Registration No. 2-96546
Rule 497(b)
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Evergreen Shares of
Connecticut Daily Tax Free Income Fund, Inc.
Florida Daily Municipal Income Fund
New Jersey Daily Municipal Income Fund, Inc.
New York Daily Tax Free Income Fund, Inc.
North Carolina Daily Municipal Income Fund, Inc.
(collectively the "Funds" and individually the "Fund")
P.O. Box 9021, Boston MA 02205-9827
(800) 807-2940
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SUPPLEMENT DATED OCTOBER 12, 1995
Reich & Tang Asset Management L.P., the Fund's investment advisor, is a
wholly-owned subsidiary of New England Investment Companies, L.P. ("NEIC"). New
England Mutual Life Insurance Company ("The New England") owns NEIC's sole
general partner and a majority of the limited partnership interest in NEIC. The
New England and Metropolitan Life Insurance Company ("MetLife") have entered
into an agreement to merge, with MetLife to be the survivor of the merger. The
merger is conditioned upon, among other things, approval by the policyholders of
The New England and MetLife and receipt of certain regulatory approvals. The
merger is not expected to occur until after December 31, 1995.
The merger of The New England into MetLife will constitute an "assignment" of
the existing investment advisory agreement relating to the Fund. Under the
Investment Company Act of 1940, such an "assignment" will result in the
automatic termination of the investment advisory agreement, effective at the
time of the merger. Prior to the merger, shareholders of record of the Fund will
be asked to approve a new investment advisory agreement, intended to take effect
at the time of the merger. The new agreement will be substantially similar to
the existing agreement. A proxy statement describing the new agreement will be
sent to shareholders of the Fund prior to their being asked to vote on the new
agreement.
<PAGE>
Registration No. 2-96546
Rule 497(b)
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EVERGREEN SHARES OF
CONNECTICUT
DAILY TAX FREE
INCOME FUND, INC.
[GRAPHIC OMITTED]
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PROSPECTUS
January 19, 1996
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. Only Evergreen shares are offered by this Prospectus.
This Prospectus sets forth concisely the information about the Fund that
prospective investors will find helpful in making their investment decisions.
Additional information about the Fund has been filed with the Securities and
Exchange Commission and is available upon request and without charge by
calling the Fund at (800) 807-2940. The "Statement of Additional Information"
bears the same date as this Prospectus and is incorporated by reference into
this Prospectus in its entirety.
Investors should be aware that the Evergreen shares may not be purchased other
than through certain securities dealers with whom Evergreen Funds Distributor,
Inc. ("EFD") has entered into agreements for this purpose or directly from
EFD. Evergreen shares have been created for the primary purpose of providing a
Connecticut tax-free money market fund product for shareholders of certain
funds distributed by EFD. Shares of the Fund other than Evergreen shares are
offered pursuant to a separate Prospectus.
Reich & Tang Asset Management L.P. acts as Manager of the Fund and Reich &
Tang Distributors L.P. acts as Distributor of the Fund's shares. Reich & Tang
Asset Management L.P. is a registered investment adviser. Reich & Tang
Distributors L.P. is a registered broker-dealer and member of the National
Association of Securities Dealers, Inc.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND INTENDS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE ALTHOUGH THERE CAN BE NO ASSURANCE THAT THIS VALUE WILL BE MAINTAINED.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
This Prospectus should be read and retained by investors for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
TABLE OF FEES AND EXPENSES 3 SHAREHOLDER SERVICES 10
SELECTED FINANCIAL INFORMATION 3 Effect of Banking Laws 11
INTRODUCTION 4 DISTRIBUTION AND SERVICE PLAN 12
INVESTMENT OBJECTIVES, FEDERAL INCOME TAXES 12
POLICIES AND RISKS 4 CONNECTICUT INCOME TAXES 13
CONNECTICUT RISK FACTORS 7 GENERAL INFORMATION 14
MANAGEMENT OF THE FUND 7 NET ASSET VALUE 14
DESCRIPTION OF COMMON STOCK 8 CUSTODIAN AND TRANSFER AGENT 14
DIVIDENDS AND DISTRIBUTIONS 8
HOW TO PURCHASE AND REDEEM SHARES 9
How to Buy Shares 9
How to Redeem Shares 9
2
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TABLE OF FEES AND EXPENSES
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Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees............................. .30%
12b-1 Fees - After Fee Waiver............... .19%
Other Expenses.............................. .39%
Administration Fees.................... .21%
Total Fund Operating Expenses............... 0.88%
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following expenses on a
$1000 investment, assuming 5% annual return
(cumulative through the end of each year): $9 $28 $49 $108
</TABLE>
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 waived have been .89%.
