<PAGE>
As filed with the Securities and Exchange Commission on June 26, 1998
Registration No. 33-11642
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. 17 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 18 [X]
MICHIGAN DAILY TAX FREE INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5220
BERNADETTE N. FINN
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)
Copy to:MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on June 29, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2)of Rule 485
The Registrant has filed a Rule 24f-2 Notice for its fiscal year ended February
28, 1998 on April 28, 1998.
<PAGE>
MICHIGAN DAILY TAX FREE INCOME FUND, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 404(c)
Part A
Item No. Prospectus Heading
1. Cover Page........................ Cover Page
2. Synopsis.......................... Introduction; Table of Fees and
Expenses
3. Condensed Financial Information... Financial Highlights
4. General Description of General Information; Investment
Registrant........................ Objectives, Policies and Risks
5. Management of the Fund............ Management of the Fund; Distribution
and Service Plan; Custodian and
Transfer Agent
5a. Management's Discussion of Fund
Performance....................... Not Applicable
6. Capital Stock and Description of Common Stock; How to
Other Securities.................. Purchase and Redeem Shares; General
Information; Dividends and
Distributions; Federal Income Taxes
7. Purchase of Securities Being How to Purchase and Redeem Shares;
Offered........................... Distribution and Service Plan; Net
Asset Value
8. Redemption or Repurchase.......... How to Purchase and Redeem Shares
9. Legal Proceedings................. Not Applicable
<PAGE>
Part B Caption in Statement of
Item No. Additional Information
10. Cover Page........................ Cover Page
11. Table of Contents................. Table of Contents
12. General Information and History... Manager; Management of the Fund
13. Investment Objectives
and Policies...................... Investment Objectives, Policies and
Risks
14. Management of the Registrant...... Manager; Management of the Fund
15. Control Persons and Principal Management of the Fund;
Holders of Securities..............Description of Common Stock
16. Investment Advisory and Manager; Expense Limitation;
Other Services................... Management of the Fund; Distribution
and Service Plan; Custodian,
Transfer Agent and Dividend Agent
17. Brokerage Allocation.............. Portfolio Transactions
18. Capital Stock and
Other Securities................. Description of Common Stock
19. Purchase, Redemption and Pricing How to Purchase and Redeem Shares;
of Securities Being Offered....... Net Asset Value
20. Tax Status........................ Federal Income Taxes;
Michigan Income Taxes
21. Underwriters...................... Distribution and Service Plan
22. Calculations of Yield Quotations
of Money Market Funds............. Yield Quotations
23. Financial Statements.............. Independent Auditor's Report;
Statement of Net Assets (audited),
dated February 28, 1998; Statement
of Operations (audited), dated
February 28, 1998; Statement of
Changes in Net Assets (audited),
dated February 28, 1998; Notes to
Financial Statements (audited),
dated February 28, 1998.
<PAGE>
- -------------------------------------------------------------------------------
MICHIGAN 600 FIFTH AVENUE
DAILY TAX FREE NEW YORK, N.Y. 10020
INCOME FUND, INC. (212) 830-5220
- -------------------------------------------------------------------------------
PROSPECTUS
July 1, 1998
Michigan Daily Tax Free Income Fund, Inc. (the "Fund") is an open-end management
investment company that is a short-term, tax-exempt, money market fund whose
investment objectives are to seek as high a level of current income exempt from
regular Federal income taxes and to the extent possible from Michigan income
taxes, as is believed to be consistent with preservation of capital, maintenance
of liquidity and stability of principal. No assurance can be given that those
objectives will be achieved. The Fund offers two classes of shares to the
general public. The Class A shares of the Fund are subject to a service fee
pursuant to the Fund's Rule 12b-1 Distribution and Service Plan and are sold
through financial intermediaries who provide servicing to Class A shareholders
for which they receive compensation from the Manager and the Distributor. The
Class B shares of the Fund are not subject to a service fee and either are sold
directly to the public or are sold through financial intermediaries that do not
receive compensation from the Manager or the Distributor. In all other respects,
the Class A and Class B shares represent the same interest in the income and
assets of the Fund. The Fund is concentrated in the securities issued by
Michigan or entities within Michigan and the Fund may invest a significant
percentage of its assets in a single issuer, therefore an investment in the Fund
may be riskier than an investment in other types of money market funds.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. Additional information about the Fund
has been filed with the Securities and Exchange Commission (the "SEC") and is
available upon request and without charge by calling or writing the Fund at the
address or telephone number set forth above. The "Statement of Additional
Information" bears the same date as this Prospectus and is incorporated by
reference into this Prospectus in its entirety. The SEC maintains a web site
(http://www.sec.gov) that contains the Statement of Additional Information and
other reports and information regarding the Fund which have been filed
electronically with the SEC. Reich & Tang Asset Management L.P. is a registered
investment adviser and acts as investment manager of the Fund. Reich & Tang
Distributors, Inc. acts as distributor of the Fund's shares and is a registered
broker-dealer and member of the National Association of Securities Dealers, Inc.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. The Fund intends to maintain a stable net asset value of $1.00 per
share although there can be no assurance that this value will be maintained.
Shares in the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency.
This Prospectus should be read and retained by investors for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT BEING OFFERED VIA THE
INTERNET TO RESIDENTS OF PARTICULAR STATES.
1
<PAGE>
TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
(as a percentage of average net assets) Class A Class B
Management Fees - After fee Waiver 0.09% 0.09%
12b-1 Fees 0.20% --
Other Expenses 0.52% 0.52%
Administration Fees 0.21% 0.21%
------ ------
Total Fund Operating Expenses -
After Fee Waiver 0.81% 0.61%
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following expenses
on a $1000 investment, assuming 5%
annual return (cumulative through
the end of each year):
Class A $8 $26 $45 $100
Class B $6 $20 $34 $76
The purpose of the above fee table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a further discussion of these fees see "Management of the Fund"
and "Distribution and Service Plan" herein. The Manager voluntarily waived a
portion of the management fees. Absent the fee waivers, the management fee would
have been 0.30%. The Total Fund Operating Expenses would have been 1.02% for
Class A shares and 0.82% for Class B shares, absent the respective fee waivers.
Expense information in the table has been restated to reflect current fees.
The figures reflected in this example should not be considered as a
representation of past or future expenses. Actual expenses may be greater or
less than those shown above.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights of Michigan Daily Tax Free Income Fund, Inc.
have been audited by McGladrey & Pullen, LLP, Independent Certified Public
Accountants, whose report thereon is incorporated by reference in the Statement
of Additional Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended February 28/29
Class A 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------- ------- ------- ------ ------ ------- ------- ------- ------ ------ ------
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 $1.00 $1.00 $1.00 $1.00 $1.00
--------- ------- ------- ------- ------ ------ ------- ------- ------ -----
Income from investment operations:
Net investment income....... 0.030 0.028 0.032 0.025 0.019 0.023 0.038 0.055 0.061 0.048
Less distributions:
Dividends from net
investment income......... ( 0.030) (0.028) (0.032) (0.025) (0.019) (0.023) (0.038) (0.055) (0.061) (0.048)
------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
========== ======= ======= ======== ======= ======= ======= ======= ======== =======
Total Return.................. 3.00% 2.82% 3.23% 2.56% 1.88% 2.33% 3.82% 5.64% 6.28% 4.95%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $51,593 $45,148 $57,510 $55,324 $68,401 $83,101 $119,535 $119,770 $63,811 $25,477
Ratios to average net assets:
Expenses.................... 0.81% 0.82% 0.82% 0.75% 0.74% 0.68% 0.64% 0.39% 0.20% 0.57%
Net investment income....... 2.96% 2.79% 3.17% 2.53% 1.86% 2.32% 3.73% 5.45% 6.05% 4.92%
Management, administration and
Shareholder servicing fees waived 0.21% 0.08% 0.10% 0.28% 0.30% 0.25% 0.25% 0.49% 0.70% 0.70%
Expenses paid indirectly.... 0.00% 0.01% 0.02% -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Year October 10, 1996
Class B Ended (Commencement of Sales) to
February 28, 1998 February 28, 1997
----------------- -----------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period........... $ 1.00 $ 1.00
--------- -------
Income from investment operations:
Net investment income........................ 0.018 0.012
Less distributions:
Dividends from net investment income......... ( 0.018) (0.012)
--------- -------
Net asset value, end of period................. $ 1.00 $ 1.00
========= =======
Total Return................................... 3.19%* 3.08%*
Ratios/Supplemental Data
Net assets, end of period (000's omitted)...... -0- 5
Ratios to average net assets:
Expenses..................................... 0.62%* 0.60%*
Net investment income........................ 3.15%* 3.04%*
Management and administration fees waived.... 0.21%* 0.08%*
Expenses paid indirectly..................... 0.00% 0.01%*
* Annualized
</TABLE>
3
<PAGE>
INTRODUCTION
Michigan Daily Tax Free Income Fund, Inc. (the "Fund") is an open-end investment
management company that is a short-term, tax-exempt money market fund whose
investment objectives are to seek as high a level of current income exempt under
current law, in the opinion of bond counsel to the issuer at the date of
issuance, from regular Federal income tax, and, to the extent possible, from
Michigan income taxes, as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal by investing
principally in short-term, high quality debt obligations of the State of
Michigan, Puerto Rico and other U.S. territories, and their political
subdivisions as described under "Investment Objectives, Policies and Risks"
herein. The Fund also may invest in municipal securities of issuers located in
states other than Michigan, the interest income on 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 Michigan income taxes for Michigan
residents. The Fund seeks to maintain an investment portfolio with a
dollar-weighted average maturity of 90 days or less, and to value its investment
portfolio at amortized cost and maintain a net asset value of $1.00 per share,
although there can be no assurance that this value will be maintained. The Fund
intends to invest all of its assets in tax-exempt obligations; however, it
reserves the right to invest up to 20% of the value of its total assets in
taxable obligations. This is a summary of the Fund's fundamental investment
policies which are set forth in full under "Investment Objectives, Policies and
Risks" herein and in the Statement of Additional Information and may not be
changed without approval of a majority of the Fund's outstanding shares. No
assurance can be given that these objectives will be achieved.
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"), which is a registered investment adviser and which currently acts as
investment adviser or administrator to seventeen other open-end investment
management companies. The Fund's shares are distributed through Reich & Tang
Distributors Inc. (the "Distributor"), with whom the Fund has entered into a
Distribution Agreement and a Shareholder Servicing Agreement (with respect to
the Class A shares of the Fund only) pursuant to the Fund's plan adopted under
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended,
(the "1940 Act"). (See "Distribution and Service Plan" herein.)
On any day on which the New York Stock Exchange, Inc. is open for trading ("Fund
Business Day"), investors may, without charge by the Fund, purchase and redeem
shares of the Fund's common stock at their net asset value next determined after
receipt of the order. An investor's subscription purchase order will be accepted
after the payment is converted into Federal Funds, and shares will be issued as
of the Fund's next net asset value determination which is made as of 12 noon,
New York City time, on each Fund Business Day. (See "How to Purchase and Redeem
Shares" and "Net Asset Value" herein.) Dividends from accumulated net income are
declared by the Fund on each Fund Business Day. The Fund pays interest dividends
monthly. Net capital gains, if any, will be distributed at least annually, and
in no event later than 60 days after the end of the Fund's fiscal year. All
dividends and distributions of capital gains are automatically invested in
additional shares of the same Class of the Fund unless a shareholder has elected
by written notice to the Fund to receive either of such distributions in cash.
(See "Dividends and Distributions" herein.)
The Fund intends that its investment portfolio may be concentrated in Michigan
Municipal Obligations, as defined herein, and Participation Certificates as
defined herein. A summary of special risk factors affecting the State of
Michigan is set forth under "Investment Objectives, Policies and Risks" herein
and "Michigan Risk Factors" in the Statement of Additional Information.
Investment in the Fund should be made with an understanding of the risks which
an investment in Michigan Municipal Obligations may entail. Payment of interest
and preservation of capital are dependent upon the continuing ability of
Michigan issuers and/or obligors of state, municipal and public authority
3
<PAGE>
debt obligations to meet their obligations thereunder. Investors should consider
the greater risk of the Fund's concentration versus the safety that comes with a
less concentrated portfolio.
The Fund's Board of Directors is authorized to divide the unissued shares into
separate series of stock, one for each of the Fund's separate investment
portfolios that may be created in the future.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The Fund is an open-end management investment company that is a short-term,
tax-exempt money market fund whose investment objectives are to seek as high a
level of current income exempt from regular Federal income tax and, to the
extent possible, from Michigan income taxes, as is believed to be consistent
with the preservation of capital, maintenance of liquidity and stability of
principal. There can be no assurance that the Fund will achieve its investment
objectives.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of Michigan, other states, territories and
possessions of the U.S. 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
income taxation ("Municipal Obligations") and in Participation Certificates
(which, in the opinion of Battle Fowler LLP, counsel to the Fund, cause the Fund
to be treated as the owner of the underlying Municipal Obligations) in Municipal
Obligations purchased from banks, insurance companies or other financial
institutions ("Participation Certificates"). The Fund will invest more than 25%
of its assets in Michigan Municipal Obligations, including Participation
Certificates therein. 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 in Municipal Obligations
will be exempt from regular Federal income tax provided the Fund complies with
Section 852(b)(5) of Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code").
Although the Supreme Court has determined that Congress has the authority to
subject the interest on bonds such as the Municipal Obligations to Federal
income taxation, existing law excludes such interest from regular Federal income
tax. However, "exempt-interest dividends" may be subject to the Federal
alternative minimum tax. Securities, the interest income on which may be subject
to the Federal alternative minimum tax (including Participation Certificates in
such securities), together with 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 correctly identified by the Fund as
derived from obligations issued by or on behalf of the State of Michigan or any
Michigan local governments, or their instrumentalities, authorities or districts
("Michigan Municipal Obligations") will be exempt from the Michigan 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 Michigan is prohibited from taxing under the Constitution, the
laws of the United States of America or the Michigan Constitution ("Territorial
Municipal Obligations") also should be exempt from the Michigan Income Tax
provided the Fund complies with Michigan law. (See "Michigan Income Taxes"
herein.) To the extent suitable Michigan 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 the Michigan Income Tax.
However, except as a temporary defensive measure during periods of adverse
market conditions as determined by the Manager, the Fund will invest at least
65% of its total assets in Michigan Municipal Obligations, although the exact
amount of the
4
<PAGE>
Fund's assets invested in such securities will vary from time to time. The
Fund's investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements. Although the Fund will attempt to
invest 100% of its assets in Municipal Obligations (excluding securities, the
interest income on which may be subject to the Federal alternative minimum tax)
and in Participation Certificates in Municipal Obligations, the Fund reserves
the right to invest up to 20% of the value of its total assets in securities,
the interest income on which is subject to Federal, state and local income tax,
including securities, the interest income on which may be subject to the Federal
alternative minimum tax. The investment objectives of the Fund described in this
paragraph may not be changed unless approved by the holders of a majority of the
outstanding shares of the Fund that would be affected by such a change. As used
in this Prospectus, the term "majority of the outstanding shares" of the Fund
means, respectively, the vote of the lesser of (i) 67% or more of the shares of
the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy or (ii) more
than 50% of the outstanding shares of the Fund.
The Fund may only purchase 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)
Municipal Obligations with remaining maturities of 397 days or less and rated in
the two highest short-term rating categories by any two nationally recognized
statistical rating organizations ("NRSROs") or in such categories by the only
NRSRO that has rated the Municipal Obligations (collectively, the "Requisite
NRSROs") (acquisition in the latter situation must also be ratified by the Board
of Directors); (ii) unrated Municipal Obligations determined by the Fund's Board
of Directors to be of comparable quality; and (iii) Municipal Obligations which
are subject to a Demand Feature or Guarantee (as such terms are defined in Rule
2a-7 of the 1940 Act) and also meet the criteria set forth in either of the
above clauses (i) or (ii). A determination of comparability by the Board of
Directors is made on the basis of its credit evaluation of the issuer, which may
include an evaluation of a letter of credit, guarantee, insurance or other
credit facility issued in support of the Municipal Obligations or Participation
Certificates. (See "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information.) While there are
several organizations that currently qualify as NRSROs, two examples of NRSROs
are Standard & Poor's 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
"SP-1AA" by S&P and "VMIG-1" by Moody's. Such instruments may produce a lower
yield than would be available from less highly rated instruments.
