As filed with the Securities and Exchange Commission on April 30, 1999
Registration No. 33-10436
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 18 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 18 [X]
CALIFORNIA DAILY TAX FREE INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue, New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5200
Bernadette N. Finn
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)
Copy to:MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
(212) 856-6858
It is proposed that this filing will become effective: (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
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CALIFORNIA DAILY TAX FREE 600 FIFTH AVENUE
INCOME FUND, INC. NEW YORK, N.Y. 10020
(212) 830-5220
Class A Shares; Class B Shares
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PROSPECTUS
May 3, 1999
A money market fund whose investment objectives are to seek as high a level
of current income exempt from regular Federal income tax and, to the extent
possible, from California income tax, as is believed to be consistent with
preservation of capital, maintenance of liquidity and stability of principal.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense
TABLE OF CONTENTS
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2 Risk/Return Summary: Investments, Risks,
and Performance 8 Shareholder Information
4 Risk/Return Summary: Fee Table 14 Federal Income Taxes
5 Investment Objectives, Principal Investment 15 California Income Taxes
Strategies; and Related Risks 15 Distribution Arrangements
7 Management, Organization; and Capital Structure 17 Financial Highlights
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I. RISK/RETURN SUMMARY: INVESTMENTS, RISKS, AND PERFORMANCE
Investment Objectives
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The Fund seeks as high a level of current income exempt from regular
Federal income tax and, to the extent possible, California 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.
Principal Investment Strategies
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The Fund intends to achieve its investment objectives by investing
principally in short-term, high quality, debt obligations of:
(i) California, and its political subdivisions;
(ii) Puerto Rico and other United States Territories, and their political
subdivisions; and
(iii) other states.
The Fund is a money market fund and seeks to maintain an investment
portfolio with a dollar-weighted average maturity of 90 days or less, to value
its investment portfolio at amortized cost and to maintain a net asset value of
$1.00 per share.
The Fund intends to concentrate (i.e. 25% or more of the Fund's net assets)
in California Municipal Obligations and Industrial Revenue Bonds, including
Participation Certificates therein. Participating Certificates evidence
ownership of an interest in the underlying Municipal Obligations, purchased from
banks, insurance companies, or other financial institutions.
Principal Risks
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o Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund.
o The value of the Fund's shares and the securities held by the Fund can each
decline in value.
o An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other governmental agency.
o Because the Fund intends to concentrate in California Municipal
Obligations, including Participation Certificates therein, investors should
also consider the greater risk of the Fund's concentration versus the
safety that comes with a less concentrated investment portfolio.
o An investment in the Fund should be made with an understanding of the risks
that an investment in California Municipal Obligations may entail. Payment
of interest and preservation of capital are dependent upon the continuing
ability of California issuers and/or obligators of state, municipal and
public authority debt obligations to meet their payment obligations. Risk
factors affecting the State of California are described in "California Risk
Factors" in the Statement of Additional Information.
Risk/Return Bar Chart and Table
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The following bar chart and table may assist you in your decision to invest
in the Fund. The bar chart shows the change in the annual total returns of the
Fund's Class A shares for the last ten calendar years. The table shows the
Fund's average annual total return for the last one, five and ten year periods
for both Classes. The table also includes the Fund's average annual total return
since inception for each Class. While analyzing this information, please note
that the Fund's past performance is not an indicator of how the Fund will
perform in the future. The current 7-day yield for each Class may be obtained by
calling the Fund toll-free at 1-800- 221-3079.
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California Daily Tax Free Income Fund, Inc. - Class A (1)(2)(3)
[GRAPHIC OMITTED]
Calendar Year % Total Return
============= ==============
1998 2.48%
1997 2.84%
1996 2.76%
1995 3.28%
1994 2.45%
1993 2.16%
1992 2.35%
1991 3.83%
1990 5.18%
1989 5.73%
(1) The Fund's highest quarterly return was 1.50% for the quarter
ending June 30, 1989; the lowest quarterly return was 0.48% for
the quarter ending September 30, 1992.
(2) Participating Organizations may charge a fee to investors for
purchasing and redeeming shares. Therefore, the net return to
such investors may be less than the net return by investing in
the Fund directly.
Average Annual Total Returns - For the periods ended December 31, 1998
Class A Class B
One Year 2.48% 2.76%
Five Years 2.76% N/A
Ten Years 3.30% N/A
Average Annual Total Return
since Inception* 3.48% 2.94%
* Inception is February 10, 1987 for Class A shares and October 9, 1996 for
Class B shares.
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FEE TABLE
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
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Class A Shares Class B Shares
Management Fees................................ 0.30% 0.30%
Distribution and Service (12b-1) Fees.......... 0.20% 0.00%
Other Expenses................................. 0.39% 0.31%
Administration Fees.......................... 0.21% 0.21%
----- -----
Total Annual Fund Operating Expenses........... 0.89% 0.61%
</TABLE>
The Manager has voluntarily waived a portion of the Management Fee with respect
to both Class A and B shares. After such waivers, the Management Fee with
respect to both Class A and B shares was 0.29%. The actual Total Fund Operating
Expenses for Class A shares were 0.88% and for Class B shares were 0.60%. The
fee waiver has been terminated effective April 1998.
Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
Assume that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. Also assume that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class A: $91 $284 $493 $1,096
Class B: $62 $195 $340 $ 762
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II. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objectives
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The Fund is a short-term, tax-exempt money market fund whose investment
objectives are to seek as high a level of current income exempt from regular
Federal income tax and, to the extent possible, from California income tax,
consistent with preserving capital, maintaining liquidity and stabilizing
principal.
The investment objectives of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund that would be affected by such a change.
Principal Investment Strategies
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Generally
The Fund will invest primarily (i.e., at least 80%) in short-term, high
quality, debt obligations which include:
(i) California Municipal Obligations issued by or on behalf of the State of
California or any California local governments, or their
instrumentalities, authorities or districts;
(ii) Territorial Municipal Obligations issued by or on behalf of Puerto Rico
and the Virgin Islands or their instrumentalities, authorities,
agencies and political subdivisions; and
(iii) Municipal Obligations issued by or on behalf of other states, their
authorities, agencies, instrumentalities and political subdivisions.
These debt obligations are collectively referred to throughout this Prospectus
as Municipal Obligations.
The Fund will also invest in Participation Certificates in Municipal
Obligations. These "Participation Certificates" are purchased by the Fund from
banks, insurance companies or other financial institutions and in the opinion of
Battle Fowler LLP, counsel to the Fund, cause the Fund to be treated as the
owner of an interest in the underlying Municipal Obligations for Federal income
tax purposes.
The Fund will invest more than 25% of its assets in Participation
Certificates in Industrial Revenue Bonds and other California Municipal
Obligations.
Although the Fund will attempt to invest 100% of its total assets in
Municipal Obligations and Participation Certificates, the Fund reserves the
right to invest up to 20% of its total assets in taxable securities the interest
income on which is subject to Federal, state and local income tax. The kinds of
taxable securities in which the Fund may invest are limited to short-term, fixed
income securities as more fully described in "Taxable Securities" in the
Statement of Additional Information.
Included in the same 20% of total assets in taxable securities, the Fund
may also purchase securities and Participation Certificates whose interest
income may be subject to the Federal alternative minimum tax.
To the extent suitable California Municipal Obligations and Territorial
Municipal Obligations are not available for investment by the Fund, the Fund may
purchase Municipal Obligations issued by other states, their agencies and
instrumentalities, the dividends on which will be designated by the Fund as
derived from interest income which will be, in the opinion of bond counsel to
the issuer at the date of issuance, exempt from regular Federal income tax, but
will be subject to California income tax.
The Fund will invest at least 65% of its total assets in California
Municipal Obligations, although the exact amount may vary from time to time. As
a temporary defensive measure the Fund may, from time to time, invest in
securities that are inconsistent with its principal investment strategies
Territorial Municipal Obligations in
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an attempt to respond to adverse market, economic, political or other conditions
as determined by the Fund's investment adviser. Such a temporary defensive
position may cause the Fund to not achieve its investment objectives.
With respect to 75% of its total assets, the Fund shall invest not more
than 5% of its total assets in Municipal Obligations or Participation
Certificates issued by a single issuer. The Fund shall not invest more than 5%
of its total assets in Municipal Securities or Participation Certificates issued
by a single issuer unless the Municipal Obligations are of the highest quality.
With respect to 75% of its total assets, the Fund shall invest not more
than 10% of its total assets in Municipal Obligations or Participation
Certificates backed by a demand feature or guarantee from the same institution.
The Fund's investments may also include "when-issued" Municipal Obligations
and stand-by commitments.
The Fund's investment manager considers the following factors when buying
and selling securities for the portfolio: (i) availability of cash, (ii)
redemption requests, (iii) yield management, and (iv) credit management.
In order to maintain a share price of $1.00, the Fund must comply with
certain industry regulations. The Fund will only invest in securities that are
denominated in United States dollars. Other requirements pertain to the maturity
and credit quality of the securities in which the Fund may invest. The Fund will
only invest in securities that have or are deemed to have a remaining maturity
of 397 days or less. Also, the average maturity for all securities contained in
the Fund, on a dollar-weighted basis, will be 90 days or less.
The Fund will only invest in either securities that have been rated (or
whose issuers have been rated) in the highest short-term rating category by
nationally recognized statistical rating organizations, or are unrated
securities but that have been determined by the Fund's Board of Directors to be
of comparable quality.
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 the security's credit risks and shall take such action as it determines
is in the best interest of the Fund and its shareholders. Reassessment is not
required, however, if the security is disposed of or matures within five
business days of the Manager becoming aware of the new rating and provided
further that the Board of Directors is subsequently notified of the Manager's
actions.
For a more detailed description of (i) the securities that the Fund will
invest in, (ii) fundamental investment restrictions, and (iii) industry
regulations governing credit quality and maturity, please refer to the Statement
of Additional Information.
Risks
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The Fund complies with industry-standard requirements on the quality,
maturity and diversification of its investments, which are designed to help
maintain a $1.00 share price. A significant change in interest rates or a
default on the Fund's investments could cause its share price (and the value of
your investment) to change.
By investing in liquid, short-term, high quality investments that have high
quality credit support from banks, insurance companies or other financial
institutions (i.e. Participation Certificates and other variable rate demand
instruments), the Fund's management believes that it can protect the Fund
against credit risks that may exist on long-term Municipal Obligations. The Fund
may still be exposed to the credit risk of the institution providing the
investment. Changes in the credit quality of the provider could affect the value
of the security and your investment in the Fund.
Because of the Fund's concentration in investments in California Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the financial strength of California and its political subdivisions.
The primary purpose of investing in a portfolio of California Municipal
Obligations is the special
6
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tax treatment accorded California resident individual investors. Payment of
interest and preservation of principal, however, are dependent upon the
continuing ability of the California 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 California issues with those of more
diversified portfolios, including out-of-state issues, before making an
investment decision.
Because the Fund may concentrate in Participation Certificates, 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. These
characteristics and risks include extensive governmental regulations, changes in
the availability and cost of capital funds, and general economic conditions (see
"Variable Rate Demand Instruments and Participation Certificates" in the
Statement of Additional Information). These factors may limit both the amounts
and types of loans and other financial commitments that may be made and interest
rates and fees 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.
As the Year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The investment adviser is in the process of working with the
Fund's service providers to prepare for the Year 2000. Based on information
currently available, the investment adviser does not expect that the Fund will
incur material costs to be Year 2000 compliant. Although the investment adviser
does not anticipate that the Year 2000 issue will have a material impact on the
Fund's ability to provide service at current levels, there can be no assurance
that steps taken in preparation for the Year 2000 will be sufficient to avoid an
adverse impact on the Fund. The Year 2000 problem may also adversely affect
issuers of the securities contained in the Fund, to varying degrees based upon
various factors, and thus may have a corresponding adverse affect on the Fund's
performance. The investment adviser is unable to predict what affect, if any,
the Year 2000 problem will have on such issuers. At this time, it is generally
believed that municipal issuers may be more vulnerable to year 2000 issues or
problems than will other issuers.
III. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of March 31, 1999, the Manager was the investment
manager, advisor or supervisor with respect to assets aggregating in excess of
$13.0 billion. The Manager has been an investment adviser since 1970 and
currently is manager of seventeen other registered investment companies. The
Manager also advises pension trusts, profit-sharing trusts and endowments.
Pursuant to the Investment Management Contract, the Manager manages the
Fund's portfolio of securities and makes decisions with respect to the purchase
and sale of investments, subject to the general control of the Board of
Directors of the Fund. Pursuant to the Investment Management Contract, the Fund
pays the Manager 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.
Pursuant to the Administrative Services Contract, the Manager performs
clerical,
7
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accounting supervision and office service functions for the Fund. The Manager
provides the Fund with the personnel to perform all other clerical and
accounting type functions not performed by the Manager. For its services under
the Administrative Services Contract, the Fund pays the Manager a fee equal to
.21% per annum of the Fund's average daily net assets.
The Manager, at its discretion, may voluntarily waive all or a portion of
the investment management fee and the administrative services fee. Any portion
of the total fees received by the Manager may be used to provide shareholder
services and for distribution of Fund shares.
In addition, Reich & Tang Distributors, Inc., the Distributor, receives a
servicing fee equal to .20% per annum of the average daily net assets of the
Class A shares of the Fund under the Shareholder Servicing Agreement. The fees
are accrued daily and paid monthly. Investment management fees and operating
expenses, which are attributable to both Classes of shares of the Fund, will be
allocated daily to each Class of shares based on the percentage of shares
outstanding for each Class at the end of the day.
IV. SHAREHOLDER INFORMATION
The Fund sells and redeems its shares on a continuing basis at their net
asset value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent, who
accepts orders for purchases and redemptions from Participating Organizations
(discussed herein) and from investors directly.
Pricing of Fund Shares
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The net asset value of each Class of the Fund's shares is determined as of
12 noon, New York City time, on each Fund Business Day. Fund Business Day means
weekdays (Monday through Friday) except days on which the New York Stock
Exchange is closed for trading. The net asset value of a Class is computed by
dividing the value of the Fund's net assets for such Class (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 for such Class. 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.
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. 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.
Shares are issued as of the first determination of the Fund's net asset
value per share for each Class made after acceptance of the investor's purchase
order. 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 the immediate settlement in funds of Federal Reserve member
banks on deposit at a Federal Reserve Bank (commonly known as "Federal Funds").
Fund shares begin accruing income on the day the shares are issued to an
investor. The Fund reserves the right to reject any purchase order for its
shares. Certificates for Fund shares will not be issued to an investor.
Purchase of Fund Shares
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The Fund does not accept a purchase order until an investor's payment has
been converted into Federal Funds and is received by the Fund's transfer agent.
Orders accompanied by Federal Funds and received after 12 noon, New York City
8
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time, on a Fund Business Day will result in the issuance of shares on the
following Fund Business Day.
Investors purchasing shares through a Participating Organization with which
they have an account become Class A shareholders. All other investors, and
investors who have accounts with Participating Organizations but do not wish to
invest in the Fund through them, may invest in the Fund directly as Class B
shareholders of the Fund. Class B shareholders do not receive the benefit of the
servicing functions performed by a Participating Organization. Class B shares
may also be offered to investors who purchase their shares through Participating
Organizations who, as fiduciaries, may not be legally permitted to receive
compensation from the Distributor or the Manager.
The minimum initial investment in the Fund for both classes of shares is
(i) $1,000 for purchases through Participating Organizations - this may be
satisfied by initial investments aggregating $1,000 by a Participating
Organization on behalf of their customers whose initial investments are less
than $1,000, (ii) $1,000 for securities brokers, financial institutions and
other industry professionals that are not Participating Organizations, and (iii)
$5,000 for all other investors. Initial investments may be made in any amount in
excess of the applicable minimums. The minimum amount for subsequent investments
is $100 unless the investor is a client of a Participating Organization whose
clients have made aggregate subsequent investments of $100.
Each shareholder, except those purchasing through Participating
Organizations, will receive a personalized monthly statement from the Fund
listing (i) the total number of Fund shares owned from the Fund as of the
statement closing date, (ii) purchase and redemptions of Fund shares, and (iii)
the dividends paid on Fund shares (including dividends paid in cash or
reinvested in additional Fund shares).
Investments Through Participating Organizations - Purchase of Class A Shares
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Investors may, if they wish, invest in the Fund through the Participating
Organizations with which they have accounts. "Participating Organizations" are
securities brokers, banks and financial institutions or other industry
professionals or organizations that have entered into shareholder servicing
agreements with the Distributor with respect to investment of their customer
accounts in the Fund. When instructed by its customer to purchase or redeem Fund
shares, the Participating Organization, on behalf of the customer, transmits to
the Fund's transfer agent a purchase or redemption order, and in the case of a
purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are
shareholders in the Fund ("Participant Investors") each purchase and redemption
of Fund shares for the customers' accounts. Also, Participating Organizations
may send periodic account, statements to the Participant Investors showing (i)
the total number of Fund shares owned by each customer as of the statement
closing date, (ii) purchases and redemptions of Fund shares by each customer
during the period covered by the statement, and (iii) the income earned by Fund
shares of each customer during the statement period (including dividends paid in
cash or reinvested in additional Fund shares). Participant Investors whose
Participating Organizations have not undertaken to provide such statements will
receive them from the Fund directly.
Participating Organizations may charge Participant Investors a fee in
connection with their use of specialized purchase and redemption procedures. In
addition, Participating Organizations offering purchase and redemption
procedures similar to those offered to shareholders who invest in the Fund
directly may impose charges, limitations, minimums and restrictions in addition
to or different from those applicable to shareholders who invest in the Fund
9
<PAGE>
directly. Accordingly, the net yield to investors who invest through
Participating Organizations may be less than by investing in the Fund directly.
A Participant Investor should read this Prospectus in conjunction with the
materials provided by the Participating Organization describing the procedures
under which Fund shares may be purchased and redeemed through the Participating
Organization.
In the case of qualified Participating Organizations, orders received by
the Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day only if the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 4:00 p.m., New York City time, on
that day. Orders for which Federal Funds are received after 4:00 p.m., New York
City time, will result in share issuance the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.
Initial Direct Purchases of Class B Shares
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Investors who wish to invest in the Fund directly may obtain a current
prospectus and the subscription order form necessary to open an account by
telephoning the Fund at the following numbers:
Within New York 212-830-5220
Outside New York (TOLL FREE) 800-221-3079
Mail
Investors may send a check made payable to "California Daily Tax Free
Income Fund, Inc." along with a completed subscription order form to:
California Daily Municipal Income Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
will normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's purchase order will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of
money among banks, investors should first obtain a new account number by
telephoning the Fund at 212-830-5220 (within New York) or at 800-221-3079
(outside New York) and then instruct a member commercial bank to wire money
immediately to:
Investors Fiduciary Trust Company
ABA # 101003621
Reich & Tang Funds
DDA # 890752-9554
For California Daily Tax Free
Income Fund, Inc.
Account of (Investor's Name)
Account #
SS#/Tax ID#
The investor should then promptly complete and mail the subscription order
form.
Investors planning to wire funds should instruct their bank so the wire
transfer can be accomplished before 12 noon, New York City time, on the same
day. There may be a charge by the investor's bank for transmitting the money by
bank wire, and there also may be a charge for use of Federal Funds. The Fund
does not charge investors in the Fund for its receipt of wire transfers. Payment
in the form of a "bank wire" received prior to 12 noon, New York City time, on a
Fund Business Day will be treated as a Federal Funds payment received on that
day.
Personal Delivery
Deliver a check made payable to "California Daily Tax Free Income Fund,
Inc." along with a completed subscription order form to:
Reich & Tang Mutual Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
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Electronic Funds Transfers (EFT), Pre-authorized Credit and Direct Deposit
Privilege
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You may purchase shares of the Fund (minimum of $100) by having salary,
dividend payments, interest payments or any other payments designated by you,
Federal salary, social security, or certain veteran's, military or other
payments from the Federal government, automatically deposited into your Fund
account. You can also have money debited from your checking account. To enroll
in any one of these programs, you must file with the Fund a completed EFT
Application, Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form
for each type of payment that you desire to include in the Privilege. The
appropriate form may be obtained from your broker or the Fund. You may elect at
any time to terminate your participation by notifying in writing the appropriate
depositing entity and/or Federal agency. Death or legal incapacity will
automatically terminate your participation in the Privilege.
Further, the Fund may terminate your participation upon 30 days' notice to you.
Subsequent Purchases of Shares
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Subsequent purchases can be made by bank wire, as indicated above, or by
mailing a check to:
California Daily Tax Free Income Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
There is a $100 minimum for subsequent purchases of shares. All payments
should clearly indicate the shareholder's account number.
Provided that the information on the subscription form on file with the
Fund is still applicable, a shareholder may reopen an account without filing a
new subscription order form at any time during the year the shareholder's
account is closed or during the following calendar year.
Redemption of Shares
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A redemption is effected immediately following, and at a price determined
in accordance with, the next determination of net asset value per share of each
Class upon receipt by the Fund's transfer agent of the redemption order (and any
supporting documentation that it may require). Normally, payment for redeemed
shares is made on the same Fund Business Day after the redemption is effected,
provided the redemption request is received prior to 12 noon, New York City
time. However, redemption payments will not be paid out unless the check
(including a certified or cashier's check) used for investment has been cleared
for payment by the investor's bank, which could take up to 15 days after
investment. Shares redeemed are not entitled to participate in dividends
declared on the day a redemption becomes effective.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have
"Signature Guaranteed" stamped under his signature. It should be signed and
guaranteed by an eligible guarantor institution which includes a domestic bank,
a domestic savings and loan institution, a domestic credit union, a member bank
of the Federal Reserve system or a member firm of a national securities
exchange, pursuant to the Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written
request to the Fund addressed to:
California Daily Tax Free Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
All previously issued certificates submitted for
11
<PAGE>
redemption must be endorsed by the shareholder and all written requests for
redemption must be signed by the shareholder, in each case with signature
guaranteed.
Normally, the redemption proceeds are paid by check and mailed to the
shareholder of record.
Checks
By making the appropriate election on their subscription order form,
shareholders may request a supply of checks that may be used to effect
redemptions from the Class of shares of the Fund in which they invest. The
checks, which will be issued in the shareholder's name, are drawn on a special
account maintained by the Fund with the Fund's agent bank. Checks may be drawn
in any amount of $250 or more. When a check is presented to the Fund's agent
bank, it instructs the Fund's transfer agent to redeem a sufficient number of
full and fractional shares in the shareholder's account to cover the amount of
the check. The use of a check to make a withdrawal enables a shareholder in the
Fund to receive dividends on the shares to be redeemed up to the Fund Business
Day on which the check clears. Checks provided by the Fund may not be certified.
Fund shares purchased by check may not be redeemed by check until the check has
cleared, which can take up to 15 days following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The
Fund reserves the right to impose a charge or impose a different minimum check
amount in the future, if the Board of Directors determines that doing so is in
the best interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures,
rules and regulations of the Fund's agent bank governing checking accounts.
Checks drawn on a jointly owned account may, at the shareholder's election,
require only one signature. Checks in amounts exceeding the value of the
shareholder's account at the time the check is presented for payment will not be
honored. Since the dollar value of the account changes daily, the total value of
the account may not be determined in advance and the account may not be entirely
redeemed by check. In addition, the Fund reserves the right to charge the
shareholder's account a fee up to $20 for checks not honored as a result of an
insufficient account value, a check deemed not negotiable because it has been
held longer than six months, an unsigned check, and/or a post-dated check. The
Fund reserves the right to terminate or modify the check redemption procedure at
any time or to impose additional fees following notification to the Fund's
shareholders.
Corporations and other entities electing the checking option are required
to furnish a certified resolution or other evidence of authorization in
accordance with the Fund's normal practices. Individuals and joint tenants are
not required to furnish any supporting documentation. Appropriate authorization
forms will be sent by the Fund or its agents to corporations and other
shareholders who select this option. As soon as the authorization forms are
filed in good order with the Fund's agent bank, it will provide the shareholder
with a supply of checks.
Telephone
The Fund accepts telephone requests for redemption from shareholders who
elect this option on their subscription order form. The proceeds of a telephone
redemption may be sent to the shareholders at their addresses or, if in excess
of $1,000, to their bank accounts, both as set forth in the subscription order
form or in a subsequent written authorization. The Fund may accept telephone
redemption instructions from any person with respect to accounts of shareholders
who elect this service and thus such shareholders risk possible loss of
principal and interest in the event of a telephone redemption not authorized by
them. The Fund will employ reasonable procedures to confirm that telephone
redemption instructions are genuine, and will require that shareholders electing
such option provide a form of personal identification. Failure by the Fund to
employ such reasonable procedures may cause the Fund to be liable for the losses
incurred by investors due to unauthorized or fraudulent telephone redemptions.
12
<PAGE>
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220 (outside New York at 800-221-3079) and state: (i) the name of the
shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address, and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time. Proceeds are sent the next Fund Business Day if the
redemption request is received after 12 noon, New York City time. The Fund
reserves the right to terminate or modify the telephone redemption service in
whole or in part at any time and will notify shareholders accordingly.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholders' address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Additional exceptions
include any period during which an emergency (as determined by the SEC) 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 SEC may by order permit for the protection of the shareholders of
the Fund.