THE FIGURES 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>
<CAPTION>
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SELECTED FINANCIAL INFORMATION
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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.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)
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................. .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 .01%, .06%, .03%, .09% and .46% of average net assets,
respectively.
</TABLE>
3
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INTRODUCTION
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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, Eastern 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.
Evergreen shares are identical to other shares of the Fund, which are
offered pursuant to a separate prospectus, with respect to investment objectives
and yield, but differ with respect to certain other matters. See "How to
Purchase and Redeem Shares" and "Shareholder Services."
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INVESTMENT OBJECTIVES,
POLICIES AND RISKS
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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
4
<PAGE>
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.
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
5
<PAGE>
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.
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.)
6
<PAGE>
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.
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CONNECTICUT RISK FACTORS
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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.
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MANAGEMENT OF THE FUND
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The Fund's Board of Directors which is responsible for the overall
management and supervision of the Fund, has employed Reich & Tang Asset
Management, L.P. ("the Manager") to serve as investment manager of the Fund. The
Manager provides persons satisfactory to the Fund's Board of Directors to serve
as officers of the Fund. Such officers, as well as certain other employees and
directors of the Fund, may be directors or officers of Reich & Tang Asset
Management, Inc., the sole general partner of the Manager, or employees of the
Manager or its affiliates. Due to the services performed by the Manager, the
Fund currently has no employees and its officers are not required to devote
full-time to the affairs of the Fund. The Statement of Additional Information
contains general background information regarding each director and principal
officer of the Fund.
The Manager is a Delaware limited partnership with its principal 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
7
<PAGE>
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 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 Manager, at its discretion, may
voluntarily waive all or a portion of the administrative services fee. For its
services under the Administrative Services Contract, the Manager receives a fee
equal to .21% per annum of the Fund's average daily net assets. Any portion of
the total fees received by the Manager may be used to provide shareholder
services and for distribution of Fund shares (see "Distribution and Service
Plan" herein).
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DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------
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.
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DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund declares dividends equal to all its net investment income
(excluding capital gains and losses, if any, and amortization of market
discount) on each Fund Business Day and generally pays dividends monthly. There
is no fixed dividend rate. In computing these dividends, interest earned and
expenses are accrued daily.
Net realized capital gains, if any, are distributed at least annually and
in no event later than 60 days after the end of the Fund's fiscal year.
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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.
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HOW TO PURCHASE AND REDEEM SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of the Fund through broker-dealers, banks or other
financial intermediaries, or directly through EFD. The minimum initial
investment is $1,000 which may be waived in certain situations. There is no
minimum for subsequent investments. In states where EFD is not registered as a
broker-dealer, shares of the Fund will only be sold through other broker-dealers
or other financial institutions that are registered. Only Evergreen shares are
offered through this Prospectus. Instructions on how to purchase shares of the
Fund are set forth in the Share Purchase Application.
ADDITIONAL PURCHASE INFORMATION. As a condition of this offering, if a
purchase is canceled due to nonpayment or because an investor's check does not
clear, the investor will be responsible for any loss the Fund or the Fund's
Manager incurs. If such investor is an existing shareholder, the Fund may redeem
shares from his or her account to reimburse the Fund or the Fund's Manager for
any loss. In addition, such investors may be prohibited or restricted from
making further purchase in any of the Evergreen mutual funds.
HOW TO REDEEM SHARES
You may "redeem", i.e., sell your shares in the Fund to the Fund on any
Fund Business Day, either directly or through your financial intermediary. The
price you will receive is the net asset value next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, the Fund
will not send proceeds until it is reasonably satisfied that the check has been
collected (which may take up to ten days). Once a redemption request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
REDEEMING SHARES THROUGH YOUR FINANCIAL INTERMEDIARY. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service. Certain financial intermediaries may require that
you give instructions earlier than 4:00 p.m. (Eastern time).