Subsequent to its purchase by the Fund, the quality of an investment may cease
to be rated or its rating may be reduced such that the investment is no longer a
First Tier Security or is rated 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. The term First Tier
Security means any Eligible Security that: (i) is a rated security that has
received a short-term rating from the Requisite NRSROs in the highest short-term
rating category for debt obligations; (ii) is an unrated security that is, as
determined by the Fund's Board of Directors, to be of comparable
5
<PAGE>
quality; (iii) is a security issued by a registered investment company that is a
money market fund; or (iv) is a government security.
In addition, in the event that a security (1) is in default, (2) ceases to be an
Eligible Security under Rule 2a-7 of the 1940 Act or (3) is determined to no
longer present minimal credit risks, or an event of insolvency occurs with
respect to the issuer 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. In the event that the security
is disposed of , such disposal 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 in 397 days
or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
In view of the "concentration" of the Fund in Participation Certificates in
Michigan Municipal Obligations, which may be secured by 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. Such risks include extensive governmental regulation, changes in the
availability and cost of capital funds, and general economic conditions. (See
"Variable Rate Demand Instruments and Participation Certificates" in the
Statement of Additional Information.)
Banks are subject to extensive governmental regulations which may limit both the
amounts and types of loans and other financial commitments which may be made and
interest rates and fees which may be charged. The profitability of this industry
is largely dependent upon the availability and cost of capital funds for the
purpose of financing lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operations of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations under a letter of credit. The Fund may invest 25% or more of the net
assets of any portfolio in securities that are related in such a way that an
economic, business or political development or change affecting one of the
securities would also affect the other securities including, for example,
securities the interest upon which is paid from revenues of similar type
projects, or securities the issuers of which are located in the same state.
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios and which may not be changed unless approved by a
majority of the outstanding shares of each series of the Fund's shares that
would be affected by such a change. The Fund is subject to further investment
restrictions that are set forth in the Statement of Additional Information. The
Fund may not:
1. Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make
6
<PAGE>
any investments. Interest paid on borrowings will reduce net income.
2. 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.
3. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may
purchase variable rate demand instruments which contain a Demand Feature.
The Fund will not invest in a repurchase agreement maturing in more than
seven days if any such investment together with securities that are not
readily marketable held by the Fund exceed 10% of the Fund's total net
assets.
4. Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that the Fund may invest more than 25% of its
assets in Participation Certificates and there shall be no limitation on
the purchase of those Municipal Obligations and other obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities. With
respect to 75% of the total amortized cost value of the Fund's assets, not
more than 5% of the Fund's assets may be invested in securities that are
subject to underlying puts from the same institution, and no single bank
shall issue its letter of credit and no single financial institution shall
issue a credit enhancement covering more than 5% of the total assets of the
Fund. However, if the puts are exercisable by the Fund in the event of
default on payment of principal and interest on the underlying security,
then the Fund may invest up to 10% of its assets in securities underlying
puts issued or guaranteed by the same institution; additionally, a single
bank can issue its letter of credit or a single financial institution can
issue a credit enhancement covering up to 10% of the Fund's assets, where
the puts offer the Fund such default protection.
5. Invest in securities of other investment companies, except the Fund may
purchase unit investment trust securities where such unit trusts meet the
investment objectives of the Fund and then only up to 5% of the Fund's net
assets, except as they may be acquired as part of a merger, consolidation
or acquisition of assets.
The Fund intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Code. The Fund will be restricted in that at the close
of each quarter of the taxable year, at least 50% of the value of its total
assets must be represented by cash, government securities, investment company
securities and other securities limited in respect of any one issuer to not more
than 5% in value of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of such issuer. In addition, at the close of each
quarter of its taxable year, not more than 25% in value of the Fund's total
assets may be invested in securities of one issuer other than government
securities. The limitations described in this paragraph 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.)
The primary purpose of investing in a portfolio of Michigan Municipal
Obligations is the special tax treatment accorded Michigan resident individual
investors. However, payment of interest and preservation of principal are
dependent upon the continuing ability of the Michigan issuers and/or obligors of
state, municipal and public authority debt obligations to meet their obligations
thereunder. Generally, the State's economy could continue to be affected by
changes in the auto industry, notably consolidation and plant closings resulting
from competitive pressures and overcapacity. Such actions could adversely affect
the State revenues. The impact on the financial condition of the municipalities
in which the plants are located may be more severe than the impact on the State
itself. In addition, on March 15, 1994, the electors of the State voted to amend
the State's
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Constitution to increase the State sales tax rate from 4% to 6% and to place an
annual cap on property assessment increases for all property taxes. Companion
legislation cut the State's income tax rate from 4.6% to 4.4%, reduced some
property taxes and altered local school funding to a combination of property
taxes and state revenues, some of which are provided from new or increased State
taxes. The legislation also contained other provisions that alter (and, in some
cases, may reduce) the revenues of local units of government and tax increment
bonds could be particularly affected. While the ultimate impact of the
constitutional amendment and related legislation cannot yet be accurately
predicted, investors should be alert to the potential effect of such measures
upon the operations and revenues of Michigan local units of government. A more
complete discussion of special risk factors affecting the State of Michigan is
set forth under "Michigan Risk Factors" in the Statement of Additional
Information.
Investors should consider the greater risk of the Fund's concentration versus
the safety that comes with a less concentrated investment portfolio and should
compare yields available on portfolios of Michigan issues with those of more
diversified portfolios including out-of-state issues before making an investment
decision. The Fund's management believes that by maintaining the Fund's
investment portfolio in liquid, short-term, high quality investments, including
the Participation Certificates and other variable rate demand instruments that
have high quality credit support from banks, insurance companies or other
financial institutions, the Fund is largely insulated from the credit risks that
may exist on long-term Michigan Municipal Obligations. For additional
information, please refer to the Statement of Additional Information.
MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed Reich & Tang Asset Management L.P. to
serve as investment manager of the Fund. The Manager provides persons
satisfactory to the Fund's Board of Directors to serve as officers of the Fund.
Such officers, as well as certain other employees and directors of the Fund, may
be directors or officers of Reich & Tang Asset Management, Inc., the sole
general partner of the Manager, or employees of the Manager or its affiliates.
Due to the services performed by the Manager, the Fund currently has no
employees and its officers are not required to devote full-time to the affairs
of the Fund. The Statement of Additional Information contains general background
information regarding each Director and principal officer of the Fund.
The Manager is a Delaware limited partnership with its principal office at 600
Fifth Avenue, New York, New York 10020. The Manager was at May 31, 1998,
investment manager, adviser or supervisor with respect to assets aggregating in
excess of $11.4 billion. The Manager acts as manager or administrator of
seventeen other investment companies and also advises pension trusts, profit
sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager, due to a restructuring by New England
Investment Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998,
Nvest Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP,
replaced 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.
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Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
MetLife is a mutual life insurance company 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 its 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 Partnership, Greystone Partners, L.P., Harris Associates,
L.P., Jurika & Voyles, L.P., Loomis, Sayles & Company, L.P., New England Funds,
L.P., Nvest Associates, Inc., Snyder Capital Management, L.P., Vaughan, Nelson,
Scarborough & McCullough, L.P., and Westpeak Investment Advisors, L.P. These
affiliates in the aggregate are investment advisers or managers to 80 other
registered investment companies.
The recent name change did not result in a change in control of the Manager and
has no impact upon the Manager's performance of its responsibilities and
obligations.
The Investment Management Contract has a term which extends to February 28, 1999
and may be continued in force thereafter for successive twelve-month periods
beginning each March 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.
For its services under the Investment Management Contract, the Manager receives
from the Fund a fee equal to .30% of the Fund's average daily net assets (the
"Management Fee") for managing the Fund's investment portfolio and performing
related services.
Pursuant to the Administrative Services Contract for the Fund, the Manager
performs clerical, accounting supervision and office service functions for the
Fund and provides the Fund with personnel to (i) supervise the performance of
bookkeeping and related services by Investors Fiduciary Trust Company the Fund's
bookkeeping agent; (ii) prepare reports to and filings with regulatory
authorities; and (iii) perform such other services as the Fund may from time to
time request of the Manager. The personnel rendering such services may be
employees of the Manager or its affiliates. The Manager, at its discretion, may
voluntarily waive all or a portion of the administrative services fee. For its
services under the Administrative Services Contract, the Manager receives a fee
equal to .21% per annum of the Fund's average daily net assets. Any portion of
the total fees received by the Manager may be used to provide shareholder
services and for distribution of Fund shares. (See "Distribution and Service
Plan" herein.)
In addition, the Distributor receives a fee equal to .20% of the Fund's average
daily net assets of the
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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 the Fund will be allocated
daily to each class share based on the percentage of outstanding shares at the
end of the day.
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on January 30, 1987. The authorized
capital stock of the Fund consists of twenty billion shares of stock having a
par value of one tenth of one cent ($.001) per share. The Fund's Board of
Directors is authorized to divide the unissued shares into separate series of
stock, each series representing a separate, additional investment portfolio.
Shares of all series will have identical voting rights, except where, by law,
certain matters must be approved by a majority of the shares of the affected
series. Each share of any series of shares when issued has equal dividend,
distribution, liquidation and voting rights within the series for which it was
issued, and each fractional share has those rights in proportion to the
percentage that the fractional share represents of a whole share. Generally, all
shares will be voted on in the aggregate except if voting by Class is required
by law or the matter involved affects only one class, in which case shares will
be voted on separately by Class. 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 Class A and Class B shares of the Fund 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 Fund's average daily
net assets; (iii) only the holders of the Class A shares would 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
shareholders to exchange their shares only for shares of the same Class of a
Fund that participates in an exchange privilege with the Fund. (See "Exchange
Privilege" herein.) Payments that are made under the Plans will be calculated
and charged daily to the appropriate Class prior to determining daily net asset
value per share and dividends/distributions.
Under its Articles of Incorporation the Fund has the right to redeem shares of
stock owned by any shareholder for cash to the extent, and at such times, as the
Fund's Board of Directors determines to be necessary or appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders. As of May 31, 1998,
the amount of shares owned by all officers and directors of the Fund as a group
was less than 1% of the outstanding shares of the Fund.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the outstanding shares, voting for the election of
directors, can elect 100% of the directors, if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and pays dividends monthly. There is no fixed dividend rate.
In computing these dividends, interest earned and expenses are accrued daily.
Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year.
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All dividends and distributions of capital gains are automatically invested in
additional Fund shares 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.
The Class A shares will bear the service fee under the Plan. As a result, 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.
HOW TO PURCHASE AND REDEEM SHARES
Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations in accordance with the procedures
established by the Participating Organizations. Certain Participating
Organizations are compensated by the Distributor from its shareholder servicing
fee and by the Manager from its management fee for the performance of these
services. An investor who purchases shares through a Participating Organization
that receives payment from the Manager or the Distributor will become a Class A
shareholder. (See "Investments Through Participating Organizations" herein.) All
other investors, and investors who have accounts with Participating
Organizations but who do not wish to invest in the Fund through their
Participating Organizations, may invest in the Fund directly as Class B
shareholders of the Fund and 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 do
not receive compensation from the Distributor or the Manager because they may
not be legally permitted to receive such as fiduciaries. The Manager pays the
expenses incurred in the distribution of Class B shares. Participating
Organizations whose clients become Class B shareholders will not receive
compensation from the Manager or Distributor for the servicing they may provide
to their clients. (See "Direct Purchase and Redemption Procedures" herein.) With
respect to both Classes of shares, the minimum initial investment in the Fund by
Participating Organizations is $1,000, which may be satisfied by initial
investments aggregating $1,000 by a Participating Organization on behalf of
customers whose initial investments are less than $1,000. The minimum initial
investment for securities brokers, financial institutions and other industry
professionals that are not Participating Organizations is $1,000. The minimum
initial investment for all other investors is $5,000. Initial investments may be
made in any amount in excess of the applicable minimums. The minimum amount for
subsequent investments is $100 unless the investor is a client of a
Participating Organization whose clients have made aggregate subsequent
investments of $100.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent,
which accepts orders for purchases and redemptions from Participating
Organizations and from investors directly.
In order to maximize earnings on its portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in funds of Federal Reserve member banks on deposit
at a Federal Reserve Bank (commonly known as "Federal Funds"). Accordingly, the
Fund does not accept a subscription or invest an investor's payment in portfolio
securities until the payment has been converted into Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share for each Class made after acceptance of the investor's order at
the net asset value per share next determined after receipt of the order. Shares
begin accruing income dividends on the day they are purchased. The Fund reserves
the right to reject
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<PAGE>
any subscription for its shares. Certificates for Fund shares will not be issued
to an investor.
Shares are issued as of 12 noon, New York City time, on any Fund Business Day,
as defined herein, on which an order for the shares and accompanying Federal
Funds are received by the Fund's transfer agent before 12 noon. Orders
accompanied by Federal Funds and received after 12 noon, New York City time, on
a Fund Business Day will not result in share issuance until the following Fund
Business Day. Fund shares begin accruing income on the day the shares are issued
to an investor.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
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 shareholder's address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted, or for 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.
Redemption requests received by the Fund's transfer agent before 12 noon, New
York City time, on any Fund Business Day become effective at 12 noon that day.
Shares redeemed are not entitled to participate in dividends declared on the day
a redemption becomes effective. A redemption request received after 12 noon, New
York City time, on any Fund Business Day becomes effective on the next Fund
Business Day.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization, and the Participating
Organization will be responsible for notifying the Participant Investor of the
proposed mandatory redemption. During the notice period a shareholder or
Participating Organization who receives such a notice may avoid mandatory
redemption by purchasing sufficient additional shares to increase his total net
asset value to the minimum amount and thereby avoid such mandatory redemption.
The redemption of shares may result in the investor's receipt of more or less
than he paid for his shares and, thus, is a taxable gain or loss to the
investor.
Investments Through
Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Manager with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the
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case of a purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such confirmations and statements will receive them from the Fund
directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Manager for providing such services. However, this is an unsettled area of the
law and if a determination contrary to the Fund management's position is made by
a bank regulatory agency or court concerning shareholder servicing and
administration payments to banks from the Manager, any such payments will be
terminated and any shares registered in the banks' names, for their underlying
customers, will be reregistered in the name of the customers at no cost to the
Fund or its shareholders. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day provided that the Federal Funds required in connection with the orders
are received by the Fund's transfer agent before 4:00 p.m., New York City time,
on that day. Orders for which Federal Funds are received after 4:00 p.m., New
York City time, will not result in share issuance until the following Fund
Business Day. Participating Organizations are responsible for instituting
procedures to insure that purchase orders by their respective clients are
processed expeditiously.
Direct Purchase and Redemption Procedures
The following purchase and redemption procedures apply to investors who wish to
invest in the Fund directly and not through Participating Organizations. These
investors may obtain a current prospectus and the subscription order form
necessary to open an account by telephoning the Fund at the following numbers:
Within New York State 212-830-5220
Outside New York State (toll free) 800-221-3079
All shareholders, other than certain Participant Investors, will receive from
the Fund individual confirmations of each purchase and redemption of Fund shares
(other than draft check redemptions)
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and a monthly statement listing the total number of Fund shares owned as of the
statement closing date, purchase and redemptions of Fund shares during the month
covered by the statement and the dividends paid on Fund shares of each
shareholder during the statement period (including dividends paid in cash or
reinvested in additional Fund shares). Certificates for Fund shares will not be
issued to an investor.
Initial Purchases of Shares
Mail
Investors may send a check made payable to "Michigan Daily Tax Free Income Fund,
Inc." along with a completed subscription order form to:
Michigan 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
can normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's subscription will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number by telephoning
the Fund at 212-830-5220 (within New York State) or at 800-221-3079 (outside New
York State) and then instruct a member commercial bank to wire money immediately
to:
Investors Fiduciary Trust Company
ABA # 101003621
DDA # 890752-953-8
For Michigan Daily Tax Free Income Fund, Inc.
Account of (Investor's Name)______________
Fund Account # 811__________
SS #/Tax I.D.#___________________
The investor should then promptly complete and mail the subscription order form.
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon, New York City time, on
that same day. There may be a charge by the investor's bank for transmitting the
money by bank wire, and there also may be a charge for use of Federal Funds. The
Fund does not charge investors in the Fund for its receipt of wire transfers.