The Fund has reserved the right to redeem the shares of any shareholder if
the net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization. The Participating Organization
will be responsible for notifying the Participant Investor of the proposed
mandatory redemption. During the notice period a shareholder or Participating
Organization who receives such a notice may avoid mandatory redemption by
purchasing sufficient additional shares to increase his total net asset value to
the minimum amount.
Specified Amount Automatic Withdrawal Plan
- --------------------------------------------------------------------------------
Shareholders may elect to withdraw shares and receive payment from the Fund
of a specified amount of $50 or more automatically on a monthly or quarterly
basis. The monthly or quarterly withdrawal payments of the specified amount are
made by the Fund on the 23rd day of the month. Whenever such 23rd day of a month
is not a Fund Business Day, the payment date is the Fund Business Day preceding
the 23rd day of the month. In order to make a payment, a number of shares equal
in aggregate net asset value to the payment amount are redeemed at their net
asset value on the Fund Business Day immediately preceding the date of payment.
To the extent that the redemptions to make plan payments exceed the number of
shares purchased through reinvestment of dividends and distributions, the
redemptions reduce the number of shares purchased on original investment, and
may ultimately liquidate a shareholder's investment.
13
<PAGE>
The election to receive automatic withdrawal payments may be made at the
time of the original subscription by so indicating on the subscription order
form. The election may also be made, changed or terminated at any later time by
sending a signature guaranteed written request to the transfer agent. 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 realized capital gains.
Dividends and Distributions
- --------------------------------------------------------------------------------
The Fund declares dividends equal to all its net investment income
(excluding long-term capital gains and losses, if any, and amortization of
market discount) on each Fund Business Day and pays dividends monthly. There is
no fixed dividend rate. In computing these dividends, interest earned and
expenses are accrued daily.
Net realized capital gains, if any, are distributed at least annually and
in no event later than 60 days after the end of the Fund's fiscal year.
All dividends and distributions of capital gains are automatically
invested, at no charge, in additional Fund shares of the same Class of shares
immediately upon payment thereof unless a shareholder has elected by written
notice to the Fund to receive either of such distributions in cash.
Because Class A shares bear the service fee under the Fund's 12b-1 Plan,
the net income of and the dividends payable to the Class A shares will be lower
than the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.
Exchange Privilege
- --------------------------------------------------------------------------------
Shareholders of the Fund are entitled to exchange some or all of their
Class of shares in the Fund for shares of the same Class of certain other
investment companies that retain Reich & Tang Asset Management L.P. as
investment adviser and that participate in the exchange privilege program with
the Fund. If only one Class of shares is available in a particular exchange
fund, the shareholder of the Fund is entitled to exchange its shares for the
shares available in that exchange fund. Currently the exchange privilege program
has been established between the Fund and Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily Municipal Income
Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund, Reich & Tang Equity Fund, Inc. Short Term Income Fund, Inc. and Virginia
Daily Municipal Income Fund, Inc. In the future, the exchange privilege program
may be extended to other investment companies which retain Reich & Tang Asset
Management L.P. as investment adviser or manager.
There is no charge for the exchange privilege or limitation as to frequency
of exchange. The minimum amount for an exchange is $1,000. However, shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Each Class of shares is exchanged at its
respective net asset value.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares of the same Class may be
14
<PAGE>
exchanged only between investment company accounts registered in identical
names. Before making an exchange, the investor should review the current
prospectus of the investment company into which the exchange is to be made. An
exchange will be a taxable event.
Instructions for exchanges may be made by sending a signature guaranteed
written request to:
California Daily Tax Free Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
or, for shareholders who have elected that option, by telephoning the Fund at
212-830-5220 (within New York) or 800-221-3079 (outside New York). The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time.
Tax Consequences
- --------------------------------------------------------------------------------
Dividends paid by the Fund, which are exempt-interest dividends by virtue
of being properly designated by the Fund as derived from Municipal Obligations
and Participation Certificates, will be exempt from regular Federal income tax
provided the Fund complies with Section 852(b)(5) of the Internal Revenue Code
of 1986. Exempt-interest dividends paid by the Fund correctly identified by the
Fund as derived from obligations issued by or on behalf of the State of
California or any California local governments, or their instrumentalities,
authorities or districts ("California Municipal Obligations") will be exempt
from the California income tax. Exempt-interest dividends correctly identified
by the Fund as derived from obligations of Puerto Rico and the Virgin Islands,
as well as other types of obligations that California is prohibited from taxing
under the Constitution, the laws of the United States of America or the laws of
California ("Territorial Municipal Obligations") also should be exempt from the
California income tax provided the Fund complies with California law.
Federal Income Taxes
The Fund has elected and intends to qualify under the Code as a regulated
investment company that distributes exempt-interest dividends. The Fund's policy
is to distribute as dividends each year 100% (and in no event less than 90%) of
its tax-exempt interest income, net of certain deductions, and its investment
company taxable income (if any). If distributions are made in this manner,
distributions derived from interest earned on Municipal Obligations and
designated as exempt-interest dividends by the Fund not later than 60 days after
the close of the Funds' taxable year are not subject to regular Federal income
tax, although as described below, such exempt-interest dividends may be subject
to Federal alternative minimum tax. Dividends paid from taxable income, and
distributions of any realized short-term capital gains (whether from tax-exempt
or taxable obligations) are taxable to shareholders as ordinary income whether
received in cash or reinvested in additional shares of the Fund. Although it is
not intended, it is possible that the Fund may realize short-term or long-term
capital gains or losses. 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. Although the Fund
intends to maintain a $1.00 per share net asset value, a Shareholder may realize
a taxable gain or loss upon the disposition of shares.
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 and Railroad Retirement benefits includable
in gross income. 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). In addition,
in certain cases Subchapter S corporations with accumulated earnings and profits
from Subchapter C years will be subject to
15
<PAGE>
a tax on passive investment income, including tax-exempt interest.
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.
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 of an interest in the underlying Municipal Obligations and that the
interest thereon will be exempt from Federal income taxes to the Fund to the
same extent as interest on the underlying Municipal Obligations. 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 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'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 the interest on 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.
California 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. Under California law, at the end of each quarter of its tax year, at
least 50% of the "value" of the Fund's assets must consist of obligations the
interest on which, when held by an individual would be exempt from taxation by
the State of California. Assuming compliance with this requirement and the
limitation designation described below with respect to dividends treated for
Federal income tax purposes as exempt-interest dividends that are paid by the
Fund to a California resident individual shareholder, in the opinion of Brown &
Wood LLP, special California tax counsel to the Fund, amounts correctly
designated as derived from California Municipal Obligations received by the Fund
will not be subject to the California Income Tax. Amounts correctly designated
as derived from Territorial Municipal Obligations will not be subject to the
California income tax as long as the interest on such obligations, when held by
an individual, is exempt from California taxation.
California law, however, limits the amount that may be designated as
exempt-interest dividends. With respect to the Fund's taxable year, if the
aggregate amount designated as an exempt-interest dividend is greater than the
excess of (i) the amount of interest it received which, if held by an
individual, was exempt from taxation by California, over (ii) the amounts that,
if the Fund were treated as an individual, would be disallowed as deductions for
expenses related to exempt income under California or Federal law, the portion
of the distribution designated an exempt-interest dividend that will be allowed
shall be only that proportion of the designated amount that the excess bears to
the designated amount.
16
<PAGE>
Distributions from net investment income and capital gains, including
exempt interest dividends, will be subject to California corporate franchise tax
if received by a corporate shareholder subject to such tax and may be subject to
state taxes in states other than California and to local taxes imposed by
certain cities within California and outside California. Accordingly, investors
in the Fund including, in particular, corporate investors which may be subject
to the California corporate franchise tax should consult their tax advisors with
respect to the application of such taxes to an investment in the Fund, to the
receipt of Fund dividends and as to their California tax situation in general.
Exempt-interest dividends which are not derived from California Municipal
Obligations and any other dividends of the Fund which do not qualify as
exempt-interest dividends under California law will be includible in a
California resident's tax base for purposes of the California income tax.
Shareholders are urged to consult their tax advisers with respect to the
treatment of distributions from the Fund and ownership of shares of the Fund in
their own states and localities.
V. DISTRIBUTION ARRANGEMENTS
Rule 12b-1 Fees
- --------------------------------------------------------------------------------
Investors do not pay a sales charge to purchase shares of the Fund.
However, the Fund pays fees in connection with the distribution of shares and
for services provided to the Class A shareholders. The Fund pays these fees from
its assets on an ongoing basis and therefore, over time, the payment of these
fees will increase the cost of your investment and may cost you more than paying
other types of sales charges.
The Fund's Board of Directors has adopted a Rule 12b-1 distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc. (the "Distributor") have entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to the Class A
shares of the Fund only).
Under the Distribution Agreement, the Distributor serves as distributor of
the Fund's shares. For nominal consideration (i.e., $1.00) and as agent for the
Fund, the Distributor solicits orders for the purchase of the Fund's shares,
provided that any orders will not be binding on the Fund until accepted by the
Fund as principal.
Under the Shareholder Servicing Agreement, the Fund pays the Distributor a
service fee of .20% per annum of the Class A shares average daily net assets
(the "Shareholder Service Fee"). The fee is accrued daily and paid monthly.
Pursuant to this Agreement, the Distributor provides personnel shareholder
services and maintains shareholder accounts. Any portion of the fee may be
deemed to be used by the Distributor for payments to Participating Organizations
with respect to their provision of such services to their clients or customers
who are shareholders of the Class A shares of the Fund. The Class B shareholders
will not receive the benefit of such services from Participating Organizations
and, therefore, will not be assessed a Shareholder Servicing Fee.
The Plan provides 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 Distributor and Participating
Organizations in carrying out their obligations under the Shareholder Servicing
Agreement with respect to Class A shares 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.
These payments are limited to a maximum of .05% per annum of each Class' shares'
average daily net assets.
The Plan and the Shareholder Servicing Agreement provide 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
costs, and to compensate others, including Participating Organizations with whom
17
<PAGE>
the Distributor has entered into written agreements, for performing shareholder
servicing on behalf of the Class A shares of the Fund, (ii) to compensate
certain Participating Organizations for providing assistance in distributing the
Class A shares of the Fund, 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 Class A shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholding Servicing Fee (with respect to Class A
shares) and past profits, for the purposes enumerated in (i) above. The
Distributor will determine the amount of such payments made pursuant to the
Plan, provided that such payments will not increase the amount which the Fund is
required to pay to the Manager and Distributor for any fiscal year under either
the Investment Management Contract in effect for that year or under the
Shareholder Servicing Agreement in effect for that year.
18
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance since inception. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned [or lost] on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by McGladrey and Pullen, LLP, whose report, along with the Fund's
financial statements, is included in the annual report, which is available upon
request.
<TABLE>
<CAPTION>
CLASS A Year Ended December 31,
- ------- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- -------- ---------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
============= ============= ============= ============= =========
Income from investment operations:
Net investment income............ 0.025 0.028 0.027 0.032 0.024
Less distributions:
Dividends from net investment income ( 0.025) ( 0.028) ( 0.027) ( 0.032) ( 0.024)
---------- --------- -------- --------- -----
Net asset value, end of period...... $ 1.00 $ 1.00 $1.00 $1.00 $1.00
========= =============== ============= ============= =========
Total Return........................ 2.48% 2.84% 2.76% 3.28% 2.45%
Ratios/Supplemental Data
Net assets, end of period (000)..... $ 209,916 $ 182,653 $ 205,947 $ 171,808 $ 105,120
Ratios to average net assets:
Expenses (net of fees waived)+.... 0.88% 0.82% 0.75% 0.67% 0.56%
Net investment income............. 2.43% 2.80% 2.73% 3.24% 2.40%
Management fees waived............ 0.01% 0.05% 0.08% 0.22% 0.28%
Expense offsets................... -- -- 0.01% 0.01% --
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 9, 1996
December 31, (Commencement of Sales) to
<S> <C> <C> <C>
Class B 1998 1997 December 31, 1996
- ------- -------- --------- -----------------
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year...... $ 1.00 $1.00 $1.00
----------- ----------- ---------
Income from investment operations:
Net investment income............... 0.027 0.030 0.004
Less distributions:
Dividends from net investment income (0.027) ( 0.030) ( 0.004)
----- --------- --------
Net asset value, end of year............ $ 1.00 $1.00 $1.00
============ ============== =========
Total Return............................ 2.76% 3.08% 3.08%*
Ratios/Supplemental Data
Net assets, end of year (000)........... $ 30,190 $ 15,163 $ 3,436
Ratios to average net assets:
Expenses (net of fees waived)+ ......... 0.60% 0.58% 0.56%*
Net investment income................. 2.72% 3.10% 3.09%*
Management fees waived................ 0.01% 0.05% 0.06%*
Expense offsets....................... -- -- 0.01%*
</TABLE>
* Annualized
+ Includes expense offsets
19
<PAGE>
A Statement of Additional Information (SAI) dated May 3, 1999, and the Fund's
Annual and Semi-Annual Reports include additional information about the Fund and
its investments and are incorporated by reference into this prospectus. You may
obtain the SAI, the Annual and Semi-Annual Reports and material incorporated by
reference without charge by calling the Fund at 1-800-221-3079. To request other
information, please call your financial intermediary or the Fund.
A current SAI has been filed with the Securities and Exchange Commission. You
may visit the Securities and Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material incorporated by reference and other
information. These materials can also be reviewed and copied at the Commission's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C.
20549-6009.
CALIFORNIA DAILY TAX FREE INCOME FUND, INC.
PROSPECTUS
May 3, 1999
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, NY 10020
(212) 830-5220
811-4922
CA599P
<PAGE>
- --------------------------------------------------------------------------------
CALIFORNIA
DAILY TAX FREE 600 Fifth Avenue, New York, NY 10020
INCOME FUND, INC. (212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
RELATING TO THE CALIFORNIA DAILY TAX FREE INCOME FUND, INC.
PROSPECTUS DATED MAY 3, 1999
This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current Prospectus
of California Daily Tax Free Income Fund, Inc. (the "Fund"), dated May 3, 1999
and should be read in conjunction with the Fund's Prospectus.
A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll-free at 1-(800) 221-3079. The Financial Statements of
the Fund have been incorporated by reference to the Fund's Annual Report. The
Annual Report is available, without charge, upon request by calling the
toll-free number provided.
This Statement of Additional Information is incorporated by reference into the
respective Prospectus in its entirety.
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund History........................................2 Capital Stock and Other Securities........................21
Description of the Fund and Its Investments and Purchase, Redemption and Pricing of Shares................21
Risks.............................................2 Taxation of the Fund......................................26
Management of the Fund.............................15 Underwriters..............................................27
Control Persons and Principal Holders of Calculation of Performance Data...........................28
Securities.......................................16 Financial Statements......................................28
Investment Advisory and Other Services.............17 Description of Ratings....................................29
Brokerage Allocation and Other Practices...........20 Taxable Equivalent Yield Tables...........................30
</TABLE>
<PAGE>
I. FUND HISTORY
The Fund was incorporated on December 5, 1986 in the State of Maryland.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund is an open-end, management investment company that is a short-term,
tax-exempt money market fund. The Fund's investment objectives are to seek a
high level of current income exempt from regular Federal tax and California
income tax consistent with preserving capital, maintaining liquidity and
stabilizing 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 (i) high quality debt
obligations issued by or on behalf of the State of California, 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 to the issuer at the date of issuance,
currently exempt from regular Federal and California income taxation ("Municipal
Obligations") and in (ii) Participation Certificates (which, in the opinion of
Battle Fowler LLP, counsel to the Fund, cause the Fund to be treated as the
owner of an interest in the underlying Municipal Obligations for Federal income
tax purposes) in Municipal Obligations purchased from banks, insurance companies
or other financial institutions ("Participation Certificates"). Dividends paid
by the Fund are exempt-interest dividends by virtue of being properly designated
by the Fund as derived from Municipal Obligations and Participation
Certificates. They will be exempt from regular Federal income tax provided the
Fund qualifies as a regulated investment company under Subchapter M of the Code
and the Fund complies with Section 852(b)(5) 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,
such interest, including exempt-interest dividends, may be subject to the
Federal alternative minimum tax.
Securities, the interest income on which may be subject to the Federal
alternative minimum tax (including Participation Certificates), may be purchased
by the Fund without limit. Securities, the interest income on which is subject
to regular Federal, state and local income tax, will not exceed 20% of the value
of the Fund's total assets. (See "Federal Income Taxes" herein.) Exempt-interest
dividends paid by the Fund that are correctly identified by the Fund as derived
from obligations issued by or on behalf of the State of California or any
California local governments, or their instrumentalities, authorities or
districts ("California Municipal Obligations") will be exempt from the
California income tax. Exempt-interest dividends correctly identified by the
Fund as derived from obligations of Puerto Rico and the Virgin Islands, as well
as any other types of obligations that California is prohibited from taxing
under the Constitution, the laws of the United States of America or the
California Constitution ("Territorial Municipal Obligations"), also should be
exempt from California income tax provided the Fund complies with applicable
California laws. (See "California Income Taxes" herein.) To the extent that
suitable California Municipal Obligations are not available for investment by
the Fund, the Fund may purchase Municipal Obligations issued by other states,
their agencies and instrumentalities. The dividends on these will be designated
by the Fund as derived from interest income which will be, in the opinion of
bond counsel to the issuer at the date of issuance, exempt from regular Federal
income tax but will be subject to the California 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
California Municipal Obligations, although the exact amount of the Fund's assets
invested in such securities will vary from time to time. The Fund seeks to
maintain an investment portfolio with a dollar-weighted average maturity of 90
days or less and to value its investment portfolio at amortized cost and
maintain a net asset value at $1.00 per share of each Class. There can be no
assurance that this value will be maintained.
The Fund may hold uninvested cash reserves pending investment. The Fund's
investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements. Although the Fund will attempt to
invest 100% of its assets in Municipal Obligations and in Participation
Certificates, the Fund reserves the right to invest up to 20% of the value of
its total assets in securities, the interest income on which is subject to
regular Federal, state and local income tax. The Fund will invest more than 25%
of its assets in Participation Certificates purchased from banks in industrial
revenue bonds and other California Municipal Obligations. In view of this
"concentration" in bank Participation Certificates in California 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 the
preceding paragraphs of this section 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 United States dollar-denominated securities 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) securities which have or are deemed to have remaining
maturities of 397 days or less and rated in
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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") or (ii) unrated securities determined by the Fund's Board of Directors
to be of comparable quality. In addition, securities which have or are deemed to
have 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) are
deemed unrated and may be purchased if such had received a long-term rating from
the Requisite NRSROs in one of the three highest rating categories. Provided,
however, that such may not be purchased if it (i) does not satisfy the rating
requirements set forth in the preceding sentence and (ii) has received a
long-term rating from any NRSRO that is not within the three highest long-term
rating 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 securities. While there are several organizations that
currently qualify as NRSROs, two examples of NRSROs are Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, ("S&P") and Moody's Investors
Service, Inc. ("Moody's"). The two highest ratings by S&P and Moody's are "AAA"
and "AA" by S&P in the case of long-term bonds and notes or "Aaa" and "Aa" by
Moody's in the case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by
Moody's in the case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2"
by Moody's in the case of tax-exempt commercial paper. The highest rating in the
case of variable and floating demand notes is "VMIG-1" by Moody's or "SP-1/AA"
by S&P. Such instruments may produce a lower yield than would be available from
less highly rated instruments.
Subsequent to its purchase by the Fund, a rated security 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 promptly reassess
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 (i) is in default, (ii) ceases to be
an Eligible Security under Rule 2a-7 of the 1940 Act, or (iii) is determined to
no longer present minimal credit risks, or an event of insolvency occurs with
respect to the issues of a portfolio security or the provider of any Demand
Feature or Guarantee, 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. Disposal of the security shall
occur 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 SEC of
such fact and of the actions that the Fund intends to take in response to the
situation.
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
With respect to 75% of its total assets, the Fund shall invest not more than 5%
of its total assets in Municipal Obligations or Participation Certificates
issued by a single issuer. However, the Fund shall not invest more than 5% of
its total assets in Municipal Obligations or Participation Certificates issued
by a single issuer unless Municipal Obligations are First Tier Securities.
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, regulated investment company
securities and other securities which is 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 (or two or more
issuers that the Fund controls) other than Government securities or regulated
investment company securities. The limitations described in this paragraph
regarding qualification as a regulated investment company are not fundamental
policies and may be revised to the extent applicable Federal income tax
requirements are revised. (See "Federal Income Taxes" herein.)
Description Of Municipal Obligations
As used herein, "Municipal Obligations" include the following as well as
"Variable Rate Demand Instruments and Participation Certificates".
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"). They
generally have a maturity at the time of issue of one year or more and 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.
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<PAGE>
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 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 and
provide the demand feature which may be exercised by the Fund at any time
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 California 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. They 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 statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses. These clauses provide that the governmental
issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. To reduce this risk,
the Fund will only purchase Municipal Leases subject to a non-appropriation
clause where the payment of principal and accrued interest is backed by an
unconditional irrevocable letter of credit, a guarantee, insurance or other
comparable undertaking of an approved financial institution. These types of
Municipal Leases may be considered illiquid and subject to the 10%
limitation of investments in illiquid securities set forth under
"Investment Restrictions" contained herein. The Board of Directors may
adopt guidelines and delegate to the Manager the daily function of
determining and monitoring the liquidity of Municipal Leases. In making
such determination, the Board and the Manager may consider such factors as
the frequency of trades for the obligation, the number of dealers willing
to purchase or sell the obligations and the number of other potential
buyers and the nature of the marketplace for the obligations, including the
time needed to dispose of the obligations and the method of soliciting
offers. If the Board determines that any Municipal Leases are illiquid,
such lease will be subject to the 10% limitation on investments in illiquid
securities. The Fund has no intention to invest in Municipal Leases in the
foreseeable future and will amend this Statement of Additional Information
in the event that such an intention should develop in the future.
5. Any other Federal tax-exempt, and to the extent possible, California Income
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 described herein
and permissible under Rule 2a-7 under the 1940 Act.
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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 promptly
reassess whether the Municipal Obligation presents minimal credit risks and
shall cause the Fund to take such action as the Board of Directors determines is
in the best interest of the Fund and its shareholders. However, reassessment is
not required if the Municipal Obligation is disposed of or matures within five
business days of the Manager becoming aware of the new rating and provided
further that the Board of Directors is subsequently notified of the Manager's
actions.
In addition, in the event that a Municipal Obligation (i) is in default, (ii)
ceases to be an Eligible Security under Rule 2a-7 of the 1940 Act, or (iii) is
determined to no longer present minimal credit risks, or an event of insolvency
occurs with respect to the issues of a portfolio security or the provider of any
Demand Feature or Guarantee, 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. Disposal of the security shall
occur 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 SEC of
such fact and of the actions that the Fund intends to take in response to the
situation.
Variable Rate Demand Instruments and Participation Certificates
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations. They provide for a periodic adjustment in the interest
rate paid on the instrument and permit the holder to demand payment of the
unpaid principal balance plus accrued interest at specified intervals upon a
specified number of days notice either from the issuer or by drawing on a bank
letter of credit, a guarantee or insurance issued with respect to such
instrument.
The variable rate demand instruments in which the Fund may invest are payable on
demand on not more than 30 calendar days' notice and may be exercised at any
time or at specified intervals not exceeding 397 days depending upon the terms
of the instrument. Variable rate demand instruments that can not be disposed of
properly within seven days in the ordinary course of business are illiquid
securities. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to 397 days. 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 decides
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 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 high 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. Where applicable, the Fund can 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 (i) upon a default under the terms of the
bond documents, (ii) as needed to provide liquidity to the Fund in order to make
redemptions of Fund shares, or (iii) to maintain a high quality investment
portfolio. The institutions issuing the Participation Certificates will retain a
service and letter of credit fee (where applicable) and a fee for providing the
demand repurchase feature, in an amount equal to the excess of the interest paid
on the instruments over the negotiated yield at which the participations were
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<PAGE>
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. However, 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 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 Participation Certificates in
California 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. This
includes, 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.
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The portfolio may contain variable maximum rates set by state law,
which limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent state law contains such limits,
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
increase so that the variable rate exceeds the fixed rate on the Municipal
Obligations, the Municipal Obligations can no longer be valued at par and may
cause the Fund to take corrective action, including the elimination of the
instruments from the portfolio. Because the adjustment of interest rates on the
variable rate demand instruments is made in relation to movements of the
applicable banks' "prime rates"*, or other interest rate adjustment index, the
variable rate demand instruments are not comparable to long-term fixed rate
securities. Accordingly, interest rates on the variable rate demand instruments
may be higher or lower than current market rates for fixed rate obligations of
comparable quality with similar maturities.
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (i) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (ii) the period remaining until the instrument's next interest
rate adjustment. The maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity. If a variable rate demand instrument
ceases to be an Eligible Security it will be sold in the market or through
exercise of the repurchase demand feature to the issuer.
When-Issued Securities
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on these 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.
