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
___________________________________________________________________________
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1995
===============================================================================
INVESTMENT INCOME
Income:
<S> <C>
Interest........................................................................ $2,507,156
---------
Expenses: (Note 2
Investment management fee....................................................... 239,914
Administration fee.............................................................. 159,943
Shareholder servicing fee....................................................... 154,894
Custodian, shareholder servicing and related shareholder expenses............... 68,691
Legal, compliance and filing fees............................................... 14,364
Audit and accounting............................................................ 43,330
Directors' fees................................................................. 15,000
Other........................................................................... 9,940
-----
Total expenses.............................................................. 706,076
-------
Net investment income................................................................ 1,801,080
REALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments.............................................. 2,109
-----
Increase in net assets from operations............................................... $ 1,803,189
=========
_______________________________________________________________________________
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
<TABLE>
<CAPTION>
_______________________________________________________________________________
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED JANUARY 31, 1995 AND 1994
===============================================================================
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations:
<S> <C> <C>
Net investment income....................................... $1,801,080 $2,063,737
Net realized gain (loss) on investments..................... 2,109 12,547
----- ------
Increase in net assets from operations.......................... 1,803,189 2,076,284
Dividends to shareholders from net investment income............ ( 1,801,080)* ( 2,063,737)*
Capital share transactions (Note 3)............................. (38,752,190) (8,758,624)
------------ -----------
Total increase (decrease)................................... (38,750,081) (8,746,077)
Net assets:
Beginning of year........................................... 120,550,941 129,297,018
----------- -----------
End of year................................................. $ 81,800,860 $ 120,550,941
========== ===========
<FN>
* Designated as exempt-interest dividends for federal income tax purposes.
</FN>
_______________________________________________________________________________
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
_______________________________________________________________________________
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. Summary of Accounting Policies.
Connecticut Daily Tax Free Income Fund, Inc. is a no-load, non-diversified,
open-end management investment company registered under the Investment Company
Act of 1940. Its financial statements are prepared in accordance with generally
accepted accounting principles for investment companies as follows:
a) Valuation of Securities -
Investments are valued at amortized cost. Under this valuation method, a
portfolio instrument is valued at cost and any discount or premium is
amortized on a constant basis to the maturity of the instrument. The maturity
of variable rate demand instruments is deemed to be the longer of the period
required before the Fund is entitled to receive payment of the principal
amount or the period remaining until the next interest rate adjustment.
b) Federal Income Taxes -
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its tax exempt and taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c) Dividends and Distributions -
Dividends from investment income (excluding capital gains and losses, if any,
and amortization of market discount) are declared daily and paid monthly.
Distributions of net capital gains, if any, realized on sales of investments
are made after the close of the Fund's fiscal year, as declared by the Fund's
Board of Directors.
d) General -
Securities transactions are recorded on a trade date basis. Interest income
is accrued as earned. Realized gains and losses from securities transactions
are recorded on the identified cost basis.
2. Investment Management Fees and Other Transactions with Affiliates.
Under the Investment Management Contract, the Fund pays an investment management
fee to Reich & Tang Asset Management, L.P. (Manager) at the annual rate of .30%
of the Fund's average daily net assets. 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 on investment
company expenses prescribed by any state in which the Fund's shares are
qualified for sale. No such reimbursement was required for the year ended
January 31, 1995. Pursuant to an Administrative Services Contract the Fund pays
to the Manager an annual fee of .20% of the Fund's average daily net assets.
________________________________________________________________________________
36
<PAGE>
2. Investment Management Fees and Other Transactions with Affiliates
(Continued).
Pursuant to a Distribution and Service Plan adopted under Securities and
Exchange Commission Rule 12b-1, the Fund and Reich & Tang Distributors L.P. (the
Distributor) have entered into a Distribution Agreement and a Shareholder
Servicing Agreement. For its services under the Shareholder Servicing Agreement,
the Distributor receives from the Fund a service fee equal to .20% of the Fund's
average daily net assets. There were no additional expenses borne by the Fund
pursuant to the Distribution and Service Plan. During the year ended January 31,
1995 the Distributor voluntarlily wavied shareholder servicing fees of $5,049.
Fees are paid to Directors who are unaffiliated with the Manager on the basis of
$3,000 per annum plus $500 per meeting attended. Included in the Statement of
Operations under the caption "Custodian, shareholder servicing and related
shareholder expenses" are fees of $4,698 paid to Fundtech Services L.P., an
affiliate of the Manager, as servicing agent for the Fund.
3. Capital Stock.
At January 31, 1995, 20,000,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $81,821,496. Transactions in capital
stock, all at $1.00 per share, were as follows:
<TABLE>
Year Year
Ended Ended
January 31, 1995 January 31, 1994
---------------- ---------------
<S> <C> <C>
Sold........................................ 190,586,219 201,724,664
Issued on investment of dividends........... 1,674,156 1,248,938
Redeemed.................................... ( 231,012,565) ( 211,732,226)
----------- -----------
Net increase (decrease)..................... ( 38,752,190) ( 8,758,624)
========== =========
</TABLE>
4. Sales of Securities.
Accumulated undistributed realized losses at January 31, 1995 amounted to
$20,636. At January 31, 1995 the Fund had tax basis capital losses of $22,592
which may be carried to offset future capital gains. Such losses expire January
31, 1996.
_______________________________________________________________________________
37
<PAGE>
_______________________________________________________________________________
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
5. Concentration of Credit Risk.
The Fund invests primarily in obligations of political subdivisions of the State
of Connecticut and, accordingly, is subject to the credit risk associated with
the non-performance of such issuers. Approximately 62% of these investments are
further secured, as to principal and interest, by letters of credit issued by
financial institutions. The Fund maintains a policy of monitoring its exposure
by reviewing the creditworthiness of the issuers, as well as that of the
financial institutions issuing the letters of credit, and by limiting the amount
of holdings with letters of credit from one financial institution. 6. Selected
Financial Information.
6. Selected Financial Information.
Reference is made to page 2 of each Prospectus for the Selected Financial
Information.
_______________________________________________________________________________
38
<PAGE>
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(A) Financial Statements.
Included in Prospectus - Part A:
(1) Selected Financial Information
(2) Table of Fees and Expenses
Included in Statement of Additional Information - Part B:
(1) Report of McGladrey & Pullen, LLP independent
certified public accountants, dated March 6, 1995.
(2) Statement of Net Assets (audited).
(3) Statement of Operations (audited).
(4) Statements of Changes in Net Assets (audited).
(5) Notes to Financial Statements (audited).
(B) Exhibits.
* (1) Articles of Incorporation of the Registrant.
* (2) By-Laws of the Registrant.
(3) Not applicable.
** (4) Form of certificate for shares of Commmon Stock,
par value $.001 per share, of the Registrant.
**** (5) Investment Management Contract between the
Registrant and Reich & Tang Asset Management L.P.