Payment in the form of a "bank wire" received prior to 12 noon, New York City
time, on a Fund Business Day will be treated as a Federal Funds payment received
on that day.
Personal Delivery
Deliver a check made payable to "Michigan Daily Tax Free Income Fund, Inc."
along with a completed subscription order form to:
Reich & Tang 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, or by
having federal salary, social security, or certain veteran's, military or other
payments from the federal government, automatically deposited into your Fund
account. You can also have money debited from your checking account. To enroll
in any one of these programs, you must file with the Fund a completed EFT
Application, Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form
for each type of payment that you desire to include in the privilege. The
appropriate form may be obtained from your broker or the Fund. 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.
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<PAGE>
Subsequent Purchases of Shares
Subsequent purchases can be made by personal delivery or by bank wire, as
indicated above, or by mailing a check to:
Michigan Daily Tax Free Income Fund, Inc.
Reich & Tang Funds
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 order form on file with the
Fund is still applicable, a shareholder may reopen an account without filing a
new subscription order form at any time during the year the shareholder's
account is closed or during the following calendar year.
Redemption of Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
Class following acceptance 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 to purchase the shares has been
cleared for payment by the investor's bank and converted into Federal Funds. A
bank check will currently be considered by the Fund to have cleared 15 days
after it is deposited by the Fund.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee. When a
signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and signed and guaranteed by an eligible
guarantor institution which includes a domestic bank, a domestic savings and
loan institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund, accompanied by any certificate that may have been previously issued to
the shareholder, addressed to:
Michigan Daily Tax Free Income Fund, Inc.
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 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
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<PAGE>
the check clears. Checks provided by the Fund may not be certified. Fund shares
purchased by check may not be redeemed by check which could take up to 15 days
following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank. Checks drawn on a jointly owned
account may, at the shareholder's election, require only one signature. Checks
in amounts exceeding the value of the shareholder's account at the time the
check is presented for payment will not be honored. 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 cashable because it has been held longer than six months, an unsigned
check or a postdated check. The Fund reserves the right to terminate or modify
the check redemption procedure at any time or to impose additional fees.
Investors wishing to avail themselves of this method of redemption should elect
it on their subscription order form. Individuals and joint tenants are not
required to furnish any supporting documentation. Corporations and other
entities making this election, however, are required to furnish a certified
resolution or other evidence of authorization in accordance with the Fund's
normal practices. Appropriate authorization forms will be sent by the Fund or
its agents to corporations and other shareholders who select this option. As
soon as the authorization forms are filed in good order, the Fund will provide
the shareholder with a supply of checks. This checking service may be terminated
or modified at any time.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption may be sent to the
shareholders at their addresses or, if in excess of $1,000, to their bank
accounts, both as set forth in the subscription order form or in a subsequent
written authorization. The Fund may accept telephone redemption instructions
from any person with respect to accounts of shareholders who elect this service
and thus such shareholders risk possible loss of principal and interest in the
event of a telephone redemption not authorized by them. The Fund will employ
reasonable procedures to confirm that telephone redemption instructions are
genuine, and will require that shareholders electing such option provide a form
of personal identification. The failure by the Fund to employ such procedures
may cause the Fund to be liable for any losses incurred by investors due to
telephone redemptions based upon unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York State at 800-221-3079, and state (i) the name of
the shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time and on the next Fund Business Day if the redemption
request is received after 12 noon, New York City time. The Fund reserves the
right to terminate or modify the telephone redemption service in whole or in
part at any time and will notify shareholders accordingly.
Exchange Privilege
Shareholders of the Fund are entitled to exchange some or all of their Class of
shares in the Fund for shares of the same Class of certain other
16
<PAGE>
investment companies which retain Reich & Tang Asset Management L.P. as
investment adviser and which 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 their shares for the
shares available in that exchange Fund. Currently the exchange privilege program
has been established between the Fund and California Daily Tax Free Income Fund,
Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund,
Inc., Florida Daily Municipal Income Fund, New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich &
Tang Equity Fund, Inc. and Short Term Income Fund, Inc. In the future, the
exchange privilege program may be extended to other investment companies which
retain Reich & Tang Asset Management L.P. as investment adviser, manager or
administrator. An exchange of shares in the Fund pursuant to the exchange
privilege is, in effect, a redemption of Fund shares (at net asset value)
followed by the purchase of shares of the investment company into which the
exchange is made (at net asset value) and may result in a shareholder realizing
a taxable gain or loss for Federal income tax purposes.
There is no charge for the exchange privilege or limitation as to frequency of
exchange. The minimum amount for an exchange is $1,000, except that shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Each Class of shares is exchanged at their
respective net asset value.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares of the same Class may be exchanged
only between investment company accounts registered in identical names. Before
making an exchange, the investor should review the current prospectus of the
investment company into which the exchange is to be made. Prospectuses may be
obtained by contacting the Distributor at the address or telephone number set
forth on the cover page of this Prospectus.
An exchange pursuant to the exchange privilege is treated for Federal income tax
purposes as a sale on which a shareholder may realize a taxable gain or loss.
Instructions for exchanges may be made by sending a signature guaranteed written
request to:
Michigan Daily Tax Free Income Fund, Inc.
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; outside New York State at (800) 221-5079. The Fund reserves the
right to reject any exchange request and may modify or terminate the exchange
privilege at any time upon written notification to the shareholder.
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 basis in an amount
approved and confirmed by the Manager. A specified amount plan payment is made
by the Fund on the 23rd day of each month. Whenever such 23rd day of a month is
not a Fund Business Day, the payment date is the Fund Business Day preceding the
23rd day of the month. In order to make a payment, a number of shares equal in
aggregate net asset value to the payment amount are redeemed at their net asset
value on the Fund Business Day immediately preceding the date of payment. To the
extent that the redemptions to make plan payments exceed the number of shares
purchased through reinvestment
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<PAGE>
of dividends and distributions, the redemptions reduce the number of shares
purchased on original investment, and may ultimately liquidate a shareholder's
investment.
The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by the
participant. Because the withdrawal plan involves the redemption of Fund shares,
such withdrawals may constitute taxable events to the shareholder, but the Fund
does not expect that there will be any realizable capital gains.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 (the "Rule") under the 1940 Act, the SEC has required
that an investment company which bears any direct or indirect expense of
distributing its shares must do so only in accordance with a plan permitted by
the Rule. The Fund's Board of Directors has adopted a distribution and service
plan (the "Plan") and, pursuant to the Plan, the Fund has entered into a
Distribution Agreement and a Shareholder Servicing Agreement (with respect to
Class A shares of the Fund only) with Reich & Tang Distributors Inc. (the
"Distributor").
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
Under the Shareholder Servicing Agreement, the Distributor receives (with
respect only to the Class A shares) a service fee equal to .20% per annum of the
Class A shares' average daily net assets (the "Shareholder Servicing Fee") for
providing personal shareholders services and for the maintenance of shareholder
accounts. The fee is accrued daily and paid monthly and 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 and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Manager and the Distributor 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.
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 Class A shares of the Fund; (iii) and to pay the costs of
printing and distributing the Fund's prospectus to prospective investors, and to
defray the cost of the preparation and printing of brochures and other
promotional materials, mailings to prospective shareholders, advertising, and
other promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's Class A 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 purposes enumerated in (i) above. The Distributor, in
its sole discretion, will determine the amount of such payments made pursuant to
the Plan, provided that such payments will not increase the amount which the
Fund is required to pay to the Manager and the Distributor for any fiscal year
18
<PAGE>
under the Investment Management Contract, the Shareholder Servicing Agreement or
the Administrative Services Contract in effect for that year.
For the fiscal year ended February 28, 1998, the total amount spent pursuant to
the Plan for Class A shares was .32% 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 and an amount
representing .12% of the average daily assets was paid by the Manager (which may
be deemed an indirect payment by the Fund). Of the total amount paid by the
Manager, $154,937 was utilized for broker assistance payments,$2,055 for
compensation to sales personnel, $792 for travel and expenses, $3,192 for
Prospectus printing and $209 on miscellaneous expenses.
FEDERAL INCOME TAXES
The Fund has elected to qualify under the Code as a regulated investment company
that distributes "exempt-interest dividends" as defined in the Code. The Fund's
policy is to distribute as dividends each year 100% (and in no event less than
90%) of its tax-exempt interest income, net of certain deductions, and its
investment company taxable income (if any). If distributions are made in this
manner, dividends designated as derived from the interest earned on Municipal
Obligations are "exempt-interest dividends" and are not subject to regular
Federal income tax, although as described below, such "exempt-interest
dividends" may be subject to the Federal alternative minimum tax. Dividends paid
from taxable income, if any, and distributions of any realized short-term
capital gains (whether from tax-exempt or taxable obligations) are taxable to
shareholders as ordinary income for Federal income tax purposes, whether
received in cash or reinvested in additional shares of the Fund. The Fund does
not expect to realize long-term capital gains and thus does not contemplate
distributing "capital gain dividends" or having undistributed capital gain
income within the meaning of the Code. The Fund will inform shareholders of the
amount and nature of its income and gains in a written notice mailed to
shareholders not later than 60 days after the close of the Fund's taxable year.
For Social Security recipients, interest on tax-exempt bonds, including exempt
interest dividends paid by the Fund, is to be added to adjusted gross income for
purposes of computing the amount of Social Security benefits includible in gross
income. 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 a tax on "passive investment income," including
tax-exempt interest.
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 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 the underlying Municipal Obligations thereof and that the interest
thereon the underlying Municipal Obligations will be exempt from regular 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.
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(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 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.
MICHIGAN INCOME TAXES
The designation of all or a portion of a dividend paid by the Fund as an
"exempt-interest dividend" under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. With respect to dividends treated for Federal income tax purposes as
"exempt-interest dividends" that are paid by the Fund to a Michigan resident
individual shareholder, in the opinion of Miller, Canfield, Paddock and Stone,
P.L.C. special Michigan tax counsel to the Fund, amounts correctly designated as
derived from Michigan Municipal Obligations received by the Fund will not be
subject to the Michigan Income Tax. Amounts correctly designated as derived from
Territorial Municipal Obligations should not be subject to the Michigan Income
Tax.
Michigan Income Tax will apply to capital gain dividends distributed to
shareholders as well as to gains or losses incurred by the shareholders upon
sale or exchange of their shares.
The Intangibles Tax was totally repealed effective January 1, 1998.
Only persons engaging in business activity within Michigan are subject to the
Michigan Single Business Tax ("SBT"). Under the SBT, distributions made with
respect to shares of the Fund, to the extent that such distributions represent
"exempt-interest dividends" for Federal income tax purposes that are
attributable to Michigan or Territorial Municipal Obligations, if not included
in determining taxable income for Federal income tax purposes, are also not
included in the adjusted tax base upon which the SBT is computed, of either the
Fund or the shareholders.
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.
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on January 30,
1987 and it is registered with the SEC as an open-end, management investment
company.
The Fund prepares semi-annual unaudited and annual audited reports which include
a list of investment securities held by the Fund and which are sent to
shareholders.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-Laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of the revised
investment advisory contracts with respect to a particular class or series of
stock, (c) for approval of revisions to the Fund's distribution agreement with
respect to a particular class or series of stock, and (d) upon the written
request of holders of shares entitled to cast not less than 25% of all the votes
entitled to be cast at such meeting. Annual and other meetings may be required
with respect to such additional matters relating to the Fund as may be required
by the 1940 Act, 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
the next meeting of the shareholders called for the purpose of considering the
election or reelection of such
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<PAGE>
Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such a meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders.
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur significant
operating expenses or be required to incur material costs to be year 2000
compliant. Although the Manager does not anticipate that the year 2000 issue
will have a material impact of the Fund's ability to provide service at current
levels, there can be no assurance that steps taken in preparation for the year
2000 will be sufficient to avoid an adverse impact on the Fund.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's registration statement filed with the SEC,
including the exhibits thereto. The Registration Statement and the exhibits
thereto may be examined at the SEC and copies thereof may be obtained upon
payment of certain duplicating fees.
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 customary business holidays and Good
Friday. The net asset value of a Class is computed by dividing the value of the
Fund's net assets (i.e., the value of its securities and other assets less its
liabilities, including expenses payable or accrued but excluding capital stock
and surplus) for such Class by the total number of shares outstanding for such
Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument is higher or lower
than the price an investment company would receive if the instrument were sold.
The Fund intends to maintain a stable net asset value at $1.00 per share
although there can be no assurance that this will be achieved.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri 64105
is custodian for the Fund's cash and securities. Reich & Tang Services, Inc.,
600 Fifth Avenue, New York, New York 10020 is the transfer agent and dividend
agent for the shares of the Fund. The Fund's custodian and transfer agent do not
assist in, and are not responsible for, investment decisions involving assets of
the Fund.
<PAGE>
TABLE OF CONTENTS
Table of Fees and Expenses......................
Financial Highlights............................
Introduction....................................
Investment Objectives,
Policies and Risks............................
Management of the Fund..........................
Description of Common Stock....................... MICHIGAN
Dividends and Distributions....................... DAILY TAX
How to Purchase and Redeem Shares................. FREE INCOME
Investments Through FUND, INC.
Participating Organizations...................
Direct Purchase and
Redemption Procedures .......................
Initial Purchases of Shares.....................
Electronic Funds Transfers (EFT),
Pre-authorized Credit and Direct
Deposit Privilege............................ PROSPECTUS
Subsequent Purchases of Shares.................. July 1, 1998
Redemption of Shares............................
Exchange Privilege..............................
Specified Amount Automatic
Withdrawal Plan..............................
Distribution and Service Plan.....................
Federal Income Taxes..............................
Michigan Income Taxes.............................
General Information ..............................
Net Asset Value...................................
Custodian and Transfer Agent......................
<PAGE>
600 Fifth Avenue, New York, NY 10020
(212) 830-5220
MICHIGAN
DAILY TAX FREE
INCOME FUND, INC.
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
July 1, 1998
This Statement of Additional Information, although not in itself a Prospectus,
expands upon and supplements the information contained in the current Prospectus
of Michigan Daily Tax Free Income Fund, Inc. (the "Fund"), dated July 1, 1998
and should be read in conjunction with the Prospectus. The Fund's Prospectus may
be obtained without charge, from any Participating Organization or by writing or
calling the Fund. This Statement of Additional Information is incorporated by
reference into the Prospectus in its entirety.