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* The prime rate is generally the rate charged by a bank to its most
creditworthy customers for short-term loans. The prime rate of a particular bank
may differ from other banks and will be the rate announced by each bank on a
particular day. Changes in the prime rate may occur with great frequency and
generally become effective on the date announced.
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Municipal Obligations purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way; that is, both experiencing appreciation when interest rates
decline and depreciation when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
income tax.
Stand-by Commitments
When the Fund purchases Municipal Obligations, it may also acquire stand-by
commitments from banks and other financial institutions. Under a stand-by
commitment, a bank or broker-dealer agrees to purchase at the Fund's option a
specified Municipal Obligation at a specified price with same day settlement. A
stand-by commitment is the equivalent of a "put" option acquired by the Fund
with respect to a particular Municipal Obligation held in its portfolio.
The amount payable to the Fund upon its exercise of a stand-by commitment
normally would be (i) 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 (ii) 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 stand-by commitments to generally 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 will not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after the
acquisition of each stand-by commitment.
The Fund will enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks. If the issuer of the Municipal Obligation does not meet the eligibility
criteria, the issuer of the stand-by commitment will have received a rating
which meets the eligibility criteria or, if not rated, will present 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 will 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 tax
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 will be valued at zero in determining net asset value. In those cases in
which the Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund. Stand-by commitments will 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 the Fund may enter into are subject to certain risks.
These 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.
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In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by commitments will be exempt from Federal income taxation (see
"Federal Income Taxes" herein). In the absence of a favorable tax ruling or
opinion of counsel, the Fund will not engage in the purchase of securities
subject to stand-by commitments.
Taxable Securities
Although the Fund will attempt to invest 100% of its net assets in tax-exempt
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 from such
securities is subject to regular Federal or California income tax, under any one
or more of the following circumstances: (i) pending investment of proceeds of
sales of Fund shares or of portfolio securities, (ii) pending settlement of
purchases of portfolio securities, and (iii) 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): (i) obligations of the United States Government or its agencies,
instrumentalities or authorities, (ii) commercial paper meeting the definition
of Eligible Securities at the time of acquisition, (iii) certificates of deposit
of domestic banks with assets of $1 billion or more, and (iv) 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 will 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.
Additionally, the Fund or its custodian shall have possession of the collateral,
which the Fund's Board believes will give it a valid, perfected security
interest in the collateral. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs in connection with the disposition of the
collateral. The Fund's Board believes that the collateral underlying repurchase
agreements may be more susceptible to claims of the seller's creditors than
would be the case with securities owned by the Fund. It is expected that
repurchase agreements will give rise to income which will not qualify as
tax-exempt income when distributed by the Fund. The Fund will not invest in a
repurchase agreement maturing in more than seven days if any such investment,
together with illiquid securities held by the Fund, exceeds 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.
California Risk Factors
Certain of the California Municipal Obligations in the Fund may be bonds or
other types of obligations which rely in whole or in part, directly or
indirectly, on ad valorem real property taxes as a source of revenue. Over the
past several years, California voters have approved amendments to the California
Constitution which establish certain limitations on the powers of municipalities
to impose and collect ad valorem taxes on real property which, in turn, restrict
the ability of municipalities to service their debt or lease obligations from
such taxes.
California Economy. Pressures on the State's budget in the late 1980's and early
1990's were caused by a combination of external economic conditions (including a
recession which began in 1990) and growth of the largest General Fund Programs
- -- K-14 education, health, welfare and corrections -- at rates faster than the
revenue base. During this period, expenditures exceeded revenues in four out of
six years up to 1992-93, and the State accumulated and sustained a budget
deficit approaching $2.8 billion at its peak at June 30, 1993. Between the
1991-92 and 1994-95 Fiscal Years, each budget required multibillion dollar
actions to bring projected revenues and expenditures into balance, including
significant cuts in health and welfare program expenditures; transfers of
program responsibilities and funding from the State to local governments;
transfer of about $3.6 billion in annual local property tax revenues from other
local governments to local school districts, thereby reducing state funding for
schools under Proposition 98; and revenue increases (particularly in the 1991-92
Fiscal Year budget), most of which were for a short duration.
Despite these budget actions, the effects of the recession led to large,
unanticipated budget deficits. By the 1993-94 Fiscal Year, the accumulated
deficit was so large that it was impractical to budget to retire it in one year,
so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was
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implemented in 1994-95, again using cross-fiscal year revenue anticipation
warrants to partly finance the deficit into the 1995-96 fiscal year.
Another consequence of the accumulated budget deficits, together with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing to replenish its cash reserves,
the State Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4,
1992, when the budget was adopted, the State Controller issued a total of
approximately $3.8 billion of registered warrants.
For several fiscal years during the recession, the State was forced to rely on
external debt markets to meet its cash needs, as a succession of notes and
revenue anticipation warrants, often needed to pay previously maturing notes or
warrants, were issued in the period from June 1992 to July 1994. These
borrowings were used also in part to spread out the repayment of the accumulated
budget deficit over the end of a fiscal year, as noted earlier. The last and
largest of these borrowings was $4.0 billion of revenue anticipation warrants
which were issued in July, 1994 and matured on April 25, 1996.
1995-96 through 1997-98 Fiscal Years
The State's financial condition improved markedly during the 1995-96, 1996-97
and 1997-98 fiscal years, with a combination of better than expected revenues,
slowdown in growth of social welfare programs, and continued spending restraint
based on the actions taken in earlier years. The State's cash position also
improved, and no external deficit borrowing has occurred over the end of these
three fiscal years.
The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion in
1995-96, $1.6 billion in 1996-97 and $2.4 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid in 1995-96 and
1996-97. The accumulated budget deficit from the recession years was finally
eliminated.
1998-99 Fiscal Year Budget
When the Governor released his proposed 1998-99 Fiscal Year Budget on January 9,
1998, he projected General Fund revenues for the 1998-99 Fiscal Year of $55.4
billion, and proposed expenditures in the same amount. By the time the Governor
released the May Revision to the 1998-99 Budget ("May Revision") on May 14,
1998, the Administration projected that revenues for the 1997-98 and 1998-99
Fiscal Years combined would be more than $4.2 billion higher than was projected
in January. The Governor proposed that most of this increased revenue be
dedicated to fund a 75 percent cut in the Vehicle License Fee ("VLF").
The Legislature passed the 1998-99 Budget Bill on August 11, 1998, and the
Governor signed it on August 21, 1998. Some 33 companion bills necessary to
implement the budget were also signed. In signing the Budget Bill, the Governor
used his line-item veto power to reduce expenditures by $1.360 billion from the
General Fund, and $160 million from special funds. Of this total, the Governor
indicated that about $250 million of vetoed funds were "set aside" to fund
programs for education. Vetoed items included education funds, salary increases
and many individual resources and capital projects.
The 1998-99 Budget Act was based on projected General Fund revenues and
transfers of $57.0 billion (after giving effect to various tax reductions
enacted in 1997 and 1998), a 4.2 percent increase from the then revised 1997-98
figures. Special Fund revenues were estimated at $14.3 billion. The revenue
projections were based on the May Revision. Economic problems overseas since
that time may affect the May Revision projections. See "Economic Assumptions"
below.
After giving effect to the Governor's vetoes, the Budget Act provided authority
for expenditures of $57.3 billion from the General Fund (a 7.3 percent increase
from 1997-98), $14.7 billion from Special Funds, and $3.4 billion from bond
funds. The Budget Act projected a balance in the SFEU at June 30, 1999 (but
without including the "set aside" veto amount) of $1.255 billion, a little more
than 2 percent of General Fund revenues. The Budget Act assumed the State will
carry out its normal intra-year cash flow borrowing in the amount of $1.7
billion of revenue anticipation notes, which were issued on October 1, 1998.
Revenues and expenditures for 1998-99 as updated in the 1999-00 Governor's
Budget are $56.3 billion and $58.3 billion, respectively. As a result, the
projected balance in the SFEU at June 30, 1999 has been reduced to $617 million.
The most significant feature of the 1998-99 budget was agreement on a total of
$1.4 billion tax cuts. The central element is a bill which provides for a
phased-in reduction of the VLF. Since the VLF is currently transferred to cities
and counties, the bill provides for the General Fund to replace the lost
revenues. Started on January 1, 1999, the VLF has been
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reduced by 25 percent, at a cost to the General Fund of approximately $500
million in the 1998-99 Fiscal Year and about $1 billion annual thereafter.
In addition to the cut in VLF, the 1998-99 budget includes both temporary and
permanent increase in the personal income tax dependent credit ($612 million
General Fund cost in 1998-99, but less in future years), a nonrefundable renters
tax credit ($133 million), and various targeted business tax credits ($106
million).
Other significant elements of the revised 1998-99 Budget are as follows:
1. Proposition 98 funding for K-12 schools is increased by $2.2 billion in
General Fund moneys over the latest revised 1997-98 levels, over $1 billion
higher than the minimum Proposition 98 guarantee. Of the 1998-99 funds,
major new programs include money for instructional and library materials,
deferred maintenance, support for increasing the school year to 180 days
and reduction of class sizes in Grade 9. Overall, per-pupil spending for
K-12 schools under Proposition 98 is increased to $5,752, which is $478
over the 1997-98 level. The Budget also includes $250 million as repayment
of prior years' loans to schools, as part of the settlement of the CTA v.
Gould lawsuit.
2. Funding for higher education increased substantially above the actual
1997-98 level. General Fund support was increased by $339 million (15.6
percent) for the University of California and $271 million (14.5 percent)
for the California State University system. In addition, Community Colleges
increased by $183 million (9.0 percent).
3. The Budget includes increased funding for health, welfare and social
services programs. A 4.9 percent grant increase was included in the basic
welfare grants, the first increase in those grants in 9 years. Future
increases will depend on sufficient General Fund revenue to trigger the
phased cuts in VLF described above.
4. Funding for the judiciary and criminal justice programs increased by about
15 percent over 1997-98, primarily to reflect increased state support for
local trial courts and rising prison population.
5. Various other highlights of the revised Budget included new funding for
resources projects, dedication of $240 million of General Fund moneys for
capital outlay projects, funding of a state employee salary increase,
funding of 2,000 new Department of Transportation positions to accelerate
transportation construction projects, and funding of the Infrastructure and
Economic Development Bank ($50 million).
6. The State of California received approximately $167 million of federal
reimbursements to offset costs related to the incarceration of undocumented
alien felons for federal fiscal year 1997. The state anticipates receiving
approximately $173 million in federal reimbursements for federal fiscal
year 1998.
The revised 1998-99 budget as reported in the 1999-00 Governor's Budget, also
reflects the latest estimated costs or savings as provided in various pieces of
legislation passed and signed after the 1998 Budget Act. Major budget items
include costs for the All-American Canal, state's share of purchase of
Headwaters Forest, and additional funds for state prisons and juvenile
facilities. The revised budget reflects a $433 million reduction in the State's
obligation to contribute to STRS in 1998-99.
Proposed 1999-00 Budget
On January 8, 1999, Governor Davis released his proposed budget for Fiscal Year
1999-2000 (the "Governor's Budget"). The Governor's Budget generally reported
that General Fund revenues for FY 1998-99 and FY 1999-00 would be lower than
earlier projections (primarily due to the overseas economic downturn), while
some caseloads would be higher than earlier projections. The Governor's Budget
was designed to meet ongoing caseloads and basic inflation adjustments, and
included certain new programs.
The Governor's Budget projects General Fund revenues and transfers in 1999-00 of
$60.3 billion. This includes anticipated initial payments from the tobacco
litigation settlement of about $560 million, and receipt of one-time revenue
from sale of assets. The Governor also assumes receipt of about $400 million of
federal aid for certain health and welfare programs and reimbursement for costs
for incarceration of undocumented felons, above the amount presently received by
California from the federal government. The Governor's Budget notes that more
accurate revenue estimates will be available in May and June before adoption of
the budget. Among other things, the amount of realized capital gains for 1998 is
still unknown, given the large fluctuations in the stock market last year.
The Governor has not proposed any tax cuts or increases.
The Governor's Budget proposes General Fund expenditures of $60.5 billion. The
Governor's Budget gives highest priority to education, with Proposition 98
funding increasing by almost 5 percent. The Governor proposed certain new
education initiatives focused on improving reading skills, teacher quality and
school accountability. The Governor proposed modest increase in funding for
higher education, and an 8 percent increase in SSP payments (a State-funded
welfare program), while assuming decreases in Medi-Cal and CalWORKs grant costs
due to lowering caseloads. The Governor also proposes to reduce expenditures by
deferring certain previously budgeted expenditures totaling about $170 million.
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Based on the proposed revenues and expenditures, the Governor's Budget projects
the June 30, 2000 balance in the SFEU would drop to about $415 million.
On February 16, 1999, the Legislative Analyst released a report on the 1999-00
Governor's Budget (the "LAO Report"). The LAO Report was based in part on actual
revenues received in December, 1998 and January 1999, which had not been
available when the Governor's Budget was prepared. These revenues were higher
than had been predicted in the Governor's Budget, apparently reflecting stronger
than expected economic activity in the nation and the State. The LAO report
projected that General Fund revenues in 1998-99 could be as much as $750 million
higher than predicted in the Governor's Budget, and 1999-00 revenues could be
$550 million above the Governor's Budget.
The Governor's Budget includes a proposal to implement changes in law to make
"midcourse corrections" in the State's budget if ongoing revenues fall short of
projections during a fiscal year or expenditures increase significantly. The
proposals include two components: restoring authority for the Director of
Finance to reduce expenditures in certain circumstances, and an automatic
"trigger" mechanism which would produce spending cuts if certain conditions were
met. These proposals will require legislative action.
Future Budgets
It cannot be predicted what actions will be taken in the future by the State
Legislature and the Governor to deal with changing State revenues and
expenditures. The State budget will be affected by national and state economic
conditions and other factors.
THE FOREGOING DISCUSSION IS BASED ON OFFICIAL STATEMENTS AND OTHER INFORMATION
PROVIDED BY THE STATE OF CALIFORNIA. THE STATE HAS INDICATED THAT ITS DISCUSSION
OF BUDGETARY INFORMATION IS BASED ON ESTIMATES AND PROJECTIONS OF REVENUES AND
EXPENDITURES FOR THE CURRENT FISCAL YEAR AND MUST NOT BE CONSTRUED AS STATEMENTS
OF FACT; THE ESTIMATES AND PROJECTIONS ARE BASED UPON VARIOUS ASSUMPTIONS WHICH
MAY BE AFFECTED BY NUMEROUS FACTORS, INCLUDING FUTURE ECONOMIC CONDITIONS IN THE
STATE AND THE NATION, AND THERE CAN BE NO ASSURANCE THAT THE ESTIMATES WILL BE
ACHIEVED.
Constitutional and Statutory Limitations; Recent and Pending Initiatives
Constitutional and Statutory Limitations. Article XIIIA of the California (which
resulted from the voter-approved Proposition 13 in 1978) limits the taxing
powers of California public agencies, Article XIIIA, provides that the maximum
ad valorem tax on real property cannot exceed 1% of the "full cash value" of the
property and effectively prohibits the levying of any other ad valorem tax on
real property for general purposes. However, on May 3, 1986, Proposition 46, an
amendment to Article XIIIA, was approved by the voters of the State of
California, creating a new exemption under Article XIIIA permitting an increase
in ad valorem taxes on real property in excess of 1% for bonded indebtedness
approved by tow-thirds of the voters voting on the proposed indebtedness, "Full
cash value" is defined as "the County Assessor's valuation of real property as
shown on the 1975-76 Fiscal Year Tax bill under "full cash value" or,
thereafter, the appraised value of real property when purchased newly
constructed, or a change in ownership has occurred after the 1975 assessment."
The "full cash value" is subject to annual adjustment to reflect increases (not
to exceed 2%) or decreases in the consumer price index or comparable local date,
or to reflect reductions in property value caused by damage, destruction or
other factors.
Article XIIIB of the California constitution limits the amount of appropriations
of the State and of the local governments to the amount of appropriations of the
entity for the prior year, adjusted for changes in the cost of living,
population and the services that local government has financial responsibility
for providing. To the extent that the revenue of the State and/or local
government exceed its appropriations, the excess revenues must be rebated to the
public either directly or through a tax decrease. Expenditures for
voter-approved debt services are not included in the appropriations limit.
At the November 9, 1988 general election, California voters approved an
initiative known as Proposition 98. This initiative amends Article XIIB to
require that (I) the California Legislature establish a prudent state reserve
fund in an amount it shall deem reasonable and necessary and (ii) revenues in
excess of amounts permitted to be spent and which would otherwise be returned
pursuant to Article XIIIB by revision of tax rates or fee schedules be
transferred and allocated (up to a maximum of 40%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
Proposition 98 also amends Article XVI to require that the State of California
provide a minimum level of funding for public schools and community colleges.
Commencing with the 1988-89 Fiscal Year, money to be applied by the State for
the support of school districts and community college districts shall not be
less that the greater of: (I) the amount which, as a percentage of the State
general fund revenues which may be appropriated pursuant to Article XIIIB,
equals the percentage of such State general fund revenues appropriated for
school districts and community college districts, respectively, in the 1986-87
Fiscal Year or (ii) the amount required to insure that the total allocations to
school districts and community college districts from the State general fund
proceeds of taxes appropriated pursuant to Article XIIIB and allocated local
proceeds of taxes shall not be less that the total amount from these sources in
the prior year, adjusted for increases in enrollment and adjusted for changes in
the cost of living pursuant to the provisions of Article XIIIB. The initiative
permits the enactment of legislation, by a two-thirds vote, to suspend the
minimum funding
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requirements for one year. As a result of Proposition 98, funds that the State
might otherwise make available to its political subdivisions may be allocated
instead to satisfy such minimum funding level.
During the recent recession, general fund revenues for several years were less
than originally projected so that the original Proposition 98 appropriations
turned out to be higher than the minimum percentage provided in the law. The
Legislature responded to these developments by designating the "extra"
Proposition 98 payments in one year as a "loan" from future years' Proposition
98 entitlements and also intended that the "extra" payments would not be
included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from 1991-92 Fiscal
Year to the 1993-94 Fiscal Year.
In 1992, a lawsuit was filed, called California Teachers' Association v. Gould,
which challenged the validity of these off-budget loans. The settlement of this
case, finalized in July, 1996, provides, among other things, that both the state
and K-14 schools share in the repayment of prior years' emergency loans to
schools. Of the total $1.76 billion in loans, the State will repay $935 million
by forgiveness of the amount owed, while schools will repay $825 million. The
State share of the repayment will be reflected as an appropriation above the
current Proposition 98 base calculation. The schools' share of the repayment
will count either as appropriations that count toward satisfying the proposition
98 guarantee, or as appropriations from "below" the current base. Repayments are
spread over eight-year period of the 1994-95 Fiscal Year through 2001-02 Fiscal
Year to mitigate any adverse fiscal impact.
Substantially increased general fund revenues, above initial budget projections,
in the 1994-95, 1995-96 and 1996-97 fiscal years have resulted or will result in
retroactive increases in Proposition 98 appropriations from subsequent fiscal
years' budgets.
On November 8, 1994, the voters approved Proposition 187, an initiative statute
("Proposition 187"). Proposition 187 specifically prohibits funding by the State
of social services, health care services and public school education for the
benefit of any person not verified as either a United States citizen or a person
legally admitted to the United States. Among the provisions in Proposition 187
pertaining to public school education, the measure requires, commencing January
1, 1995, that every school district in the State verify the legal status of
every child enrolling in the district for the first time. By January 1, 1996,
each school must also verify the legal status of children already enrolled in
the district and all parents or guardians of all students. If the district
"reasonably suspects" that a student, parent or guardian is not legally in the
United Stated, that district must report the student to the United States
Immigration and Naturalization Services and certain other parties. The measure
also prohibits a school district from providing education to student it does not
verify as either a United States citizen or a person legally admitted to the
United States. The State Legislative Analyst estimates that verification costs
could be in the tens of millions of dollars on a statewide level (including
verification costs incurred by other local governments), with first-year costs
potentially in excess of $100 million.
The reporting requirements may violate the Family Education Rights and Privacy
Act (" FERPA"), which generally prohibits schools that receive federal funds
from disclosing information in student records without parental consent.
Compliance with FERPA is a condition of receiving federal education funds, which
total $2.3 billion annually to California school districts. The Secretary of the
United States Department of Education has indicated that the reporting
requirements in Proposition 187 could jeopardize the ability of school districts
to receive these funds.
Opponents of Proposition 187 filed at least eight lawsuits (which were
subsequently consolidated) challenging the constitutionality and validity of the
measure. On March 18, 1998, a United States District Court judge entered a final
judgement in the case, holding key portions of the measure unconstitutional and
permanently enjoining the State from implementing those sections which would
have required law enforcement, teachers and social services and health care
workers to verify a person's immigration status and subsequently report illegal
immigrants to authorities and deny them social services, health care and
education benefits. An appeal by the State Attorney General was filed with the
Ninth Circuit Court of the Appeals on March 25, 1998 and is pending.
Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID were each adopted as measures that
qualified for the ballot pursuant to the State's initiative process. From time
to time, other initiative measures could be adopted which could affect revenues
of the State or public agencies within the State.
State Indebtedness
As of August 1, 1998, the State had over $15.9 billion aggregate amount of its
general obligation bonds outstanding. General obligation bond authorizations in
an aggregate amount of approximately $4.8 billion remained unissued as of August
1, 1998. As of April 1, 1998 the State Finance Committee had authorized the
issuance of approximately $2.6 billion of general obligation commercial paper
notes, but as of that date only $1.3 billion aggregate principal amount of which
was issued and outstanding. The State also builds and acquires capital
facilities through the use of lease purchase borrowing. As of April 1, 1998, the
State had approximately $6.5 billion of outstanding General Fund-supported
Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and authorities had
approximately $22.49 billion aggregate principal amount of revenue bonds and
notes outstanding as of April 1, 1998. Revenue bonds represent both obligations
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payable from State revenue-producing enterprises and projects, which are not
payable from the General Fund, and conduit obligations payable only from
revenues paid by private users of facilities financed by such revenue bonds.
Such enterprises and projects include transportation projects, various public
works and exposition projects, educational facilities (including the California
State University and University of California systems), housing, health
facilities and pollution control facilities.
Litigation
The State is a party to numerous legal proceedings. In addition, the State is
involved in certain other legal proceedings that, if decided against the State,
might require the State to make significant future expenditures or impair future
revenue sources. Examples of such cases include challenges to certain vehicle
license fees and challenges to the State's use of Public Employee Retirement
System funds to offset future State and local pension contributions. Other cases
which could significantly impact revenue or expenditures involve challenges of
payments of wages under the Fair Labor Standards Act, the method of determining
gross insurance premiums involving health insurance, property tax challenges,
and challenges of transfer of moneys from State Treasury special fund accounts
to the State's General Fund pursuant to its Budget Acts for certain fiscal
years. Because of the prospective nature of these proceedings, it is not
presently possible to predict the outcome of such litigation or estimate the
potential impact on the ability of the State to pay debt service on its
obligation.
Ratings
California's general obligation bonds are rated by the following rating
agencies: Standard & Poor's Ratings Group upgraded its rating of such debt to
A+; Fitch Investors Service has assigned a rating of AA-; and Moody's Investors
Service has assigned such debt an Aa3 rating. Any explanation of the
significance of such ratings may be obtained only from the rating agency
furnishing such ratings. There is no assurance that such ratings will continue
for any given period of time or that they will not be revised downward or
withdrawn entirely if, in the judgment of the particular rating agency,
circumstances so warrant.
Local Governments
The primary units of local government in California are the counties, ranging in
population from 1,200 in Alpine County to over 9,600,000 in Los Angeles County.
Counties are responsible for the provision of many basic services, including
indigent health care, welfare, jails and public safety in unincorporated areas.
There are also about 470 incorporated cities, and thousands of other special
districts formed for education, utility and other services. The fiscal condition
of local governments has been constrained since the enactment of "Proposition
13" in 1978, which reduced and limited the future growth of property taxes, and
limited the ability of local governments to impose "special taxes" (those
devoted to a specific purpose) without two-thirds voter approval. Counties, in
particular, have had fewer options to raise revenues than many other local
government entities, and have been required to maintain many services.
In the aftermath of Proposition 13, the State provided aid to local governments
from the General Fund to make up some of the loss of property tax moneys,
including taking over the principal responsibility for funding K-12 schools and
community colleges. During the recession, the Legislature eliminated most of the
remaining components of post-Proposition 13 aid to local government entities
other than K-14 education districts by requiring cities and counties to transfer
some of their property tax revenues to school districts. However, the
Legislature also provided additional funding sources (such as sales taxes) and
reduced certain mandates for local services. Since then the State has also
provided additional funding to counties and cities through such programs as
health and welfare realignment, welfare reform, trial court restructuring, the
COPs program supporting local public safety departments, and various other
measures. In his 1999-00 Budget Proposal, the Governor has proposed a review and
"accounting" of state -- local fiscal relationships, with the goal of ultimately
restoring local government finances to an equivalent fiscal condition to the
period prior to the 1991-93 recession -- induced tax shifts. Litigation has been
brought challenging the legality of the property tax shifts from counties to
schools.