REDEEMING SHARES DIRECTLY BY MAIL OR TELEPHONE. Send a signed letter of
instruction or stock power form to State Street Bank and Trust Company ("State
Street") which is the registrar, transfer agent and dividend disbursing agent
for the Fund. Stock power forms are available from your financial intermediary,
State Street, and many commercial banks. Additional documentation is required
for the sale of shares by corporations, financial intermediaries, fiduciaries
and surviving joint owners. Signature guarantees are required for all redemption
requests for shares with a value of more than $10,000 or where the redemption
proceeds are to be mailed to an address other than that shown in the account
registration. A signature guarantee must be provided by a bank or trust company
(not a Notary Public), a member firm of a domestic stock exchange or by other
financial institutions whose guarantees are acceptable to State Street.
Shareholders may withdraw amounts of $1,000 or more from their accounts by
calling State Street at 800-423-2615 between the hours of 8:00 a.m. to 5:30 p.m.
(Eastern time) each Fund Business Day. Redemption requests made after 4:00 p.m.
(Eastern time) will be processed using the net asset value determined on the
next business day. Such redemption requests must include the shareholder's
account name, as registered with the Fund, and the account number. During
periods of drastic economic or market changes, shareholders may experience
difficulty in effecting telephone redemptions. Shareholders who are unable to
reach State Street by telephone should follow the procedures outlined above for
redemption by mail.
The telephone redemption service is not available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the Share Purchase Application and choose how the redemption
proceeds are to be paid. Redemption proceeds will either (i) be mailed by check
to the shareholder at the address in which the account is registered or (ii) be
wired to an account with the same registration as the shareholder's account in
the Fund at a designated commercial bank. State Street currently deducts a $5.00
wire charge from all redemption proceeds wired. This charge is subject to change
without notice. Redemption proceeds will be wired on the same day if the request
is made prior to 12 noon (Eastern time). Such shares, however, will not earn
dividends for that day. Redemption requests received after 12 noon will earn
dividends for that day, and the proceeds will be wired on the following business
day. A shareholder who decides later to use this service, or to change
instructions already given, should fill out a Shareholder Services Form and send
it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827, with such shareholder's signature guaranteed by a bank or trust
company (not a Notary Public), a
9
<PAGE>
member firm of a domestic stock exchange or by other financial institutions
whose guarantees are acceptable to State Street. Shareholders should allow
approximately ten days for such form to be processed. The Fund will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include requiring some form of personal identification
prior to acting upon instructions and tape recording of telephone instructions.
If the Fund fails to follow such procedures, it may be liable for any losses due
to unauthorized or fraudulent instructions. The Fund will not be liable for
following telephone instructions reasonably believed to be genuine. The Fund
reserves the right to refuse a telephone redemption if it is believed advisable
to do so. Financial intermediaries may charge a fee for handling telephone
requests. Procedures for redeeming Fund shares by telephone may be modified or
terminated without notice at any time.
REDEMPTIONS BY CHECK. Upon request, the Fund will provide holders of
Evergreen shares, without charge, with checks drawn on the Fund that will clear
through State Street. Shareholders will be subject to State Street's rules and
regulations governing such checking accounts. Checks will be sent usually within
ten business days following the date the account is established. Checks may be
made payable to the order of any payee in an amount of $250 or more. The payee
of the check may cash or deposit it like a check drawn on a bank (Investors
should be aware that, as in the case with regular bank checks, certain banks may
not provide cash at the time of deposit, but will wait until they have received
payment from State Street.) When such a check is presented to State Street for
payment, State Street, as the shareholder's agent, causes the Fund to redeem a
sufficient number of full and fractional shares in the shareholder's account to
cover the amount of the check. Checks will be returned by State Street if there
are insufficient or uncollectable shares to meet the withdrawal amount. The
check writing procedure for withdrawal enables shareholders to continue earning
income on the shares to be redeemed up to but not including the date the
redemption check is presented to State Street for payment.
Shareholders wishing to use this method of redemption should fill out the
appropriate part of the Share Purchase Application (including the Signature
Card) and mail the completed form to State Street Bank and Trust Company, P.O.