<TABLE>
<S> <C> <C> <C>
Table of Contents
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Investment Objectives, Policies and Risks............2 Manager...........................................13
Description of Municipal Obligations.................3 Expense Limitation...........................15
Variable Rate Demand Instruments Management of the Fund............................15
and Participation Certificates...................5 Compensation Table...........................17
When-Issued Securities.............................7 Counsel and Auditors.........................17
Stand-by Commitments...............................7 Distribution and Service Plan.....................17
Taxable Securities...................................8 Description of Common Stock.......................18
Repurchase Agreements..............................8 Federal Income Taxes..............................20
Michigan Risk Factors................................9 Michigan Income Taxes.............................21
Investment Restrictions.............................10 Custodian and Transfer Agent .....................21
Portfolio Transactions..............................11 Financial Statements..............................23
How to Purchase and Redeem Shares...................12 Description of Ratings............................24
Net Asset Value.....................................12 Tax Equivalent Yield Tables.......................26
Yield Quotations....................................12
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</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
As stated in the Prospectus, 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 as high a level of current income, exempt from
regular Federal income taxes and, to the extent possible, Michigan income taxes
(the "Michigan Income Tax"), as is believed to be consistent with preservation
of capital, maintenance of liquidity and stability of principal. No assurance
can be given that these objectives will be achieved. The following discussion
expands upon the description of the Fund's investment objectives and policies in
the Prospectus.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of Michigan, 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 Federal income taxation ("Municipal Obligations") and in Participation
Certificates (which, in the opinion of Battle Fowler LLP, counsel to the Fund,
cause the Fund to be treated as the owner of the underlying Municipal
Obligations) in Municipal Obligations purchased from banks, insurance companies
or other financial institutions ("Participation Certificates"). The Fund will
invest more than 25% of it's assets in Michigan Municipal Obligations, including
Participation Certificates therein. 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 Subchapter M of the Internal Revenue Code of 1986, as amended, (the
"Code"). Although the Supreme Court has determined that Congress has the
authority to subject the interest on bonds such as the Municipal Obligations to
Federal income taxation, existing law excludes such interest from Federal income
tax. However, "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 in
such securities), together with 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 Michigan
or any Michigan local governments, or their instrumentalities, authorities or
districts and on obligations of the United States which pay interest excludable
under the Constitution or laws of the United States ("Michigan Municipal
Obligations") will be exempt from the Michigan 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
Michigan is prohibited from taxing under the Constitution, the laws of the
United States of America or the Michigan Constitution ("Territorial Municipal
Obligations"), also may be exempt from Michigan Income Tax provided the Fund
complies with Michigan laws. (See "Michigan Income Taxes" herein.) To the extent
that suitable Michigan 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 the Michigan 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 Michigan
Municipal Obligations, although the exact amount of the Fund's assets invested
in such securities will vary from time to time. The Fund seeks to maintain an
investment portfolio with a dollar-weighted average maturity of 90 days or less
and to value its investment portfolio at amortized cost and maintain a net asset
value at a $1.00 per share for 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 (excluding securities, the interest income on which may be subject
to the Federal alternative minimum tax) 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 Federal, state and local
income tax, including securities, the interest income on which may be subject to
the Federal alternative minimum tax. In view of the "concentration" in
Participation Certificates in Michigan Municipal Obligations, an investment in
Fund shares should be made with an understanding of the characteristics of the
banking industry and the risks which such an investment may entail. (See
"Variable Rate Demand Instruments and Participation Certificates" herein.) The
investment objectives of the Fund described in this paragraph may not be changed
unless approved by the holders of a majority of the outstanding shares of the
Fund that would be affected by such a change. As used herein, the
2
<PAGE>
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 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)
Municipal Obligations with remaining maturities of 397 days or less and rated in
the two highest short-term rating categories by any two nationally recognized
statistical rating organizations ("NRSROs") or in such categories by the only
NRSRO that has rated the Municipal Obligations (collectively, the "Requisite
NRSROs") (acquisition in the latter situation must also be ratified by the Board
of Directors); (ii) unrated Municipal Obligations determined by the Fund's Board
of Directors to be of comparable quality; and (iii) Municipal Obligations which
are subject to a Demand Feature or Guarantee (as such terms are defined in Rule
2a-7 of the 1940 Act) and also meet the criteria set forth in either of the
above clauses (i) or (ii). A determination of comparability by the Board of
Directors is made on the basis of its credit evaluation of the issuer, which may
include an evaluation of a letter of credit, Guarantee, insurance or other
credit facility issued in support of the Municipal Obligations or Participation
Certificates. (See "Variable Rate Demand Instruments and Participation
Certificates " herein.) While there are several organizations that currently
qualify as NRSROs, two examples of NRSROs are Standard & Poor's 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 "Aaa" and "Aa" by Moody's in the case
of bonds; "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. Such instruments may produce a lower yield than would be
available from less highly rated instruments. The Fund's Board of Trustees has
determined that Municipal Obligations which are backed by the credit of the
Federal Government will be considered to have a rating equivalent to Moody's
"Aaa". (See "Description of Ratings" herein.) The highest rating in the case of
variable and floating demand notes is "SP-1/AA" by S&P or "VMIG-1" by Moody's.
Such instruments may produce a lower yield than would be available from less
highly rated instruments. The Fund's Board of Directors has determined that
obligations which are backed by the credit of the Federal government (the
interest on which is not exempt from Federal income taxation) will be considered
to have a rating equivalent to Moody's "Aaa". (See "Description of Ratings"
herein.)
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. Provided, 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.
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.
The concentration in Municipal Obligations and Participation Certificates may
present greater risks than in the case of a more diversified company. The Fund
intends to continue to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. The Fund will be restricted in that
at the close of each quarter of the taxable year, at least 50% of the value of
its total assets must be represented by cash, government securities, investment
company securities and other securities limited in respect of any one issuer to
not more than 5% in value of the total assets of the Fund and to not more than
10% of the outstanding voting securities of such issuer. In addition, at the
close of each quarter of its taxable year, not more than 25% in value of the
Fund's total assets may be invested in securities of one issuer other than
government securities. The limitations described in this paragraph regarding
qualification as a "regulated investment company" are not fundamental policies
and may be revised to the extent applicable Federal income tax requirements are
revised. (See "Federal Income Taxes" herein.)
DESCRIPTION OF MUNICIPAL OBLIGATIONS
As used in the Prospectus, "Municipal Obligations" include the following as well
as "Variable Rate Demand Instruments and Participation Certificates" herein.
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(1) Municipal Bonds with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition.
Municipal Bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally
referred to as "municipalities") which generally have a maturity at
the time of issue of one year or more and which are issued to raise
funds for various public purposes such as construction of a wide range
of public facilities, to refund outstanding obligations and to obtain
funds for institutions and facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Issuers of general obligation bonds
include states, counties, cities, towns and other governmental units.
The principal of and interest on revenue bonds are payable from the
income of specific projects or authorities and generally are not
supported by the issuer's general power to levy taxes. In some cases,
revenues derived from specific taxes are pledged to support payments
on a revenue bond.
In addition, certain kinds of "private activity bonds" are issued by
public authorities to provide funding for various privately operated
industrial facilities (hereinafter referred to as "industrial revenue
bonds" or "IRBs"). Interest on the IRBs is generally exempt, with
certain exceptions, from regular Federal income tax pursuant to Section
103(a) of the Code, provided the issuer and corporate obligor thereof
continue to meet certain conditions. (See "Federal Income Taxes"
herein.) IRBs are, in most cases, revenue bonds and do not generally
constitute the pledge of the credit of the issuer of such bonds. The
payment of the principal and interest on IRBs usually depends solely on
the ability of the user of the facilities financed by the bonds or
other guarantor to meet its financial obligations and, in certain
instances, the pledge of real and personal property as security for
payment. If there is no established secondary market for the IRBs, the
IRBs or the Participation Certificates in IRBs purchased by the Fund
will be supported by letters of credit, Guarantees or insurance that
meet the definition of Eligible Securities at the time of acquisition
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 Michigan issuers.
(3) Municipal Commercial Paper that is an Eligible Security at the time of
acquisition. Issues of Municipal Commercial Paper typically represent
very short-term, unsecured, negotiable promissory notes. These
obligations are often issued to meet seasonal working capital needs of
municipalities or to provide interim construction financing and are
paid from general revenues of municipalities or are refinanced with
long-term debt. In most cases Municipal Commercial Paper is backed by
letters of credit, lending agreements, note repurchase agreements or
other credit facility agreements offered by banks or other institutions
which may be called upon in the event of default by the issuer of the
commercial paper.
(4) Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications
equipment and other capital assets. Municipal Leases frequently have
special risks not normally associated with general obligation or
revenue bonds. Leases and installment purchase or conditional sale
contracts (which normally provide for title to the leased asset to pass
eventually to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting
the constitutional and statutory requirements for the issuance of debt.
The debt-issuance limitations of
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many state constitutions and statutes are deemed to be inapplicable
because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. To reduce this
risk, the Fund will only purchase Municipal Leases subject to a
non-appropriation clause where the payment of principal and accrued
interest is backed by an unconditional irrevocable letter of credit, a
guarantee, insurance or other comparable undertaking of an approved
financial institution. These types of municipal leases may be
considered illiquid and subject to the 10% limitation of investments
in illiquid securities set forth under "Investment Restrictions"
contained herein. The Board of Directors may adopt guidelines and
delegate to the Manager the daily function of determining and
monitoring the liquidity of municipal leases. In making such
determination, the Board and the Manager may consider such factors as
the frequency of trades for the obligation, the number of dealers
willing to purchase or sell the obligations and the number of other
potential buyers and the nature of the marketplace for the
obligations, including the time needed to dispose of the obligations
and the method of soliciting offers. If the Board determines that any
municipal leases are illiquid, such lease will be subject to the 10%
limitation on investments in illiquid securities.
(5) Any other Federal tax-exempt, and to the extent possible, Michigan
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" and permissible under Rule 2a-7 under the 1940 Act.
Subsequent to its purchase by the Fund, a rated Municipal Obligation may cease
to be rated or its rating may be reduced such that the investment is no longer a
First Tier Security or is rated 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 in the best
interest of the Fund and its shareholders. However, reassessment is not required
if the Municipal Obligation is disposed of or matures within five business days
of the Manager becoming aware of the new rating and provided further that the
Board of Directors is subsequently notified of the Manager's actions.
In addition, in the event that a Municipal Obligation (1) is in default, (2)
ceases to be an Eligible Security or (3) there is a determination that it no
longer presents minimal credit risks, or an event of insolvency occurs with
respect to the issuer of a portfolio security or the provider of any Demand
Feature or Guarantee the Fund will dispose of the Municipal Obligation absent a
determination by the Fund's Board of Directors that disposal of the Municipal
Obligation would not be in the best interests of the Fund. In the event that the
Municipal Obligation is disposed of, such disposal 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
Municipal Obligation which immediately before default accounted for 1/2 of 1% or
more of the Fund's total assets, the Fund shall promptly notify the Securities
and Exchange Commission (the "SEC")of such fact and of the actions that the Fund
intends to take in response to the situation. Certain obligations issued by
instrumentalities of the United States government are not backed by the full
faith and credit of the United States Treasury but only by the creditworthiness
of the instrumentality. Where necessary to ensure that the Municipal Obligations
are Eligible Securities or where the obligations are not freely transferable,
the Fund will require that the obligation to pay the principal and accrued
interest be backed by a Guarantee that would qualify the investment as an
Eligible Security.
Variable Rate Demand Instruments and Participation Certificates
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations that provide for a periodic adjustment in the interest
rate paid on the instrument and permit the holder to demand payment of the
unpaid principal balance plus accrued interest at specified intervals upon a
specified number of days' notice either from the issuer or by drawing on a bank
letter of credit, a guarantee or insurance issued with respect to such
instrument.
The variable rate demand instruments in which the Fund may invest are payable on
demand on not more than thirty calendar days' notice and may be exercised at any
time or at specified intervals not exceeding 397 days depending upon the terms
of the instrument. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to 397 days and the adjustments
are based upon the "prime rate"* of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments.
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The Fund will decide which variable rate demand instruments it will purchase in
accordance with procedures prescribed by its Board of Directors to minimize
credit risks. A fund utilizing the amortized cost method of valuation under Rule
2a-7 of the 1940 Act may 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 high 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 of the underlying Municiapl
Obligation for Federal income tax purposes. A participation certificate gives
the Fund an undivided interest in the Municipal Obligation in the proportion
that the Fund's participation interest bears to the total principal amount of
the Municipal Obligation and provides the demand repurchase feature described
below. Where the institution issuing the participation does not meet the Fund's
eligibility criteria, the participation is backed by an irrevocable letter of
credit or guaranty of a bank (which may be the bank issuing the Participation
Certificate, a bank issuing a confirming letter of credit to that of the issuing
bank, or a bank serving as agent of the issuing bank with respect to the
possible repurchase of the certificate of participation) or insurance policy of
an insurance company that the Board of Directors of the Fund has determined
meets the prescribed quality standards for the Fund. The Fund has the right to
sell the Participation Certificate back to the institution and, where
applicable, draw on the letter of credit or insurance on demand after no more
than 30 days' notice either at any time or at specified intervals not exceeding
397 days (depending on the terms of the participation), for all or any part of
the full principal amount of the Fund's participation interest in the security
plus accrued interest. The Fund intends to exercise the demand only (1) upon a
default under the terms of the bond documents, (2) as needed to provide
liquidity to the Fund in order to make redemptions of Fund shares or (3) to
maintain a high quality investment portfolio. The institutions issuing the
Participation Certificates will retain a service and letter of credit fee (where
applicable) and a fee for providing the demand repurchase feature, in an amount
equal to the excess of the interest paid on the instruments over the negotiated
yield at which the participations were purchased by the Fund. The total fees
generally range from 5% to 15% of the applicable prime rate or other interest
rate index. With respect to insurance, the Fund will attempt to have the issuer
of the Participation Certificate bear the cost of the insurance, although the
Fund retains the option to purchase insurance if necessary, in which case the
cost of insurance will be an expense of the Fund subject to the expense
limitation. 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
Michigan 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
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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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related in such a way that an economic, business or political development or
change affecting one of the securities would also affect the other securities
including, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The portfolio may contain variable maximum rates set by state law,
limit the degree to which interest on such variable rate demand instruments may
fluctuate; to the extent it does, increases or decreases in value may be
somewhat greater than would be the case without such limits. Additionally, the
portfolio may contain variable rate demand Participation Certificates in fixed
rate Municipal Obligations. The fixed rate of interest on these Municipal
Obligations will be a ceiling on the variable rate of the Participation
Certificate. In the event that interest rates increased so that the variable
rate exceeded the fixed rate on the Municipal Obligations, the Municipal
Obligations could no longer be valued at par and may cause the Fund to take
corrective action, including the elimination of the instruments from the
portfolio. Because the adjustment of interest rates on the variable rate demand
instruments is made in relation to movements of the applicable banks' "prime
rates", or other interest rate adjustment index, the variable rate demand
instruments are not comparable to long-term fixed rate securities. Accordingly,
interest rates on the variable rate demand instruments may be higher or lower
than current market rates for fixed rate obligations of comparable quality with
similar maturities.
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (1) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment. The maturity of a variable rate demand instrument will be determined
in the same manner for purposes of computing the Fund's dollar-weighted average
portfolio maturity. If a variable rate demand instrument ceases to be an
eligible security, it will be sold in the market or through exercise of the
repurchase Demand Feature to the issuer.
When-Issued Securities
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on the Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date of the Fund's
commitment to purchase. Although the Fund will only make commitments to purchase
when-issued Municipal Obligations with the intention of actually acquiring them,
the Fund may sell these securities before the settlement date if deemed
advisable by the Manager.
Municipal Obligations purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way, that is, both experiencing appreciation when interest rates
decline and depreciation when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
Income Tax.
Stand-by Commitments
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When the Fund purchases Municipal Obligations it may also acquire stand-by
commitments from banks and other financial institutions with respect to such
Municipal Obligations. Under a stand-by commitment, a bank or broker-dealer
agrees to purchase at the Fund's option a specified Municipal Obligation at a
specified price with same day settlement. A stand-by commitment is the
equivalent of a "put" option acquired by the Fund with respect to a particular
Municipal Obligation held in its portfolio.
The amount payable to the Fund upon its exercise of a stand-by commitment
normally would be (1) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (2) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank or dealer during the
time a stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment would be unconditional and
unqualified. A stand-by commitment would not be transferable by the Fund,
although it could sell the underlying Municipal Obligation to a third party at
any time.
The Fund expects that stand-by commitments generally will be available without
the payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio would not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after each stand-by
commitment was acquired.
The Fund would enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks and, where the issuer of the Municipal Obligation does not meet the
eligibility criteria, only where the issuer of the stand-by commitment has
received a rating which meets the eligibility criteria or, if not rated,
presents a minimal risk of default as determined by the Board of Directors. The
Fund's reliance upon the credit of these banks and broker-dealers would be
supported by the value of the underlying Municipal Obligations held by the Fund
that were subject to the commitment.
The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income taxes
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment.
The acquisition of a stand-by commitment would not affect the valuation or
assumed maturity of the underlying Municipal Obligations which will continue to
be valued in accordance with the amortized cost method. Stand-by commitments
acquired by the Fund would be valued at zero in determining net asset value. In
those cases in which the Fund paid directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment is held by the Fund. Stand-by commitments
would not affect the dollar-weighted average maturity of the Fund's portfolio.
The maturity of a security subject to a stand-by commitment is longer than the
stand-by repurchase date.
The stand-by commitments that the Fund may enter into are subject to certain
risks, which include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.
In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by commitments will be exempt from Federal income taxation. (See
"Federal Income Taxes" herein.) In the absence of a favorable tax ruling or
opinion of counsel, the Fund will not engage in the purchase of securities
subject to stand-by commitments.