**** (6) See Distribution Agreement between the Registrant
and Reich & Tang Distributors L.P.
(7) Not applicable.
** (8) Custody Agreement between the Registrant and
Investors Fiduciary Trust Company filed as Exhibit
8 herein.
(9) Not applicable.
____________________
+ Filed with Pre-Effective Amendment No. 1 to said Registration Statement
on May 13, 1985, and incorporated herein by reference.
* Filed with the initial Registration Statement No. 2-96546, on March 20,
1985, and incorporated herein by reference.
** Filed herewith.
*** Filed with Post-Effective Amendment No. 5 to said Registration
Statement on May 27, l988, and incorporated herein by reference.
**** Filed with Post-Effective Amendment No. 17 to said Registration
Statement on March 31, 1994 and incorporated by referenc herein.
C-1
<PAGE>
(10) Opinion of Messrs. Battle Fowler LLP as to the legality of the
Securities being registered, including their consent to the filing
thereof and to the use of their name under the headings "Federal
Income Taxes" in the Prospectus and in the Statement of Additional
Information, and under the heading "Counsel and Auditors" in the
Statement of Additional Information.
+ (11.1) Consent of Messrs. Day, Berry & Howard to the use of their name
under the heading "Connecticut Income Taxes" in the Prospectus and in
the Statement of Additional Information, and under the heading
"Counsel and Auditors" in the Statement of Additional Information.
(11.2) Consent of Certified Public Accountants filed herein.
+ (11.3) Power of Attorney of Principal Officers and Directors of the
Registrant.
(12) Not applicable.
+(13) Written assurance of Reich & Tang, Inc. that its purchase of shares of
the Registrant was for investment purposes without any present
intention of redeeming or reselling.
(14) Not applicable.
***(5.1) Distribution Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940.
****(15.2)Amended Distribution Agreement between the Registrant and Reich &
Tang Distributors L.P.
****(15.3)Amended Shareholder Servicing Agreement between the Registrant and
Reich & Tang Distributors L.P.
****(15.4)Administrative Services Contract between the Registrant and Reich &
Tang Distributors L.P.
(16) Financial Data Schedule Filed herein.
Item 25. Persons controlled by or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of April 28, 1995
Common Stock 559
(par value $.001)
____________________
+ Filed with Pre-Effective Amendment No. 1 to said Registration
Statement filed on May 13, 1985, and incorporated herein by reference.
*** Filed with Post-Effective Amendment No. 15 to said Registration
Statement filed on May 28, 1993, and incorporated herein by reference.
**** Filed with Post-Effective Amendment No. 17 to said Registration
Statement on March 31, 1994 and incorporated by reference herein.
C-2
<PAGE>
Item 27. Indemnification.
Registrant incorporates herein by reference the response to Item 27 of
Registration Statement filed with the Commission on May 13, 1985.
Item 28. Business and Other Connections of Investment Adviser.
The description of Reich & Tang Asset Management L.P. under the caption
"Management of the Fund" in the Prospectus and "Manager" and "Management of the
Fund" in the Statement of Additional Information constituting parts A and B,
respectively, of this Post-Effective Amendment No. 17 to the Registration
Statement are incorporated herein by reference.
New England Mutual Life Insurance Company, ("The New England") of which New
England Investment Companies, Inc. ("NEIC") is an indirect wholly-owned
subsidiary, owns approximately 68.41% of the outstanding partnership units of
New England Investment Companies, L.P., Reich & Tang, Inc., owns approximately
21.8% of the outstanding partnership units of NEICLP. NEICLP is the limited
partner and owner of a 99.5% interest in Reich & Tang Asset Management L.P.
Reich & Tang Asset Management, Inc. serves as the sole general partner and owner
of the remaining .5% interest of Reich & Tang Asset Management L.P. and serves
as the sole general partner of Reich & Tang Distributors L.P. Reich & Tang Asset
Management L.P. serves as the sole limited partner of the Distributor.
Registrant's investment adviser, Reich & Tang Asset Management L.P., is a
registered investment adviser. Reich & Tang Asset Management L.P.'s investment
advisory clients include California Daily Tax Free Income Fund, Inc., Daily Tax
Free Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey
Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc.,
North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal
Income Fund, Short Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.,
registered investment companies whose addresses are 600 Fifth Avenue, New York,
New York 10020, which invest principally in money market instruments, Delafield
Fund, Inc. and Reich & Tang Equity Fund, Inc., registered investment companies
whose addresses are 600 Fifth Avenue, New York, New York 10020, which invests
principally in equity securities, Reich & Tang Government Securities Trust, a
registered investment company whose address is 600 Fifth Avenue, New York, New
York 10020, which invests solely in securities issued or guaranteed by the
United States government, Cortland Trust, Inc., a registered investment company
whose address is Three University Plaza, Hackensack, New Jersey 07601 and
Lebenthal Funds, Inc. {Lebenthal New York Tax Free Money Fund}, a registered
investment company whose address is 25 Broadway, New York, New York 10004, which
invest primarily in money market instruments. In addition, Reich & Tang Asset
Management L.P. is the sole general partner of Alpha Associates, August
Associates, Reich & Tang Small Cap L.P. and Tucek Partners, private investment
partnerships organized as limited partnerships. New England Investment
Companies, L.P. is also an investment advisor to Daily Dollar International,
Ltd., an unregistered offshore investment company whose address is Elizabethan
Square, George Town, Grand Cayman, British West Indies.