Historically, funding for the State's trial court system was divided between the
State and the counties. However, Chapter 850, Statutes of 1997, implemented a
restructuring of the State's trial court funding system. Funding for the courts,
with the exception of costs for facilities, local judicial benefits, and revenue
collection, was consolidated at the State level. The county contribution for
both their general fund and fine and penalty amounts is capped at the 1994-95
level and becomes part of the Trial Court Trust Fund, which supports all trial
court operations. The State assumed responsibility future growth in trial court
funding. The consolidation of funding is intended to streamline the operation of
the courts, provide a dedicated revenue source, and relieve fiscal pressure on
the counties. Beginning in 1998-99, the county general fund contribution for
court operations is reduced by $300 million, and cities will retain $62 million
in fine and penalty revenue previously remitted to the State; the General Fund
reimbursed the $362 million revenue loss to the Trial Court Trust Fund. The
1999-00 Governor's Budget would further reduce the county general fund
contribution by an additional $48 million to reduce by 50 percent the
contributions of the next 18 smallest counties and reduce by 5 percent the
general fund contribution of the remaining 21 counties.
The entire statewide welfare system has been changed in response to the change
in federal welfare law enacted in 1996. Under the CalWORKs program, counties are
given flexibility to develop their own plans, consistent with the state law, to
implement the program and to administer many of its elements, and their costs
for administrative and supportive services are capped at the 1996-97 levels.
Counties are also given financial incentives if, at the individual county level
or
13
<PAGE>
statewide, the CalWORKs program produces savings associated with specified
standards. Counties will still be required to provide "general assistance" aid
to certain persons who cannot obtain welfare from other programs.
There can be no assurance that general economic difficulties or the financial
circumstances of California or its towns, cities and special districts will not
adversely affect the market volume or rating of the California Municipal
Obligations or the ability of the obligors to pay debt service on the California
Municipal Obligations.
Investment Restrictions
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios. They 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 term "majority of the outstanding shares" of the
Fund means 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 not:
1. Make portfolio investments other than as described under "Description of
the Fund and Its Investments and Risks." Any other form of Federal
tax-exempt investment must meet the Fund's high quality criteria, as
determined by the Board of Directors, and be 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. This includes the meeting
of redemption requests that might otherwise require the untimely
disposition of securities, in an amount up to 15% of the value of the
Fund's total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
was made. While borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not make any investments. Interest paid on borrowings
will reduce net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options. However, securities subject to a demand obligation and
stand-by commitments may be purchased as set forth under "Description of
the Fund and Its Investments 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 net assets.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests. 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 "Description of the
Fund and Its Investments and Risks."
9. Purchase more than 5% in value of its assets in the securities of any one
issuer.
10. Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
11. Invest more than 25% of its assets in the securities of "issuers" in any
single industry. The Fund may invest more than 25% of its assets in
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-government user,
then such non-government 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. Immediately after the acquisition of
any securities subject to a Demand Feature or Guarantee (as such terms are
defined in Rule 2a-7 of the 1940 Act), with respect to 75% of the total
assets of the Fund, not more than 10% of the Fund's assets may be invested
in securities that are subject to a Guarantee or Demand Feature from the
same
14
<PAGE>
institution. However, the Fund may only invest more than 10% of its assets
in securities subject to a Guarantee or Demand Feature issued by a
Non-Controlled Person (as such term is defined in Rule 2a-7 of the 1940
Act).
12. Invest in securities of other investment companies. 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.
13. Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with a 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.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as investment
manager of the Fund. The Manager provides persons satisfactory to the Fund's
Board of Directors to serve as officers of the Fund. Such officers, as well as
certain other employees and directors of the Fund, may be directors or officers
of Reich & Tang Asset Management, Inc., the sole general partner of the Manager
or employees of the Manager or its affiliates. Due to the services performed by
the Manager, the Fund currently has no employees and its officers are not
required to devote their full-time to the affairs of the Fund.
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. Unless otherwise specified, the address
of each of the following persons 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 Reich & Tang Asset Management
L.P.
Steven W. Duff, 45 - President and Director of the Fund, has been President of
the Mutual Funds Division of the Manager since September 1994. Mr. Duff was
formerly Director of Mutual Fund Administration at NationsBank which he was
associated with from June 1981 to August 1994. Mr. Duff is also President and a
Director/Trustee of 14 other funds in the Reich & Tang Fund Complex, President
of Back Bay Funds, Inc., Executive Vice President of Reich & Tang Equity Fund,
Inc., and President and Chief Executive Officer of Tax Exempt Proceeds Fund,
Inc.
Dr. W. Giles Mellon, 68 - Director of the Fund, is Professor of Business
Administration in the Graduate School of Management, Rutgers University which he
has been associated with since 1966. His address is Rutgers University Graduate
School of Management, 92 New Street, Newark, New Jersey 07102. Dr. Mellon is
also a Director/Trustee of 15 other funds in the Reich & Tang Fund Complex.
Robert Straniere, 58 - Director of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director/Trustee of 15 other funds in the Reich & Tang Fund Complex and a
Director of Life Cycle Mutual Funds, Inc.
Dr. Yung Wong, 60 - Director of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly General Partner
of Abacus Partners Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong has been a Director of Republic Telecom Systems
Corporation (a provider of telecommunications equipment) since January 1989 and
of TelWatch, Inc. (a provider of network management software) since August 1989.
Dr. Wong is also a Director/Trustee of 15 other funds in the Reich & Tang Fund
Complex, and a Trustee of Eclipse Financial Asset Trust.
Molly Flewharty, 47 - Vice President of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of 17
other funds in the Reich & Tang Fund Complex.
Lesley M. Jones, 50 - Vice President of the Fund, has been Senior Vice President
of the Mutual Funds Division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. which she was associated
with from April 1973 to September 1993. Ms. Jones is also a Vice President of 13
other funds in the Reich & Tang Fund Complex.
Dana E. Messina, 42 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. with which she was associated with from
December 1980 to September 1993. Ms. Messina is also Vice President of 14 other
funds in the Reich & Tang Fund Complex.
Bernadette N. Finn, 51 - Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn was formerly
Vice President and Assistant Secretary of Reich & Tang, Inc. which she was
associated with from September 1970 to September 1993. Ms. Finn is also
Secretary of 13 other funds in the Reich & Tang Fund Complex, and a Vice
President and Secretary of 5 funds in the Reich & Tang Fund Complex.
Richard De Sanctis, 42 - Treasurer of the Fund, has been Vice President and
Treasurer of the Manager since September 1993. Mr. De Sanctis was formerly
Controller of Reich & Tang, Inc. from January 1991 to September 1993. Mr. De
15
<PAGE>
Sanctis is also Treasurer of 17 other funds in the Reich & Tang Fund Complex,
and is Vice President and Treasurer of Cortland Trust, Inc.
Rosanne Holtzer, 33 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she was
associated with from June 1986. Ms. Holtzer is also Assistant Treasurer of 18
other funds in the Reich & Tang Fund Complex.
The Fund paid an aggregate remuneration of $9,000 to its directors with respect
to the period ended December 31, 1998, all of which consisted of directors' fees
paid to the three disinterested directors, pursuant to the terms of the
Investment Management Contract (see "Manager" herein.)
Directors of the Fund not affiliated with the Manager receive from the Fund an
annual retainer of $2,000 and a fee of $250 for each Board of Directors meeting
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Directors who are affiliated with the Manager do
not receive compensation from the Fund.
See Compensation Table.
Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation From
Name of Person, From the Fund Benefits Accrued as Part Benefits Upon Retirement Fund and Fund Complex Paid
Position of Fund Expenses to Directors*
Dr. W. Giles Mellon, $3,000 0 0 $58,000 (16 Funds)
Director
Robert Straniere, $3,000 0 0 $58,000 (16 Funds)
Director
Dr. Yung Wong, $3,000 0 0 $58,000 (16 Funds)
Director
</TABLE>
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On March 31, 1999 there were 221,402,376 shares of Class A common stock
outstanding and 39,102,608 shares of Class B common stock outstanding. As of
March 31, 1999, the amount of shares owned by all officers and directors of the
Fund as a group was less than 1% of the outstanding shares of the Fund. Set
forth below is certain information as to persons who owned 5% or more of the
Fund's outstanding common stock as of March 31, 1999:
% of Nature of
Name and Address Class Ownership
CLASS A
ML Stern & Co. 32.7% Record
8350 Wilshire Blvd
Beverly Hills, CA 90211
Reich & Tang Services, Inc. 8.78% Record
(as agent for various owners)
600 Fifth Avenue
New York, NY 10020-2302
The Samueli 1995 Family Trust 8.69% Beneficial
TTEE/Attn: Jon Klein
1221 Avenue of the Americas 4th Fl.
New York, NY 10105
Neuberger & Berman 6.80% Record
(as agent for customer)
55 Water Street #27FL
New York, NY 10041-0001
CLASS B
Lewco Securities 19.59% Record
34 Exchange Place
16
<PAGE>
Jersey City, NJ
Magdalena Yesil 10.12% Record
142 Patricia Drive
Atherton, CA 94027
Daniel H. Case III 9.46% Individual
C/O Hambrecht & Quist
1 Bush Street
San Francisco, CA 94104
Lewco Securities 8.57% Record
34 Exchange Place
Jersey City, NJ
V. INVESTMENT ADVISORY AND OTHER SERVICES
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 was, as of March 31, 1999, investment manager,
adviser, or supervisor with respect to assets aggregating in excess of $13
billion. In addition to the Fund, the Manager acts as investment manager and
administrator of fifteen other investment companies and also advises pension
trusts, profit-sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager due to a restructuring by New England Investment
Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998, Nvest
Companies, L.P. ("Nvest Companies"), due to a change in name of NEICOP, replaces
NEICOP as the limited partner and owner of a 99.5% interest in the Manager.
Reich & Tang Asset Management, Inc. (an indirect wholly-owned subsidiary of
Nvest Companies) is the sole general partner and owner of the remaining 0.5%
interest of the Manager. Nvest Corporation, a Massachusetts corporation
(formerly known as New England Investment Companies, Inc.), serves as the
managing general partner of Nvest Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
MetLife is a mutual life insurance company and is the second largest life
insurance company in the United States in terms of total assets. MetLife
provides a wide range of insurance and investment products and services to
individuals and groups and is the leader among United States life insurance
companies in terms of total life insurance in force. MetLife and its affiliates
provide insurance or other financial services to approximately 36 million people
worldwide.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through thirteen subsidiaries, divisions
and affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the manager, include
AEW Capital Management, L.P.; Back Bay Advisors, L.P.; Capital Growth Management
Limited Partnerships; Greystone Partners, L.P.; Harris Associates, L.P.; Jurika
& Voyles, L.P.; Loomis, Sayles & Company, L.P.; New England Funds, L.P.; Nvest
Associates, Inc.; Snyder Capital Management, L.P.; Vaughan, Nelson, Scarborough
& McCullough, L.P.; and Westpeak Investment Advisors, L.P. These affiliates in
the aggregate are investment advisors or managers to 80 other registered
investment companies.
The recent name change did not result in a change of control of the Manager and
has no impact upon the Manager's performance of its responsibilities and
obligations.
On October 16, 1998, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved the annual continuance of the Investment
Management Contract and extended the term of the contract to December 31, 1999.
It is continued in force thereafter for successive twelve-month periods
beginning each January 1, provided that such majority vote of the Fund's
outstanding voting securities or 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.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Manager provides persons satisfactory to the Board of Directors of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of NEIC, the
sole general partner of the Manager, or employees of the Manager or its
affiliates.
17
<PAGE>
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.
Under the Investment Management Contract, the Manager receives from the Fund a
fee equal to .40% per annum of the Fund's average daily net assets. The fees are
accrued daily and paid monthly. The Manager at its discretion may voluntarily
waive all or a portion of the management fee.
Pursuant to the Administrative Services Contract with the Fund, the Manager also
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of accounting related services by Investors Fiduciary Trust Company,
the Fund's bookkeeping or recordkeeping agent, (ii) prepare reports to and
filings with regulatory authorities and (iii) perform such other services as the
Fund may from time to time request of the Manager. The personnel rendering such
services may be employees of the Manager, of its affiliates or of other
organizations. For its services under the Administrative Services Contract, the
Manager receives from the Fund a fee equal to .21% per annum of the Fund's
average daily net assets. For the Funds' fiscal years ended December 31, 1998,
December 31, 1997 and December 31, 1996, the Manager received a fee of $510,801,
$485,378 and $412,653, respectively, of which $0, $0 and $2,832 were voluntarily
waived.
For the Fund's fiscal year ended December 31, 1998, December 31, 1997 and
December 31, 1996, the fee payable to the Manager under the Investment
Management Contract was $729,716, $693,398 and $589,504, respectively of which
$21,472, $124,425 and $27,514 was voluntarily waived. The Fund's net assets at
the close of business on December 31, 1998 totaled $240,105,544. The Manager may
waive its rights to any portion of the management fee and may use any portion of
the Management fee for purposes of shareholder and administrative services and
distribution of the Fund's shares.
The Manager at its discretion may waive its rights to any portion of the
management fee or the administrative services fee and may use any portion of the
management fee for purposes of shareholder and administrative services and
distribution of the Fund's shares. There can be no assurance that such fees will
be waived in the future (see "Distribution and Service Plan" herein).
Investment management fees and operating expenses which are attributable to both
Classes of the Fund will be allocated daily to each Class based on the
percentage of outstanding shares at the end of the day. Additional shareholder
services provided by Participating Organizations to Class A shareholders
pursuant to the Plan shall be compensated by the Distributor from its
shareholder servicing fee, the Manager from its management fee and the Fund
itself. Expenses incurred in the distribution of Class B shares and the
servicing of Class B shares shall be paid by the Manager.
Expense Limitation
The Manager has agreed, pursuant to the Investment Management Contract (see
"Distribution and Service Plan" herein) 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. This includes all operating expenses, taxes, brokerage fees and
commissions, commitment fees, certain insurance premiums, interest charges and
expenses of the custodian, transfer agent and dividend disbursing agent's fees,
telecommunications expenses, auditing and legal expenses, bookkeeping agent
fees, costs of forming the corporation and maintaining corporate existence,
compensation of directors, officers and employees of the Fund and costs of other
personnel performing services for the Fund who are not officers of the Manager
or its affiliates, costs of investor services, shareholders' reports and
corporate meetings, SEC 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 and reimbursements payable to the
Manager under the Investment Management Contract and the Distributor under the
Shareholder Servicing Agreement.
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. 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.
Distribution And Service Plan
The Fund's distributor is Reich & Tang Distributors, Inc., a Delaware
corporation with principal officers at 600 Fifth Avenue, New York, New York
10020. Pursuant to Rule 12b-1 under the 1940 Act, the SEC has required that an
18
<PAGE>
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Fund's Board of Directors has adopted a distribution and service plan (the
"Plan") and, pursuant to the Plan, the Fund has entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to Class A shares
only) with Reich & Tang Distributors, Inc. (the "Distributor"), as distributor
of the Fund's shares.
Effective April 7, 1995, a majority of the Fund's Board of Directors, including
independent directors, approved the creation of a second class of shares of the
Fund's outstanding common stock. In furtherance of this action, the Board of
Directors has reclassified the common stock of the Fund into Class A and Class B
shares. The Class A shares will be offered to investors who desire certain
additional shareholder services from Participating Organizations that are
compensated by the Fund's Manager and Distributor for such services. For its
services under the Shareholder Servicing Agreement (with respect to the Class A
shares only), the Distributor receives from the Fund a fee equal to .20% per
annum of the Fund's average daily net assets of the Class A shares of the Fund
(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 the Fund's Class A shares and for payments to Participating
Organizations with respect to servicing their clients or customers who are Class
A shareholders of the Fund. The Class B shareholders will not receive the
benefit of such services from Participating Organizations and, therefore, will
not be assessed a Shareholder Servicing Fee.
The following information applies only to the Class A shares of the Fund. For
the Fund's fiscal year ended December 31, 1998, the amount payable to the
Distributor under the Distribution Plan and Shareholder Servicing Agreements
adopted thereunder pursuant to Rule 12b-1 of the 1940 Act, totaled $428,343,
none of which was voluntarily waived. During the same period, the Manager and
Distributor made payments under the Plan totaled $1,040,387, of which $1,026,606
was to or on behalf of Participating Organizations. For the Fund's fiscal year
ended December 31, 1997, the amount payable to the Distributor under the
Distribution Plan and Shareholder Servicing Agreement totaled $440,891, none of
which was voluntarily waived by the Distributor. During the same period, the
Manager and Distributor made payments under the Plan totaling $915,120, of which
$890,593 was to or on behalf of Participating Organizations. For the Fund's
fiscal year ended December 31, 1996, the amount payable to the Distributor under
the Distribution Plan and Shareholder Servicing Agreement totaled $392,125, of
which $130,068 was voluntarily waived by the Distributor. During the same
period, the Manager and Distributor made payments under the Plan totaling
$710,185, of which $685,199 was to or on behalf of Participating Organizations.
The excess of such payments over the total payments the Distributor received
from the Fund under the Plan represents distribution and servicing expenses
funded by the Manager from its own resources including the management fee.
For the fiscal year ended December 31, 1998, the total amount spent pursuant to
the Plan for Class A shares was .49% of the average daily net assets of the
Fund, of which .20% of the average daily net assets was paid by the Fund to the
Distributor, pursuant to the Shareholder Servicing Agreement.
Under the Distribution Agreement, the Distributor, for nominal consideration
(i.e., $1.00) 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 Participating Organizations and Distributor in carrying out their
obligations under the Shareholder Servicing Agreement with respect to the Class
A shares 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 Class A shares 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 with respect to Class A shares
and past profits for the purpose enumerated in (i) above. The Distributor 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 or the Distributor for any fiscal year under the Investment
Management Contract, the Administrative Services Contract or the Shareholder
Servicing Agreement 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
19
<PAGE>
reports setting forth all amounts expended for distribution purposes by the Fund
and the Distributor pursuant to the Plan and identifying the distribution
activities for which those expenditures were made.
The Plan provides that it will remain in effect until December 31, 1999.
Thereafter it may continue in effect for successive annual periods commencing
October 1, provided it is approved by the Class A shareholders or by the Board
of Directors. This includes 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 Class A 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 Class A shareholders.
Custodian And Transfer Agent
Investors Fiduciary Trust Company, 801 Pennsylvania Avenue, Kansas City,
Missouri 64105, is custodian for the Fund's cash and securities. Reich & Tang
Services, Inc., an affiliate of the Fund's Manager, located at 600 Fifth Avenue,
New York, NY 10020, is transfer agent and dividend agent for the shares of the
Fund. The custodian and transfer agents do not assist in, and are not
responsible for, investment decisions involving assets of the Fund.
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
Matters in connection with California law are passed upon by Brown & Wood, LLP,
555 California Street, Suite 5000, San Francisco, California 94104-1715.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, has been selected as auditors for the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
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. Thus, the Fund will select a broker
for such a transaction based upon which broker can effect the trade 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.
VII. CAPITAL STOCK AND OTHER SECURITIES
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 shares into separate series of
stock, one for each of the portfolios that may be created. Each share of any
series of shares when issued will have equal dividend, distribution and
liquidation rights within the series for which it was issued and each fractional
share has those rights in
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proportion to the percentage that the fractional share represents of a whole
share. Shares of all series have identical voting rights, except where, by law,
certain matters must be approved by a majority of the shares of the unaffected
series. 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. The Fund is subdivided into two classes of common stock, Class A
and Class B. Each share, regardless of class, will represent an interest in the
same portfolio of investments and will have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) the
Class A and Class B shares will have different class designations; (ii) only the
Class A shares will be assessed a service fee pursuant to the Rule 12b-1
Distribution and Service Plan of the Fund of .20% of the Class A shares' average
daily net assets; (iii) only the holders of the Class A shares will be entitled
to vote on matters pertaining to the Plan and any related agreements in
accordance with provisions of Rule 12b-1; and (iv) the exchange privilege will
permit stockholders to exchange their shares only for shares of the same class
of an investment company that participates on an exchange privilege program with
the Fund. Payments that are made under the Plan will be calculated and charged
daily to the appropriate class prior to determining daily net asset value per
share and dividends/distributions.
Under its amended 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. 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.
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
or special meetings only (i) for the election (or re-election) of directors,
(ii) for approval of the revised investment advisory contracts with respect to a
particular class or series of stock, (iii) for approval of the Fund's
distribution agreement with respect to a particular class or series of stock,
and (iv) upon the written request of shareholders entitled to cast not less than
25% of all the votes entitled to be cast at such meeting. Annual and other
meetings may be required with respect to such additional matters relating to the
Fund as may be required by the 1940 Act, including the removal of Fund
director(s) and communication among shareholders, any registration of the Fund
with the SEC or any state, or as the Directors may consider necessary or
desirable. Each Director serves until his successor is elected or qualified, or
until such Director sooner dies, resigns, retires or is removed by the vote of
the shareholders.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
Pricing of Fund Shares - Net Asset Value
The net asset value of each Class of the Fund's shares is determined as of 12
noon, New York City time, on each Fund Business Day. Fund Business Day means
weekdays (Monday through Friday) except days on which the New York Stock
Exchange is closed for trading. The Fund does not determine net asset value per
share of each Class on any day in which the New York Stock Exchange is closed
for trading. Those days include: New Year's Day, Martin Luther King Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. The net asset value of a Class is computed by
dividing the value of the Fund's net assets for such Class (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 for such Class. 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.
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. 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.
Shares are issued as of the first determination of the Fund's net asset value
per share for each Class made after acceptance of the investor's purchase order.
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 the immediate settlement in funds of Federal Reserve member banks on
deposit at a Federal Reserve Bank (commonly known as "Federal Funds"). Fund
shares begin accruing income on the day the shares are issued to an investor.
The Fund reserves the right to reject any purchase order for its shares.
Certificates for Fund shares will not be issued to an investor.
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The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset value at $1.00 per share of each Class. 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 of each
Class. Should that deviation exceed 1/2 of 1%, the Board will consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redemption of shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
remaining maturity greater than 397 days, will limit portfolio investments,
including repurchase agreements, to those United States dollar-denominated
instruments that the Fund's Board of Directors determines present minimal credit
risks, and will comply with certain reporting and record keeping procedures. The
Fund has also established procedures to ensure compliance with the requirement
that portfolio securities are Eligible Securities. (See "Description of the Fund
and its Investments and Risks" herein.)
Purchase of Fund Shares
The Fund does not accept a purchase order until an investor's payment has been
converted into Federal Funds and is received by the Fund's transfer agent.
Orders accompanied by Federal Funds and received after 12 noon, New York City
time, on a Fund Business Day will result in the issuance of shares on the
following Fund Business Day.
Investors purchasing shares through a Participating Organization with which they
have an account become Class A shareholders. All other investors, and investors
who have accounts with Participating Organizations but do not wish to invest in
the Fund through them, may invest in the Fund directly as Class B shareholders
of the Fund. Class B shareholders do not receive the benefit of the servicing
functions performed by a Participating Organization. Class B shares may also be
offered to investors who purchase their shares through Participating
Organizations who, because they may not be legally permitted to receive such as
fiduciaries, do not receive compensation from the Distributor or the Manager.
The minimum initial investment in the Fund for both classes of shares is (i)
$1,000 for purchases through Participating Organizations - this may be satisfied
by initial investments aggregating $1,000 by a Participating Organization on
behalf of their customers whose initial investments are less than $1,000; (ii)
$1,000 for securities brokers, financial institutions and other industry
professionals that are not Participating Organizations; and (iii) $5,000 for all
other investors. Initial investments may be made in any amount in excess of the
applicable minimums. The minimum amount for subsequent investments is $100
unless the investor is a client of a Participating Organization whose clients
have made aggregate subsequent investments of $100.
Each shareholder, except those purchasing through Participating Organizations,
will receive a personalized monthly statement from the Fund listing (i) the
total number of Fund shares owned as of the statement closing date, (ii)
purchases and redemptions of Fund shares, and (iii) the dividends paid on Fund
shares (including dividends paid in cash or reinvested in additional Fund
shares).
Investments Through Participating Organizations - Purchase of Class A Shares
Investors may, if they wish, invest in the Fund through the Participating
Organizations with which they have accounts. "Participating Organizations" are
securities brokers, banks and financial institutions or other industry
professionals or organizations which have entered into shareholder servicing
agreements with the Distributor with respect to investment of their customer
accounts in the Fund. When instructed by its customer to purchase or redeem Fund
shares, the Participating Organization, on behalf of the customer, transmits to
the Fund's transfer agent a purchase or redemption order, and in the case of a
purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send periodic account statements
to the Participant Investor showing (i) the total number of Fund shares owned by
each customer as of the statement closing date, (ii) purchases and redemptions
of Fund shares by each customer during the period covered by the statement, and
(iii) the income earned by Fund shares of each customer during the statement
period (including dividends paid in cash or reinvested in additional Fund
shares). Participant Investors whose Participating Organizations have not
undertaken to provide such statements will receive them from the Fund directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly, may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
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In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, will result in the issuance of shares on that day only if the requisite
Federal Funds are received by the Fund's transfer agent before 4:00 p.m., New
York City time, on that day. Orders for which Federal Funds are received after
4:00 p.m., New York City time, will result in share issuance the following Fund
Business Day. Participating Organizations are responsible for instituting
procedures to insure that purchase orders by their respective clients are
processed expeditiously.