TAXABLE SECURITIES
Although the Fund will attempt to invest 100% of its net assets in 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 on which
is subject to Federal income tax, under any one or more of the following
circumstances: (a)
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pending investment of proceeds of sales of Fund shares or of portfolio
securities, (b) pending settlement of purchases of portfolio securities, (c) to
maintain liquidity for the purpose of meeting anticipated redemptions and (d)
with regard to (5) below, if the Manager believes that such investments are in
the best interests of the investors in the Fund. In addition, the Fund may
temporarily invest more than 20% in such taxable securities when, in the opinion
of the Manager, it is advisable to do so because of adverse market conditions
affecting the market for Municipal Obligations. The kinds of taxable securities
in which the Fund may invest are limited to the following short-term,
fixed-income securities (maturing in 397 days or less from the time of
purchase): (1) obligations of the United States government or its agencies,
instrumentalities or authorities; (2) commercial paper meeting the definition of
Eligible Securities at the time of acquisition; (3) certificates of deposit of
domestic banks with assets of $1 billion or more; (4) repurchase agreements with
respect to any Municipal Obligations or other securities which the Fund is
permitted to own and (5) Municipal Obligations, the interest income on which may
be subject to the Federal alternative minimum tax. (See "Federal Income Taxes"
herein.)
Repurchase Agreements
The Fund may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Fund would acquire an underlying
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the 1940 Act. All repurchase agreements entered
into by the Fund shall be fully collateralized at all times during the period of
the agreement in that the value of the underlying security shall be at least
equal to the amount of the loan, including the accrued interest thereon, and the
Fund or its custodian shall have possession of the collateral, which the Fund's
Board believes will give it a valid, perfected security interest in the
collateral. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur costs
in connection with the disposition of the collateral. The Fund's Board believes
that the collateral underlying repurchase agreements may be more susceptible to
claims of the seller's creditors than would be the case with securities owned by
the Fund. It is expected that repurchase agreements will give rise to income
which will not qualify as tax-exempt income when distributed by the Fund. The
Fund will not invest in a repurchase agreement maturing in more than seven days
if any such investment together with illiquid securities held by the Fund exceed
10% of the Fund's total net assets. (See Investment Restriction Number 6
herein.) Repurchase agreements are subject to the same risks described herein
for stand-by commitments.
MICHIGAN RISK FACTORS
Economic activity in the State of Michigan (sometimes referred to herein as the
"State") has tended to be more cyclical than in the nation as a whole. The
State's efforts to diversify its economy have proven successful, as reflected by
the fact that the share of employment in the State in the durable goods sector
has fallen from 33.1% to 16.3% in 1997. The Service sector now represents 27.41%
of the State's economy. Historically, the average monthly unemployment rate in
the State has been higher than the average figures for the United States. For
the last three years, the State's unemployment rate has remained near or below
the national average. During 1997, the average monthly unemployment rate in the
State was 4.2% as compared to a national average of 4.9% in the United States.
The State's economy could continue to be affected by changes in the auto
industry, notably consolidation and plant closings resulting from competitive
pressures and overcapacity. Such actions could adversely affect the State
revenues. The impact on the financial condition of the municipalities in which
the plants are located may be more severe than the impact on the State itself.
The Michigan Constitution limits the amount of total revenues of the State
raised from taxes and certain other sources to a level for each fiscal year
equal to a percentage of the State's personal income for the prior calendar
year. In the event the State's total revenues exceed the limit by 1% or more,
the Constitution requires that the excess be refunded to taxpayers. To avoid
exceeding the revenue limit in the State's 1994-95 fiscal year, the State
refunded approximately $113 million through income tax credits for the 1995
calendar year. The State Constitution does not prohibit the increasing of taxes
so long as revenues are expected to amount to less than the revenue limit and
authorizes exceeding the limit for emergencies. The State
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Constitution further provides that the proportion of State spending paid to all
local units total spending may not be reduced below the proportion in effect for
the 1978-79 fiscal year. The Constitution requires that if the spending does not
meet the required level in a given year an additional appropriation for local
units is required for the following fiscal year. The State Constitution also
requires the State to finance any new or expanded activity of local units
mandated by State law. Any expenditures required by this provision would be
counted as State spending for local units for purposes of determining compliance
with the provisions stated above.
The State Constitution limits the purposes for which State general obligation
debt may be issued. Such debt is limited to short-term debt for State operating
purposes, short and long term debt for the purposes of making loans to school
districts and long term debt for voter approved purposes. In addition to the
foregoing, the State authorizes special purpose agencies and authorities to
issue revenue bonds payable from designated revenues and fees. Revenue bonds are
not obligations of the State and in the event of shortfalls in self-supporting
revenues, the State has no legal obligation to appropriate money to these debt
service payments. The State's Constitution also directs or restricts the use of
certain revenues.
The State finances its operations through the State's General Fund and Special
Revenue Funds. The General Fund receives revenues of the State that are not
specifically required to be included in the Special Revenue Fund. General Fund
revenues are obtained approximately 56% from the payment of State taxes and 44%
from federal and non-tax revenue sources. The majority of the revenues from
State taxes are from the State's personal income tax, single business tax, use
tax, sales tax and various other taxes. Approximately 2/3% of total General Fund
expenditures have been for State support of public education and for social
services programs. Other significant expenditures from the General Fund provide
funds for law enforcement, general State government, debt service and capital
outlay. The State Constitution requires that any prior year's surplus or deficit
in any fund must be included in the next succeeding year's budget for that fund.
In recent years, the State of Michigan has reported its financial results in
accordance with generally accepted accounting principles. For each of the last
six fiscal years the state ended the fiscal year with its General Fund in
balance after transfers in 1993-1996 from the General Fund to the Budget
Stabilization Fund. The balance in the Budget Stabilization Fund to $1.15
billion as of September 30, 1997, of which $572.6 million was reserved for
future education funding as described in the next paragraph. In all but one of
the last six fiscal years the State has borrowed between $500 million and $900
million for cash flow purposes. It borrowed $900 million in each of the
1996,1997 and 1998 fiscal years.
In November of 1997, the State Legislature adopted legislation to provide for
the funding of claims of local school districts, some of whom had alleged in a
lawsuit, Durant v State of Michigan, that the State had, over a period of years,
paid less in school aid than required by the State's Constitution. Under this
legislation, the State paid to school districts which were plaintiffs in the
suit approximately $212 million from the Budget Stabilization Fund on April 15,
1998, and will be required to pay to other school districts from the Budget
Stabilization Fund (i) an additional $32 million per year in the fiscal years
1998-99 through 2007-08, and (ii) up to an additional $40 million per year in
the fiscal years 1998-99 through 2012-13.
Amendments to the Michigan constitution which placed limitations on increases in
State taxes and local ad valorem taxes (including taxes used to meet debt
service commitments on obligations of taxing units) were approved by the voters
of the State of Michigan in November 1978 and became effective on December 23,
1978. To the extent that obligations in the Fund are tax supported and are for
local units and have not been voted by the taxing unit's electors, the ability
of the local units to levy debt service taxes might be affected.
State law provides for distributions of certain State collected taxes or
portions thereof to local units based in part on population as shown by census
figures and authorizes levy of certain local taxes by local units having a
certain level of population as determined by census figures. Reductions in
population in local units resulting from periodic census could result in a
reduction in the amount of State collected taxes returned to those local units
and in reductions in levels of local tax collections for such local units unless
the impact of the census is changed by State law. No assurance can be given that
any such State law will be enacted. In the 1991 fiscal year, the State deferred
certain scheduled payments to municipalities, school districts, universities and
community colleges. While such deferrals were made up at later dates, similar
future deferrals could have an adverse impact on the cash position of some local
units. Additionally, while total state revenue sharing payments have increased
in each of the last five years, the State has reduced revenue sharing payments
to municipalities below the level otherwise provided under formulas in each of
those years.
On March 15, 1994, the electors of the State voted to amend the State's
Constitution to increase the State sales tax rate from 4% to 6% and to place an
annual cap on property assessment increases for all property taxes. Companion
legislation cut the State's income tax rate from 4.6% to 4.4%, reduced some
property taxes
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for school operating purposes and shifted the proportions of local school
funding sources among property taxes and state revenue, some of which are
provided from new or increased State taxes. The legislation also contained other
provisions that may reduce or alter the revenues of local units of government
and tax increment bonds could be particularly affected. While the ultimate
impact of the constitutional amendment and related legislation cannot yet be
accurately predicted, investors should be alert to the potential effect of such
measures upon the operations and revenues of Michigan local units of government.
In addition, in 1994 the State legislature adopted a package of state tax cuts,
including a phase-out of the Intangibles tax, an increase in exemption amounts
for personal income tax and reductions in the single business tax.
The State is a party to various legal proceedings seeking damages or injunctive
or other relief. If resolved unfavorably to the State, these proceedings could
substantially affect State, local, or school district programs or finances.
Currently, the State's general obligation bonds are rated "Aa1" by Moody's,
"AA+" by S&P, and "AA+" by Fitch Investor's Service L.P.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios and which may not be changed unless approved by a
majority of the outstanding shares of each series of the Fund's shares that
would be affected by such a change. The Fund may not:
(1) Make portfolio investments other than as described under "Investment
Objectives, Policies and Risks" or any other form of Federal tax-exempt
investment which meets the Fund's high quality criteria, as determined
by the Board of Directors and which is consistent with the Fund's
objectives and policies.
(2) Borrow Money. This restriction shall not apply to borrowings from banks
for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests that might otherwise require the
untimely disposition of securities, in an amount up to 15% of the value
of the Fund's total assets (including the amount borrowed) valued at
market less liabilities (not including the amount borrowed) at the time
the borrowing was made. While borrowings exceed 5% of the value of the
Fund's total assets, the Fund will not make any investments. Interest
paid on borrowings will reduce net income.
(3) Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 15% of the value of its total assets and only to
secure borrowings for temporary or emergency purposes.
(4) Sell securities short or purchase securities on margin, or engage in
the purchase and sale of put, call, straddle or spread options or in
writing such options, except to the extent that securities subject to a
demand obligation and stand-by commitments may be purchased as set
forth under "Investment Objectives, Policies and Risks" herein.
(5) Underwrite the securities of other issuers, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
(6) Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may
purchase variable rate demand instruments which contain a Demand
Feature. The Fund will not invest in a repurchase agreement maturing in
more than seven days if any such investment together with securities
that are not readily marketable held by the Fund exceed 10% of the
Fund's total net assets.
(7) Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this
shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests in real estate.
(8) Make loans to others, except through the purchase of portfolio
investments, including repurchase agreements, as described under
"Investment Objectives, Policies and Risks" herein.
(9) Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
(10) Invest more than 25% of its assets in the securities of "issuers" in
any single industry, provided that the Fund may invest more than 25% of
its assets in Participation Certificates and there shall be no
limitation on the purchase of those Municipal Obligations and other
obligations issued or guaranteed
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by the United States Government, its agencies or instrumentalities.
When the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from those of the
government creating the issuing entity and a security is backed only
by the assets and revenues of the entity, the entity would be deemed
to be the sole issuer of the security. Similarly, in the case of an
industrial revenue bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then such non-governmental user
would be deemed to be the sole issuer. If, however, in either case,
the creating government or some other entity, such as an insurance
company or other corporate obligor, guarantees a security or a bank
issues a letter of credit, such a guarantee or letter of credit would
be considered a separate security and would be treated as an issue of
such government, other entity or bank. Immediately after the
acquisition of any securities subject to a Demand Feature or Guarantee
(as such terms are defined in Rule 2a-7 under the Investment Company
Act of 1940), 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
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 terms are defined in Rule 2a-7).
(11) Invest in securities of other investment companies, except the Fund may
purchase unit investment trust securities where such unit trusts meet
the investment objectives of the Fund and then only up to 5% of the
Fund's net assets, except as they may be acquired as part of a merger,
consolidation or acquisition of assets.
(12) Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security in connection with any permitted
borrowing.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
PORTFOLIO TRANSACTIONS
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases Participation
Certificates in variable rate Municipal Obligations with a Demand Feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the Participation Certificate,
letter of credit, Guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
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No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
HOW TO PURCHASE AND REDEEM SHARES
The material relating to the purchase and redemption of shares in the Prospectus
is herein incorporated by reference.
NET ASSET VALUE
The Fund does not determine net asset value per share on the following holidays:
New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
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. It is computed by dividing
the value of the Fund's net assets (i.e., the value of its securities and other
assets less its liabilities, including expenses payable or accrued but excluding
capital stock and surplus) for such Class by the total number of shares
outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated, as
described in the following paragraph. Although the amortized cost method
provides certainty in valuation, it may result in periods during which the value
of an instrument is higher or lower than the price an investment company would
receive if the instrument were sold.
The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset value at $1.00 per share 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 "Investment Objectives,
Policies and Risks" herein.)
YIELD QUOTATIONS
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the 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 (which is obtained by dividing the net change in
the value of a hypothetical account having a balance of one share at the
beginning of the period by the value of such account at the beginning of the
period (expected to always be $1.00) is multiplied by (365/7) with the resulting
annualized figure carried to the nearest hundredth of one percent). For purposes
of the foregoing computation, the determination of the net change in account
value during the seven-day period reflects (i) dividends declared on the
original share and on any additional shares, including the value of any
additional shares purchased with dividends paid on the original share and (ii)
fees charged to all shareholder accounts. Realized capital gains or losses and
unrealized appreciation or depreciation of the Fund's portfolio securities are
not included in the computation. Therefore annualized yields may be different
from effective yields quoted for the same period.
The Fund's "effective yield" 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.
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Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day. The Fund's yield for any given period is not an indication, or
representation by the Fund, of future yields or rates of return on the Fund's
shares, and may not provide a basis for comparison with bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors who
purchase the Fund's shares directly may realize a higher yield than Participant
Investors because they will not be subject to any fees or charges that may be
imposed by Participating Organizations.
The Fund may from time to time advertise its taxable equivalent yield. The tax
equivalent yield 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, computed by dividing that portion of the
yield of the Fund (as computed pursuant to the formulae previously discussed)
which is tax-exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the yield of the Fund that is not tax-exempt. The
tax equivalent yield for the Fund may also fluctuate daily and does not provide
a basis for determining future yields.
The Fund may from time to time advertise a taxable equivalent yield table which
shows the yield that an investor would need to receive from a taxable investment
in order to equal a tax-free yield from the Fund. (See "Taxable Equivalent Yield
Table" herein.)
The Fund's Class A shares yield for the seven day period ended May 31, 1998 was
3.19%, which is equivalent to an effective yield of 3.24%.
MANAGER
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020. The Manager was at May 31, 1998, investment manager,
adviser, or supervisor with respect to assets aggregating in excess of $11.4
billion. In addition to the Fund, the Manager acts as investment manager and
administrator of seventeen other investment companies and also advises pension
trusts, profit-sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager due to a restructuring by New England Investment
Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998, Nvest
Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP, replaces
NEICOP as the limited partner and owner of a 99.5% interest in the Manager.
Reich & Tang Asset Management, Inc. (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"). Also, MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
MetLife is a mutual life insurance company 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 its 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 Partnership, Greystone Partners, L.P., Harris Associates,
L.P., Jurika & Voyles, L.P., Loomis, Sayles & Company, L.P., New England Funds,
L.P., Nvest Associates, Inc., Snyder Capital Management, L.P., Vaughan, Nelson,
Scarborough & McCullough, L.P., and Westpeak Investment Advisors, L.P. These
affiliates in the aggregate are investment advisors or managers to 80 other
registered investment companies.
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The recent name change did not result in a change in control of the Manager and
has no impact upon the Manager's performance of its responsibilities and
obligations.
The Investment Management Contract has a term which extends to February 28, 1999
and may be continued in force thereafter for successive twelve-month periods
beginning each March 1, provided that such continuance is specifically approved
by majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by 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 Reich &
Tang Asset Management, Inc., or employees of the Manager or its affiliates.
The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Directors,
or by the Manager on sixty days' written notice, and will automatically
terminate in the event of its assignment. The Investment Management Contract
provides that in the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or of reckless disregard of its
obligations thereunder, the Manager shall not be liable for any action or
failure to act in accordance with its duties thereunder.
For its services under the Investment Management Contract, the Manager receives
from the Fund a fee equal to .30% of the Fund's average daily net assets (the
"Management Fee") for managing the Fund's investment portfolio and performing
related administrative and clerical services. The fees are accrued daily and
paid monthly. Any portion of the total fees received by the Manager may be used
by the Manager to provide shareholder and administrative services. (See
"Distribution and Service Plan" herein.) For the Fund's fiscal years ended
February 29, 1996, February 28, 1997 and February 28, 1998, the fees payable to
the Manager under the Investment Management Contract were $176,234, $164,544 and
$150,005 respectively. For the years ended February 29, 1996, February 28, 1997,
and February 28, 1998 the Manager voluntarily waived $0, $15,524 and $105,004
respectively, of said amounts and the Fund paid $176,234, $149,020 and $45,001
respectively, to the Manager in fees under the Investment Management Contract.