Peter S. Voss, President, Chief Executive Officer and a Director of NEIC
since October 1992, Chairman of the Board of NEIC since December 1992, Group
Executive Vice President, Bank of America, responsible for the global asset
management private banking businesses, from April 1992 to October 1992,
Executive Vice President of Security Pacific Bank, and Chief Executive Officer
of Security Pacific Hoare Govett Companies a wholly-owned subsidiary of Security
Pacific Corporation, from April 1988
C-3
<PAGE>
to April 1992, Director of The New England since March 1993, Chairman of
the Board of Directors of NEIC's subsidiaries other than Loomis, Sayles &
Company, L.P. ("Loomis") and Back Bay Advisors, L.P. ("Back Bay"), where he
serves as a Director, and Chairman of the Board of Trustees of all of the mutual
funds in the TNE Fund Group and the Zenith Funds. Edward E. Phillips, Chairman
of the Board of NEIC from December 1989 until December 1991 and from August 1992
until December 1992, Chief Executive Officer of NEIC from August 1992 until
October 1992, Chairman of the Board of The New England from 1978 to January
1992, and Director of NYNEX Corporation and Affiliated Publications, Inc. Robert
A. Shafto, a Director of NEIC since August 1992, Chairman of The New England
since July 1993, and President and Chief Executive Officer of The New England
since July 1993, having served in that capacity since January 1992, President
and Chief Operating Officer of The New England from 1990 to 1992 and President
- -- Insurance and Personal Financial Services of The New England from 1988 to
1990, and Director of Fleet Bank of Massachusetts, N.A. Lawrence E. Fouracker,
Director of NEIC since May 1990, Director of The New England, Alcan Aluminum,
Limited, Citicorp, Inc., Enserch Corporation, General Electric Company, The
Gillette Company and Ionics, Inc. Thomas J. Galligan, Jr., Director of NEIC
since May 1990, Chairman of the Board of Directors of Boston Edison Company from
1979 until his retirement in December 1986, served as its Chief Executive
Officer from 1979 to 1984 and served as a Director until May 1990, Director of
The New England from 1971 to 1990. Charles M. Leighton, Director of NEIC since
May 1990, has been Chairman of the Board and Chief Executive Officer of CML
Group, Inc. a speciality consumer products company, since 1969, and Director of
The New England and Corporate Software, Inc. Oscar L. Tang, Director of NEIC,
Chairman and Chief Executive Officer of Mid Pacific Air Corporation, and
Director of South Seas Textile Manufacturing Co., Ltd. G. Neil Ryland, Executive
Vice President, Treasurer and Chief Financial Officer NEIC since July 1993,
Executive Vice President and Chief Financial Officer of The Boston Company, a
diversified financial services company, from March 1989 until July 1993, from
September 1985 to December 1988, Mr. Ryland was employed by Kenner Parker Toys,
Inc. as Senior Vice President and Chief Financial Officer. Sherry A. Umberfield,
Executive Vice President, Corporate Development of NEIC since December 1989,
Vice President of The New England from December 1988 to December 1992 and a
Second Vice President of The New England from 1984 to 1988, and Director of TNE
Investment Services Corporation ("TNEIS"), New England Investment Marketing,
Inc. ("NEIM"), Westpeak Investment Advisors, Inc. ("Westpeak") and Draycott
Partners, Ltd, ("Draycott"). Edward N. Wadsworth, Executive Vice President,
General Counsel, Clerk and Secretary of NEIC since December 1989, Senior Vice
President and Associate General Counsel of The New England from 1984 until
December 1992, and Secretary of Westpeak and Draycott and the Treasurer of NEIM.
Item 29. Principal Underwriters.
(a) Reich & Tang Distributors L.P., the Registrant's distributor, is also
distributor for California 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.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Reich
& Tang Government Securities Trust, Short Term Income Fund, Inc. and Tax Exempt
Proceeds Fund, Inc.
(b) The following are the directors and officers of Reich & Tang Asset
Management Inc., the general partner of Reich & Tang Distributors L.P. Reich &
Tang Distributors L.P. does not have any officers. The principal business
address of each of these persons is 399 Boylston Street, Boston, Massachusetts
02116.
C-4
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Positions and Offices
With the General Partner Positions and Offices
Name of the Distributor With Registrant
Peter S. Voss President, CEO, and None
Director
Edward E. Phillips Director None
Robert A. Shafto Director None
Lawrence E. Fouraker Director None
Thomas J. Galligan, Jr. Director None
Charles M. Leighton Director None
Oscar L. Tang Director None
G. Neal Ryland Executive Vice President, None
Treasurer and CFO
Sherry A. Umberfield Executive Vice President None
Corporate Development
Edward N. Wadsworth Executive Vice President None
and General Counsel
(c) Not applicable.
Item 30. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are maintained in the physical possession of the Registrant; at Reich & Tang
Asset Management L.P., 600 Fifth Avenue, New York, New York 10020, the
Registrant's manager; Investors Fiduciary Trust Company, 127 West 10th Street,
Kansas City, Missouri 64105, the Registrant's custodian; and at Fundtech
Services L.P., Three University Plaza, Hackensack, New Jersey 07601, the
Registrant's transfer agent and dividend disbursing agent.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
C-5
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, and State of New York, on the th day of May 25, 1995.
CONNECTICUT DAILY TAX FREE INCOME FUND, INC.
By:/s/ Steven W. Duff
Steven W. Duff
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated below on May 25, 1995.
NAME TITLE
(1) Principal Executive
Officer
/s/Steven W. Duff President and Director
Steven W. Duff
(2) Principal Financial and
Accounting Officer
/s/Richard De Sanctis Treasurer
Richard De Sanctis
(3) Majority of Directors
/s/Steven W. Duff
Steven W. Duff Director
Dr. W. Giles Mellon Director)
Dr. Yung Wong Director)
Robert Straniere Director)
By: /s/Bernadette N. Finn
Bernadette N. Finn
Attorney-in-Fact*
____________________
* An executed copy of the power of attorney was filed as Exhibit 16 with
Pre-Effective Amendment No. 1 to Registration Statement No. 2-96546 on May 13,
1985.
EXHIBIT 8(a)
CUSTODY AGREEMENT
THIS AGREEMENT made the 1st day of April, 1994 by and between INVESTORS
FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of the state
of Missouri, having its trust office located at 127 West 10th Street, Kansas
City, Missouri 64105 ("Custodian"), and The Funds listed in Exhibit A, having
its principal office and place of business at 600 Fifth Avenue; New York, New
York 10020 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
custodian of the securities and monies of Fund's investment portfolio; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for an in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints Custodian
of the securities and monies at any time owned by the Fund.
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to Custodian:
1. That it is a corporation or trust (as specified above) duly organized
and existing and in good standing under the laws of its state of
organization, and that it is registered under the Investment Company
Act of 1940 (the "1940 Act"); and
2. That it has the requisite power and authority under applicable law,
its articles of incorporation and its bylaws to enter into this
Agreement; that it has taken all requisite action necessary to appoint
Custodian as custodian for the Fund; that this Agreement has been duly
executed and delivered by Fund; and that this Agreement constitutes a
legal, valid binding obligation of Fund, enforceable in accordance
with its terms.
<PAGE>
B. Custodian hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in good
standing under the laws of the State of Missouri; and
2. That it has the requisite power and authority under applicable law,
its charter and its bylaws to enter into and perform this Agreement;
that this Agreement has been duly executed and delivered by Custodian;
and that this Agreement constitutes a legal, valid binding obligation
of Custodian, enforceable in accordance with its terms.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
Except as permitted by the 1940 Act, Fund will deliver or cause to be
delivered to Custodian on the effective date of this Agreement, or as
soon thereafter as practicable, and from time to time thereafter, all
portfolio securities acquired by it and monies then owned by it or
from time to time coming into its possession during the time this
Agreement shall continue in effect. Custodian shall have no
responsibility or liability whatsoever for or on account of securities
or monies not so delivered.
B. Delivery of Accounts and Records
Fund shall turn over or cause to be turned over to Custodian all of
the Fund's relevant accounts and records previously maintained.
Custodian shall be entitled to rely conclusively on the completeness
and correctness of the accounts and records turned over to it, and
Fund shall indemnify and hold Custodian harmless of and from any and
all expenses, damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other deficiency of
such accounts and records or in the failure of Fund to provide, or to
provide in a timely manner, any accounts, records or information
needed by the Custodian to perform its functions hereunder.