Box 9021, Boston, Massachusetts 02205-9827. Shareholders requesting this service
after an account has been opened must contact State Street since additional
documentation will be required. Currently there is no charge either for checks
or for the clearance of any checks. This service may be terminated or altered at
any time.
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SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
The Fund offers the following shareholder services. For more
information about these services or your account, contact EFD or the toll-free
number on the front of this Prospectus. Some services are described in more
detail in the Share Purchase Application.
SYSTEMATIC INVESTMENT PLAN. You may make monthly or quarterly investments into
an existing account automatically in amounts of not less than $25.
TELEPHONE INVESTMENT PLAN. You may make investments into an existing
account electronically in amounts of not less than $100 or more than $25,000 per
investment. Telephone investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's account two business days after the request
is received.
SYSTEMATIC CASH WITHDRAWAL PLAN. When an account of $10,000 or more is
opened or when an existing account reaches that size, you may participate in the
Fund's Systematic Cash Withdrawal Plan by filling out the appropriate part of
the Share Purchase Application. Under this plan, you may receive (or designated
a third party to receive) a monthly or quarterly check in a stated amount of not
less than $75. Fund shares will be redeemed as necessary to meet withdrawal
payments. All participants must elect to have their dividends and capital gain
distributions reinvested automatically. In order to make a payment, a number of
shares equal in aggregate net asset value to the payment amount are redeemed at
their net asset value on the Fund Business Day immediately preceding the date of
payment. To the extent that the redemptions to make plan payments exceed the
number of shares purchased through reinvestment of dividends and distributions,
the redemptions reduce the number of shares purchased on original investment,
and may ultimately liquidate a shareholder's investment. Because the withdrawal
plan involves the redemption of Fund shares, such withdrawals may constitute
taxable events to the shareholder but the Fund does not expect that there will
be any realizable capital gains.
INVESTMENTS THROUGH EMPLOYEE BENEFIT AND SAVINGS PLAN. Certain qualified and
non-qualified benefit and savings plans may make shares of the Fund and the
other Evergreen mutual funds available to their participants. Each Fund's
investment adviser may provide compensation to organizations providing
administrative and recordkeeping services to plans which make shares of the
Evergreen mutual funds available to their participants.
10
<PAGE>
AUTOMATIC REINVESTMENT PLAN. For the convenience of investors, all
dividends and distributions are automatically reinvested in full and fractional
shares of the Fund at the net asset value per share at the close of business on
the last business day of each month, unless otherwise requested by a shareholder
in writing. If the transfer agent does not receive a written request for
subsequent dividends and/or distributions to be paid in cash at least three full
business days prior to a given record date, the dividends and/or distributions
to be paid to a shareholder will be reinvested. If you elect to receive
dividends and distributions in cash and the U.S. Postal Service cannot deliver
the checks, or if the checks remain uncashed for six months, the checks will be
reinvested into your account at the then current net asset value.
TAX SHELTERED RETIREMENT PLANS. You may open a pension and profit sharing
account in any Evergreen mutual fund (except those funds having an objective of
providing tax free income), including: (i) Individual Retirement Accounts
("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole
proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money
Purchase Pension Plans for corporations and their employees.
The Fund sells and redeems its shares on a continuing basis at their
net asset value and does not impose a charge for either sales or redemptions.
In order to maximize earnings on its portfolio, the Fund normally has
its assets as fully invested as is practicable. Many securities in which the
Fund invests require immediate settlement in funds of Federal Reserve member
banks on deposit at a Federal Reserve Bank (commonly known as "Federal Funds").
Accordingly, the Fund does not accept a subscription or invest an investor's
payment in portfolio securities until the payment has been converted into
Federal Funds.
Shares will be issued as of the first determination of the Fund's net
asset value per share made after acceptance of the investor's purchase order at
the net asset value per share next determined after receipt of the purchase
order. Shares begin accruing income dividends on the day they are purchased. The
Fund reserves the right to reject any subscription for its shares.