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.
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.
Pursuant to the Administrative Services Contract with the Fund, the Manager
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of bookkeeping and related services by Investors Fiduciary Trust
Company, the Fund's bookkeeping agent, (ii) prepare reports to and filings with
regulatory authorities and (iii) perform such other services as the Fund may
from time to time request of the Manager. The personnel rendering such services
may be employees of the Manager, of its affiliates or of other organizations.
For its services under the Administrative Services Contract, the Manager
receives from the Fund a fee equal to .21% of the Fund's average daily net
assets. For the Fund's fiscal years ended February 29, 1996, February 28, 1997
and February 28, 1998, the fee payable to the Manager under the Administrative
Services Contract was $118,971, $115,181 and $105,004 respectively, of which $0,
$0 and $0 was waived. Any portion of the total fees received by the Manager may
be used to provide shareholder services and for distribution of Fund shares.
(See "Distribution and Service Plan" herein).
Expense Limitation
The Manager has agreed to reimburse the Fund for its expenses (exclusive of
interest, taxes, brokerage, and extraordinary expenses) which in any year exceed
the limits on investment company expenses prescribed by
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any state in which the Fund's shares are qualified for sale. For the purpose of
this obligation to reimburse expenses, the Fund's annual expenses are estimated
and accrued daily, and any appropriate estimated payments are made to it on a
monthly basis. Subject to the obligations of the Manager to reimburse the Fund
for its excess expenses as described above, the Fund has, under the Investment
Management Contract, confirmed its obligation for payment of all its other
expenses, including taxes, brokerage fees and commissions, commitment fees,
certain insurance premiums, interest charges and expenses of the custodian,
transfer agent and dividend disbursing agent's fees, telecommunications
expenses, auditing and legal expenses, bookkeeping agent fees, costs of forming
the corporation and maintaining corporate existence, compensation of directors,
officers and employees of the Fund and costs of other personnel performing
services for the Fund who are not officers of 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 payable to the Manager under the Investment Management
Contract.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein, and the management of the Fund intends to do
so whenever it appears advantageous to the Fund. The Fund's expenses for
employees and for such services are among the expenses subject to the expense
limitation described above. As a result of the recent passage of the National
Securities Markets Improvement Act of 1996, all state expense limitations have
been eliminated at this time.
MANAGEMENT OF THE FUND
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. The address of each such person unless
otherwise indicated, is 600 Fifth Avenue, New York, New York 10020. Mr. Duff may
be deemed an "interested person" of the Fund, as defined in the 1940 Act, on the
basis of his affiliation with the Manager.
Steven W. Duff, 44 - President of the Fund, has been President of the Mutual
Funds Division of the Manager since September 1994. Mr. Duff was formerly
Director of Mutual Fund Administration at NationsBank with which he was
associated with from June 1981 to 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., Cortland Trust, Inc., Daily Tax
Free Income Fund, Inc., Georgia Daily Municipal 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 a Trustee of
Florida Daily Municipal Income Fund, Institutional Daily Income Fund, and
Pennsylvania Daily Municipal Income Fund, President of Cortland Trust, Inc.,
Executive Vice President of Reich & Tang Equity Fund, Inc., President and Chief
Executive Officer of Tax Exempt Proceeds Fund, Inc.; and a Director of Pax World
Money Market Fund, Inc.
Dr. W. Giles Mellon, 67 - Director of the Fund, has been Professor of Business
Administration in the Graduate School of Management, Rutgers University with
which he has been associated since 1966. His address is Rutgers University
Graduate School of Management, 92 New Street, Newark, New Jersey 07102. Dr.
Mellon is also a Director of Back Bay Funds, Inc., California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Delafield Fund, Inc., Georgia Daily Municipal Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pax World Money Market Fund, Inc., Reich & Tang
Equity Fund, Inc., Short Term Income Fund, Inc. and Virginia Daily Municipal
Income Fund, Inc.; and a Trustee of Florida Daily Municipal Income Fund,
Institutional Daily Income Fund, and Pennsylvania Daily Municipal Income Fund .
Robert Straniere, 57 - Director of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere & Straniere Law Firm since 1981.
His address is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is
also a Director of Back Bay Funds, Inc., California Daily Tax Free Income Fund,
Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund,
Inc., Delafield Fund, Inc., Georgia Daily Municipal Income Fund, Inc., LifeCycle
Mutual Funds, Inc., New Jersey Daily Municipal Income Fund Inc., North Carolina
Daily Municipal Income Fund, Inc., Pax World Money Market Fund, Inc., Reich &
Tang Equity Fund, Inc., Short Term Income Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc.; and a Trustee of Florida Daily Municipal Income
Fund, Institutional Daily Income Fund, and Pennsylvania Daily Municipal Income
Fund.
Dr. Yung Wong, 59 - Director of the Fund, was director of Shaw Investment
Management (UK) Limited from October 1994 to October 1995, and formerly General
Partner of Abacus Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
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Connecticut 06831. Dr. Wong has been a Director of Republic Telecom Systems
Corporation (provider of telecommunications equipment) since January 1989 and of
TelWatch, Inc. (provider of network management software) since August 1989. Dr.
Wong is a Director of Back Bay Funds, Inc., California Daily Tax Free Income
Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income
Fund, Inc., Delafield Fund, Inc., Georgia Daily Municipal Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pax World Money Market Fund, Inc., Reich & Tang Equity Fund, Inc.,
Short Term Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.; and
a Trustee of Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, and Pennsylvania Daily Municipal Income Fund.
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 Back
Bay Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily
Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund,
Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc., Institutional Daily Income Fund, 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, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc.
Lesley M. Jones, 49 - Vice President of the Fund, has been Senior Vice President
of the Reich & Tang Mutual Funds Division of the Manager since September 1993.
Ms. Jones was formerly Senior Vice President of Reich & Tang, Inc. with which
she was associated with from April 1973 to September 1993. Ms. Jones is also a
Vice President of Back Bay Funds, Inc., California Daily Tax Free Income Fund,
Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund,
Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc., Institutional Daily Income Fund, 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, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.
Dana E. Messina, 41 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995, and
was Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. with which she was associated with from
December 1980 to September 1993. Ms. Messina is also Vice President of Back Bay
Funds, Inc., California Daily Tax Free Income Fund Inc., Connecticut Daily Tax
Free Income Fund Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc., Institutional Daily Income Fund, 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, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc. Tax Exempt Proceeds Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc.
Bernadette N. Finn, 50 - Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn was formerly
Vice President and Assistant Secretary of Reich & Tang, Inc. with which she was
associated with from September 1970 to September 1993. Ms. Finn is also
Secretary of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax
Free Income Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal 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 Tax Exempt Proceeds Fund, Inc. and Virginia Daily Municipal Income
Fund, Inc.; and Vice President and Secretary of Delafield Fund, Inc.,
Institutional Daily Income Fund, Reich & Tang Equity Fund, Inc., and Short Term
Income Fund, Inc.
Richard De Sanctis, 41 - Treasurer of the Fund, has been Vice President and
Treasurer of the Manager since September 1993. Mr. De Sanctis was formerly
Controller of Reich & Tang, Inc. from January 1991 to September 1993 and Vice
President and Treasurer of Cortland Financial Group, Inc. and Vice President of
Cortland Distributors, Inc. from 1989 to December 1990. He is also Treasurer of
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, Georgia Daily Municipal Income
Fund, Inc., Institutional Daily Income Fund, 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, Reich & Tang Equity Fund, Inc., Short Term Income
Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily Municipal Income
Fund, Inc.; and Vice President and Treasurer of Cortland Trust, Inc.
17
<PAGE>
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. She is also Assistant 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, Georgia Daily Municipal Income Fund, Inc.,
Institutional Daily Income Fund, 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, Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc., and
Virginia Daily Municipal Income Fund, Inc. and is Vice President and Assistant
Treasurer of Cortland Trust, Inc.
The Fund paid an aggregate remuneration of $6,000 to its directors with respect
to the period ended February 28, 1998, all of which consisted of aggregate
directors' fees paid to the three disinterested directors, pursuant to the terms
of the Investment Management Contract. (See "Manager" herein.) See Compensation
Table below.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMPENSATION TABLE
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Annual Total Compensation
Position Compensation from Retirement Benefits upon from Fund and Fund
Registrant for Benefits Accrued Retirement Complex Paid to
Fiscal Year as Part of Fund Directors
Expenses
W. Giles Mellon, $2,000.00 0 0 $52,250 (13 Funds)
Director
Robert Straniere, $2,000.00 0 0 $52,250 (13 Funds)
Director
Dr. Yung Wong, $2,000.00 0 0 $52,250 (13 Funds)
Director
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex
for the fiscal year ending February 28, 1998 (and, with respect to certain
of the funds in the Fund Complex, estimated to be paid during the fiscal
year ending February 28, 1998). The parenthetical number represents the
number of investment companies (including the Fund) from which such person
receives compensation that are considered part of the same Fund complex as
the Fund, because, among other things, they have a common investment
advisor.
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 Michigan law are passed upon by Miller, Canfield,
Paddock and Stone, P.L.C. 2500 Comerica Building, 211 West Fort Street, Detroit,
Michigan 48226.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 (the "Rule") under the 1940 Act, the SEC has required
that an investment company which bears any direct or indirect expense of
distributing its shares must do so only in accordance with a plan permitted by
the Rule. The Fund's Board of Directors has adopted a distribution and service
plan (the "Plan") and, pursuant to the Plan, the Fund has entered into a
Distribution Agreement and a Shareholder Servicing Agreement (with respect to
Class A shares only) with Reich & Tang Distributors Inc.. (the "Distributor") as
distributor of the Fund's shares.
Effective October 3, 1996, 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
18
<PAGE>
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
Class A shares only), the Distributor receives from the Fund a fee equal to .20%
of the Fund's average daily net assets of Class A shares (the "Shareholder
Servicing Fee") for providing personal shareholder services and for the
maintenance of shareholder accounts. 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 only 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.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Distributor and Manager in carrying out their obligations under the
Shareholder Servicing Agreement with respect to Class A shares only, 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 Class A shares; to pay the costs of printing and
distributing the Fund's prospectus to prospective investors; and (iii) to defray
the cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholder Servicing Fee with respect to Class A shares
and past profits for the purposes enumerated in (i) above. The Distributor, in
its sole discretion, will determine the amount of such payments made pursuant to
the Plan, provided that such payments will not increase the amount which the
Fund is required to pay to the Manager and the Distributor for any fiscal year
under the Investment Management Contract, the Shareholder Servicing Agreement or
the Administrative Services Contract in effect for that year.
In accordance with Rule 12b-1, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Directors. In addition, the Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the plan and identifying the distribution activities for
which those expenditures were made.
The following applies only to Class A shares of the Fund. For the Fund's fiscal
year ended February 28, 1998, the amount payable to the Manager under the
Distribution Plan and Shareholder Servicing Agreement adopted thereunder
pursuant to the Rule under the 1940 Act, totaled $99,998, none of which was
voluntarily waived by the Manager. During the same period, the Manager made
payments under the Plan totaling $161,185, of which $154,937 was paid to or on
behalf of Participating Organizations. For the Fund's fiscal year ended February
28, 1997, the amount payable to the Distributor under the Distribution Plan and
Shareholder Servicing Agreement adopted thereunder pursuant to the Rule under
the 1940 Act, totaled $109,692, of which $28,354 was voluntarily waived by the
Distributor. During the same period, the Manager and Distributor made payments
under the Plan totaling $162,761, of which $154,563 was to or on behalf of
Participating Organizations. For the Fund's fiscal year ended February 29, 1996,
the amount payable to the Manager under the Distribution Plan and Shareholder
Servicing Agreement and Administrative Services Contract adopted thereunder
pursuant to the Rule under the 1940 Act, totaled $117,489, of which $57,587 was
voluntarily waived by the Manager. During the same period, the Manager made
payments under the Plan totaling $186,801, of which $176,337 was paid to or on
behalf of Participating Organizations.
19
<PAGE>
The Plan was most recently approved on January 30, 1998 by the Board of
Directors including a majority of the directors who are not interested persons
(as defined in the 1940 Act) of the Fund or the Manager and shall continue until
February 28, 1999. The Plan provides that it may continue in effect for
successive annual periods provided it is approved by the Class A shareholders or
by the Board of Directors, including a majority of directors who are not
interested persons of the Fund and who have no direct or indirect interest in
the operation of the Plan or in the agreements related to the Plan. The Plan
further provides that it may not be amended to increase materially the costs
which may be spent by the Fund for distribution pursuant to the Plan without
Class A shareholder approval, and the other material amendments must be approved
by the directors in the manner described in the preceding sentence. The Plan may
be terminated at any time by a vote of a majority of the disinterested directors
of the Fund or the Fund's Class A shareholders.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Fund, which was incorporated on January 30,
1987 in Maryland, consists of twenty billion shares of stock having a par value
of one tenth of one cent ($.001) per share. Each share has equal dividend,
distribution, liquidation and voting rights and a fractional share has those
rights in proportion to the percentage that the fractional share represents of a
whole share. Shares will generally be voted in the aggregate except in instances
as disclosed below when Class voting is applicable. 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 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 Fund's average daily
net assets; (iii) only the holders of the Class A shares would 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
shareholders to exchange their shares only for shares of the same class of a
Fund that participates in an exchange privilege with the Fund. Payments that are
made under the Plans will be calculated and charged daily to the appropriate
class prior to determining daily net asset value per share and
dividends/distributions. A fractional share has those rights in proportion to
the percentage that the fractional share represents of a whole share. On May 31,
1998 there were 23,367,906 shares of the Fund's Class A shares outstanding and 0
Class B shares outstanding. As of May 31, 1998 the amount of shares owned by all
officers and directors of the Fund as a group was less than 1% of the
outstanding shares of the Fund. Set forth below is certain information as to
persons who owned greater than 5% or more of the Fund's outstanding shares as of
May 31, 1998:
Nature of
Name and Address % of Class Ownership
Class A
Reich & Tang Services L.P.
as Agent for Various Beneficial Owners
600 Fifth Avenue, 8th Floor
New York, NY 10020-2302 32.64% Record
Shirley Young
771 Fisher Road
Gross Pointe, MI 48230-1203 5.98% Beneficial
Class B
None
Under its Articles of Incorporation the Fund has the right to redeem shares of
stock owned by any shareholder for cash 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
20
<PAGE>
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of the Fund's
revised investment advisory agreement with respect to a particular class or
series of stock, (c) for approval of revisions to the Fund's distribution
agreement with respect to a particular class or series of stock and (d) upon the
written request of holders of shares entitled to cast not less than 25% of all
the votes entitled to be cast at such meeting. Annual and other meetings may be
required with respect to such additional matters relating to the Fund as may be
required by the 1940 Act, any registration of the Fund with the SEC or any
state, or as the Directors may consider necessary or desirable. Each Director
serves until the next meeting of the shareholders called for the purpose of
considering the election or reelection of such Director or of a successor to
such Director, and until the election and qualification of his or her successor,
elected at such a meeting, or until such Director sooner dies, resigns, retires
or is removed by the vote of the shareholders.
FEDERAL INCOME TAXES
The Fund has elected to qualify under the Code, and under Michigan law, as a
"regulated investment company" that distributes "exempt-interest dividends". The
Fund intends to continue to qualify for regulated investment company status so
long as such qualification is in the best interests of its shareholders. Such
qualification relieves the Fund of liability for Federal income taxes to the
extent its earnings are distributed in accordance with the applicable provisions
of the Code.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its tax-exempt interest income, net of certain deductions.
Exempt-interest dividends, as defined in the Code, are dividends or any part
thereof (other than capital gain dividends) paid by the Fund that are
attributable to interest on obligations, the interest on which is exempt from
regular Federal income tax, and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders not later than
60 days after the close of its taxable year. The percentage of the total
dividends paid by the Fund during any taxable year that qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends during the year.
Exempt-interest dividends are to be treated by the Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code.