C. Delivery of Assets to Third Parties
Custodian will receive delivery of and keep safely the assets of Fund
delivered to it from time to time segregated in a separate account,
2
<PAGE>
and if Fund is comprised of more than one portfolio of investment
securities (each a "Portfolio") Custodian shall keep the assets of
each Portfolio segregated in a separate account. Custodian will not
deliver, assign, pledge or hypothecate any such assets to any person
except as permitted by the provisions of this Agreement or any
agreement executed by it according to the terms of Section 3.S. of
this Agreement. Upon delivery of any such assets to a subcustodian
pursuant to Section 3.S. of this Agreement, Custodian will create and
maintain records identifying those assets which have been delivered to
the subcustodian as belonging to the Fund, by Portfolio if applicable.
The Custodian is responsible for the safekeeping of the securities and
monies of Fund only until they have been transmitted to and received
by other persons as permitted under the terms of this Agreement,
except for securities and monies transmitted to subcustodians
appointed under Section 3.S. of this Agreement, for which Custodian
remains responsible to the extent provided in Section 3.S. hereof.
Custodian may participate directly or indirectly through a
subcustodian in the Depository Trust Company (DTC), Treasury/Federal
Reserve Book Entry System (Fed System), Participant Trust Company
(PTC) or other depository approved by the Fund (as such entities are
defined at 17 CFR Section 270.17f-4(b)) (each a "Depository") and
collectively, the "Depositories").
D. Registration of Securities
The Custodian shall at all times hold registered securities of the
Fund in the name of the Custodian, the Fund, or a nominee of either of
them, unless specifically directed by instructions to hold such
registered securities in so-called "street name", provided that, in
any event, all such securities and other assets shall be held in an
account of the Custodian containing only assets of the Fund, or only
assets held by the Custodian as a fiduciary or custodian for
customers, and provided further, that the records of the Custodian at
all time shall indicate the Fund or other customer for which such
securities and other assets are held in such account and the
3
<PAGE>
respective interests therein. If, however, the Fund directs the
Custodian to maintain securities in "street name", notwithstanding
anything contained herein to the contrary, the Custodian shall be
obligated only to utilize its best efforts to timely collect income
due the Fund on such securities and to notify the Fund of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers. All securities, and the
ownership thereof the Fund, which are held by Custodian hereunder,
however, shall at all time be identifiable on the records of the
Custodian. The Fund agrees to hold Custodian and its nominee harmless
for any liability as a shareholder of record of securities held in
custody.
E. Exchange of Securities
Upon receipt of instructions as defined herein in Section 4.A,
Custodian will exchange, or cause to be exchange, portfolio securities
held by it for the account of Fund for other securities or cash issued
or paid in connection with any reorganization, recapitalization,
merger, consolidation, split-up of shares, change of par value,
conversion or otherwise, and will deposit any such securities in
accordance with the terms of any reorganization or protective plan.
Without instructions, Custodian is authorized to exchange securities
held by it in temporary form for securities in definitive form, to
effect an exchange of shares when the par value of the stock is
changed, and, upon receiving payment therefor, to surrender bonds or
other securities held by it at maturity or when advised of earlier
call for redemption, except that Custodian shall receive instructions
prior to surrendering any convertible security.
F. Purchases of Investments of the Fund
Fund will, on each business day on which a purchase of securities
shall be made by it, deliver to custodian instructions which shall
specify with respect to each such purchase.
1. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the security;
4
<PAGE>
3. The number of shares and the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase; and
8. The name of the person from whom or the broker or dealer through
whom the purchase was made.
9. Whether the security is to be received in certificated form or
via a specified Depository.
In accordance with such instructions, Custodian will pay for out of
monies held for the account of Fund, but only insofar as such monies
are available for such purpose, and receive the portfolio securities
so purchased by or for the account of Fund, except that Custodian may
in its sole discretion advance funds to the Fund, which may result in
an overdraft because the monies held by the Custodian on behalf of the
Fund are insufficient to pay the total amount payable upon such
purchase. Except as otherwise instructed by Fund, such payment shall
be made by the Custodian only upon receipt of securities: (a) by the
Custodian; (b) by a clearing corporation of a national exchange of
which the Custodian is a member; or (c) by a Depository.
Notwithstanding the foregoing, (i) in the case of a repurchase
agreement, the Custodian may release funds to a Depository prior to
the receipt of advice from the Depository that the securities
underlying such repurchase agreement have been transferred by
book-entry into the account maintained with such Depository by the
Custodian, on behalf of its customers, provided that the Custodian's
instructions to the Depository require that the Depository make
payment of such funds only upon transfer by book-entry of the
securities underlying the repurchase agreement in such amount; (ii) in
the case of time deposits, call account deposits, currency deposits
5
<PAGE>
and other deposits, foreign exchange transactions, futures contracts
or options, the Custodian may make payment therefor before receipt of
an advice or confirmation evidencing said deposit or entry into such
transaction; and (iii) in the case of the purchase of securities, the
settlement of which occurs outside of the United States of America,
the Custodian may make, or cause a subcustodian appointed pursuant to
Section 3.S.2. of this Agreement to make, payment therefor in
accordance with generally accepted local custom and market practice.
G. Sales and deliveries of Investments of the Fund - Other than Options
and Futures
Fund will, on each business day on which a sale of investment
securities (other than options and futures) of Fund has been made,
deliver to Custodian instructions specifying with respect to each such
sales:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares and principal amount sold, and accrued
interest, if any;
4. The date on which the securities sold were purchased or other
information identifying the securities sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such sale; and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
In accordance with such instructions, Custodian will deliver or cause
to be delivered the securities thus designated as sold for the amount
of Fund to the broker or other person specified in the instructions
relating to such sale. Except as otherwise instructed by Fund, such
delivery shall be made upon receipt of payment therefor: (a) in such
6
<PAGE>
form as is satisfactory to the Custodian; (b) credit to the account of
the Custodian with a clearing corporation of a national securities
exchange of which the Custodian is a member; or (c) credit to the
amount of the Custodian, on behalf of its customers, with a
Depository. Notwithstanding the foregoing: (i) in the case of
securities held in physical form, such securities shall be delivered
in accordance with "street delivery custom" to a broker or its
clearing agent; or (ii) in the case of the sale of securities, the
settlement of which occurs outside of the United States of America,
the Custodian may make, or cause a subcustodian appointed pursuant to
Section 3.S.2. of this Agreement to make, payment therefor in
accordance with generally accepted local custom and market practice.
H. Purchases of Sales of Options and Futures
Fund will, on each business day on which a purchase or sale of the
following options and/or futures shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase or sale:
1. If appliable, the name of the Portfolio making such purchase or
sale;
2. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom the
sale or purchase was made.
7
<PAGE>
3. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising,
expiring or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through whom
the sale or purchase was made, or other applicable
settlement instructions.