Initial Direct Purchases of Class B Shares
Investors who wish to invest in the Fund directly may obtain a current
prospectus and the subscription order form necessary to open an account by
telephoning the Fund at the following numbers:
Within New York 212-830-5220
Outside New York (TOLL FREE) 800-221-3079
Mail
Investors may send a check made payable to "California Daily Tax Free Income
Fund, Inc." along with a completed subscription order form to:
California Daily Tax Free Income Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
will normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's purchase order will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number by telephoning
the Fund at 212-830-5220 (within New York) or at 800-221-3079 (outside New York)
and then instruct a member commercial bank to wire money immediately to:
Investors Fiduciary Trust Company
ABA # 101003621
Reich & Tang Funds
DDA # 890752-9554
For California Daily Municipal
Income Fund, Inc.
Account of (Investor's Name)
Account #
SS#/Tax ID#
The investor should then promptly complete and mail the subscription order form.
Investors planning to wire funds should instruct their bank so the wire transfer
can be accomplished before 12 noon, New York City time, on the same day. There
may be a charge by the investor's bank for transmitting the money by bank wire,
and there also may be a charge for use of Federal Funds. The Fund does not
charge investors in the Fund for its receipt of wire transfers. Payment in the
form of a "bank wire" received prior to 12 noon, New York City time, on a Fund
Business Day will be treated as a Federal Funds payment received on that day.
Personal Delivery
Deliver a check made payable to "California Daily Tax Free Income Fund, Inc."
along with a completed subscription order form to:
Reich & Tang Mutual Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Electronic Funds Transfers (EFT), Pre-authorized Credit and Direct Deposit
Privilege
You may purchase shares of the Fund (minimum of $100) by having salary, dividend
payments, interest payments or any other payments designated by you, federal
salary, social security, or certain veteran's, military or other payments from
the federal government, automatically deposited into your Fund account. You can
also have money debited from your checking account. To enroll in any one of
these programs, you must file with the Fund a completed EFT Application,
Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form for each
type of payment that you desire to include in the Privilege. The appropriate
form may be obtained from your broker or the Fund. You may elect at any time to
terminate
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your participation by notifying in writing the appropriate depositing entity
and/or federal agency. Death or legal incapacity will automatically terminate
your participation in the Privilege. Further, the Fund may terminate your
participation upon 30 days' notice to you.
Subsequent Purchases of Shares
Subsequent purchases can be made by bank wire, as indicated above, or by mailing
a check to:
California Daily Tax Free Income Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number.
Provided that the information on the subscription form on file with the Fund is
still applicable, a shareholder may reopen an account without filing a new
subscription order form at any time during the year the shareholder's account is
closed or during the following calendar year.
Redemption of Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
Class upon receipt by the Fund's transfer agent of the redemption order (and any
supporting documentation which it may require). Normally, payment for redeemed
shares is made on the same Fund Business Day after the redemption is effected,
provided the redemption request is received prior to 12 noon, New York City
time. However, redemption payments will not be effected unless the check
(including a certified or cashier's check) used for investment has been cleared
for payment by the investor's bank, which could take up to 15 days after
investment. Shares redeemed are not entitled to participate in dividends
declared on the day a redemption becomes effective.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature. It should be signed and guaranteed by
an eligible guarantor institution which includes a domestic bank, a domestic
savings and loan institution, a domestic credit union, a member bank of the
Federal Reserve system or a member firm of a national securities exchange,
pursuant to the Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund addressed to:
California Daily Tax Free Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
All previously issued certificates submitted for redemption must be endorsed by
the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with signature guaranteed.
Normally the redemption proceeds are paid by check and mailed to the shareholder
of record.
Checks
By making the appropriate election on their subscription order form,
shareholders may request a supply of checks which may be used to effect
redemptions from the Class of shares of the Fund in which they invest. The
checks, which will be issued in the shareholder's name, are drawn on a special
account maintained by the Fund with the Fund's agent bank. Checks may be drawn
in any amount of $250 or more. When a check is presented to the Fund's agent
bank, it instructs the Fund's transfer agent to redeem a sufficient number of
full and fractional shares in the shareholder's account to cover the amount of
the check. The use of a check to make a withdrawal enables a shareholder in the
Fund to receive dividends on the shares to be redeemed up to the Fund Business
Day on which the check clears. Checks provided by the Fund may not be certified.
Fund shares purchased by check may not be redeemed by check until the check has
cleared, which can take up to 15 days following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
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Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank governing checking accounts. Checks
drawn on a jointly owned account may, at the shareholder's election, require
only one signature. Checks in amounts exceeding the value of the shareholder's
account at the time the check is presented for payment will not be honored.
Since the dollar value of the account changes daily, the total value of the
account may not be determined in advance and the account may not be entirely
redeemed by check. In addition, the Fund reserves the right to charge the
shareholder's account a fee up to $20 for checks not honored as a result of an
insufficient account value, a check deemed not negotiable because it has been
held longer than six months, an unsigned check, and/or a post-dated check. The
Fund reserves the right to terminate or modify the check redemption procedure at
any time or to impose additional fees following notification to the Fund's
shareholders.
Corporations and other entities electing the checking option are required to
furnish a certified resolution or other evidence of authorization in accordance
with the Fund's normal practices. Individuals and joint tenants are not required
to furnish any supporting documentation. Appropriate authorization forms will be
sent by the Fund or its agents to corporations and other shareholders who select
this option. As soon as the authorization forms are filed in good order with the
Fund's agent bank, it will provide the shareholder with a supply of checks.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option on their subscription order form. The proceeds of a telephone
redemption may be sent to the shareholders at their addresses or, if in excess
of $1,000, to their bank accounts, both as set forth in the subscription order
form or in a subsequent written authorization. The Fund may accept telephone
redemption instructions from any person with respect to accounts of shareholders
who elect this service and thus such shareholders risk possible loss of
principal and interest in the event of a telephone redemption not authorized by
them. The Fund will employ reasonable procedures to confirm that telephone
redemption instructions are genuine, and will require that shareholders electing
such option provide a form of personal identification. Failure by the Fund to
employ such reasonable procedures may cause the Fund to be liable for the losses
incurred by investors due to unauthorized or fraudulent telephone redemptions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York at 800-221-3079, and state: (i) the name of the
shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address, and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time. Proceeds are sent the next Fund Business Day if the
redemption request is received after 12 noon, New York City time. The Fund
reserves the right to terminate or modify the telephone redemption service in
whole or in part at any time and will notify shareholders accordingly.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholders' address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Additional exceptions
include any period during which an emergency (as determined by the SEC) 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 SEC may by order permit for the protection of the shareholders of
the Fund.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization. The Participating Organization
will be responsible for notifying the Participant Investor of the proposed
mandatory redemption. During the notice period a shareholder or Participating
Organization who receives such a notice may avoid mandatory redemption by
purchasing sufficient additional shares to increase his total net asset value to
the minimum amount.
IX. TAXATION OF THE FUND
Federal Income Taxes
The Fund has elected and intends to qualify under the Code and under California
law as a regulated investment company that distributes exempt-interest
dividends. It intends to continue to qualify as long as qualification is in the
best interests of
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<PAGE>
its shareholders, because 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 net tax-exempt interest income. Exempt-interest dividends
are 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 excludable from the Fund's shareholders gross
income under Section 103(a) of the Code although the amount of that interest
must be disclosed on the shareholders Federal income tax returns. A shareholder
should consult its tax advisor 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. 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 tax exempt securities,
such as shares of the Fund, is not deductible. Therefore, among other
consequences, a certain portion of interest on margin indebtedness may not be
deductible during the period an investor holds shares of the Fund. 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 and Railroad Retirement benefits includable in gross income. 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 qualified
Section 501(c)(3) bonds) issued after August 7, 1986 less any deductions (not
allowable in competing Federal income tax) which would have been allowable if
such interest were includable in gross income. Thus, this provision will apply
to any exempt-interest dividends from the Fund's assets attributable to any
private activity bonds 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). 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.
Although it is not intended, it is possible that the Fund may realize marked
discount income, short-term or long-term capital gains or losses from its
portfolio transactions. The Fund may also realize market discount income,
short-term or long-term capital gains upon the maturity or disposition of
securities acquired at discounts resulting from market fluctuations. Accrued
marked discount income, short-term capital gains will be taxable to shareholders
as ordinary income when they are distributed. Any net capital gains (the excess
of net realized long-term capital gain over 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 such 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. Capital gains realized by corporations are generally
taxed at the same rate as ordinary income. However, long-term capital gains are
taxable at a maximum rate of 20% to non-corporate shareholders. Corresponding
maximum rate and holding period rules apply with respect to capital gains
realized by a holder on the disposition of shares.
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
net long-term capital gain over net short-term capital loss) for each taxable
year. These distributions will be taxable to shareholders ordinary income. The
Fund will be subject to Federal income tax on any undistributed investment
company taxable 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 during the calendar year at
least 98% of its ordinary income determined on a calendar year basis and 98% of
its capital gain net income (generally determined on a October year end), the
Fund will be subject to a 4% excise tax on the excess of such amounts over the
amounts actually distributed.
If a shareholder (other than a corporation) fails to provide the Fund with a
current taxpayer identification number, the Fund is generally required to
withold 31% of taxable interest or dividend payments proceeds from the
redemption of shares of the Fund.
Dividends and distributions to shareholders will be treated in the same manner
for Federal and California income tax purposes whether received in cash or
reinvested in additional shares of the Fund.
26
<PAGE>
With respect to the variable rate demand instruments, including Participation
Certificates therein, the Fund has obtained and 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 of an interest in the underlying Municipal
Obligations and the interest thereon will be exempt from regular Federal income
taxes to the Fund and its shareholders to the same extent as interest on the
underlying municipal obligations. Battle Fowler LLP 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 could reach a conclusion different
from that reached by counsel.
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 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 the interest earned on 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.
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 objective and policies and
consider changes in the structure.
California 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. Under California law, at the end of each quarter of its tax year, at
least 50% of the "value" of the Fund's assets must consist of obligations which,
when held by an individual, the interest therefrom is exempt from taxation by
the State of California under the Constitution or laws of the State of
California or the United States. Assuming compliance with this requirement, with
respect to dividends treated for Federal income tax purposes as exempt-interest
dividends that are paid by the Fund to a California resident individual
shareholder, in the opinion of LeBoeuf, Lamb, Greene & MacRae LLP, special
California tax counsel to the Fund, amounts correctly designated as derived from
California Municipal Obligations received by the Fund will not be subject to the
California Income Tax. Amounts correctly designated as derived from Territorial
Municipal Obligations and exempt from taxation by the State of California, as
described above, also will not be subject to the California Income Tax. The
portion of exempt-interest dividends derived from Federal obligations are income
tax.
California also taxes capital gain dividends distributed to shareholders at
ordinary income rates. No tax is imposed on undistributed amounts unless the
shareholder chooses to receive additional shares. Exempt-interest dividends
which are not derived from California Municipal Obligations and any other
dividends of the Fund which do not qualify as "exempt-interest dividends" under
California law will be includable in a California resident's tax base for
purposes of the California Income Tax.
Distributions from net investment income and capital gains, including exempt
interest dividends, will be subject to California corporate franchise tax if
received by a corporate shareholder subject to such tax and may be subject to
state taxes in states other than California and to local taxes imposed by
certain cities within California and outside California. Accordingly, investors
in the Fund including, in particular, corporate investors which may be subject
to the California corporate franchise tax should consult their tax advisors with
respect to the application of such taxes to an investment in the Fund, to the
receipt of Fund dividends and as to their California tax situation in general.
Shareholders are urged to consult their tax advisors with respect to the
treatment of distributions from the Fund in their own states and localities.
X. UNDERWRITERS
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge. The Distributor does not receive an
underwriting commission. In effecting sales of Fund shares under the
Distribution Agreement, the Distributor, for nominal consideration (i.e., $1.00)
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 Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. In the opinion of the Manager,
however, based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Directors will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
27
<PAGE>
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution would result in loss to shareholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register ad dealers pursuant to
state law.
XI. CALCULATION OF PERFORMANCE DATA
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the SEC. 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 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). This 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" for each Class 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 current yield. The
tax equivalent yield for each Class 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. It is 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 quotient 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 tax equivalent effective yield table
which shows the yield that an investor would need to receive from a taxable
investment in order to equal a tax-free yield from the Fund. This is calculated
by dividing that portion of the Fund's effective yield that is tax-exempt by 1
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's effective yield that is not tax-exempt. See "Taxable Equivalent
Yield Table" herein.
The Fund's Class A shares yield for the seven-day period ended December 31, 1998
was 2.73% which is equivalent to an effective yield of 2.76%. The Fund's Class B
shares yield for the seven-day period ended December 31, 1998 was 2.99% which is
equivalent to an effective yield of 3.03%.
XII. FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended December
31, 1998 and the report therein of McGladrey & Pullen, LLP, are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.
28
<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. ( c ) 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 (i) earnings of projects under construction, (ii) earnings of
projects unseasoned in operating experience, (iii) rentals which begin when
facilities are completed, or (iv) 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 Rating Services 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 to a 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.
Standard & Poor's does not provide ratings for state and municipal notes.
Description of Standard & Poor's Rating Services 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.
*As described by the rating agencies.
29
<PAGE>
CORPORATE TAXABLE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective Until December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. If Your Corporate Taxable Income Bracket Is . . .
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate $0- $50,001- $75,001- $100,001 $335,001- $10,000,001- $15,000,001 $18,333,334
Return 50,000 75,000 100,000 335, 000 10,000,000 15,000,000 18,333,333 and over
- -----------------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- -----------------------------------------------------------------------------------------------------------------------------------
Federal
Tax Rate 15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%
- --------------------------- ------------- --------------- ------------- ---------- ------------ ---------------- -------------
State
Tax Rate 8.84% 8.84% 8.84% 8.84% 8.84% 8.84% 8.84% 8.84%
- ------------- ------------- ------------- --------------- ------------- ---------- ------------ ---------------- -------------
Combined
Marginal
Tax Rate 22.51% 31.63% 39.83% 44.39% 39.83% 40.75% 43.48% 40.75%
- ------------------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield
Yield Requires to Match Tax Exempt Yield
- -----------------------------------------------------------------------------------------------------------------------------------
2.00% 2.58% 2.93% 3.32% 3.60% 3.32% 3.38% 3.54% 3.38%
- -------------- ------------- ------------- --------------- ------------- ------------ --------------- ---------------- -------------
2.50% 3.23% 3.66% 4.16% 4.50% 4.16% 4.22% 4.42% 4.22%
- -------------- ------------- ------------- --------------- ------------- ------------ --------------- ---------------- -------------
3.00% 3.87% 4.39% 4.99% 5.39% 4.99% 5.06% 5.31% 5.06%
- -------------- ------------- ------------- --------------- ------------- ----------- --------------- ---------------- -------------
3.50% 4.52% 5.12% 5.82% 6.29% 4.82% 5.91% 6.19% 5.91%
- -------------- ------------- ------------- --------------- ------------- ------------ --------------- ---------------- -------------
4.00% 5.16% 5.85% 6.65% 7.19% 6.65% 6.75% 7.08% 6.75%
- -------------- ------------- ------------- --------------- ------------- ------------ --------------- ---------------- -------------
4.50% 5.81% 6.58% 7.48% 8.09% 7.48% 7.59% 7.96% 7.59%
- ------------- ------------ --------------- ---------------- ------------ ------------ --------------- ---------------- -------------
5.00% 6.45% 7.31% 8.31% 8.99% 8.31% 8.44% 8.85% 8.44%
- -------------- ------------- ------------- --------------- ------------- ------------ --------------- ---------------- -------------
5.50% 7.10% 8.04% 9.14% 9.89% 9.14% 9.28% 9.73% 9.28%
- -------------- ------------- ------------- --------------- ------------- ------------ --------------- ---------------- -------------
6.00% 7.74% 8.78% 9.97% 10.79% 9.97% 10.13% 10.62% 10.13%
- -------------- ------------- ------------- --------------- ------------- ------------ --------------- ---------------- -------------
6.50% 8.39% 9.51% 10.80% 11.69% 10.80% 10.97% 11.50% 10.97%
- -------------- ------------- ------------- --------------- ------------- ------------ --------------- ---------------- -------------
7.00% 9.03% 10.24% 11.63% 12.59% 11.63% 11.81% 12.39% 11.81%
- -------------- ------------- ------------- --------------- ------------- ------------ --------------- ---------------- -------------
</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.
30
<PAGE>
INDIVIDUAL TAX EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective Until December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- -------------------------------------------------------------------------------------------------------------------------
Single Return $0- $19,194- $25,751- $26,645- $33,674- $62,451- $130,251 $283,151
19,193 25,750 26,644 33,673 62,450 130,250 283,150 and over
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
Joint $0- $38,387- $43,051- $53,289- $67,347- $104,051- $158,551- $283,151
Return 38,386 43,050 53,288 67,346 104,050 158,550 283,150 and over
- -------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- -------------------------------------------------------------------------------------------------------------------------
Federal
Tax Rate 15.00% 28.00% 28.00% 28.00% 28.00% 31.00% 36.00% 39.60%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
State
Tax Rate 4.00% 6.00% 6.00% 8.00% 9.30% 9.30% 9.30% 9.30%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
Combined
Marginal
Tax Rate 18.40% 32.32% 32.32% 33.76% 34.70% 37.42% 41.95% 45.22%
- -------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- -------------------------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield
Yield Requires to Match Tax Exempt Yield
- ---------------- --------------------------------------------------------------------------------------------------------
2.00% 2.45% 2.96% 2.96% 3.02% 3.06% 3.20% 3.45% 3.65%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
2.50% 3.06% 3.69% 3.69% 3.77% 3.83% 3.99% 4.31% 4.56%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
3.00% 3.68% 4.43% 4.43% 4.53% 4.59% 4.79% 5.17% 5.48%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
3.50% 4.29% 5.17% 5.17% 5.28% 5.36% 5.59% 6.03% 6.39%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
4.00% 4.90% 5.91% 5.91% 6.04% 6.13% 6.39% 6.89% 7.30%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
4.50% 5.51% 6.65% 6.65% 6.79% 6.89% 7.19% 7.75% 8.21%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
5.00% 6.13% 7.39% 7.39% 7.55% 7.66% 7.99% 8.61% 9.13%
- ---------------- -------------- -------------- -------------- -------------- ---------------- ------------- -------------
5.50% 6.74% 8.13% 8.13% 8.30% 8.42% 8.79% 9.47% 10.04%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
6.00% 7.35% 8.87% 8.87% 9.06% 9.19% 9.59% 10.34% 10.95%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
6.50% 7.97% 9.60% 9.60% 9.81% 9.95% 10.39% 11.20% 11.87%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
7.00% 8.58% 10.34% 10.34% 10.57% 10.72% 11.19% 12.06% 12.78%
- ---------------- -------------- -------------- -------------- -------------- ---------------- -------------- ------------
</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.
*As described by the rating agencies.
31
<PAGE>
PART C
OTHER INFORMATION
Item 23 Exhibits.
(a) Articles of Incorporation, as amended, of the Registrant, filed with
the Maryland State Department of Assessments and Taxation on December
5, 1986 (originally filed as Exhibit 1 to the initial Registration
Statement on Form N-1A (No. 33-10436) on November 26, 1986 and re-filed
herein for Edgar purposes only).
(a.1) Articles of Amendment of the Registrant, filed with the Maryland State
Department of Assessments and Taxation on January 21, 1994.
(b) By-Laws of the Registrant (originally filed as Exhibit 2 to the initial
Registration Statement on Form N-1A (No. 33-10436) on November 26, 1986
and re-filed herein for Edgar purposes only).
(c) Form of certificate for shares of Common Stock, par value $.001 per
share, of the Registrant (originally filed as Exhibit 4 to
Pre-Effective No. 1 to the Registration Statement on form N-1A on
January 28, 1987 and re-filed herein for Edgar purposes only).
(d) Form of Investment Management Contract between the Registrant and Reich
& Tang Asset Management L.P. (filed as Exhibit 5 to Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A on April
29, 1998, and incorporated herein by reference).
(e) Form of Distribution Agreement between the Registrant and Reich & Tang
Distributors, Inc. . (filed as Exhibit 6 to Post-Effective Amendment
No. 16 to the Registration Statement on Form N-1A on April 29, 1998,
and incorporated herein by reference).
(f) Not applicable.
(g) Custody Agreement between the Registrant and Investors Fiduciary Trust
Company (filed as Exhibit 8 to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A on April 28, 1995, and incorporated
herein by reference).
(h) Administrative Services Contract between Registrant and Reich & Tang
Asset Management L.P. (filed as Exhibit 15.4 to Post-Effective
Amendment No. 14 to the Registration Statement on Form N-1A on April
26, 1996, and incorporated herein by reference).
(i) Opinion of Battle Fowler LLP as to the legality of the securities being
registered, including their consent to the filing thereof and to the
use of their name under the headings "Federal Income Taxes" and
"Counsel and Auditors" in the Prospectus. (originally filed as Exhibit
10.1 to Pre-Effective No. 1 to the Registration Statement on Form N-1A
on January 28, 1987 and re-filed herein for Edgar purposes only).
(i.1) Opinion of Brown & Wood LLP, as to California law, including their
consent to the filing thereof and to the use of their name under the
heading "California Income Taxes" in the Prospectus filed herein.
(j) Consent of Independent Auditors.
(k) Audited Financial Statements, for fiscal year ended December 31, 1998
(filed with Annual Report and incorporated herein by reference).
(l) Written assurance of Reich & Tang, Inc. that its purchase of shares of
the registrant was for investment purposes without any present
intention of redeeming or reselling (originally filed as Exhibit 13 to
Pre-Effective No. 1 to the Registration Statement on Form N-1A on
January 28, 1987 and re-filed herein for Edgar purposes only).
(m) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (filed as Exhibit 15.1 to Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A on April
29, 1998, and incorporated herein by reference).
(m.1) Shareholder Servicing Agreement between the Registrant and Reich & Tang
Distributors, Inc. (filed as Exhibit 15.3 to Post-Effective Amendment
No. 16 to the Registration Statement on Form N-1A on April 29, 1998,
and incorporated herein by reference).
(m.2) Distribution Agreement between the Registrant and Reich & Tang
Distributors, Inc. (see Exhibit (e) above).
(n) Financial Data Schedule (for Edgar filing only).
(o) Rule 18f-3 Plan for Multi-Class (filed on November 5, 1997 with
Post-Effective Amendment No. 2 to the Virginia Daily Municipal Income
Fund, Inc. Registration Statement (File No. 33-90538) and incorporated
herein by reference).
(p) Power of Attorney of Principal Officers and Directors of California
Daily Tax Free Income Fund, Inc. (originally filed as Exhibit 11.1 to
Post-Effective No. 6 to the Registration Statement on Form N-1A on May
1, 1991 and re-filed herein for Edgar purposes only).
C-1
<PAGE>
Item 24. Persons Controlled by or under common Control with the Fund.
None.
Item 25. Indemnification.
Registrant incorporates herein by reference the response to Item 27
of Pre-Effective Amendment No. 1 of this Registration Statement filed with the
Commission on January 28, 1987.
Item 26. Business and Other Connections of Investment Adviser.
The description of Reich & Tang Asset Management L.P. under the caption
"Management, Organization and Capital Structure" in the Prospectus, and
"Investment Advisory and Other Services" in the Statement of Additional
Information of the Registration Statement is incorporated herein by reference.
The Registrant's investment adviser, Reich & Tang Asset Management L.P.
is a registered investment adviser. Reich & Tang Asset Management L.P.'s
investment advisory clients include California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax
Free Income Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc., Institutional Daily Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Inc., Pax World Money Market Fund, Inc., Pennsylvania Daily Municipal Income
Fund, Short Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc., and Virginia
Daily Municipal Income Fund, Inc., registered investment companies whose
addresses are 600 Fifth Avenue, New York, New York 10020, which invest
principally in money market instruments; Delafield Fund, Inc. and Reich & Tang
Equity Fund, Inc. are registered investment companies whose address is 600 Fifth
Avenue, New York, New York 10020, which invests principally in equity
securities. In addition, RTAMLP is the sole general partner of Alpha Associates
L.P., August Associates L.P., Reich & Tang Minutus I, L.P., Reich & Tang Minutus
II, L.P., Reich & Tang Equity Partners L.P., Reich & Tang Micro Cap L.P., Reich
& Tang Concentrated Portfolio L.P. and Tucek Partners L.P., private investment
partnerships organized as limited partnerships.