If a shareholder receives an exempt-interest dividend with respect to any share
and such share has been held for six months or less, then any loss on the sale
or exchange of such share will be disallowed to the extent of the amount of such
exempt-interest dividend. The Code provides that interest on indebtedness
incurred, or continued, to purchase or carry certain tax-exempt securities such
as shares of the Fund is not deductible. Therefore, among other consequences, a
certain proportion of interest on indebtedness incurred, or continued, to
purchase or carry securities on margin may not be deductible during the period
an investor holds shares of the Fund. P.L. 99-514 expands the application of
this rule as it applies to financial institutions, effective with respect to
taxable years ending after December 31, 1986. For Social Security recipients,
interest on tax-exempt bonds, including exempt-interest dividends paid by the
Fund, is to be added to adjusted gross income for purposes of computing the
amount of social security benefits includable in gross income. The amount of
such interest received will have to be disclosed on the shareholders' Federal
income tax returns. Taxpayers are required to include as an item of tax
preference for purposes of the Federal alternative minimum tax all tax-exempt
interest on "private activity" bonds (generally, a bond issue in which more than
10% of the proceeds are used in a non-governmental trade or business) (other
than Section 501(c)(3) bonds) issued after August 7, 1986. Thus, this provision
will apply to the portion of the exempt-interest dividends from the Fund's
assets, that are attributable to such post-August 7, 1986 private activity
bonds, if any of such bonds are acquired by the Fund. Corporations are required
to increase their alternative minimum taxable income by 75% 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. A shareholder is advised to consult his tax adviser with respect to
21
<PAGE>
whether exempt-interest dividends retain the exclusion under Section 103(a) of
the Code if such shareholder would be treated as a "substantial user" or
"related Person" under Section 147(a) of the Code with respect to some or all of
the "private activity bonds," if any, held by the Fund.
Although it is not intended, it is possible that the Fund may realize short-term
or long-term capital gains or losses from its portfolio transactions. The Fund
may also realize short-term or long-term capital gains upon the maturity or
disposition of securities acquired at discounts resulting from market
fluctuations. Short-term capital gains will be taxable to shareholders as
ordinary income when they are distributed. Any net capital gains (the excess of
its net realized long-term capital gain over its net realized short-term capital
loss) will be distributed annually to the Fund's shareholders. The Fund will
have no tax liability with respect to distributed net capital gains and the
distributions will be taxable to shareholders as long-term capital gains
regardless of how long the shareholders have held Fund shares. However, Fund
shareholders who at the time of such a net capital gain distribution have not
held their Fund shares for more than 6 months, and who subsequently dispose of
those shares at a loss, will be required to treat such loss as a long-term
capital loss to the extent of the 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, capital gains dividends are
taxable at a maximum rate of 28% to non-corporate shareholders if the Fund's
holding period is more than 12 months and 20% if the Fund's holding period is
more than 18 months, without regard to the length of time shares have been held
by the holder. Corresponding maximum rate and holding period rules apply with
respect to capital gains realized by a non-corporate 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
its net long-term capital gain over its net short-term capital loss) for each
taxable year. The Fund will be subject to Federal income tax on any
undistributed investment company taxable income. To the extent such income is
distributed it will be taxable to shareholders as ordinary income. Expenses paid
or incurred by the Fund will be allocated between tax-exempt and taxable income
in the same proportion as the amount of the Fund's tax-exempt income bears to
the total of such exempt income and its gross income (excluding from gross
income the excess of capital gains over capital losses). If the Fund does not
distribute at least 98% of its ordinary income and 98% of its capital gain net
income for a taxable year, the Fund will be subject to a nondeductible 4% excise
tax on the excess of such amounts over the amounts actually distributed.
If a shareholder fails to provide the Fund with a current taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
interest, dividend payments, and proceeds from the redemption of shares of the
Fund.
Dividends and distributions to shareholders will be treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund.
With respect to the variable rate demand instruments, including Participation
Certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner of the underlying Municipal Obligations and the interest thereon will
be exempt from regular 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 ownership of securities or participation
interests therein subject to a put and, as a result, the Internal Revenue
Service could reach a conclusion different from that reached by counsel.
The Code provides that the interest on indebtedness incurred or continued to
purchase or carry shares of the Fund is not deductible. Therefore, among other
consequences, a certain proportion of interest on indebtedness incurred, or
continued to purchase or carry securities may not be deductible during the
period an investor holds shares of the Fund. P.L. 99-514 expands the application
of this rule as it applies to financial institutions, effective with respect to
Fund shares acquired after December 31, 1986. The Clinton Administration's
Revenue Proposals for fiscal years 1999 would extend this provision to all
financial intermediaries effective for taxable years beginning after the date of
enactment with respect to obligations acquired on or after the date of first
committee action.
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
22
<PAGE>
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
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 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.
MICHIGAN INCOME TAXES
The designation of all or a portion of a dividend paid by the Fund as an
"exempt-interest dividend" under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. With respect to "exempt-interest dividends" that are paid to a
Michigan resident individual shareholder by the Fund, in the opinion of Miller,
Canfield, Paddock and Stone, P.L.C. special Michigan tax counsel to the Fund,
amounts correctly designated as derived from Michigan Municipal Obligations
received by the Fund will not be subject to the Michigan Income Tax.
"Exempt-interest dividends" correctly designated as derived from Territorial
Municipal Obligations should not be subject to the Michigan Income Tax.
Michigan Income Tax will apply to capital gain dividends distributed to
shareholders as well as to gains or losses incurred by the shareholders upon
sale or exchange of their shares.
Under the Michigan Intangibles Tax, the pro rata ownership of the underlying
Michigan and Territorial Municipal Obligations, as well as the interest thereon,
will be exempt to the shareholders. The Intangibles Tax was totally repealed
effective January 1, 1998.
Only persons engaging in business activity within Michigan are subject to the
Michigan Single Business Tax ("SBT"). Under the SBT, distributions made with
respect to shares of the Fund, to the extent that such distributions represent
exempt-interest dividends for Federal income tax purposes that are attributable
to Michigan or Territorial Municipal Obligations, if not included in determining
taxable income for Federal income tax purposes, are also not included in the
adjusted tax base upon which the SBT is computed, of either the Fund or the
shareholders.
Shareholders are urged to consult their tax advisors with respect to the
treatment of distributions from the Fund in their own states and localities.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri 64105
is custodian for the Fund's cash and securities. Reich & Tang Services Inc., 600
Fifth Avenue, New York, New York 10020 is the transfer agent and dividend
disbursing agent for the shares of the Fund. The Fund's custodian and transfer
agent do not assist in, and are not responsible for, investment decisions
involving assets of the Fund.
FINANCIAL STATEMENTS
The audited financial statements for the Fund and the report of McGladrey &
Pullen thereon for the fiscal year ended February 28, 1998 are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.
23
<PAGE>
DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s two highest municipal bond
ratings
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. (_____) - Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc.'s two highest ratings of state
and municipal notes and other short-term loans:
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:
MIG-1 - Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2 - Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services two highest debt ratings:
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
S&P 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.
- ------------------------------------------------------------------------------
* As Described by the rating agencies.
24
<PAGE>
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.
25
<PAGE>
<TABLE>
TAXABLE EQUIVALENT YIELD TABLE
_____________________________________________________________________________________________________________
1. If Your Taxable Income Bracket Is . . .
_____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Single 0- 25,351- 61,401- 128,101- 278,451
Return 25,350 61,400 128,100 278,450 and over
_____________________________________________________________________________________________________________
Joint 0- 42,351- 102,301- 155,951- 278,451
Return 42,351 102,300 155,950 278,450 and over
_____________________________________________________________________________________________________________
2. Then Your Combined Income Tax Bracket Is . . .
_____________________________________________________________________________________________________________
Federal
Tax Bracket 15.00% 28.00% 31.00% 36.00% 39.60%
_____________________________________________________________________________________________________________
State
Tax Bracket 4.40% 4.40% 4.40% 4.40% 4.40%
_____________________________________________________________________________________________________________
Combined
Tax Bracket 18.74% 31.17% 34.04% 38.82% 42.26%
_____________________________________________________________________________________________________________
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
Tax Exempt Equivalent Taxable Investment Yield
Yield Required to Match Tax Exempt Yield
_____________________________________________________________________________________________________________
2.0% 2.46% 2.91% 3.03% 3.27% 3.46%
_____________________________________________________________________________________________________________
2.5% 3.08% 3.63% 3.79% 4.09% 4.33%
_____________________________________________________________________________________________________________
3.0% 3.69% 4.36% 4.55% 4.90% 5.20%
_____________________________________________________________________________________________________________
3.5% 4.31% 5.08% 5.31% 5.72% 6.06%
_____________________________________________________________________________________________________________
4.0% 4.92% 5.81% 6.06% 6.54% 6.93%
_____________________________________________________________________________________________________________
4.5% 5.54% 6.54% 6.82% 7.35% 7.79%
_____________________________________________________________________________________________________________
5.0% 6.15% 7.26% 7.58% 8.17% 8.66%
_____________________________________________________________________________________________________________
5.5% 6.77% 7.99% 8.34% 8.99% 9.53%
_____________________________________________________________________________________________________________
6.0% 7.38% 8.72% 9.10% 9.81% 10.39%
_____________________________________________________________________________________________________________
6.5% 8.00% 9.44% 9.85% 10.62% 11.26%
_____________________________________________________________________________________________________________
7.0% 8.61% 10.17% 10.61% 11.44% 12.12%
_____________________________________________________________________________________________________________
</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.
26
<PAGE>
<TABLE>
<CAPTION>
CORPORATE TAXABLE EQUIVALENT YIELD TABLE
______________________________________________________________________________________________________________________________
1. If Your Corporate Taxable Income Bracket Is . . .
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%
Tax Rate
______________________________________________________________________________________________________________________________
State
Tax Rate 2.30% 2.30% 2.30% 2.30% 2.30% 2.30% 2.30% 2.30%
______________________________________________________________________________________________________________________________
State Tax 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Surcharge
______________________________________________________________________________________________________________________________
Combined 16.96% 26.73% 35.52% 40.40% 35.52% 36.50% 39.43% 36.50%
Marginal
Tax Rate
______________________________________________________________________________________________________________________________
3. Compare Tax Free Income Yields With Taxable Income Yields
Tax Exempt Equivalent Taxable Investment Yield
Yield Required to Match Tax Exempt Yield
______________________________________________________________________________________________________________________________
2.00% 2.41% 2.73% 3.10% 3.36% 3.10% 3.15% 3.30% 3.15%
______________________________________________________________________________________________________________________________
2.50% 3.01% 3.41% 3.88% 4.19% 3.88% 3.94% 4.13% 3.94%
______________________________________________________________________________________________________________________________
3.00% 3.61% 4.09% 4.65% 5.03% 4.65% 4.72% 4.95% 4.72%
______________________________________________________________________________________________________________________________
3.50% 4.21% 4.78% 5.43% 5.87% 5.43% 5.51% 5.78% 5.51%
______________________________________________________________________________________________________________________________
4.00% 4.82% 5.46% 6.20% 6.71% 6.20% 6.30% 6.60% 6.30%
______________________________________________________________________________________________________________________________
4.50% 5.42% 6.14% 6.98% 7.55% 6.98% 7.09% 7.43% 7.09%
_____________________________________________________________________________________________________________________________
5.00% 6.02% 6.82% 7.75% 8.39% 7.75% 7.87% 8.25% 7.87%
______________________________________________________________________________________________________________________________
5.50% 6.62% 7.51% 8.53% 9.23% 8.53% 8.66% 9.08% 8.66%
______________________________________________________________________________________________________________________________
6.00% 7.22% 8.19% 9.30% 10.07% 9.30% 9.45% 9.91% 9.45%
______________________________________________________________________________________________________________________________
6.50% 7.83% 8.87% 10.08% 10.91% 10.08% 10.24% 10.73% 10.24%
______________________________________________________________________________________________________________________________
7.00% 8.43% 9.55% 10.86% 11.75% 10.86% 11.02% 11.56% 11.02%
______________________________________________________________________________________________________________________________
</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.
27
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(A) Financial Statements.
Included in Prospectus Part A:
(1) Table of Fees and Expenses
(2) Financial Highlights
Incorporated by Reference in Statement of Additional Information Part B:
(1) Report of McGladrey & Pullen, LLP, independent
certified public accountants, dated March 31, 1998.
(2) Statement of Net Assets (audited), February 28, 1998.
(3) Statement of Operations (audited), Year ended February 28, 1998.
(4) Statements of Changes in Net Assets (audited), Years ended February
28,1997 and 1998
(5) Notes to Financial Statements (audited).
(B) Exhibits.
(1) Articles of Incorporation of the Registrant (re-filed herewith
for Edgar purposes only).
(2) By-laws of the Registrant (re-filed herewith for Edgar
purposes only).
(3) Not applicable.
(4) Form of certificate for shares of Common Stock, par value $.001 per
share, of the Registrant (re-filed herewith for Edgar
purposes only).
(5) Investment Management Contract between the Registrant and Reich &
Tang Asset Management L.P. (filed herewith).
(6) Distribution Agreement between the Registrant and Reich & Tang
Distributors L.P. (filed as Exhibit 15.2 herewith).
(7) Not applicable.
(8)(a) Custody Agreement between the Registrant and Investors
Fiduciary Trust Company (re-filed herewith for Edgar purposes
only).
(b) Custody Agreement between the Registrant and The Bank of New York
(filed as Exhibit 8 to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 33-11642) and
incorporated herein by reference).
(9) Not applicable.
(10.1) Opinion of Messrs. Battle Fowler LLP, as to the legality
of the securities being registered, including their consent to
the filing thereof and to the use of their name under the 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
(re-filed herewith for Edgar purposes only).
C-1
<PAGE>
(10.2) Opinion of Miller, Canfield, Paddock and Stone, P.L.C. (filed as
Exhibit 10.2 with Post-Effective Amendment No. 15 and
incorporated by reference herein).
(11) Consent of Certified Public Accountants filed herein.
(12) Not applicable.
(13) Written assurance of Reich & Tang, Inc. that its purchase of
shares of the Registrant was for investment purposes without
any present intention of redeeming or reselling (re-filed
herewith for Edgar purposes only).
(14) Not applicable.
(15.1) Distribution Plan Pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (filed herewith).
(15.2) Distribution Agreement between the Registrant and Reich & Tang
Distributors, Inc. (filed herewith).
(15.3) Shareholder Servicing Agreement between the
Registrant and Reich & Tang Distributors, Inc. (filed herewith).
(15.4) Administrative Services Contract between the Registrant and
Reich & Tang Distributors, Inc. filed as Exhibit 15.4
with Post-Effective Amendment No. 15 and incorporated by
reference herein.
(16.1) Power of Attorney of principal officers and directors of the
Registrant (re-filed herewith for Edgar purposes only).
(16.2) Power of Attorney of principal officers and directors of the
Registrant (filed as Exhibit 16.2 to Pre-Effective Amendment No.1
to the Registration Statement on Form N-1A (File No. 33-11642)
and incorporated herein by reference).
(17) Financial Data Schedule filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of May 31, 1998
-------------- ---------------------
Class A Common Stock 319
(par value $.001)
Class B Common Stock 0
(par value $.001)
Item 27. Indemnification.
Registrant incorporates herein by reference the response to Item 27 of
Registration Statement filed with the Commission on February 24, 1987.
C-2
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
The description of Reich & Tang Asset Management L.P. ("RTAMLP") under
the caption "Management of the Fund" in the Prospectus and "Manager" and
"Management of the Fund" in the Statement of Additional Information constituting
parts A and B, respectively, of this Post Effective Amendment No. 16 to the
Registration Statement are incorporated herein by reference.
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 the name 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 .5% interest of the Manager. Nvest Corporation (formerly known as New
England Investment Companies Inc.) a Massachusetts corporation, 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.
Registrant's investment adviser, RTAMLP is a registered investment adviser.
RTAMLP'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,
Institutional Daily Income Fund, New York Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pax World Money Market Fund, Inc., Pennsylvania Daily Municipal
Income Fund, Tax Exempt Proceeds Fund, Inc., Short Term Income 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., registered investment companies whose addresses are 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,
August Associates, Reich & Tang Minutus L.P. and Tucek Partners, private
investment partnerships organized as limited partnerships.