Shares are issued as of 12 noon, Eastern time, on any Fund Business Day
as defined herein on which an order for the shares and accompanying Federal
Funds are received by the Fund's transfer agent before 12 noon. Orders
accompanied by Federal Funds and received after 12 noon, Eastern time, on a Fund
Business Day will not result in share issuance until the following Fund Business
Day. Fund shares begin accruing income on the day the shares are issued to an
investor.
There is no redemption charge, no minimum period of investment, no
minimum amount for a redemption, and no restriction on frequency of withdrawals.
Unless other instructions are given in proper form to the Fund's transfer agent,
a check for the proceeds of a redemption will be sent to the shareholder's
address of record. If a shareholder elects to redeem all the shares of the Fund
he owns, all dividends accrued to the date of such redemption will be paid to
the shareholder along with the proceeds of the redemption.
The right of redemption may not be suspended or the date of payment
upon redemption postponed for more than seven days after the shares are tendered
for redemption, except for any period during which the New York Stock Exchange,
Inc. is closed (other than customary weekend and holiday closings) or during
which the Securities and Exchange Commission determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
Securities and Exchange Commission) exists as a result of which disposal by the
Fund of its portfolio securities is not reasonably practicable or as a result of
which it is not reasonably practicable for the Fund fairly to determine the
value of its net assets, or for such other period as the Securities and Exchange
Commission may by order permit for the protection of the shareholders of the
Fund.
Redemption requests received by the Fund's transfer agent before 12
noon, Eastern time, on any 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, Eastern time, on any Fund Business Day becomes effective on the next Fund
Business Day.
The Fund has reserved the right to close an account that through
redeemption has remained below $1000 for 30 days. Shareholders will receive 60
days' written notice to increase the account value before the account is closed.
The redemption of shares may result in the investor's receipt of more
or less than paid for the shares and, thus, in a taxable gain or loss to the
investor.
EFFECT OF BANKING LAWS
The Glass-Steagall Act limits the ability of a depository institution
to become an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Manager for providing such services. However,
11
<PAGE>
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.
- --------------------------------------------------------------------------------
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.
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).
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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
12
<PAGE>
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.
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.
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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
13
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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.
- --------------------------------------------------------------------------------
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,
Eastern time, on each Fund Business Day. Fund Business Day means weekdays
(Monday through Friday) except customary business holidays and Good Friday. It
is computed by dividing the value of the Fund's net assets (i.e., the value of
its securities and other assets less its liabilities, including expenses payable
or accrued but excluding capital stock and surplus) by the total number of
shares outstanding.
The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost
valuation involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, except that if
fluctuating interest rates cause the market value of the Fund's portfolio to
deviate more than 1/2 of 1% from the value determined on the basis of amortized
cost, the Board of Directors will consider whether any action should be
initiated. Although the amortized cost method provides certainty in valuation,
it may result in periods during which the value of an instrument is higher or
lower than the price an investment company would receive if the instrument were
sold. The Fund intends to maintain a stable net asset value at $1.00 per share
although there can be no assurance that this will be achieved.
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, is custodian for the Fund's cash and securities. State Street
Bank and Trust Company, P.O. Box 9021, Boston,
14
<PAGE>
Massachusetts 02205-9827 is the registrar, transfer agent and dividend
disbursing agent for the shares of the Fund. The Fund's transfer agent and
custodian do not assist in, and are not responsible for, investment decisions
involving assets of the Fund.
15
<PAGE>
[This space intentionally left blank]
DISTRIBUTOR
Evergreen Funds Distributor, Inc., 230 Park Avenue, New York, New York 10169
For further information contact the Fund at 2500 Westchester Avenue Purchase,
New York 10577
<PAGE>
EVERGREEN FUNDS APPLICATION
FOR PURCHASES OF CLASS A, B, C OR EVERGREEN SHARES ONLY
DO NOT USE FOR EVERGREEN'S, IRA OR KEOGH ACCOUNTS
If you need assistance in completing this application, please call
1-800-235-0064.
Mail check and completed application to: The Evergreen Funds, State Street
Bank & Trust Co., P.O. Box 9021, Boston, MA, 02205-9827
1. YOUR ACCOUNT REGISTRATION (please print)
(Check only one box here to indicate type of registration.)