4. Security Index Future Contracts
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition to
instructions, and if not already in the possession of
Custodian, Fund shall deliver a substantially complete and
executed custodial safekeeping account and procedural
agreement which shall be incorporated by reference into this
Custody Agreement); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made or other
applicable settlement instructions.
8
<PAGE>
5. Options on Index Future Contracts
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening,exercising,
expiring or closing transaction;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Securities Pledged or Loaned
If specifically allowed for in the prospectus of Fund, and subject to such
additional terms and conditions as Custodian may require:
1. Upon receipt of instructions, Custodian will release or cause to be
released securities held in custody to the pledge designated in such
instructions by way of pledge or hypothecation to secure any loan
incurred by Fund; provided, however, that the securities shall be
released only upon payment to Custodian of the monies borrowed, except
that in cases where additional collateral is required to secure a
borrowing already made, further securities may be released or caused
to be released for that purpose upon receipt of instructions. Upon
receipt of instructions, Custodian will pay, but only from funds
available for such purpose, any such loan upon redelivery to it of the
securities pledge or hypothecated therefor and upon surrender of the
note or notes evidencing such loan.
2. Upon receipt of instructions, Custodian will release securities held
in custody to the borrower designated in such instructions; provided,
however, that the securities will be released only upon deposit with
Custodian of full cash collateral as specified in such instructions,
9
<PAGE>
and that Fund will retain the right to any dividends, interest or
distribution on such loaned securities. upon receipt of instructions
and the loaned securities, Custodian will release the cash collateral
to the borrower.
J. Routine Matters
Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution, purchase,
transfer, or other dealing with securities or other dealing with
securities or other property of Fund except as may be otherwise
provided in this Agreement or directed from time to time by the Fund
in writing.
K. Deposit Accounts
Custodian will open and maintain one or more special purpose deposit
account in the name of Custodian ("Account"), subject only to draft or
order by Custodian upon receipt of instructions. All monies received
by Custodian from or for the account of Fund shall be deposited in
said Accounts. Barring events not in the control of the Custodian such
as strikes, lockouts or labor disputes, riots, war or equipment or
transmission failure or damage, fire, flood, earthquake or other
natural disaster, action or inaction of governmental authority or
other causes beyond its control, at 9:00 a.m., Kansas City time, on
the second business day after deposit of any check into an Account,
Custodian agrees to make Fed Funds available to the Fund in the amount
of the check. Deposits made by Federal Reserve wire will be available
to the Fund immediately and ACH wires will be available to the Fund on
the next business day. Income earned on the portfolio securities will
be credited to the Fund based on the schedule attached as Exhibit A.
The Custodian will be entitled to reverse any credited amounts where
credits have been made and monies are not finally collected. If monies
are collected after such reversal, the Custodian will credit the Funds
in that amount. Custodian may open and maintain Accounts in its own
banking department, or in such other banks or trust companies as may
be designated by it or by Fund in writing, all such Accounts, however,
10
<PAGE>
to be in the name of Custodian and subject only to its draft or order.
Funds received and held for the account of different Portfolios shall
be maintained in separate Accounts established for each Portfolio.
L. Income and other Payments to Fund
Custodian will:
1. Collect, claim, and receive and deposit for the account of Fund
all income and other payments which become due and payable on or
after the effective date of this Agreement with respect to the
securities deposited under this Agreement, and credit the account
of Fund in accordance with the schedule attached hereto as
Exhibit A. If, for any reason, the Fund is credited with income
that is not subsequently collected, Custodian may reverse that
credited amount.
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the
collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. the collection, receipt and deposit of such income and other
payments, including but not limited to the presentation for
payment of:
1. all coupons and other income items requiring
presentation; and
2. all other securities which may mature or be called,
redeemed, retired or otherwise become payable and
regarding which the custodian has actual knowledge, or
should reasonably be expected to have knowledge; and
b. the endorsement for collection, in the name of Fund, of all
checks, drafts or other negotiable instruments.
Custodian, however, will not be required to institute suit or take
other extraordinary action to enforce collection except upon receipt
of instructions and upon being indemnified to its satisfactory against
11
<PAGE>
the costs and expenses of such suit or other actions. Custodian will
receive, claim and collect all stock dividends, rights and other
similar items and will deal with the same pursuant to instructions.
Unless prior instructions have been received to the contrary,
Custodian will, without further instructions, sell any rights held for
the account of Fund on the last trade date prior to the date of
expiration of such rights.
M. Payment of Dividends and other Distributions
On the declaration of any dividend or other distribution on the shares
of capital stock of Fund ("Fund Shares") by the Board of Directors of
Fund, Fund shall deliver to Custodian instructions with respect
thereto. On the date specified in such instructions for the payment of
such dividend or other distribution, Custodian will pay out of the
monies held for the account of Fund, insofar as the same shall be
available for such purposes, and credit to the account of the Dividend
Disbursing Agent for Fund, such amount as may be necessary to pay the
amount per share payable in cash on Fund Shares issued and outstanding
on the record date established by such resolution.
N. Shares of Fund Purchased by Fund
Whenever any Fund Shares are repurchased or redeemed by Fund, Fund or
its agent shall advise Custodian of the aggregate dollar amount to be
paid for such shares and shall confirm such advice in writing. Upon
receipt of such advice, Custodian shall charge such aggregate dollar
amount to the amount of Fund and either deposit the same in the
account maintained for the purpose of paying for the repurchase or
redemption of Fund Shares or deliver the same in accordance with such
advice. Custodian shall not have any duty or responsibly to determine
that Fund Shares have been removed form the proper shareholder account
or accounts or that the proper number of Fund Shares have been
cancelled and removed from the shareholder records.
O. Shares of Fund Purchased from Fund
Whenever Fund Shares are purchased from Fund, Fund will deposit or
cause to be deposited with Custodian the amount received for such
12
<PAGE>
shares. Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been added to the
proper shareholder account or accounts or that the proper number of
such shares have been added to the shareholder records.
P. Proxies and Notices
Custodian will promptly deliver or mail or have delivered or mailed to
Fund all proxies properly signed, all notices of meetings, all proxy
statements and other notices, requests or announcements affecting or
relating to securities held by Custodian for Fund and will, upon
receipt of instructions, execute and deliver or cause its nominee to
execute and deliver or mail or have delivered or mailed such proxies
or other authorizations as may be required. Except as provided by this
Agreement or pursuant to instructions hereafter received by Custodian,
neither it nor its nominee will exercise any power inherent in any
such securities, including any power to vote the same, or execute any
proxy, power of attorney, or other similar instrument voting any of
such securities, or give any consent, approval or waiver with respect
thereto, or take any other similar action.