Peter S. Voss, President, Chief Executive Officer and a Director of NEIC
since October 1992, Chairman of the Board of NEIC since December 1992, Group
Executive Vice President, Bank of America, responsible for the global asset
management private banking businesses, from April 1992 to October 1992,
Executive Vice President of Security Pacific Bank, and Chief Executive Officer
of Security Pacific Hoare Govett Companies, a wholly-owned subsidiary of
Security Pacific Corporation, from April 1988 to April 1992, Director of The New
England since March 1993, Chairman of the Board of Directors of NEIC's
subsidiaries other than Loomis, Sayles & Company, L.P. ("Loomis") and Back Bay
Advisors, L.P. ("Back Bay"), where he serves as a Director, and Chairman of the
Board of Trustees of all of the mutual funds in the TNE Fund Group and the
Zenith Funds. G. Neil Ryland, Executive Vice President, Treasurer and Chief
Financial Officer of NEIC since July 1993, Executive Vice President and Chief
Financial Officer of The Boston Company, a diversified financial services
company, from March 1989 until July 1993, from September 1985 to December 1988,
Mr. Ryland was employed by Kenner Parker Toys, Inc. as Senior Vice President and
Chief Financial Officer. Edward N. Wadsworth, Executive Vice President, General
Counsel, Clerk and Secretary of NEIC since December 1989, Senior Vice President
and Associate General Counsel of The New England from 1984 until December 1992,
and Secretary of Westpeak and Draycott and the Treasurer of NEIC. Lorraine C.
Hysler has been Secretary of Reich & Tang Asset Management Inc. since July 1994,
Assistant Secretary of NEIC since September 1993, Vice President of the Mutual
Funds Group of New England Investment Companies, L.P. from September 1993 until
July 1994, and Vice President of Reich & Tang Mutual Funds since July 1994. Ms.
Hysler joined Reich & Tang, Inc. in May 1977 and served as Secretary from April
1987 until September 1993. Richard E. Smith, III has been a Director of Reich &
Tang Asset Management Inc. since July 1994, President and Chief Operating
Officer of the Capital Management Group of New England Investment Companies,
L.P. from May 1994 until July 1994, President and Chief Operating Officer of the
Reich & Tang Capital Management Group since July 1994, Executive Vice President
and Director of Rhode Island Hospital Trust from March 1993 to May 1994,
President, Chief Executive Officer and Director of USF&G Review Management Corp.
from January 1988 until September 1992. Steven W. Duff has been a Director of
Reich & Tang Asset Management Inc. since October 1994, President and Chief
Executive Officer of Reich & Tang Mutual Funds since August 1994, Senior Vice
President of NationsBank from June 1981 until August 1994, Mr. Duff is President
and a Director of Back Bay Funds, Inc., California Daily Tax Free Income Fund,
Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund,
Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal
Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina
Daily Municipal Income Fund, Inc., Short Term Income Fund, Inc. and Virginia
Daily Municipal Income Fund, Inc., President and Trustee of Florida Daily
Municipal Income Fund, Pennsylvania Daily Municipal Income Fund, President and
Chief Executive Officer of Tax Exempt Proceeds Fund, Inc., Executive Vice
President of Reich & Tang Equity Fund, Inc. Bernadette N. Finn has been Vice
President - Compliance of Reich & Tang Asset Management Inc. since July 1994,
Vice President of Mutual Funds division of Reich & Tang Asset Management Inc.
from September 1993 until July 1994, Vice President of Reich & Tang Mutual Funds
since July 1994. Ms. Finn joined Reich & Tang, Inc. in September 1970 and served
as Vice President from September 1982 until May 1987 and as Vice President and
Assistant Secretary from May 1987 until September 1993. Ms. Finn is also
Secretary of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax
Free Income Fund, Inc., Florida Daily Municipal Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Inc., Pennsylvania Daily Municipal Income Fund, Tax Exempt Proceeds Fund, Inc.
and Virginia Daily Municipal Income Fund, Inc., a Vice President and Secretary
of Delafield Fund, Inc., Reich & Tang Equity Fund, Inc. and Short Term Income
Fund, Inc. Richard De Sanctis has been Vice President and Treasurer of Reich &
Tang Asset Management Inc. since July 1994, Assistant Treasurer of NEIC since
September 1993 and Treasurer of the Mutual Funds Group of New England Investment
Companies, L.P. from September 1993 until July 1994. Mr. De Sanctis joined Reich
& Tang, Inc. in December 1990 and served as Controller of Reich & Tang, Inc.,
from January 1991 to September 1993. Mr. De Sanctis was Vice President and
Treasurer of Cortland Financial Group, Inc. and Vice President of Cortland
Distributors, Inc. from 1989 to December 1990. Mr. De Sanctis is also Treasurer
of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, 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.,
Tax Exempt Proceeds Fund, Inc., Short Term Income Fund, Inc. and Virginia Daily
Municipal Income
Fund, Inc. and is Vice President and Treasurer of Cortland Trust, Inc.
C-2
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Item 27. Principal Underwriters.
(a) Reich & Tang Distributors, Inc. is also distributor for Back Bay
Funds, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily
Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc., Tax Exempt
Proceeds Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.
(b) The following are the directors and officers of Reich & Tang
Distributors, Inc. The principal business address of Messrs Voss, Ryland, and
Wadsworth is 399 Boylston Street, Boston, Massachusetts 02116. For all other
persons, the principal business address is 600 Fifth Avenue, New York, New York
10020.
Positions and Offices Positions and Offices
Name with the Distributor with the Registrant
Peter S. Voss Director None
G. Neal Ryland Director None
Edward N. Wadsworth Executive Officer None
Richard E. Smith III President None
Peter DeMarco Executive Vice President None
Steven W. Duff Director President and Director
Bernadette N. Finn Vice President Secretary
Robert F. Hoerle Managing Director None
Lorraine C. Hysler Secretary None
Richard De Sanctis Treasurer Treasurer
Richard I. Weiner Vice President None
(c) Not applicable.
Item 28. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of Registrant at 600 Fifth
Avenue, New York, New York 10020, the Registrant's Manager; and at Investors
Fiduciary Trust Company, 801 Pennsylvania Avenue, Kansas City, Missouri, 64105,
the Registrant's custodian; and at Reich & Tang Services L.P., 600 Fifth Avenue,
New York, New York 10020, the Registrant's Transfer Agent and Dividend
Disbursing Agent.
Item 29. Management Services.
Not applicable
Item 30. Undertakings.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
to its Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the 30th day of
April, 1999.
CALIFORNIA DAILY TAX FREE INCOME FUND, INC.
By:
Steven W. Duff
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
(1) Principal Executive Officer
Steven W. Duff President and Director 4/30/99
(2) Principal Financial and
Accounting Officer
Richard De Sanctis Treasurer 4/30/99
(3) Majority of Directors
W. Giles Mellon (Director)
Robert Straniere (Director)
Yung Wong (Director)
By:
Bernadette N. Finn
Attorney-in-Fact* 4/30/99
* Powers of Attorney for Messers. Wong, Mellon and Straniere was
originally filed as Exhibit 11.1 with Post-Effective Amendment No. 13
to said Registration Statement filed on April 28, 1995, and is re-filed
herein for Edgar purposes only.
ARTICLES OF INCORPORATION
OF
CALIFORNIA DAILY TAX FREE INCOME FUND, INC.
FIRST: (1) The name of the incorporator is Michael R. Rosella.
(2) The incorporator's post office address is 280 Park Avenue, New
York, New York 10017.
(3) The incorporator is over eighteen years of age
(4) The incorporator is forming the corporation named in these
Articles of Incorporation under the General Corporation Law of the State of
Maryland.
SECOND: The name of the corporation (hereinafter called the
"Corporation") is California Daily Tax Free Income Fund, Inc.
THIRD: The purposes for which the Corporation is formed are:
(a) to conduct, operate and carry on the business of an investment
company;
(b) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise dispose of notes, bills, bonds, debentures and other negotiable
or non-negotiable instruments, obligations and evidences of indebtedness
issued or guaranteed as to principal and interest by the United States
Government, or any agency or instrumentality thereof, any State or local
government, or any agency or instrumentality thereof, or any other
securities of any kind issued by any corporation or other issuer organized
under the laws of the United States or any State, territory or possession
thereof or any foreign country or any subdivision thereof or otherwise, to
pay for the same in cash or by the issue of stock, including treasury
stock, bonds and notes of the Corporation or otherwise; and to exercise any
and all
<PAGE>
rights, powers and privileges of ownership or interest in respect of any
and all such investments of every kind and description, including and
without limitation, the right to consent and otherwise act with respect
thereto, with power to designate one or more persons, firms, associations
or corporations to exercise any of said rights, powers and privileges in
respect of any said investments;
(c) to conduct research and investigations in respect of securities,
organizations, business and general business and financial conditions in
the United States of America and elsewhere for the purpose of obtaining
information pertinent to the investment and employment of the assets of the
Corporation and to procure any and all of the foregoing to be done by
others as independent contractors and to pay compensation therefor;
(d) to borrow money or otherwise obtain credit and to secure the same
by mortgaging, pledging or otherwise subjecting as security the assets of
the Corporation, and to endorse, guarantee or undertake the performance of
any obligation, contract or engagement of any other person, firm,
association or corporation;
(e) to issue, sell, distribute, repurchase, redeem, retire, cancel,
acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal
in, shares of stock of the Corporation, including shares of stock of the
Corporation in fractional denominations, and to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of shares
of stock of the Corporation, any funds or property of the Corporation,
whether capital or surplus or otherwise, to the full extent now or
hereafter permitted by the laws of the State of Maryland and by these
Articles of Incorporation;
(f) to conduct its business, promote its purposes, and carry on its
operations in any and all of its branches and maintain offices both within
and without the State of Maryland, in any and all States of the United
States of America, in the District of Columbia, and in any or all
commonwealths, territories, dependencies, colonies, possessions, agencies,
or instrumentalities of the United States of America and of foreign
governments;
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<PAGE>
(g) to carry out all or any part of the foregoing purposes or objects
as principal or agent, or in conjunction with any other person, firm,
association, corporation or other entity, or as a partner or member of a
partnership, syndicate or joint venture or otherwise, and in any part of
the world to the same extent and as fully as natural persons might or could
do;
(h) to have and exercise all of the powers and privileges conferred by
the laws of the State of Maryland upon corporations formed under the laws
of such State; and
(i) to do any and all such further acts and things and to exercise any
and all such further powers and privileges as may be necessary, incidental,
relative, conducive, appropriate or desirable for the foregoing purposes.
The enumeration herein of the objects and purposes of the Corporation shall
be construed as powers as well as objects and purposes and shall not be deemed
to exclude by inference any powers, objects or purposes which the Corporation is
empowered to exercise, whether expressly by force of the laws of the State of
Maryland now or hereafter in effect, or impliedly by the reasonable construction
of the said law.
FOURTH: The post office address of the principal office of the Corporation
within the State of Maryland is 300 East Lombard Street, Baltimore, Maryland
21202.
The resident agent of the Corporation in the State of Maryland is United
States Corporation Company, at 300 East Lombard Street, Baltimore, Maryland
21202.
FIFTH: (1) The total number of shares of stock of all classes which the
Corporation shall have authority to issue is twenty billion (20,000,000,000),
all of which stock shall have a par value of One Tenth of One Cent ($.001) per
share. The aggregate par value of all authorized shares of stock of the
Corporation is Twenty Million Dollars ($20,000,000).
(2)(a) The Board of Directors of the Corporation is authorized
to classify or to reclassify, from time to time, any unissued shares of stock of
the Corporation, whether now or hereafter authorized, by setting, changing or
eliminating the preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, and
3
<PAGE>
qualifications or terms and conditions of or rights to require redemption of the
stock and, pursuant to such classification or reclassification, to increase or
decrease the number of authorized shares of any class, but the number of shares
of any class shall not be reduced by the Board of Directors below the number of
shares thereof then outstanding.
(b) Without limiting the generality of the foregoing, the
dividends and distributions of investment income and capital gains with respect
to the stock of the Corporation, and with respect to each class that hereafter
may be created, shall be in such amount as may be declared from time to time by
the Board of Directors, and such dividends and distributions may vary from class
to class to such extent and for such purposes as the Board of Directors may deem
appropriate, including but not limited to, the purpose of complying with
requirements of regulatory or legislative authorities.
(3) Until such time as the Board of Directors shall provide
otherwise in accordance with section (2) of this Article FIFTH, all of the
authorized shares of stock of the Corporation are designated as Common Stock.
Such shares and the holders thereof shall be subject to the following
provisions.
(a) As more fully set forth hereafter, the assets and liabilities
and the income and expenses of each class of the Corporation's stock shall be
determined separately and, accordingly, the net asset value, the dividends
payable to holders, and the amounts distributable in the event of dissolution of
the Corporation to holders of shares of the Corporation's stock may vary from
class to class. Except for these differences and certain other differences
hereafter set forth, each class of the Corporation's stock shall have the same
preference, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of and
rights to require redemption.
(b) All consideration received by the Corporation for the issue
or sale of shares of a class of the Corporation's stock, together with all
income, earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation thereof, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall irrevocably belong to that class for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account of the
Corporation. Such consideration, income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale,
4
<PAGE>
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be, are herein
referred to as "assets belonging to" that class.
(c) The assets belonging to a class of the Corporation's stock
shall be charged with the liabilities of the Corporation with respect to that
class and with that class's share of the liabilities of the Corporation not
attributable to any particular class, in the latter case in the proportion that
the net asset value of that class bears to the net asset value of all classes of
the Corporation's stock as determnined in accordance with Article NINTH of these
Articles of Incorporation. The determination of the Board of Directors shall be
conclusive as to the allocation of liabilities, including accrued expenses and
reserves, and assets to a particular class or classes.
(d) Each holder of stock of the Corporation, upon request to the
Corporation (accompanied by surrender of the appropriate stock certificate or
certificates in proper form for transfer, if any certificates have been issued
to represent such shares) shall be entitled to require the Corporation to
redeem, to the extent that the Corporation may lawfully effect such redemption
under the laws of the State of Maryland, all or any part of the shares of stock
standing in the name of such holder on the books of the Corporation at a price
per share equal to the net asset value per share computed in accordance with
Article NINTH hereof.
(e)(i) The term "Minimum Amount" when used herein shall mean One
Thousand Dollars ($1,000) unless otherwise fixed by the Board of Directors from
time to time, provided that the Minimum Amount may not in any event exceed
Twenty-Five Thousand Dollars ($25,000). The Board of Directors may establish
differing Minimum Amounts for each class of the Corporation's stock and for
holders of shares of each class of stock based on such criteria as the Board of
Directors may deem appropriate.
(ii) If the net asset value of the shares of a class of the
Corporation's stock held by a stockholder shall be less than the Minimum Amount
then in effect with respect to shares of that class or with respect to shares of
that class held by the stockholders in the same category as that stockholder,
the Corporation may redeem all of those shares, upon notice given in accordance
with paragraph (iv) of this subsection (e), to the extent that the Corporation
may lawfully effect such redemption under the laws of the State of Maryland.
5
<PAGE>
(iii) The Corporation shall be entitled but not required to
redeem shares of stock from any stockholder or stockholders, to the extent and
at such times as the Board of Directors shall, in its absolute discretion,
determine to be necessary or advisable to prevent the Corporation from
qualifying as a "personal holding company", within the meaning of the Internal
Revenue Code of 1954, as amended from time to time. Notice shall be given in
accordance with paragraph (iv) of this subsection (e).
(iv) The notice referred to in paragraphs (ii) and (iii) of this
subsection (e) shall be in writing personally delivered or deposited in the
mail, at least thirty days (or such other number of days as may be specified
from time to time by the Board of Directors) prior to such redemption. If
mailed, the notice shall be addressed to the stockholder at his post office
address as shown on the books of the Corporation, and sent by certified or
registered mail, postage prepaid. The price for shares acquired by the
Corporation pursuant to this subsection (e) shall be an amount equal to the net
asset value of such shares, computed in accordance with Article NINTH hereof.
(f) Payment by the Corporation for shares of stock of the
Corporation surrendered to it for redemption shall be made by the Corporation
within seven business days of such surrender out of the funds legally available
therefor, provided that the Corporation may suspend the right of the holders of
stock of the Corporation to redeem shares of stock and may postpone the right of
such holders to receive payment for any shares when permitted or required to do
so by applicable statutes or regulations. Payment of the aggregate of such price
may be made in cash or, at the option of the Corporation, wholly or partly in
such portfolio securities of the Corporation as the Corporation shall select.
(g) The right of any holder of stock of the Corporation redeemed
by the Corporation as provided in subsection (d) or (e)of this section (3) to
receive dividends thereon and all other rights of such holder with respect to
such shares shall terminate at the time as of which the purchase or redemption
price of such shares is determined, except the right of such holder to receive
(i) the redemption price of such shares from the Corporation or its designated
agent and (ii) any dividend or distribution to which such holder has previously
become entitled as the record holder of such shares on the record date for such
dividend or distribution. If shares of stock are redeemed by the Corporation
pursuant to subsection (e) of this section (3) and certificates representing the
6
<PAGE>
redeemed shares have been issued, the redemption price need not be paid by the
Corporation until the certificates have been received by the Corporation or its
agent duly endorsed for transfer.
(h) The Corporation shall be entitled to purchase shares of its
stock, to the extent that the Corporation may lawfully effect such purchase
under the laws of the State of Maryland, upon such terms and conditions and for
such consideration as the Board of Directors shall deem advisable, by agreement
with the stockholder at a price not exceeding the net asset value per share
computed in accordance with Article NINTH hereof.
(i) The net asset value of each share of a class of the
Corporation's stock issued and sold or redeemed or purchased at net asset value
shall be the net asset value per share of the shares of that class determined in
accordance with Article NINTH hereof based on the assets belonging to that class
less the liabilities charged to that class.
(j) In the absence of any specification as to the purpose for
which shares of stock of the Corporation are redeemed or purchased by it, all
shares so redeemed or purchased shall be deemed to be retired in the sense
contemplated by the laws of the State of Maryland and the number of the
authorized shares of stock of the Corporation shall not be reduced by the number
of any shares redeemed or purchased by it.
(k) Shares of each class of stock shall be entitled to such
dividends or distributions, in stock or cash or both, as may be declared from
time to time by the Board of Directors, acting in its sole discretion, with
respect to such class, provided that dividends or distributions shall be paid on
shares of a class of stock only out of lawfully available assets belonging to
that class.
(1) For the purpose of allowing the net asset value per share of
a class of the Corporation's stock to remain constant, the Corporation shall be
entitled to declare, pay and credit as dividends daily the net income (which may
include or give effect to realized and unrealized gains and losses, as
determined in accordance with the Corporation's accounting and portfolio
valuation policies) of the Corporation allocated to that class. If the amount so
determined for any day is negative, the Corporation shall be entitled, without
the payment of monetary compensation but in consideration of the interest of the
Corporation and its stockholders in maintaining a constant net asset value per
share of the class, to redeem
7
<PAGE>
pro rata from all the stockholders of record of shares of the class at the time
of such redemption (in proportion to their respective holdings thereof) such
number of outstanding shares of the class, or fractions thereof, as shall be
required to permit the net asset value per share of the class to remain
constant.
(m) In the event of the liquidation or dissolution of the
Corporation, the stockholders of a class of the Corporation's stock shall be
entitled to receive, as a class, out of the assets of the Corporation available
for distribution to stockholders, the assets belonging to that class. The assets
so distributable to the stockholders of a class shall be distributed among such
stockholders in proportion to the number of shares of that class held by them
and recorded on the books of the Corporation. In the event that there are any
assets available for distribution that are not attributable to any particular
class of stock, such assets shall be allocated to all classes in proportion to
the net asset value of the respective classes and then distributed to the
holders of stock of each class in proportion to the net asset value of the
shares of that class held by the respective holders.
(n) On each matter submitted to a vote of the stockholders, each
holder of a share of stock shall be entitled to one vote for each such share
standing in his name on the books of the Corporation irrespective of the class
thereof; provided, however, that to the extent class voting is required by the
Investment Company Act of 1940 or regulations thereunder, as from time to time
amended, or the laws of the State of Maryland as to any such matter, those
requirements shall apply.
(o) The Corporation may issue shares of stock in fractional
denominations to the same extent as its whole shares, and shares in fractional
denominations shall be shares of stock having proportionately to the respective
fractions represented thereby all the rights of whole shares, including without
limitation, the right to vote, the right to receive dividends and distributions,
and the right to participate upon liquidation of the Corporation, but excluding
the right to receive a stock certificate representing fractional shares.
(4) No holder of any shares of stock of the Corporation shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any such
shares which the Corporation shall issue or propose to issue; and any and all of
the shares of stock of the Corporation, whether now or hereafter
8
<PAGE>
authorized, may be issued, or may be reissued or transferred if the same have
been reacquired and have treasury status, by the Board of Directors to such
persons, firms, corporations and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine, without first offering same, or any thereof, to any said holder.
(5) All persons who shall acquire stock or other securities
of the Corporation shall acquire the same subject to the provisions of these
Articles of Incorporation, as from time to time amended.
SIXTH: The number of directors of the Corporation, until such number
shall be increased pursuant to the By-Laws of the Corporation, shall be two. The
number of directors shall never be less than the number prescribed by the
General Corporation Law of the State of Maryland and shall never be more than
twenty. The names of the persons who shall act as directors of the Corporation
until the first annual meeting or until their successors are duly chosen and
qualify are Oscar L. Tang and William Berkowitz.
SEVENTH: The following provisions are inserted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the Board
of Directors and stockholders.
(a) The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which shall have and may
exercise all powers of the Corporation except those powers which are by law, by
these Articles of Incorporation or by the By-Laws conferred upon or reserved to
the stockholders. In furtherance and not in limitation of the powers conferred
by law, the Board of Directors shall have power:
(i) to make, alter and repeal the By-Laws of the
Corporation;
(ii) to issue and sell, from time to time, shares of any
class of the Corporation's stock in such amounts and on such terms and
conditions, and for such amount and kind of consideration, as the Board of
Directors shall determine, provided that the consideration per share to be
received by the Corporation shall be not less than the greater of the net asset
value per share of that class of stock at such time computed in accordance with
Article NINTH hereof or the par value thereof;
9
<PAGE>
(iii) from time to time to set apart out of any assets of
the Corporation otherwise available for dividends a reserve or reserves for
working capital or for any other proper purpose or purposes, and to reduce,
abolish or add to any such reserve or reserves from time to time as said Board
of Directors may deem to be in the best interests of the Corporation; and to
determine in its discretion what part of the assets of the Corporation available
for dividends in excess of such reserve or reserves shall be declared in
dividends and paid to the stockholders of the Corporation; and
(iv) from time to time to determine to what extent and at
what times and places and under what conditions and regulations the accounts,
books and records of the Corporation, or any of them, shall be open to the
inspection of the stockholders; and no stockholder shall have any right to
inspect any account or book or document of the Corporation, except as conferred
by the laws of the State of Maryland, unless and until authorized to do so by
resolution of the Board of Directors or of the stockholders of the Corporation.
(b) Notwithstanding any provision of the General Corporation
Law of the State of Maryland requiring a greater proportion than a majority of
the votes of all classes or of any class of the Corporation's stock entitled to
be cast in order to take or authorize any action, any such action may be taken
or authorized upon the concurrence of a majority of the aggregate number of
votes entitled to be cast thereon subject to any applicable requirements of the
Investment Company Act of 1940, as from time to time in effect, or rules or
orders of the Securities and Exchange Commission or any successor thereto.
(c) Except as may otherwise be expressly provided by
applicable statutes or regulatory requirements, the presence in person or by
proxy of the holders of one-third of the shares of stock of the Corporation
entitled to vote shall constitute a quorum at any meeting of the stockholders.
(d) Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted
accounting principles by or pursuant to the discretion of the Board of
Directors, as to the amount of the assets, debts, obligations, or liabilities of
the Corporation, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purposes for creating such reserves or
charges, as to the use, alteration or cancellation of any reserves or charges
(whether or not any debt, obligation or liability for which such reserves or
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<PAGE>
charges shall have been created shall have been paid or discharged or shall by
then or thereafter required to be paid or discharged), as to the value of or the
method of valuing any investment owned or held by the Corporation, as to the
market value or fair value of any investment or fair value of any other asset of
the Corporation, as to the allocation of any asset of the Corporation to a
particular class or classes of the Corporation's stock, as to the charging of
any liability of the Corporation to a particular class or classes of the
Corporation's stock, as to the number of shares of the Corporation outstanding,
as to the estimated expense to the Corporation in connection with purchases of
its shares, as to the ability to liquidate investments in orderly fashion, or as
to any other matters relating to the issue, sale, purchase and/or other
acquisition or disposition of investments or shares of the Corporation, shall be
final and conclusive and shall be binding upon the Corporation and all holders
of its shares, past, present and future, and shares of the Corporation are
issued and sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.
(e) Except to the extent prohibited by the Investment
Company Act of 1940, as amended, or rules, regulations or orders thereunder
promulgated by the Securities and Exchange Commission or any successor thereto
or by the By-Laws of the Corporation, a director, officer or employee of the
Corporation shall not be disqualified by his position from dealing or
contracting with the Corporation, nor shall any transaction or contract of the
Corporation be void or voidable by reason of the fact that any director, officer
or employee or any firm of which any director, officer or employee is a member
or any corporation of which any director, officer or employee is a stockholder,
officer or director, is in any way interested in such transaction or contract;
provided that in case a director, or a firm or corporation of which a director
is a member, stockholder, officer or director, is so interested, such fact shall
be disclosed to or shall have been known by the Board of Directors or a majority
thereof; and any director of the Corporation who is so interested, or who is a
member, stockholder, officer or director of such firm or corporation, may be
counted in determining the existence of a quorum at any meeting of the Board of
Directors of the Corporation which shall authorize any such transaction or
contract, with like force and effect as if he were not such director, or member,
stockholder, officer or director of such firm or corporation.