[ ] INDIVIDUAL
- -------------------- --------------------------------------
First Name Initial Last Name
- ----------------------------------------------
Social Security Number 1
[ ] JOINT TENANT 2
- -------------------------------------------------------------------------------
1 Only one Social Security Number is needed for tax reporting.
2 The account registration will be joint tenants with right of survivorship and
not tenants in common unless tenants in common or community property
registrations are requested
[ ] GIFT TO A MINOR
____________________________________ as custodian for
Custodian's Name (Only One Permitted)
________________________________________under the
Minor's Name (Only One Permitted)
_______________________Uniform Gifts to Minors Act
State
-------------------------------
Minor's Social Security Number
- -------------------------------------------------------------------------------
[ ] A TRUST (Please include copy of Trust document)
_________________________________________as trustee for
Name of Trustee
_______________________________under agreement dated
Name of Trust
- -------------------. -----------------------
Date of Trust Agreement Taxpayer Identification Number
- --------------------------------------------------------------------------------
[ ] A CORPORATION, PARTNERSHIP OR OTHER ENTITY
(Please include copy of Corporate Resolution)
- --------------------------------------------------------
Name of corporation or other entity
- ---------------------------------------------
Taxpayer Identification Number
2. YOUR MAILING ADDRESS (please print)
- -----------------------------------------------------
Street Address
- -----------------------------------------------------
City State Zip
- -----------------------------------------------------
Home Phone Business Phone
I am a citizen of [ ] U.S. [ ] Other ____________________
(please specify)
3. DEALER INFORMATION (please print)
- ------------------------------------------------------
Dealer Name
- ------------------------------------------------------
Dealer Address
- ------------------------------------------------------
City State Zip
Dealer Authorized Signature __________________________________
- -------------------------------------------------------
Branch Address
- -------------------------------------------------------
City State Zip
- --------------------------------------------------------
Dealer Branch Office Number Branch Phone Number
- -------------------------------------------------------
Rep Number Rep Last Name
4. YOUR INITIAL INVESTMENT (minimum of $1,000 per account)
Fund Name Share Class** Amount
A B C Evergreen Shares
- ----------------------- [ ] [ ] [ ] [ ] $-----------
- ----------------------- [ ] [ ] [ ] [ ] $-----------
- ----------------------- [ ] [ ] [ ] [ ] $-----------
[ ] Check or [ ] Wire * (Make check payable to Evergreen Funds)
* To wire funds, obtain an account number and wiring instructions by calling
800-423-2615, and fill in the information below.
On _______________________Account No. _______________________________
(Date of Wire)
- --------------------------------------------------------------------
Name of Bank Branch
** If no class is chosen, it will be assumed you wish to invest in Class A
5. DIVIDEND AND DISTRIBUTION INSTRUCTIONS
Dividends are to be: [ ] Reinvested [ ] Paid in Cash
Capital Gain
Distributions are to be: [ ] Reinvested [ ] Paid in Cash
If no boxes are checked, all dividends and capital gain distributions will be
reinvested.
CONTINUED ON REVERSE
<PAGE>
6. SYSTEMATIC WITHDRAWAL PLAN
(Minimum initial investment $10,000)
[ ] Systematic Withdrawal Plan
I, We request that the Fund or its transfer agent send a check for
$____________________________($75 minimum) monthly beginning
the 25th day of _____________________or [ ] quarterly beginning
month
the 25th day of ______________________. The check is to be drawn
to the order of ________________________________.
and mailed to:
- ---------------------------------------------------------
Name
- ---------------------------------------------------------
Address
- ---------------------------------------------------------
City State Zip
7. TELEPHONE EXCHANGE/REDEMPTION OPTION
(minimum $1,000 per transaction)
I, We authorize you to honor any telephone requests for the following:
[ ] Exchange existing shares of one of the Evergreen funds for shares of
any of the other Evergreen funds within the same class with no change
in registration.
Redemption Options (choose only one)
[ ] Mail redemption proceeds from a designated Evergreen fund or to the
name and address in which the fund account is registered.
or
[ ] Wire redemption proceeds from a designated Evergreen fund to an
account with the same registration as the registration
in the fund at the commercial bank you specify in the following text.
(Please attach a voided check for the account listed). If you would
like more than one bank file, please attach additional banking
information, including a voided check, for each bank listed.