Q. Disbursements
Custodian will pay or cause to be paid, insofar as funds are available
for the purpose, bills, statements and other obligations of Fund
(including but not limited to obligations in connection with the
conversion, exchange or surrender of securities owned by Fund,
interest charges, dividend disbursements, taxes, management fees,
custodian fees, legal fees, auditors' fee, transfer agents' fee,
brokerage commissions, compensation to personnel, and other operating
expenses of Fund) pursuant to instructions of Fund setting forth the
name of the person to whom payment is to be made, the amount of the
payment, and the purpose of the payment.
R. Daily Statement of Accounts.
Custodian will, within a reasonable time, render to Fund a detailed
statement of the amounts received or paid and of securities received
13
<PAGE>
or delivered for the account of Fund during each business day.
Custodian will, from time to time, upon request by Fund, render a
detailed statement of the securities and monies held for Fund under
this Agreement, and Custodian will maintain such books and records as
are necessary to enable it to do so. Custodian will permit such
persons as are authorized by Fund, including Fund's independent public
accounts, reasonable access to such records or will provide reasonable
confirmation of the contents of such records, and if demanded,
Custodian will permit federal and state regulatory agencies to examine
the securities, books and records. Upon the written instructions of
Fund or as demanded by federal or state regulatory agencies, Custodian
will instruct any subcustodian to permit such persons as are
authorized by Fund, including Fund's independent public accounts,
reasonable access to such records, or to provide reasonable
confirmation of the contents of such records, and to permit such
agencies to examine the books, records and securities held by such
subcustodian which relate to Fund.
S. Appointment of Subcustodians
1. Notwithstanding any other provisions of this Agreement, all or
any of the monies or securities of Fund may be held in
Custodian's own custody or in the custody of one or more other
banks or trust companies acting as subcustodians as may be
selected by Custodian. Any such subcustodian selected by the
Custodian must have the qualifications required for a custodian
under the 1940 Act, as amended. It is understood that Custodian
initially intends to appoint United Missouri Bank, N.A. (UMB) and
United Missouri Trust Company of New York (UMTCNY) as
subcustodians. Custodian shall be responsible to the Fund for any
loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of UMB, UMTCNY and any
other subcustodians selected and appointed by Custodian (except
subcustodians appointed as the request of Fund and as provided in
Subsection 2 below) to the same extent Custodian would be
14
<PAGE>
responsible to the Fund under Section 5. of this Agreement if it
committed the act or omission itself. Upon request of the Fund,
Custodian shall be willing to contract with other subcustodians
reasonably acceptable to the Custodian for purposes of (i)
effecting third-party repurchase transactions with banks,
brokers, dealers or other entities through the use of a common
custodian or subcustodian, or (ii) providing depository and
clearing agency services with respect to certain variable rate
demand note securities; or (iii) for other reasonable purposes
specified by Fund; provided, however, that the Custodian shall be
responsible to the Fund for any loss, damage or expense suffered
or incurred by the Fund resulting from the actions or omissions
of any such subcustodian only to the same extent such
subcustodian is responsible to the Custodian. The Fund shall be
entitled to review the Custodian's contracts with any such
subcustodians appointed at the request of Fund. Custodian shall
be responsible to the Fund for any loss, damage or expense
suffered or incurred by the Fund resulting from the actions or
omission of any Depository only to the same extent such
Depository is responsible to Custodian.
2. Notwithstanding any other provisions of this Agreement, Fund's
foreign securities (as defined in Rule 17F-5(c)(1) under the 1940
Act) and Fund's cash or cash equivalents, in amounts deemed by
the Fund to be reasonably necessary to effect Fund's foreign
securities transactions, may be held in the custody of one or
more banks or trust companies acting as subcustodians, and
thereafter, pursuant to a written contract or contracts as
approved by Fund's Board of Directors, may be transferred to
accounts maintained by any such subcustodian with eligible
foreign custodians, as defined in Rule 17f-5(c)(2). Custodian
shall be responsible to the Fund for any loss, damage or expense
suffered or incurred by the Fund resulting from the actions or
15
<PAGE>
omissions of any foreign subcustodians or a domestic
subcustodians or a domestic subcustodian contracting with such
foreign subcustodians only to the same extent such domestic
subcustodian is responsible to the Custodian.
T. Accounts and Records Property of Fund
Custodian acknowledges that all of accounts and records maintained by
Custodian pursuant to this Agreement are the property of Fund, and
will be made available to Fund for inspection or reproduction within a
reasonable period of time, upon demand. Custodian will assist Fund's
independent auditors, or upon approval of Fund, or upon demand, any
regulatory body, in any requested review of Fund's accounts and
records but shall be reimbursed by Fund for all expenses and employee
time invested in any such review outside of routine and normal
periodic reviews. Upon receipt from Fund of the necessary information
or instructions, Custodian will supply information from the books and
records it maintains for Fund that Fund needs for tax returns,
questionnaires, periodic reports to shareholders and such other
reports and information requests as Fund and Custodian shall agree
upon from time to time.
U. Adoption of Procedures
Custodian and Fund may from time to time adopt procedures as they
agree upon, and Custodian may conclusively assume that no procedure
approved or directed by Fund or its accountants or other advisors
conflicts with of violates any requirements of its prospectus,
articles of incorporation, bylaws, any applicable law, rule or
regulation, or any order, decree or agreement by which Fund may be
bound. Fund will be responsible to notify Custodian of any changes in
statutes, regulations, rules requirements or policies which might
necessitate changes in Custodian's responsibilities or procedures.
V. Overdrafts
If Custodian shall in its sole discretion advance funds to the account
of the Fund which results in an overdraft in any Account because the
monies held therein by Custodian on behalf of the Fund are
16
<PAGE>
insufficient to pay the total amount payable upon a purchase of
securities as specified in Fund's instructions or for some other
reason, the amount of the overdraft shall be payable by the Fund to
Custodian upon demand together with the overdraft charge set forth on
the then-current Fee Schedule from the date advanced until the date of
payment. Fund hereby grants Custodian a lien on any security interest
in the assets of the Fund to secure the full amount of any outstanding
overdraft and related overdraft charges.
W. Exercise of Rights; Tender Offers
Upon receipt of instructions, the Custodian shall: (a) deliver
warrants, puts calls, rights or similar securities to the trustee
therefor, or to the agent of such issuer or trustee, for the purpose
of exercise or sale, provided that the new securities, cash or other
assets, if any, are to be delivered to the Custodian; and (b) deposit
securities upon invitations for tenders thereof, provided that the
consideration for such securities is to be paid or delivered to the
Custodian or the tendered securities are to be returned to the
Custodian.