(f) Specifically and without limitation of the foregoing
subsection (e) but subject to the exception therein prescribed, the Corporation
may enter into management
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or advisory, underwriting, distribution and administration contracts and other
contracts, and may otherwise do business, with Reich & Tang, Inc., and any
parent, subsidiary or affiliate of such firm or any affiliates of any such
affiliate, or the stockholders, directors, officers and employees thereof, and
any deal freely with one another notwithstanding that the Board of Directors of
the Corporation may be composed in part of directors, officers or employees of
such firm and/or its parents, subsidiaries or affiliates and that officers of
the Corporation may have been, be or become directors, officers, or employees of
such firm, and/or its parents, subsidiaries or affiliates, and neither such
management or advisory, underwriting, distribution or administration contracts
nor any other contract or transaction between the Corporation and such firm
and/or its parents, subsidiaries or affiliates shall be invalidated or in any
way affected thereby, nor shall any director or officer of the Corporation be
liable to the Corporation or to any stockholder or creditor thereof or to any
person for any loss incurred by it or him under or by reason of such contract or
transaction; provided that nothing herein shall protect any director or officer
of the Corporation against any liability to the Corporation or to its security
holders to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office; and provided always that such contract or transaction
shall have been on terms that were not unfair to the Corporation at the time at
which it was entered into.
EIGHTH: Subject to the requirements of the Investment Company Act
of 1940 and rules promulgated thereunder, as from time to time amended, to the
maximum extent permitted by the General Corporation Law of the State of Maryland
as from time to time amended, the Corporation shall indemnify its currently
acting and its former directors and officers and those persons who, at the
request of the Corporation, serve or have served another corporation,
partnership, joint venture, trust or other enterprise in one or more of such
capacities.
NINTH: For the purpose of the computation of net asset value referred to
in these Articles of Incorporation, the following rules shall apply:
(a) The net asset value of each share of a class of the
Corporation's stock issued or sold at its net asset value shall be the net asset
value per share of that class when next determined as provided in paragraph (d)
of this Article NINTH following acceptance by the Corporation of the
subscription or other agreement with respect to the issue or sale of such share.
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(b) The net asset value of each share of a class of the
Corporation's stock redeemed by the Corporation at the request of its holder
shall be the net asset value per share of that class when next determined as
provided in paragraph (d) of this Article NINTH following the time the
Corporation receives a request for redemption of such share in good order with
all appropriate documentation, including stock certificates, if any, duly
endorsed for transfer.
(c) The net asset value of each share of a class of the
Corporation's stock purchased or redeemed by it otherwise than upon request for
redemption by its holder shall be the net asset value per share of that class of
the Corporation's stock when next determined as provided in paragraph (d) of
this Article NINTH following the Corporation's determination or agreement to
purchase or redeem such share, the expiration of any notice period fulfillment
of any other conditions precedent to such purchase or redemption, or such lower
price per share as may be specified in the agreement, if any, with the
stockholder for the purchase or redemption of his shares.
(d) The net asset value of a share of a class of the
Corporation's stock as at the time of a particular determination shall be the
quotient obtained by dividing the value at such time of the net asset of that
class (i.e., the value of the assets belonging to that class less the
liabilities charged to that class exclusive of capital stock and surplus) by the
total number of shares of that class outstanding at such time, all determined
and computed as provided in the Corporation's By-Laws or by or pursuant to the
direction of the Board of Directors.
(e) The Corporation shall determine the net asset value per
share of a class of its stock on such days and at such times as prescribed by
the rules and regulations of the Securities and Exchange Commission or any
successor thereto. The Corporation may also determine such net asset value at
other times.
(f) The Corporation may suspend the determination of the net
asset value of a class of its stock during any period when it may suspend the
right of the holders of shares of that class to require the Corporation to
redeem their shares.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation or in any
amendment hereto in the manner now or hereafter prescribed by the laws of the
State of
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Maryland, and all rights conferred upon stockholders herein are granted subject
to this reservation.
IN WITNESS WHEREOF, the undersigned, being the incorporator of the
Corporation, has adopted and signed these Articles of Incorporation for the
purpose of forming the corporation described herein pursuant to the General
Corporation Law of the State of Maryland and does hereby acknowledge that said
adoption and signing are her act.
/s/ Michael R. Rosella
Michael R. Rosella, Incorporator
Dated: December 3, 1986
ARTICLES OF AMENDMENT
OF
CALIFORNIA DAILY TAX FREE INCOME FUND, INC.
California Daily Tax Free Income Fund, Inc., a Maryland Corporation having
its principal office in the State of Maryland in the City of Baltimore
(hereinafter called the "Corporation"), the total number of shares of stock of
all classes and series which the Corporation presently has authority to issue is
20,000,000,000 shares of capital stock (par value $.001 per share), amounting in
aggregate par value to $20,000,000, certifies to the Department of Assessments
and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended
as follows:
1. Article FIFTH of the charter of the Corporation is hereby amended by
striking out Article FIFTH and inserting in lieu thereof the following:
FIFTH: (a) The total number of shares of stock of all classes and series
which the Corporation has authority to issue is 20,000,000,000 shares of capital
stock (par value $.001 per share), amounting in aggregate par value to
$20,000,000. All of such shares are classified as "Common Stock". The Board of
Directors may classify or reclassify any unissued shares of capital stock
(whether or not such shares have been previously classified or reclassified)
from time to time by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption of such shares of stock.
(b) Unless otherwise prohibited by law, so long as the
Corporation is registered as an open-end company under the Investment Company
Act, the Board of Directors shall have the power and authority, without the
approval of the holders of any outstanding shares, to increase or decrease the
number of shares of capital stock or the number of shares of capital stock of
any class or series that the Corporation has authority to issue.
(c) Any series of Common Stock shall be referred to herein
individually as a "Series" and collectively, together with any further series
from time to time established, as the "Series".
(d) The following is a description of the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of any
additional Series of Common Stock of the Corporation (unless provided otherwise
by the Board of Directors with respect to any such
<PAGE>
additional Series at the time it is established and designated):
(1) Asset Belonging to Series. All consideration received by the
Corporation from the issue or sale of shares of a particular Series,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any investment
or reinvestment of such proceeds in whatever form the same may be,
shall irrevocably belong to that Series for all purposes, subject only
to the rights of creditors, and shall be so recorded upon the books of
account of the Corporation. Such consideration, assets, income,
earnings, profits and proceeds, together with any General Items
allocated to that Series as provided in the following sentence, are
herein referred to collectively as "assets belonging to" that Series.
In the event that there are any assets, income, earnings, profits or
proceeds which are not readily identifiable as belonging to any
particular Series (collectively, "General Items"), such General Items
shall be allocated by or under the supervision of the Board of
Directors to and among any one or more of the Series established and
designated from time to time in such manner and on such basis as the
Board of Directors, in its sole discretion, deems fair and equitable;
and any General Items so allocated to a particular Series shall belong
to that Series. Each such allocation by the Board of Directors shall
be conclusive and binding for all purposes.
(2) Liabilities of Series. The assets belonging to each
particular Series shall be charged with the liabilities of the
Corporation in respect of that Series and all expenses, costs, charges
and reserves attributable to that Series, and any general liabilities,
expenses, costs, charges or reserves of the Corporation which are not
readily identifiable as pertaining to any particular Series, shall be
allocated and charged by or under the supervision of the Board of
Directors to and among any one or more of the Series established and
designated from time to time in such manner and on such basis as the
Board of Directors, in its sole discretion, deems fair and equitable.
The liabilities, expenses, costs, charges and reserves allocated and
so charged to a Series are herein referred to collectively as
"liabilities of" that Series. Each allocation of liabilities,
expenses, costs, charges and reserves by or under the supervision of
the Board of Directors shall be conclusive and binding for all
purposes.
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(3) Dividends and Distributions. Dividends and capital gains
distributions on shares of a particular Series may be paid with such
frequency, in such form and in such amount as the Board of Directors
may determine by resolution adopted from time to time, or pursuant to
a standing resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine, after providing for
actual and accrued liabilities of that Series. All dividends on shares
of a particular Series shall be paid only out of the income belonging
to that Series and all capital gains distributions on shares of a
particular Series shall be paid only out of the capital gains
belonging to that Series. All dividends and distributions on shares of
a particular Series shall be distributed pro rata to the holders of
that Series in proportion to the number of shares of that Series held
by such holders at the date and time of record established for the
payment of such dividends or distributions, except that in connection
with any dividend or distribution program or procedure, the Board of
Directors may determine that no dividend or distribution shall be
payable on shares as to which the stockholder's purchase order and/or
payment have not been received by the time or times established by the
Board of Directors under such program or procedure.
Dividends and distributions may be paid in cash, property or
additional shares of the same or another Series, or a combination
thereof, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time for
the election by stockholders of the form in which dividends or
distributions are to be paid. Any such dividend or distribution paid
in shares shall be paid at the current net asset value thereof.
(4) Voting. On each matter submitted to a vote of the
stockholders, each holder of shares shall be entitled to one vote for
each share standing in his name on the books of the Corporation,
irrespective of the Series thereof, and all shares of all Series shall
vote as a single class ("Single Class Voting"); provided, however,
that (i) as to any matter with respect to which a separate vote of any
Series is required by the Investment Company Act or by the Maryland
General Corporation Law, such requirement as to a separate vote by
that Series shall apply in lieu of Single Class Voting; (ii) in the
event that the separate vote requirement referred to in clause (i)
above applies with respect to one or more Series, then, subject to
clause (iii) below, the shares of all other Series shall vote as a
single class; and (iii) as to any matter which does not affect the
interest of a particular Series, including liquidation of another
Series as described in subsection (7) below, only the
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holders of shares of the one or more affected Series shall be entitled
to vote.
(5) Redemption by Stockholders. Each holder of shares of a
particular Series shall have the right at such times as may be
permitted by the Corporation to require the Corporation to redeem all
or any part of his shares of that Series, at a redemption price per
share equal to the net asset value per share of that Series next
determined after the shares are properly tendered for redemption, less
such redemption fee or sales charge, if any, as may be established
from time to time by the Board of Directors in its sole discretion.
Payment of the redemption price shall be in cash; provided, however,
that if the Board of Directors determines, which determination shall
be conclusive, that conditions exist which make payment wholly in cash
unwise or undesirable, the Corporation may, to the extent and in the
manner permitted by the Investment Company Act, make payment wholly or
partly in securities or other assets belonging to the Series of which
the shares being redeemed are a part, at the value of such securities
or assets used in such determination of net asset value.
Payment by the Corporation for shares of stock of the Corporation
surrendered to it for redemption shall be made by the Corporation
within such period from surrender as may be required under the
Investment Company Act and the rules and regulations thereunder.
Notwithstanding the foregoing, the Corporation may postpone payment of
the redemption price and may suspend the right of the holders of
shares of any Series to require the Corporation to redeem shares of
that Series during any period or at any time when and to the extent
permissible under the Investment Company Act.
(6) Redemption by Corporation. The Board of Directors may cause
the Corporation to redeem at their net asset value the shares of any
Series held in an account having, because of redemptions or exchanges,
a net asset value on the date of the notice of redemption less than
the Minimum Amount, as defined below, in that Series specified by the
Board of Directors from time to time in its sole discretion, provided
that at least 30 days prior written notice of the proposed redemption
has been given to the holder of any such account by first class mail,
postage prepaid, at the address contained in the books and records of
the Corporation and such holder has been given an opportunity to
purchase the required value of additional shares.
(i) the term "Minimum Amount" when used herein shall mean One
Thousand Dollars ($1,000) unless otherwise fixed by the Board of
Directors from time to
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time, provided that the Minimum Amount may not in any event exceed
Twenty-Five Thousand Dollars ($25,000). The Board of Directors may
establish differing Minimum Amounts for each class and series of the
Corporation's stock and for holders of shares of each such class and
series of stock based on such criteria as the Board of Directors may
deem appropriate.
(ii) the Corporation shall be entitled but not required to redeem
shares of stock from any stockholder or stockholders, as provided in
this subsection (6), to the extent and at such times as the Board of
Directors shall, in its absolute discretion, determine to be necessary
or advisable to prevent the Corporation from qualifying as a "personal
holding company", within the meaning of the Internal Revenue Code of
1986, as amended from time to time.
(7) Liquidation. In the event of the liquidation of a particular
Series, the stockholders of the Series that is being liquidated shall
be entitled to receive, as a class, when and as declared by the Board
of Directors, the excess of the assets belonging to that Series over
the liabilities of that Series. The holders of shares of any
particular Series shall not be entitled thereby to any distribution
upon liquidation of any other Series. The assets so distributable to
the stockholders of any particular Series shall be distributed among
such stockholders in proportion to the number of shares of that Series
held by them and recorded on the books of the Corporation. The
liquidation of any particular Series in which there are shares then
outstanding may be authorized by vote of a majority of the Board of
Directors then in office, subject to the approval of a majority of the
outstanding voting securities of that Series, as defined in the
Investment Company Act, and without the vote of the holders of shares
of any other Series. The liquidation of a particular Series may be
accomplished, in whole or in part, by the transfer of assets of such
Series to another Series or by the exchange of shares of Series for
the shares of another Series.
(8) Net Asset Value Per Share. The net asset value per share of
any Series shall be the quotient obtained by dividing the value of the
net assets of that Series (being the value of the assets belonging to
that Series less the liabilities of that Series) by the total number
of shares of that Series outstanding, all as determined by or under
the direction of the Board of Directors in accordance with generally
accepted accounting principles and the Investment Company Act. Subject
to the applicable provisions of the Investment Company Act, the Board
of Directors, in its sole discretion, may prescribe and shall set
forth in the By-Laws of the Corporation or in a duly adopted
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resolution of the Board of Directors such bases and times for
determining the value of the assets belonging to, and the net asset
value per share of outstanding shares of, each Series, or the net
income attributable to such shares, as the Board of Directors deems
necessary or desirable. The Board of Directors shall have full
discretion, to the extent not inconsistent with the Maryland General
Corporation Law and the Investment Company Act, to determine which
item shall be treated as income and which items as capital and whether
any item of expense shall be charged to income or capital. Each such
determination and allocation shall be conclusive and binding for all
purposes.
The Board of Directors may determine to maintain the net asset
value per share of any Series at a designated constant dollar amount
and in connection therewith may adopt procedures not inconsistent with
the Investment Company Act for the continuing declaration of income
attributable to that Series as dividends and for the handling of any
losses attributable to that Series. Such procedures may provide that
in the event of any loss, each stockholder shall be deemed to have
contributed to the capital of the Corporation attributable to that
Series his pro rata portion of the total number of shares required to
be canceled in order to permit the net asset value per share of that
Series to be maintained, after reflecting such loss, at the designated
constant dollar amount. Each stockholder of the Corporation shall be
deemed to have agreed, by his investment in any Series with respect to
which the Board of Directors shall have adopted any such procedure, to
make the contribution referred to in the preceding sentence in the
event of any such loss.
(9) Equality. All shares of each particular Series shall
represent an equal proportionate interest in the assets belonging to
that Series (subject to the liabilities of that Series), and each
share of any particular Series shall be equal to each other share of
that Series. The Board of Directors may from time to time divide or
combine the shares of any particular Series into a greater or lesser
number of shares of that Series without thereby changing the
proportionate interest in the assets belonging to that Series or in
any way affecting the rights of holders of shares of any other Series.
(10) Conversion or Exchange Rights. Subject to compliance with
the requirements of the Investment Company Act, the Board of Directors
shall have the authority to provide that holders of shares of any
Series shall have the right to convert or exchange said shares into
shares of one or more other Series of shares in accordance with such
requirements and
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procedures as may be established by the Board of Directors.
(e) The Board of Directors may, from time to time and without
stockholder action, classify shares of a particular Series into one or more
additional classes of that Series, the voting, dividend, liquidation and
other rights of which shall differ from the classes of common stock of that
Series to the extent provided in Articles Supplementary for such additional
class, such Articles to be filed for record with the appropriate
authorities of the State of Maryland. Each class so created shall consist,
until further changed, of the lesser of (x) the number of shares classified
in Section (c) of this Article FIFTH or (y) the number of shares that could
be issued by issuing all of the shares of that Series currently or
hereafter classified less the total number of shares of all classes of such
Series then issued and outstanding. Any class of a Series of Common Stock
shall be referred to herein individually as a "Class" and collectively,
together with any further class or classes of such Series from time to time
established, as the "Classes".
(f) All Classes of a particular Series of Common Stock of the
Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights with any other
shares of Common Stock of that Series; provided, however, that
notwithstanding anything in the charter of the Corporation to the contrary:
(1) Any class of shares may be subject to such sales loads,
contingent deferred sales charges, Rule 12b-1 fees, administrative
fees, service fees, or other fees, however designated, in such amounts
as may be established by the Board of Directors from time to time in
accordance with the Investment Company Act.
(2) Expenses related solely to a particular Class of a Series
(including, without limitation, distribution expenses under a Rule
12b-1 plan and administrative expenses under an administration or
service agreement, plan or other arrangement, however designated)
shall be borne by that Class and shall be appropriately reflected (in
the manner determined by the Board of Directors) in the net asset
value, dividends, distributions and liquidation rights of the shares
of that Class.
(3) As to any matter with respect to which a separate vote of any
Class of a Series is required by the Investment Company Act or by the
Maryland General Corporation Law (including, without limitation,
approval of any plan, agreement or other arrangement referred to in
subsection (2) above), such requirement as to a separate vote by that
Class shall apply in lieu of Single Class Voting, and if permitted by
the Investment Company Act or the Maryland General
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Corporation Law, the Classes of more than one Series shall vote
together as a single class on any such matter which shall have the
same effect on each such Class. As to any matter which does not affect
the interest of a particular Class of a Series, only the holders of
shares of the affected Classes of that Series shall be entitled to
vote.
(g) The Corporation may issue and sell fractions of shares of capital
stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the
words "share" or "shares" are used in the charter or By-Laws of the
Corporation, they shall be deemed to include fractions of shares where the
context does not clearly indicate that only full shares are intended.
(h) The Corporation shall not be obligated to issue certificates
representing shares of any Class or Series of capital stock. At the time of
issue or transfer of shares without certificates, the Corporation shall
provide the stockholder with such information as may be required under the
Maryland General Corporation Law.
(i) No holder of any shares of stock of the Corporation shall be
entitled as of right to subscribe for, purchase, or otherwise acquire
any such shares which the Corporation shall issue or propose to issue;
and any and all of the shares of stock of the Corporation, whether now
or hereafter authorized, may be issued, or may be reissued or
transferred if the same have been reacquired and have treasury status,
by the Board of Directors to such persons, firms, corporations and
associations, and for such lawful consideration, and on such terms, as
Board of Directors in its discretion may determine, without first
offering same, or any thereof, to any said holder.
(j) All persons who shall acquire stock or other securities of the
Corporation shall acquire the same subject to the provisions of these
Articles of Incorporation, as from time to time amended."
2. Article SEVENTH subsection (a)(ii) of the charter of the Corporation is
hereby amended by striking out the language on line two which states "of any
class of the Corporation's stock" and inserting in lieu thereof the following:
"of any class or series of the Corporation's stock"
3. Article SEVENTH subsection (a)(ii) of the charter of the Corporation is
hereby amended by changing the reference to Article NINTH in line eight to
Article FIFTH.
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4. The charter of the Corporation is hereby amended by striking out Article
EIGHTH and inserting in lieu thereof the following:
EIGHTH: "(1) The Corporation shall indemnify (i) its currently acting and
former directors and officers, whether serving the Corporation or at its
request any other entity, to the fullest extent required or permitted by
the General Laws of the State of Maryland now or hereafter in force,
including the advance of expenses under the procedures and to the fullest
extent permitted by law, and (ii) other employees and agents to such extent
as shall be authorized by the Board of Directors or the By-Laws and as
permitted by law. Nothing contained herein shall be construed to protect
any director or officer of the Corporation against any liability to the
Corporation or its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. The
foregoing rights of indemnification shall not be exclusive of any other
rights to which those seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such by-laws, resolutions or contracts implementing
such provisions or such indemnification arrangements as may be permitted by
law. No amendment of the charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the right of indemnification provided
hereunder with respect to acts or omissions occurring prior to such
amendment or repeal.
(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company Act,
no director or officer of the Corporation shall be personally liable to the
Corporation or its stockholders for money damages; provided, however, that
nothing herein shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office. No amendment of the charter
of the Corporation or repeal of any of its provisions shall limit or
eliminate the limitation of liability provided to directors and officers
hereunder with respect to any act or omission occurring prior to such
amendment or repeal."
5. The charter of the Corporation is hereby amended by striking out
Article NINTH (as the language therein is already contained in new Article
FIFTH of these Articles of Amendment).
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SECOND: The amendments of the charter of the Corporation as herein set
forth have been duly advised by the Board of Directors and approved by the
stockholders of the Corporation.
IN WITNESS WHEREOF, California Daily Tax Free Income Fund, Inc. has caused
these presents to be signed in its name and on its behalf by its President or
one of its Vice Presidents and attested by its Secretary or one of its Assistant
Secretaries, on December , 1993.
CALIFORNIA DAILY TAX FREE INCOME FUND, INC.
By:/s/ William Berkowitz
William Berkowitz
President
Attest:
/s/ Bernadette N. Finn
Bernadette N. Finn
Secretary
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THE UNDERSIGNED, President of CALIFORNIA DAILY TAX FREE INCOME
FUND, INC., who executed on behalf of said corporation, the foregoing Articles
of Amendment, of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said corporation, the foregoing Articles of Amendment
to be the corporate act of said corporation and further certifies that, to the
best of his knowledge, information, and in all material respects, under the
penalties of perjury.
CALIFORNIA DAILY TAX FREE INCOME
FUND, INC.
By: /s/ William Berkowitz
William Berkowitz
President
13
BY-LAWS
OF
CALIFORNIA DAILY TAX FREE INCOME FUND, INC.
a Maryland corporation
ARTICLE I
Offices
Section 1. PRINCIPAL OFFICE IN MARYLAND. The Corporation shall have a
principal office in the City of Baltimore, State of Maryland.
Section 2. OTHER OFFICES. The Corporation may have offices also at such
other places within and without the State of Maryland as the Board of Directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE II
Meetings of Stockholders
Section 1. PLACE OF MEETING. Meetings of stockholders shall be held at such
place, either within the State of Maryland or at such other place within the
United States, as shall be fixed from time to time by the Board of Directors.
Section 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be held
on a date fixed from time to time by the Board of Directors not less than ninety
nor more than one hundred twenty days following the end of each fiscal Year of
the Corporation, for the election of directors and the transaction of any other
business within the powers of the Corporation.
Section 3. NOTICE OF ANNUAL MEETING. Written or printed notice of the
annual meeting, stating the place, date and hour thereof, shall be given to each
stockholder entitled to vote thereat not less than ten nor more than ninety days
before the date of the meeting.
<PAGE>
Section 4. SPECIAL MEETINGS. Special meetings of stockholders may be called
by the chairman, the president or by the Board of Directors and shall be called
by the secretary upon the written request of holders of shares entitled to cast
not less than twenty-five percent of all the votes entitled to be cast at such
meeting. Such request shall state the purpose or purposes of such meeting and
the matters proposed to be acted on thereat. In the case of such request for a
special meeting, upon payment by such stockholders to the Corporation of the
estimated reasonable cost of preparing and mailing a notice of such meeting, the
secretary shall give the notice of such meeting. The secretary shall not be
required to call a special meeting to consider any matter which is substantially
the same as a matter acted upon at any special meeting of stockholders held
within the preceding twelve months unless requested to do so by the holders of
shares entitled to cast not less than a majority of all votes entitled to be
cast at such meeting.
Section 5. NOTICE OF SPECIAL MEETING. Written or printed notice of a
special meeting of stockholders, stating the place, date, hour and purpose
thereof, shall be given by the secretary to each stockholder entitled to vote
thereat not less than ten nor more than ninety days before the date fixed for
the meeting.
Section 6. BUSINESS OF SPECIAL MEETINGS. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice
thereof.
Section 7. QUORUM. Except as may otherwise be expressly provided by
applicable statutes or regulations, the holders of one-third of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business.
Section 8. VOTING. When a quorum is present at any meeting, the affirmative
vote of a majority of the votes cast shall decide any question brought before
such meeting, unless the question is one upon which by express provision of the
Investment Company Act of 1940, as from time to time in effect, or other
statutes or rules or orders of the Securities and Exchange Commission or any
successor thereto or of the Articles of Incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
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Section 9. PROXIES. Each stockholder shall at every meeting of stockholders
be entitled to one vote in person or by proxy for each share of the stock having
voting power held by such stockholder, but no proxy shall be voted after eleven
months from its date, unless otherwise provided in the proxy.