- -----------------------------------------------------------
Name of Bank Account #
- -----------------------------------------------------------
Address
- -----------------------------------------------------------
City State Zip
The records of the Evergreen Funds and State Street Bank and Trust Company of
such instructions will be binding on all parties and neither the Evergreen Funds
nor State Street will be liable for any loss, expense or cost arising out of
such transactions.
X_________________________________________________________
Shareholder Signature
X_________________________________________________________
Joint Shareholder Signature, if any
8. CHECK WRITING SERVICES
[ ] Please open a check writing service account at State Street Bank and Trust
Company in my (our) name(s) as registered in Part I of this application and send
me (us) a supply of checks. I (we) understand that checks may not be drawn on
the account for less than $250.00. Please be sure to complete the attached
signature card. Checks cannot be issued until it is on file.
9. YOUR SIGNATURE
The undersigned warrants that he/she has full authority and is of legal age to
purchase shares of the Fund and has received and read a current Prospectus of
the Fund and agrees to its terms. The Fund's Transfer Agent will not be liable
for acting upon instructions it believes are genuine. Under penalties of
perjury, the undersigned whose Social Security (Tax I.D.) number is shown above
certifies (I) that number is my correct taxpayer identification number and (ii)
currently I am not under IRS notification that I am subject to back up
withholding (delete (ii) if under notification). If no such number is shown, the
undersigned further certifies, under penalties of perjury, that (a) no such
number has been issued, and a number has been or soon will be applied for; if a
number is not provided to you within sixty days, the undersigned understands
that all payments (including redemptions) are subject to 31% withholding under
Federal tax law, until a number is provided; or (b) that the undersigned is not
a citizen or resident of the U.S. and either does not expect to be in the U.S.
for 183 days during each calendar year and does not conduct a business in the
U.S. which would receive any gain from the Fund, or is exempt under an income
tax treaty. THE INVESTMENT ADVISOR TO THE EVERGREEN FUNDS IS REICH & TANG ASSET
MANAGEMENT LP INVESTMENTS IN THE EVERGREEN FUNDS ARE NOT ENDORSED OR GUARANTEED
BY ANY BANK OR ANY SUBSIDIARIES OF ANY BANK, ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR ANY SUBSIDIARIES OF ANY BANK, ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE
EVERGREEN FUNDS ARE DISTRIBUTED BY EVERGREEN FUNDS DISTRIBUTOR, INC., WHICH IS
INDEPENDENT OF REICH & TANG ASSET MANAGEMENT LP.
X_________________________________________________________
Shareholder Signature (or Custodian) Date
X_________________________________________________________
Joint Shareholder Signature, if any Date
X_________________________________________________________
Corporate Officer, Partner, Trustee, etc.
__________________________________________________________
Title Date
<PAGE>
SYSTEMATIC INVESTMENT PLAN
12. SYSTEMATIC INVESTMENT PLAN
[ ] Systematic Investment Plan
This service allows you to regularly and automatically add to the Evergreen Fund
named below by debiting your checking account. Please allow 30 days for us to
establish this service.
I wish to make automatic investments of
$_________________________ in the
($25 Minimum investment)
- -------------------------------------------------------
Name of Evergreen Fund Class of shares
Please debit my account
(Please attach a voided check)
[ ] Monthly [ ] Quarterly
on the
[ ] 5th [ ] 20th
SIGNATURES AND ACCOUNT INFORMATION
- ------------------------------- -----------------------------
Shareholder Name (Please print) Name of Bank Account
X______________________________ _____________________________
Shareholder Signature Bank account number
- --------------------------------------------------
Joint Shareholder Name, if any (Please print)
X_________________________________________
Joint Shareholder Signature
- --------------------------------------------------
Investment Representative # and Full Name
SIGNATURE CARD FOR CHECKWRITING OPTION (Please Print)
(see part eight of application)
[ ] Evergreen Money Market Fund
[ ] Evergreen Tax Exempt Money Market Fund
[ ] Evergreen Treasury Money Market Fund
Only one signature will be required on checks unless
the box below is checked off
[ ] Check here only if you wish to have both signatures required on
checks.