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means written (including
telecopied or telexed) or oral instructions which Custodian reasonably
believes were given by a designated representative of Fund. Fund shall
deliver to Custodian, prior to delivery of any assets to Custodian and
thereafter from time to time as changes therein are necessary, written
instructions naming one or more designated representatives to give
instructions in the name and on behalf of Fund, which instructions may
be received and accepted by Custodian as conclusive evidence of the
authority of any designated representative to act for Fund and may be
considered to be in full force and effect (and Custodian will be fully
protected in acting in reliance thereon) until receipt by Custodian of
notice to the contrary. Unless such written instructions delegating
authority to any person to give instructions specifically limit such
authority to specific matters or require that the approval of anyone
else will first have been obtained, Custodian will be under no
17
<PAGE>
obligation to inquire into the right of such person, acting alone, to
give any instructions whatsoever which Custodian may receive from such
person. If Fund fails to prove Custodian any such instructions naming
designated representatives, any instructions received by Custodian
from a person reasonably believed to be an appropriate representative
of Fund shall constitute valid and proper instructions hereunder.
B. No later than the next business day immediately following each oral
instruction, Fund will send Custodian written confirmation of such
oral instruction. At Custodian's sole discretion, Custodian may record
on tape, or otherwise, any oral instruction whether given in person or
via telephone, each such recording identifying the parties, the date
and the time of the beginning and ending of such oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN
A. Custodian shall at all time use reasonable care and due diligence and
act good faith in performing its duties under this Agreement.
Custodian shall not be responsible for, and the Fund shall indemnify
and hold Custodian harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability which may be asserted against Custodian, incurred by
Custodian or for which Custodian may be held to be liable, arising out
of or attributable to:
1. All actions taken by Custodian pursuant to this Agreement or any
instructions provided to it hereunder, provided that Custodian
has acted in good faith and with due diligence and reasonable
care; and
2. The Fund's refusal or failure to comply with the terms of this
Agreement (including without limitation the Fund's failure to pay
or reimburse Custodian under this indemnification provision), the
Fund's negligence or willful misconduct, or the failure of any
representation or warranty of the Fund hereunder to be and remain
true and correct in all respects at all times.
18
<PAGE>
B. Custodian may request and obtain at the expense of Fund the advice and
opinion of counsel for Fund or of its own counsel with respect to
questions or matters of law, and it shall be without liability to Fund
for any action taken or omitted by it in good faith, in conformity
with such advice or opinion. If Custodian reasonably believes that it
could not prudently act according to the instructions of the Fund or
the Fund's accountants or counsel, it may in its discretion, with
notice to the Funds, not act according to such instruction.
C. Custodian may rely upon the advice and statements of Fund, Fund's
accountants and officers or the other authorized individuals, and
other persons believed by it in good faith to be exert in matters upon
which they are consulted, and Custodian shall not be liable for any
actions taken, in good faith, upon such advice and statements.
D. If Fund requests Custodian in any capacity to take any action which
involves the payment of money by Custodian, or which might make it or
its nominee liable for payment of monies or in any other way,
Custodian shall be indemnified and held harmless by Fund against any
liability on account of such action; provided, however, that nothing
herein shall obligate Custodian to take any such action except in its
sole discretion.
E. Custodian shall be protected in acting as custodian hereunder upon any
instructions, advice, notice, request, consent, certificate or other
instrument or paper appearing to it to be genuine and to have been
properly executed and shall be entitled to receive upon request as
conclusive proof of any fact or matter required to be ascertained from
Fund hereunder a certificate signed by an officer or designated
representative of Fund.
F. Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any securities purchased by or for
Fund, the legality of the purchase of any securities or foreign
currency positions or evidence of ownership required by Fund to
19
<PAGE>
be received by Custodian, or propriety of the decision to
purchase or amount paid therefor;
2. The legality of the sale of any securities or foreign currency
positions by or for Fund, or the propriety of the amount for
which the same are sold;
3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any Fund Shares,
or the propriety of the amount to be paid therefor; or
5. The legality of the declaration of any dividend by Fund, or the
legality of the issue of any Fund Shares in payment of any stock
dividend.
G. Custodian shall not be liable for, or considered to be Custodian of,
any money represented by any check , draft wire transfer,
clearinghouse funds, uncollected funds, or instrument for payment of
money to be received by it on behalf of Fund until Custodian actually
receives such money; provided, however, that it shall advise Fund
promptly if it fails to receive any such money in the ordinary course
of business and shall cooperate with Fund toward the end that such
money shall be received.
H. Except as provided in Section 3.S., Custodian shall not be responsible
for loss occasioned by the acts, neglects, defaults or insolvency of
any broker, bank, trust company, or any other person with whom
Custodian may deal.
I. Custodian shall not be responsible or liable for the failure or delay
in performance of its obligations under this Agreement, or those of
any entity for which it is responsible hereunder, arising out of or
caused, directly or indirectly by circumstances beyond the affected
entity's reasonable control, including, without limitations: any
interruption, loss or malfunction of any utility, transportation,
computer(hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a delay in
mails; governmental or exchange action, statute, ordinance, ruling,
regulations or direction; war, strike, riot, emergency, civil
20
<PAGE>
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornadoes, acts of God or public enemy,
revolutions, or insurrection.
J. IN NO EVENT AND UNDER NO CIRCUMSTANCES SHALL EITHER PARTY TO THIS
AGREEMENT BE LIABLE TO ANYONE, INCLUDING, WITHOUT LIMITATION TO THE
OTHER PARTY, FOR CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES FOR ANY
ACT OR FAILURE TO ACT UNDER ANY PROVISION OF THIS AGREEMENT EVEN IF
ADVISED OF THIS POSSIBILITY THEREOF.
6. COMPENSATION. In consideration for its services hereunder, Fund will pay to
Custodian such compensation as shall be set forth in a separate fee
schedule to be agreed to by Fund and Custodian from time to time. A copy of
the initial fee schedule is attached hereto and incorporated herein by
reference. Custodian shall also be entitled to receive, and Fund agrees to
pay a Custodian, on demand, reimbursement for Custodian's cash
disbursements and reasonable out-of-pocket costs and expenses, including
attorney's fees, incurred by Custodian in connection with the performance
of services hereunder. Custodian may charge such compensation against
monies held by it for the account of Fund. Custodian will also be entitled
to charge against any monies held by it for the account of Fund the amount
of any loss, charge, liability, advance, overdraft or expense for which it
shall be entitled to reimbursement from Fund, including but not limited to
fees and expenses due to Custodian for other services provided to the Fund
by Custodian. Custodian will be entitled to reimbursement by the Fund for
losses, damages, liabilities, advances, overdrafts and expenses of
subcustodians only to the extent that (i) Custodian would have been
entitled to reimbursement hereunder if it had incurred that same itself
directly, and (ii) Custodian is obligated to reimburse the subcustodian
therefor.