Section 10. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date which shall be
not more than ninety days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. In lieu of fixing a record
date, the Board of Directors may provide that the stock transfer books shall be
closed for a stated period, but not to exceed, in any case, twenty days. If the
stock transfer books are closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books shall
be closed for at least ten days immediately preceding such meeting. If no record
date is fixed and the stock transfer books are not closed for the determination
of stockholders: (1) the record date for the determination of stockholders
entitled to notice of, or to vote at, a meeting of stockholders shall be at the
close of business on the day on which notice of the meeting of stockholders is
mailed or the day thirty days before the meeting, whichever is the closer date
to the meeting; and (2) the record date for the determination of stockholders
entitled to receive payment of a dividend or an allotment of any rights shall be
at the close of business on the day on which the resolution of the Board of
Directors, declaring the dividend or allotment of rights, is adopted, provided
that the payment or allotment date shall not be more than ninety days after the
date of the adoption of such resolution.
Section 11. INSPECTORS OF ELECTION. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
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inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting or any stockholder, the inspector or inspectors, if any, shall make
a report in writing of any challenge, question or matter determined by him or
them and execute a certificate of any fact found by him or them.
Section 12. INFORMAL ACTION BY STOCKHOLDERS. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.
ARTICLE III
Board of Directors
Section 1. NUMBER OF DIRECTORS. The number of directors shall be fixed at
no less than three nor more than twenty. Within the limits specified above, the
number of directors shall be fixed from time to time by the Board of Directors,
but the tenure of office of a director in office at the time of any decrease in
the number of directors shall not be affected as a result thereof. The directors
shall be elected to hold office at the annual meeting of stockholders, except as
provided in Section 2 of this Article, and each director shall hold office until
the next annual meeting of stockholders or until his successor is elected and
qualifies. Any director may
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resign at any time upon written notice to the Corporation. Any director may be
removed, either with or without cause, at any meeting of stockholders duly
called and at which a quorum is present by the affirmative vote of the majority
of the votes entitled to be cast thereon, and the vacancy in the Board of
Directors caused by such removal may be filled by the stockholders at the time
of such removal. Directors need not be stockholders.
Section 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancy occurring
in the Board of Directors for any cause, including an increase in the number of
directors, may be filled by the stockholders or by a majority of the remaining
members of the Board of Directors even if such majority is less than a quorum.
So long as the Corporation is a registered investment company under the
Investment Company Act of 1940, vacancies in the Board of Directors may be
filled by a majority of the remaining members of the Board of Directors only if,
immediately after filling any such vacancy, at least two-thirds of the directors
then holding office shall have been elected to such office at a meeting of
stockholders. A director elected by the Board of Directors to fill a vacancy
shall be elected to hold office until the next annual meeting of stockholders or
until his successor is elected and qualifies.
Section 3. POWERS. The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which shall exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Articles of Incorporation or by these By-Laws conferred
upon or reserved to the stockholders.
Section 4. ANNUAL MEETING. The first meeting of each newly elected Board of
Directors shall be held immediately following the adjournment of the annual
meeting of stockholders and at the place thereof. No notice of such meeting to
the directors shall be necessary in order legally to constitute the meeting,
provided a quorum shall be present. In the event such meeting is not so held,
the meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the Board of Directors.
Section 5. OTHER MEETINGS. The Board of Directors of the Corporation or any
committee thereof may hold meetings, both regular and special, either within or
without the State of Maryland. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the Board of Directors. Special meetings of the Board of Directors
may be called by the
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chairman, the president or by two or more directors. Notice of special meetings
of the Board of Directors shall be given by the secretary to each director at
least three days before the meeting if by mail or at least 24 hours before the
meeting if given in person or by telephone or by telegraph. The notice need not
specify the business to be transacted.
Section 6. QUORUM AND VOTING. At meetings of the Board of Directors, two of
the directors in office at the time, but in no event less than one-third of the
entire Board of Directors, shall constitute a quorum for the transaction of
business. When required pursuant to Section 15(c) under the Investment Company
Act of 1940 or Rule 12b-1 thereunder a quorum shall also require the presence in
person of a majority of directors who are not parties to a contract or agreement
to be voted upon or interested persons of any such party. The action of a
majority of the directors present at a meeting at which a quorum is present
shall be the action of the Board of Directors. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 7. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the entire Board of Directors, appoint from among its members an
executive committee and other committees of the Board of Directors, each
committee to be composed of two or more of the directors of the Corporation. The
Board of Directors may, to the extent provided in the resolution, delegate to
such committees, in the intervals between meetings of the Board of Directors,
any or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation, except the power to declare dividends,
to issue stock, to recommend to stockholders any action requiring stockholders'
approval, to amend the by-laws or to approve any merger or share exchange which
does not require stockholders' approval. Such committee or committees shall have
the name or names as may be determined from time to time by resolution adopted
by the Board of Directors. Unless the Board of Directors designates one or more
directors as alternate members of any committee, who may replace an absent or
disqualified member at any meeting of the committee, the members of any such
committee present at any meeting and not disqualified from voting may, whether
or not they constitute a quorum, unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any absent or disqualified
member of such committee. At meetings of any such committee, a majority of the
members or alternate members of such committee shall constitute a quorum for the
transaction of
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business and the act of a majority of the members or alternate members present
at any meeting at which a quorum is present shall be the act of the committee.
Section 8. MINUTES OF COMMITTEE MEETINGS. The committees shall keep regular
minutes of their proceedings.
Section 9. INFORMAL ACTION BY BOARD OF DIRECTORS AND COMMITTEES. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if a written consent
thereto is signed by all members of the Board of Directors or of such committee,
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or committee.
Section 10. MEETINGS BY CONFERENCE TELEPHONE. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, the members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and such participation shall constitute presence in person at such meeting.
Section 11. FEES AND EXPENSES. The directors may be paid their expenses of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 1. GENERAL. Notices to directors and stockholders mailed to them at
their post office addresses appearing on the books of the Corporation shall be
deemed to be given at the time when deposited in the United States mail.
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Section 2. WAIVER OF NOTICE. Whenever any notice is required to be given
under the provisions of the statutes, of the Article of Incorporation or of
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed the equivalent of notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE V
Officers
Section 1. GENERAL. The officers of the Corporation shall be chosen by the
Board of Directors at its first meeting after each annual meeting of
stockholders and shall be a chairman of the Board of Directors, a president, a
secretary and a treasurer. The Board of Directors may also choose such vice
presidents and additional officers or assistant officers as it may deem
advisable. Any number of offices, except the offices of president and vice
president, may be held by the same person. No officer shall execute, acknowledge
or verify any instrument in more than one capacity if such instrument is
required by law to be executed, acknowledged or verified by two or more
officers.
Section 2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint
such other officers and agents as it desires who shall hold their offices for
such terms and shall exercise such power and perform such duties as shall be
determined from time to time by the Board of Directors.
Section 3. TENURE OF OFFICERS. The officer of the Corporation shall hold
office at the pleasure of the Board of Directors. Each officer shall hold his
office until his successor is elected and qualifies or until his earlier
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. Any officer elected or appointed by the Board of Directors
may be removed at any time by the Board of Directors when, in its judgment, the
best interests of the Corporation will be served thereby. Any vacancy occurring
in any office of the Corporation by death, resignation, removal or otherwise
shall be filled by the Board of Directors.
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Section 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The chairman of the Board of
Directors shall be the chief executive officer of the Corporation, shall preside
at all meetings of the stockholders and of the Board of Directors, shall have
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute on behalf of the Corporation, and may affix the seal or
cause the seal to be affixed to, all instruments requiring such execution except
to the extent that signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the Corporation.
Section 5. PRESIDENT. The president shall, in the absence of the chairman
of the Board of Directors, preside at all meetings of the stockholders or of the
Board of Directors. He shall be ex officio a member of all committees designated
by the Board of Directors, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. He shall execute bonds, mortgages
and other contracts requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of to some other officer or agent of the Corporation.
Section 6. VICE PRESIDENTS. The vice presidents shall act under the
direction of the president and in the absence or disability of the president
shall perform the duties and exercise the power of the president. They shall
perform such other duties and have such other powers as the president or the
Board of Directors may from time to time prescribe. The Board of Directors may
designate on or more executive vice presidents or may otherwise specify the
order of seniority of the vice presidents and, in that event, the duties and
powers of the president shall descend to the vice presidents in the specified
order of seniority.
Section 7. SECRETARY. The secretary shall act under the direction of the
president. Subject to the direction of the president he shall attend all
meetings of the Board of Directors and all meetings of stockholders and record
the proceedings in a book to be kept for that purpose and shall perform like
duties for the committees designated by the Board of Directors when required. He
shall give, or cause to be given, notice of all meetings of stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the president or the Board of Directors.
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He shall keep in safe custody the seal of the Corporation and shall affix the
seal or cause it to be affixed to any instrument requiring it.
Section 8. ASSISTANT SECRETARIES. The assistant secretaries in the order of
their seniority, unless otherwise determined by the president or the Board of
Directors, shall, in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary. They shall perform such other
duties and have such other powers as the president or the Board of Directors may
from time to time prescribe.
Section 9. TREASURER. The treasurer shall act under the direction of the
president. Subject to the direction of the president he shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the president or the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
Corporation.
Section 10. ASSISTANT TREASURERS. The assistant treasurers in the order of
their seniority, unless otherwise determined by the president or the Board of
Directors, shall, in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer. They shall perform such other
duties and have such other powers as the president or the Board of Directors may
from time to time prescribe.
ARTICLE VI
Certificates of Stock
Section 1. GENERAL. Every holder of stock of the Corporation who has made
full payment of the consideration for such stock shall be entitled upon request
to have a certificate, signed by, or in the name of the Corporation by, the
president or a vice president and countersigned by the treasurer or an assistant
treasurer or the secretary or an assistant secretary of the Corporation,
certifying the number and class of whole shares of stock owned by him in the
Corporation.
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Section 2. FRACTIONAL SHARE INTERESTS OR SCRIP. The Corporation may, but
shall not be obliged to, issue fractions of a share of stock, arrange for the
disposition of fractional interests by those entitled thereto, pay in cash the
fair value of fractions of a share of stock as of the time when those entitled
to receive such fractions are determined, or issue scrip or other evidence of
ownership which shall entitle the holder to receive a certificate for a full
share of stock upon the surrender of such scrip or other evidence of ownership
aggregating a full share. Fractional shares of stock shall have proportionately
to the respective fractions represented thereby all the rights of whole shares,
including the right to vote, the right to receive dividends and distributions
and the right to participate upon liquidation of the Corporation, excluding,
however, the right to receive a stock certificate representing such fractional
shares. The Board of Directors may cause such scrip or evidence of ownership to
be issued subject to the condition that it shall become void if not exchanged
for certificates representing full shares of stock before a specified date or
subject to the condition that the shares of stock for which such scrip or
evidence of ownership is exchangeable may be sold by the Corporation and the
proceeds thereof distributed to the holders of such scrip or evidence of
ownership, or subject to any other reasonable conditions which the Board of
Directors shall deem advisable, including provision for forfeiture of such
proceeds to the Corporation if not claimed within a period of not less than
three years after the date of the original issuance of scrip certificates.
Section 3. SIGNATURES ON CERTIFICATES. Any of or all the signatures on a
certificate may be a facsimile. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall cease to be such
officer before such certificate is issued, it may be issued with the same effect
as if he were such officer at the date of issue. The seal of the Corporation or
a facsimile thereof may, but need not, be affixed to certificates of stock.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal
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representative, to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate or certificates alleged to have been lost, stolen or
destroyed.
Section 5. TRANSFER OF SHARES. Upon request by the registered owner of
shares, and if a certificate has been issued to represent such shares upon
surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, subject to the Corporation's
rights to redeem or purchase such shares, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the By-Laws and of the law regarding the transfer of shares
have been duly complied with, to record the transaction upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.
Section 6. REGISTERED OWNERS. The Corporation shall be entitled to
recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including, redemption, voting and dividends,
and the Corporation shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. RESERVES. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for repairing or maintaining any property of
the Corporation, or for the purchase of additional property, or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may modify or abolish any such reserve.
Section 2. DIVIDENDS. Dividends upon the stock of the Corporation may,
subject to the provisions of the Article of Incorporation and of the provisions
of applicable law, be declared by the Board of Directors at any time. Dividends
may
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be paid in cash, in property or in shares of the Corporation's stock, subject to
the provisions of the Articles of Incorporation and of applicable law.
Section 3. CAPITAL GAINS DISTRIBUTIONS. The amount and number of capital
gains distributions paid to the stockholders during each fiscal year shall be
determined by the Board of Directors. Each such payment shall be accompanied by
a statement as to the source of such payment, to the extent required by law.
Section 4. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 5. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 6. SEAL. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its organization and the words, "Corporate Seal,
Maryland". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in another manner reproduced.
Section 7. FILING OF BY-LAWS. A certified copy of the By-Laws, including
all amendments, shall be kept at the principal office of the Corporation in the
State of Maryland.
Section 8. ANNUAL REPORT. The books of account of the Corporation shall be
examined by an independent firm of public accountants at the close of each
annual fiscal period of the Corporation and at such other times, if any, as may
be directed by the Board of Directors of the Corporation. Within one hundred and
twenty days of the close of each annual fiscal period a report based upon such
examination at the close of that fiscal period shall be mailed to each
stockholder of the Corporation of record at the close of such annual fiscal
period, unless the Board of Directors shall set another record date, at his
address as the same appears on the books of the Corporation. Each such report
shall contain such information as is required to be set forth therein by the
Investment Company Act of 1940 and the rules and regulations promulgated by the
Securities and Exchange Commission thereunder. Such report shall also be
submitted at the annual meeting of the stockholders and filed within twenty days
thereafter at the principal office of the Corporation in the State of Maryland.
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Section 9. STOCK LEDGER. The Corporation shall maintain at its principal
office outside of the State of Maryland an original or duplicate stock ledger
containing the names and addresses of all stockholders and the number of shares
of stock held by each stockholder. Such stock ledger may be in written form or
in any other form capable of being converted into written form within a
reasonable time for visual inspection.
Section 10. RATIFICATION OF ACCOUNTANTS BY STOCKHOLDERS. At every annual
meeting of the stockholders of the Corporation there shall be submitted for
ratification or rejection the name of the firm of independent public accountants
which has been selected for the current fiscal year in which such annual meeting
is held by a majority of those members of the Board of Directors who are not
investment advisers of, or interested person (as defined in the Investment
Company Act of 1940) of, an investment adviser of, or officers or employees of,
the Corporation.
Section 11. CUSTODIAN. All securities and similar investments owned by the
Corporation shall be held by a custodian which shall be either a trust company
or a national bank of good standing, having a capital surplus and undivided
profits aggregating not less than two million dollars ($2,000,000), or a member
firm of the New York Stock Exchange, Inc. The terms of custody of such
securities and cash shall include such provisions required to be contained
therein by the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission.
Upon the resignation or inability to serve of any such custodian the
Corporation shall (a) use its best efforts to obtain a successor custodian, (b)
require the cash and securities of the Corporation held by the custodian to be
delivered directly to the successor custodian, and (c) in the event that no
successor custodian can be found, submit to the stockholders of the Corporation,
before permitting delivery of such cash and securities to anyone other than a
successor custodian, the question whether the Corporation shall be dissolved or
shall function without a custodian; provided, however, that nothing herein
contained shall prevent the termination of any agreement between the Corporation
and any such custodian by the affirmative vote of the holders of a majority of
all the stock of the Corporation at the time outstanding and entitled to vote.
Upon its resignation or inability to serve and pending action by the Corporation
as set forth in this section, the custodian may deliver any assets of the
Corporation held by it to a qualified bank or trust company in the City of New
York, or to a member
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firm of the New York Stock Exchange, Inc selected by it, such assets to be held
subject to the terms of custody which governed such retiring custodian.
Section 12. INVESTMENT ADVISERS. The Corporation may enter into one or more
management or advisory, underwriting, distribution or administration contracts
with any person, firm, partnership, association or corporation but such contract
or contracts shall continue in effect only so long as such continuance is
specifically approved annually by a majority of the Board of Directors or by
vote of the holders of a majority of the voting securities of the Corporation,
and in either case by vote of a majority of the directors who are not parties to
such contracts or interested persons (as defined in the Investment Company Act
of 1940) of any such party cast in person at a meeting called for the purpose of
voting on such approval.
ARTICLE VIII
Amendments
The Board of Directors shall have the power, by a majority vote of the
entire Board of Directors at any meeting thereof, to make, alter and repeal
by-laws of the Corporation.
[GRAPHIC OMITTED]
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
CALIFORNIA DAILY TAX FREE INCOME FUND, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE 20,000,000,000 COMMON SHARES PAR VALUE
$.001 EACH
THIS CERTIFIES THAT [ SPECIMEN ] IS THE OWNER OF [ ]
FULLY PAID AND NON-ASSESSABLE SHARES OF THE ABOVE CORPORATION TRANSFERABLE ONLY
ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEROF IN PERSON OR BY DULY
AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND TO BE SEALED WITH THE SEAL OF THE
CORPORATION.
DATED [ ]
BATTLE, FOWLER, JAFFIN & KHEEL
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
280 PARK AVENUE
NEW YORK, N.Y. 10017
(212) 949-8300
WRITER'S DIRECT DIAL NUMBER
CABLE ADDRESS
"COUNSELLOR"
TELEX 127053
TELECOPIER
(212) 896-5135
January 28, 1987
California Daily Tax Free
Income Fund, Inc.
100 Park Avenue
New York, New York 10017
Gentlemen:
We have acted as counsel to California Daily Tax Free Income
Fund, Inc., a Maryland corporation (the "Fund"), in connection with the
preparation and filing of Registration Statement No. 33-10436 on Form N-1A and
all amendments thereto (the "Registration Statement") covering shares of Common
Stock, par value $.001 per share, of the Fund.
We have examined copies of the Articles of Incorporation and
By-Laws of the Fund, the Registration Statement, and such other corporate
records, proceedings and documents, including the consent of the Board of
Directors and the minutes of the meeting of the Board of Directors of the Fund,
as we have deemed necessary for the purpose of this opinion. We have also
examined such other documents, papers, statutes and authorities as we deemed
necessary to form a basis for the opinion hereinafter expressed. In our
examination of such material, we have assumed the genuineness of all signatures
and the conformity to original documents of all copies submitted to us. As to
various questions of fact material to such opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
Based upon the foregoing, we are of the opinion that the
shares of Common Stock, par value $.001 per share, of the Fund, to be issued in
accordance with the terms of the offering, as set forth in the Prospectus and
Statement of Additional Information included as part of the Registration
Statement, and in accordance with applicable state securities laws, when so
issued and paid for, will constitute validly authorized and legally issued
shares of Common Stock, fully paid and non-assessable.
<PAGE>
BATTLE, FOWLER, JAFFIN & KHEEL Page 2
California Daily Tax Free
Income Fund, Inc.
January 28, 1987
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us in the Registration
Statement under the heading "Federal Income Taxes" in the Prospectus and in the
Statement of Additional Information, and under the heading "Counsel and
Auditors" in the Statement of Additional Information.
Very truly yours,
/s/ Battle Fowler
Brown & Wood LLP
April 30, 1999
Board of Directors
California Daily Tax Free Income Fund, Inc.
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
Ladies and Gentlemen:
We have acted as special California tax counsel for the California
Daily Tax Free Income Fund, Inc. ("Fund") with respect to the filing by the Fund
of the Registration Statement on Form N-1A ("Registration Statement") under the
Securities Act of 1933, as amended. The date the Registration Statement becomes
effective is referred to herein as the "Effective Date."
In accordance with our understanding with you as to the scope of our
services, we have reviewed the Prospectus and the Statement of Additional
Information included in the Registration Statement and California income tax
statues and income tax regulations as they relate to the Fund.
On the basis of the information we gained in the course of serving as
special California tax counsel, we advise you that the statements relating to
California income tax matters contained under the heading "Tax Consequences -
California Income Taxes" in the Prospectus and under the heading "Taxation of
the Fund - California Income Taxes" in the Statement of Additional Information
are complete and accurate in all material respects.
Our opinion is limited to statements in the above-mentioned sections
and subsections relating to California income tax law. We express no other
opinion as to other portions of those sections that contain statements not
related to California income tax law.
This opinion is given as of and speaks only as of the Effective Date
and as of the date hereof, based upon California income tax law as of the
Effective Date and the date hereof.
Board of Directors
California Daily Tax Free Income Fund, Inc.
April 30, 1999
Page 2
This letter may be relied upon by you and your counsel, and may not be
used or relied upon by any other person or entity. This letter may not be used,
circulated, quoted or otherwise referred to in connection with the offering of
shares in the Fund, nor provided in any manner to any person other than (a)
Reich & Tang Asset Management L.P. or any employee, officer, director or counsel
of the foregoing, or (b) a duly authorized governmental agency, without our
express written approval.
Very truly yours,
EXHIBIT J
McGLADREY & PULLEN, L.L.P.
Certified Public Accountants & Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated January 29, 1999, on the
financial statements of California Daily Tax Free Income Fund, Inc. referred to
therein, which is incorporated by reference in Post-Effective Amendment No. 18
to the Registration Statement on Form N-1A, File No. 33-10436, of California
Daily Tax Free Income Fund, Inc. as filed with the Securities and Exchange
Commission.
We also consent to the reference to our Firm in the Prospectus under the
caption "Financial Highlights" and in the Statement of Addtional Information
under the captions "Counsel and Auditors" and "Financial Statements".
/s/McGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
April 22, 1999
January 20, 1987
Board of Directors of
California Daily Tax Free
Income Fund, Inc.
Gentlemen:
We hereby subscribe for 100,000 shares of the Common Stock,
$.001 par value per share, of California Daily Tax Free Income Fund, Inc. a
Maryland corporation (the "Corporation"), at $1.00 per share for an aggregate
purchase price of $100,000. Our payment in full is confirmed.
We hereby represent and agree that we are purchasing these
shares of stock for investment purposes, for our own account and risk and not
with a view to any sale, division or other distribution thereof within the
meaning of the Securities Act of 1933 as amended, nor with any present intention
of distributing or selling such shares. We further agree that if any of such
shares are redeemed during the period that the deferred organizational expenses
of the Corporation are being amortized, we will reimburse the Corporation the
then unamortized organizational expenses in the same ratio as the number of
shares redeemed bears to the number of such shares held at the time of
redemption.
Very truly yours,
REICH & TANG, INC.
By:/s/Bernadette N. Finn
Bernadette N. Finn
Confirmed and Accepted:
CALIFORNIA DAILY TAX FREE
INCOME FUND, INC.
By:/s/ William Berkowitz
William Berkowitz
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Dr. Yung Wong, whose signature
appears below, constitutes and appoints Dana E. Messina and Bernadette N. Finn,
and each of them, with full power of substitution, as his true and lawful
attorney and agent to execute in his name and on his behalf, in any and all
capacities, the Registration Statement on Form N-1A, and any and all amendments
thereto (including pre-effective amendments) filed by California Daily Tax Free
Income Fund, Inc. (the "Fund") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorney and
agent deems necessary or advisable to enable the Trust to comply with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorney and agent shall do or cause to be done
by virtue hereof.
/s/ Dr. Yung Wong
Dr. Yung Wong
Director
Dated: November 9, 1990
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Robert Strainere, whose signature
appears below, constitutes and appoints Dana E. Messina and Bernadette N. Finn,
and each of them, with full power of substitution, as his true and lawful
attorney and agent to execute in his name and on his behalf, in any and all
capacities, the Registration Statement on Form N-1A, and any and all amendments
thereto (including pre-effective amendments) filed by California Daily Tax Free
Income Fund, Inc. (the "Fund") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorney and
agent deems necessary or advisable to enable the Fund to comply with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorney and agent shall do or cause to be done
by virtue hereof.
/s/ Robert Straniere
Robert Straniere
Director
Dated: November 9, 1990
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that William Berkowitz, whose signature
appears below, constitutes and appoints Dana E. Messina and Bernadette N. Finn,
and each of them, with full power of substitution, as his true and lawful
attorney and agent to execute in his name and on his behalf, in any and all
capacities, the Registration Statement on Form N-1A, and any and all amendments
thereto (including pre-effective amendments) filed by California Daily Tax Free
Income Fund, Inc. (the "Fund") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorney and
agent deems necessary or advisable to enable the Fund to comply with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorney and agent shall do or cause to be done
by virtue hereof.
/s/ William Berkowitz
William Berkowitz
Director
Dated: November 9, 1990
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Dr. W. Giles Mellon, whose
signature appears below, constitutes and appoints Dana E. Messina and Bernadette
N. Finn, and each of them, with full power of substitution, as his true and
lawful attorney and agent to execute in his name and on his behalf, in any and
all capacities, the Registration Statement on Form N-1A, and any and all
amendments thereto (including pre-effective amendments) filed by California
Daily Tax Free Income Fund, Inc. (the "Fund") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and under the
Investment Company Act of 1940, as amended, and any and all other instruments
which such attorney and agent deems necessary or advisable to enable the Fund to
comply with the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, the rules, regulations and requirements of the Securities
and Exchange Commission, and the securities or Blue Sky laws of any state or
other jurisdiction; and the undersigned hereby ratifies and confirms as his own
act and deed any and all that such attorney and agent shall do or cause to be
done by virtue hereof.
/s/ Dr. W. Giles Mellon
Dr. W. Giles Mellon
Director
Dated: November 9, 1990