- ------------------------------------------------------------------
Account Number Last Name First Middle Initial
- ------------------------------------------------------------------
Account Number Last Name First Middle Initial
BY SIGNING THIS SIGNATURE CARD THE UNDERSIGNED AGREE(S) TO BE SUBJECT TO THE
RULES AND REGULATIONS OF STATE STREET BANK & TRUST COMPANY, NOW OR HEREAFTER
PERTAINING THERETO AND AS AMENDED FROM TIME TO TIME, AND AS SET FORTH BELOW.
X_________________________________________________________
SIGNATURE
X_________________________________________________________
SIGNATURE
THE PAYMENT OF FUNDS ON THE CONDITIONS SET FORTH BELOW IS AUTHORIZED BY THE
SIGNATURE(S) APPEARING ABOVE. If this card is signed by two persons either
signature will be accepted on checks unless the box requiring tow signatures is
checked off. Each signatory guarantees the genuineness of the other's signature.
The Bank is hereby appointed agent by the person(s) signing this card
("Depositors") and, as such agent is directed to request redemption of shares of
the fund checked off above registered in the name of such person(s) upon receipt
of, and to the amount of checks drawn upon this checking account and to deposit
the proceeds of such redemptions in this checking account. In so acting the Bank
shall be liable only for its own negligence. Depositors will be subject to the
Bank's rules and regulations governing such checking accounts including the
right of the Bank not to honor checks in amounts exceeding the value of the
Depositor's shareholder account with the Fund checked off above the time the
check is presented for payment. It is further agreed as follows:
1. Deposits in this account may be made only from proceeds of
shares of the fund checked off above.
2. The Bank reserves the right to change, modify or terminate this
agreement at any time upon notification mailed to the address appearing
in the shareholder records of the fund checked off above.
<PAGE>
Registration No. 2-96546
Rule 497 (b)
________________________________________________________________________________
CONNECTICUT 600 FIFTH AVENUE
DAILY TAX FREE New York, NY 10020
INCOME FUND, INC. (212)830-5220
===============================================================================
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO CONNECTICUT DAILY TAX FREE INCOME FUND, INC.,
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
AND THE
EVERGREEN SHARES OF CONNECTICUT DAILY TAX FREE INCOME FUND
PROSPECTUS DATED JANUARY 19, 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.
If you wish to invest in Evergreen Shares of the Fund you should obtain a
separate Prospectus by writing to State Street Bank and Trust Company, P.O. Box
9021, boston, Massachusetts 02205-9827 or by calling (800) 807--2840.
This Statement of Additional Information is incorporated by reference into the
respective Prospectus in its entirety.
<TABLE>
<CAPTION>
Table of Contents
<C> <C>
Investment Objectives, Policies and Risks.............2 Manager.............................................16
Description of Municipal Obligations..................4 Expense Limitation.............................17
Variable Rate Demand Instruments Management of the Fund..............................18
and Participation Certificates....................5 Compensation Table.............................20
When-Issued Securities..............................8 Counsel and Auditors...........................20
Stand-by Commitments................................8 Distribution and Service Plan.......................20
Taxable Securities..................................10 Description of Common Stock.........................22
Repurchase Agreements............................10 Federal Income Taxes................................23
Connecticut Risk Factors............................10 Connecticut Income Taxes............................25
Investment Restrictions...............................13 Custodian and Transfer Agent........................25
Portfolio Transactions................................14 Description of Ratings..............................26
How to Purchase and Redeem Shares.....................14 Tax Equivalent Yield Table..........................28
Net Asset Value.......................................14 Independent Auditor's Report........................29
Yield Quotations......................................15 Financial Statements................................30
</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
<PAGE>
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
4
<PAGE>
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.
5
<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.
7
<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.
11
<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.
13
<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.
14
<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.
16
<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.
For its services under the Administrative Services Contract, the Manager
receives from the Fund a fee equal to .21% per annum of the Fund's average daily
net assets. For the Fund's fiscal year ended 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.
18
<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. State Street Bank and
Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827, is the
registrar, transfer agent and dividend disbursing agent for the shares of the
Fund. The Fund's transfer agent and custodian do not assist in, and are not
reposible for, investment decisions involving assets 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