7. TERM AND TERMINATION. The initial term of this Agreement shall be for a
period of _________. Thereafter, either party to this Agreement may
terminate the same by notice in writing, delivered or mailed, postage
prepaid, to the other party hereto and received not less than ninety (90)
days prior to the date upon which such termination will take effect. Upon
termination of this Agreement, Fund will pay Custodian its fees and
21
<PAGE>
compensation due hereunder and its reimbursable disbursements, costs and
expenses paid or incurred to such date and Fund shall designate a successor
custodian by notice in writing to Custodian by the termination date. In the
event no written order designating a successor custodian has been delivered
to Custodian on or before the date when such termination becomes effective,
then Custodian may, at its option, deliver the securities, funds and
properties of Fund to a bank or trust company at the selection of
Custodian, and meeting the qualifications for custodian set forth in the
1940 Act and having not less that Two Million Dollars ($2,000,000)
aggregate capital, surplus and undivided profits, as shown by its last
published report, or apply to a court of competent jurisdiction for the
appointment of a successor custodian or other proper relief, or take any
other lawful action under the circumstances; provided, however, that Fund
shall reimburse Custodian for its costs and expenses, including reasonable
attorney's fees, incurred in connection therewith. Custodian will, upon
termination of this Agreement and payment of all sums due to Custodian from
Fund hereunder or otherwise deliver to the successor custodian so specified
or appointed, or as specified by the court, at Custodian office, all
securities then held by Custodian hereunder, duly endorsed and in form for
transfer, and all funds and other properties of Fund deposited with or held
by Custodian hereunder and Custodian will co-operate in effecting changes
in book-entries at all Depositories. Upon delivery to a successor custodian
or as specified by the court, Custodian will have no further obligations or
liabilities under this Agreement. Thereafter such successor will be the
successor custodian under this Agreement and will be entitled to reasonable
compensation for its services. In the event that securities, funds and
other properties remain in the possession of the Custodian after the date
of termination thereof owing to failure of the Fund to appoint a successor
custodian, the Custodian shall be entitled to compensation as provided in
the then-current fee schedule hereunder for its services during such period
as the Custodian retains possession of such securities, funds and other
properties, and the provisions of this Agreement relating to the duties and
obligations of the Custodian shall remain in full force and effect.
22
<PAGE>
8. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at ______________________, or at such other address as Fund may have
designated to Custodian in writing, will be deemed to have been properly
given to Fund hereunder; and notices, requests, instructions and other
writings addressed to Custodian at its offices at 127 West 10th Street,
Kansas City, Missouri 64105, Attention: Custody Department, or to such
other address as it may have designated to Fund in writing, will be deemed
to have been properly given to Custodian hereunder.
9. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio:
A. Each Portfolio shall be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to
relate solely to the particular Portfolio to which such transaction
relates. Under no circumstances shall the rights, obligation or
remedies with respect to a particular Portfolio constitute a right,
obligation or remedy applicable to any other Portfolio. The use of
this single document to memorialize the separate agreement of each
Portfolio is understood to be for clerical convenience only and shall
not constitute any basis for joining the Portfolios for any reason.
B. Additional Portfolios may be added to this Agreement, provided that
Custodian consents to such addition. Rates or charges for each
additional Portfolio shall be as agreed upon by Custodian and Fund in
writing.
10. MISCELLANEOUS.
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of
the State of Missouri, without reference to the choice of laws
principle thereof.
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
23
<PAGE>
C. The representations and warranties and the indemnification extended
hereunder are intended to and shall continue after and survive the
expiration, termination or cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by each party hereto.
E. The failure of either party to insist upon the performance of any
terms or conditions of this Agreement or to enforce any rights
resulting form any breach of any of the terms or conditions of this
Agreement, including the payment of damages, shall not be construed as
a continuing or permanent waiver of any such terms, conditions, rights
or privileges, but the same shall continue and remain in full force
and effect as if no such forbearance or waiver had occurred. No
waiver, release or discharge of any party's rights hereunder shall be
effective unless contained in a written instrument signed by the party
sought to be charged.
F. The captions in the Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect
G. This Agreement may be executed into or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
H. If any part, term or provision of this Agreement is determined by the
courts or any regulatory authority to be illegal, in conflict with any
law or otherwise invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
24
<PAGE>
J. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and between
Custodian and Fund.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by either party hereunder shall not
affect any rights or obligations of the other party hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/Allen A. Straw
Title: Executive Vice President
FUND
By: /s/Bernadette N. Finn
Title: Secretary
25
<PAGE>
EXHIBIT A
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
<TABLE>
<CAPTION>
TRANSACTION DTC PHYSICAL FED
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
<S> <C> <C> <C> <C> <C> <C>
Calls Puts As Received C or F* As Received C or F*
Maturities As Received C or F* Maturity Date C or F* Maturity Date F
Tender Reorgs. As Received C As Received C N/A
Dividends Paydate C Paydate C N/A
Floating Rate Paydate C Paydate C N/A
Int.
Floating Rate As Rate C N/A
Int. (No Rate) N/A Received
Mtg. Backed Paydate C Paydate + 1 C Paydate F
P&I Bus. Day
Fixed Rate
Inc. Paydate C Paydate C Paydate F
Euroclear N/A C Paydate C
</TABLE>
Legend
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based in how received.
26
<PAGE>
EXHIBIT A
Name of Fund
California Daily Tax Free Income Fund, Inc. *
Connecticut Daily Tax Free Income Fund, Inc. *
Cortland Trust Inc. *
Daily Tax Free Income Fund, Inc. *
Florida Daily Municipal Income Fund +
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 +
Reich & Tang Equity Fund, Inc. *
Reich & Tang Government Securities Trust +
Short Term Income Fund, Inc. *
Tax Exempt Proceeds Funds, Inc. *
* Maryland Corporation
+ Massachusetts Business Trust
Dated: August 30, 1994
27
EXHIBIT 11.1
McGLADREY & PULLEN, L.L.P.
Certified Public Accountants & Consultants
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated March 6, 1995, on the financial
statements referred to therein, in Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A, File No. 2-96456, of Connecticut Daily Tax
Free Income Fund, Inc. as filed with the Securities and Exchange Commission.
We also consent to the reference to our Firm in the Prospectus under
the caption "Selected Financial Information" and in the Statement of Additional
Information under the caption "Counsel and Auditors."
McGladrey & Pullen, LLP
New York, New York
May 23, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and supporting
schedules as of the end of the most current period and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 764901
<NAME> Connecticut Daily Tax Free Income Fund, Inc.
<S> <C>
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-31-1995
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 84867862
<INVESTMENTS-AT-VALUE> 84867862
<RECEIVABLES> 585235
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85453097
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3652237
<TOTAL-LIABILITIES> 3652237
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81821496
<SHARES-COMMON-STOCK> 81821496
<SHARES-COMMON-PRIOR> 120573686
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2109
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 81800860
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2507156
<OTHER-INCOME> 0
<EXPENSES-NET> 706076
<NET-INVESTMENT-INCOME> 1801080
<REALIZED-GAINS-CURRENT> 2109
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1803189
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1803189
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 190586219
<NUMBER-OF-SHARES-REDEEMED> 231012565
<SHARES-REINVESTED> 1674156
<NET-CHANGE-IN-ASSETS> (38750081)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (22745)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 239914
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 706076
<AVERAGE-NET-ASSETS> 79971351
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