Peter S. Voss, President, Chief Executive Officer and a Director of Nvest
Corporation (formerly New England Investment Companies, Inc.) since October
1992, Chairman of the Board of Nvest Corporation 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
Nvest Corporation 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,
C-3
<PAGE>
Clerk and Secretary of Nvest Corporation 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 Nvest
Corporation. Lorraine C. Hysler has been Secretary of RTAM since July 1994,
Assistant Secretary of NEIC since September 1993, Vice President of the Mutual
Funds Group of NEICLP 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 RTAM since July 1994, President and
Chief Operating Officer of the Capital Management Group of NEICLP from May 1994
until July 1994, President and Director of RTAM since July 1994, President and
Chief Operating Officer of the 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 RTAM 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., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pax World Money Market Fund, Inc., Short Term Income Fund, Inc. and
Virginia Daily Municipal Income Fund, Inc., President and Trustee of
Institutional Daily Municipal Income Fund, Pennsylvania Daily Municipal Income
Fund, President and Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.,
and Executive Vice President of Reich & Tang Equity Fund, Inc. Bernadette N.
Finn has been Vice President/Compliance of RTAM since July 1994, Vice President
of Mutual Funds Division of NEICLP 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., Delafield Fund, Inc., Daily Tax Free Income Fund, Inc.,
Institutional Daily Municipal Income Fund, Michigan Daily Tax Free Income Funds,
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, Tax Exempt
Proceeds Fund, Inc. and Virginia Daily Municipal Income Fund, Inc., a Vice
President and Secretary of Reich & Tang Equity Fund, Inc., and Short Term Income
Fund, Inc. Richard De Sanctis has been Treasurer of RTAM since July 1994,
Assistant Treasurer of NEIC since September 1993 and Treasurer of the Mutual
Funds Group of NEICLP from September 1993 until July 1994, Treasurer of the
Reich & Tang Mutual Funds since 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 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.,
Institutional 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., Pax World
Money Market 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. and is Vice President and
Treasurer of Cortland Trust, Inc. Richard I. Weiner has been Vice President of
RTAM since July 1994, has been Vice President of NEIC since September 1993, Vice
President of the Capital Management Group of NEIC from September 1993 until July
1994, Vice President of Reich & Tang Asset Management L.P. Capital Management
Group since July 1994. Mr. Weiner joined Reich & Tang, Inc. in August 1970 and
has served as a Vice President since September 1982. Rosanne Holtzer has been
Vice President of the Mutual Funds division of the Manager since December 1997.
C-4
<PAGE>
Ms. Holtzer was formerly Manager of Fund Accounting for the Manager with which
she was associated with from June 1986, in addition she is also Assistant
Treasurer of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily
Income Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pax World Money Market Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc. and is Vice President and Assistant Treasurer of
Cortland Trust, Inc.
Item 29. Principal Underwriters.
(a) Reich & Tang Distributors Inc., the Registrant's Distributor, is
also distributor for Back Bay Funds, Inc., California Daily Tax Free Income
Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc.,
Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal
Income Fund, Institutional Daily Income Fund, 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, 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 address is 600 Fifth Avenue, New York, New York 10020.
Positions and Offices
With the General Partner Positions and Offices
Name of the Distributor With Registrant
Richard E. Smith III President & Director None
Steven W. Duff Director President and Director
Lorraine C. Hysler Secretary None
Richard I. Weiner Vice President None
Richard De Sanctis Treasurer Treasurer
Robert F. Hoerle Managing Director None
Bernadette N. Finn Vice President Secretary
Peter Demarco Executive Vice President None
Peter S. Voss Director None
G. Neal Ryland Director None
Edward N. Wadsworth Executive Officer None
(c) Not applicable.
Item 30. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of the Registrant, at Reich
& Tang Asset Management L.P., 600 Fifth Avenue, New York, New York 10020, the
Registrant's Manager; Reich & Tang Services Inc., 600 Fifth Avenue, New York,
New York 10020, the Registrant's transfer agent and dividend disbursing agent
and Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri,
64104, the Registrant's custodian.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, and State of New York, on the 26th day of June, 1998.
MICHIGAN DAILY TAX FREE INCOME FUND, INC.
By:/s/Steven W. Duff
Steven W. Duff, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
(1) Principal Executive Officer
/s/Steven W. Duff President 06/26/98
Steven W. Duff and Director
(2) Principal Financial
and Accounting Officer
/s/Richard De Sanctis Treasurer 06/26/98
Richard De Sanctis
(3) Majority of Directors Director 06/26/98
W. Giles Mellon
Yung Wong
Robert Straniere
By: /s/Bernadette N. Finn
Bernadette N. Finn
Attorney-in-Fact*
* An executed copy of the power of attorney was filed as an exhibit to
Post-Effective Amendment No. 5 to the Registration Statement No. 33-11642
on June 29, 1991.
<PAGE>
ARTICLES OF INCORPORATION
OF
MICHIGAN 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
Michigan 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 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;
1
<PAGE>
(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;
(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.
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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 929 North Howard Street, Baltimore,
Maryland 21201.
The resident agent of the Corporation in the State of Maryland is
Prentice-Hall Corporate System, Maryland, at 929 North Howard Street, Baltimore,
Maryland 21201.
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 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
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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.
(2) 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, 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.
(3) 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 determined 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.
(4) 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
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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.
(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.
(5) 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.
(6) 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
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.
(7) 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
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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.
(8) 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.
(9) 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.
(10) 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.
(11) 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 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.
(12) 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
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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.
(13) 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.
(14) 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.
(15) 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 the Board of Directors in its discretion may determine, without first
offering same, or any thereof, to any said holder.
(16) 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 Sate 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.
(15) 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
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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:
(1) to make, alter and repeal the By-Laws of the
Corporation;
(2) 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;
(3) 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
(4) 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.
(16) 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.
(17) 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.
(18) Any determination made in good faith and, so far as accounting matters
are involved, in accordance with generally accepted accounting principles by
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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 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.
(19) 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.
(20) Specifically and without limitation of the foregoing subsection (e)
but subject to the exception therein prescribed, the Corporation may enter into
management 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
may 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
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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,
not 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:
(21) 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.
(22) 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.
<PAGE>
(23) 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
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per share as may be specified in the agreement, if any, with the stockholder for
the purchase or redemption of his shares.
(24) 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.
(25) 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.
(26) 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 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 his act.
Michael R. Rosella, Incorporator
Dated: January 29, 1987
11
BY-LAWS
OF
MICHIGAN DAILY TAX FREE INCOME FUND, INC.
a Maryland corporation
ARTICLE 1
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 2
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.
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
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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.
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
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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
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.
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ARTICLE 3
Board of Directors
Section 1. Number of Directors. The number of directors shall be fixed at
no less than two 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 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.
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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 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 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.
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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 4
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.
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.
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ARTICLE 5
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.
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
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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
Directors 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 one 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. 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
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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 6
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.
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
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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 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 7
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 Articles of Incorporation and
of the provisions of applicable law, be declared by the Board of Directors at
any time. Dividends may 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.
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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.
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
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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 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.
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ARTICLE 8
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.
13
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
MICHIGAN 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 ________________________ 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
hereof in person or by duly authorized Attorney upon surrender of this
Certificate property 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 ____________________________________
INVESTMENT MANAGEMENT CONTRACT
MICHIGAN DAILY TAX FREE INCOME FUND, INC.
the "Fund"
New York, New York
______________, 1996
Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10022
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We propose to engage in the business of investing and reinvesting our
assets in securities of the type, and in accordance with the limitations,
specified in our Articles of Incorporation, By-Laws and Registration Statement
filed with the Securities and Exchange Commission under the Investment Company
Act of 1940 (the "1940 Act") and the Securities Act of 1933, including the
Prospectus forming a part thereof (the "Registration Statement"), all as from
time to time in effect, and in such manner and to such extent as may from time
to time be authorized by our Board of Directors. We enclose copies of the
documents listed above and will furnish you such amendments thereto as may be
made from time to time.
2. (a) We hereby employ you to manage the investment and reinvestment of
our assets as above specified, and, without limiting the generality of the
foregoing, to provide the investment management services specified below.
(b) Subject to the general control of our Board of Directors you will make
decisions with respect to all purchases and sales of the portfolio securities.
To carry out such decisions, you are hereby authorized, as our agent and
attorney-in-fact for our account and at our risk and in our name, to place
orders for the investment and reinvestment of our assets. In all purchases,
sales and other transactions in our portfolio securities you are authorized to
exercise full discretion and act for us in the same manner and with the same
force and effect as the Fund itself might or could do with respect to such
purchases, sales or other transactions, as well as with respect to all other
things necessary or incidental to the furtherance or conduct of such purchases,
sales or other transactions.
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(c) You will report to our Board of Directors at each meeting thereof all
changes in our portfolio since your prior report, and will also keep us in touch
with important developments affecting our portfolio and, on your initiative,
will furnish us from time to time with such information as you may believe
appropriate for this purpose, whether concerning the individual entities whose
securities are included in our portfolio, the activities in which such entities
engage, Federal income tax policies applicable to our investments, or the
conditions prevailing in the money market or the economy generally. You will
also furnish us with such statistical and analytical information with respect to
our portfolio securities as you may believe appropriate or as we may reasonably
request. In making such purchases and sales of our portfolio securities, you
will comply with the policies set from time to time by our Board of Directors as
well as the limitations imposed by our Articles of Incorporation and by the
provisions of the Internal Revenue Code and the 1940 Act relating to regulated
investment companies and the limitations contained in the Registration
Statement.
(d) It is understood that you will from time to time employ, subcontract
with or otherwise associate with yourself, entirely at your expense, such
persons as you believe to be particularly fitted to assist you in the execution
of your duties hereunder.
(e) You or your affiliates will also furnish us, at your own expense, such
investment advisory supervision and assistance as you may believe appropriate or
as we may reasonably request subject to the requirements of any regulatory
authority to which you may be subject. You and your affiliates will also pay the
expenses of promoting the sale of our shares (other than the costs of preparing,
printing and filing our registration statement, printing copies of the
prospectus contained therein and complying with other applicable regulatory
requirements), except to the extent that we are permitted to bear such expenses
under a plan adopted pursuant to Rule 12b-1 under the 1940 Act or a similar
rule.
3. We agree, subject to the limitations described below, to be responsible
for, and hereby assume the obligation for payment of, all our expenses,
including: (a) brokerage and commission expenses, (b) Federal, state or local
taxes, including issue and transfer taxes incurred by or levied on us, (c)
commitment fees and certain insurance premiums, (d) interest charges on
borrowings, (e) charges and expenses of our custodian, (f) charges, expenses and
payments relating to the issuance, redemption, transfer and dividend disbursing
functions for us, (g) recurring and nonrecurring legal and accounting expenses,
including those of the bookkeeping agent, (h) telecommunications
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expenses, (i) the costs of organizing and maintaining our existence as a
corporation, (j) compensation, including directors' fees, of any of our
directors, officers or employees who are not your officers or officers of your
affiliates, and costs of other personnel providing clerical, accounting
supervision and other office services to us as we may request, (k) costs of
stockholder services including, charges and expenses of persons providing
confirmations of transactions in our shares, periodic statements to
stockholders, and recordkeeping and stockholders' services, (l) costs of
stockholders' reports, proxy solicitations, and corporate meetings, (m) fees and
expenses of registering our shares under the appropriate Federal securities laws
and of qualifying such shares under applicable state securities laws, including
expenses attendant upon the initial registration and qualification of such
shares and attendant upon renewals of, or amendments to, those registrations and
qualifications, (n) expenses of preparing, printing and delivering our
prospectus to existing stockholders and of printing stockholder application
forms for stockholder accounts, (o) payment of the fees and expenses provided
for herein, under the Administrative Services Agreement and under the
Shareholder Servicing Agreement and Distribution Agreement, and (p) any other
distribution or promotional expenses contemplated by an effective plan adopted
by us pursuant to Rule 12b-1 under the Act. Our obligation for the foregoing
expenses is limited by your agreement to be responsible, while this Agreement is
in effect, for any amount by which our annual operating expenses (excluding
taxes, brokerage, interest and extraordinary expenses) exceed the limits on
investment company expenses prescribed by any state in which our shares are
qualified for sale.
4. We will expect of you, and you will give us the benefit of, your best
judgment and efforts in rendering these services to us, and we agree as an
inducement to your undertaking these services that you will not be liable
hereunder for any mistake of judgment or for any other cause, provided that
nothing herein shall protect you against any liability to us or to our security
holders by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of your reckless disregard of
your obligations and duties hereunder.
5. In consideration of the foregoing we will pay you a fee at the annual
rate of .30 of 1% of the Fund's average daily net assets. Your fee will be
accrued by us daily, and will be payable on the last day of each calendar month
for services performed hereunder during that month or on such other schedule as
you shall request of us in writing. You may use any portion of this fee for
distribution of our shares, or for making servicing payments to organizations
whose customers or clients are our shareholders. You may waive your right to any
fee to which you are entitled hereunder, provided such waiver is
3
delivered to us in writing. Any reimbursement of our expenses, to which we may
become entitled pursuant to paragraph 3 hereof, will be paid to us at the same
time as we pay you.
6. This Agreement will become effective on the date hereof and shall
continue in effect until _______________ and thereafter for successive
twelve-month periods (computed from each ____________), provided that such
continuation is specifically approved at least annually by our Board of
Directors or by a majority vote of the holders of our outstanding voting
securities, as defined in the 1940 Act and the rules thereunder, and, in either
case, by a majority of those of our directors who are neither party to this
Agreement nor, other than by their service as directors of the corporation,
interested persons, as defined in the 1940 Act and the rules thereunder, of any
such person who is party to this Agreement. Upon the effectiveness of this
Agreement, it shall supersede all previous agreements between us covering the
subject matter hereof. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of a majority of our outstanding voting
securities, as defined in the 1940 Act and the rules thereunder, or by a vote of
a majority of our entire Board of Directors, on sixty days' written notice to
you, or by you on sixty days' written notice to us.
7. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you and this agreement shall terminate automatically
in the event of any such transfer, assignment, sale, hypothecation or pledge by
you. The terms "transfer", "assignment" and "sale" as used in this paragraph
shall have the meanings ascribed thereto by governing law and in applicable
rules or regulations of the Securities and Exchange Commission.
8. Except to the extent necessary to perform your obligations hereunder,
nothing herein shall be deemed to limit or restrict your right, or the right of
any of your employees or the officers and directors of Reich & Tang Asset
Management, Inc., your general partner, who may also be a director, officer or
employee of ours, or of a person affiliated with us, as defined in the 1940 Act,
to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
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If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
MICHIGAN DAILY TAX FREE INCOME FUND, INC.
By:
ACCEPTED: , 1996
REICH & TANG ASSET MANAGEMENT L.P.
By: REICH & TANG ASSET MANAGEMENT, INC., General Partner
By: ___________________________________
5
CUSTODY AGREEMENT
THIS AGREEMENT made the ___ day of _____________, 19__, by and between
INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of
the state of Missouri, having its trust office located at 801 Pennsylvania,
Kansas City, Missouri 64105 ("Custodian"), and Michigan Daily Tax Free Income
Fund, Inc., a Maryland corporation, having its principal office and place of
business at 600 Fifth Avenue, New York, New York 10020 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
custodian of the securities and monies of Fund's investment portfolio; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for an in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints Custodian
of the securities and monies at any time owned by the Fund.
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2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to Custodian:
1. That it is a corporation or trust (as specified above) duly organized
and existing and in good standing under the laws of its state of
organization, and that it is registered under the Investment Company
Act of 1940 (the "1940 Act"); and
2. That it has the requisite power and authority under applicable law,
its articles of incorporation and its bylaws to enter into this
Agreement; that it has taken all requisite action necessary to appoint
Custodian as custodian for the Fund; that this Agreement has been duly
executed and delivered by Fund; and that this Agreement constitutes a
legal, valid binding obligation of Fund, enforceable in accordance
with its terms.
B. Custodian hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in good
standing under the laws of the State of Missouri; and
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2. That it has the requisite power and authority under applicable law,
its charter and its bylaws to enter into and perform this Agreement;
that this Agreement has been duly executed and delivered by Custodian;
and that this Agreement constitutes a legal, valid binding obligation
of Custodian, enforceable in accordance with its terms.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
Except as permitted by the 1940 Act, Fund will deliver or cause to be
delivered to Custodian on the effective date of this Agreement, or as
soon thereafter as practicable, and from time to time thereafter, all
portfolio securities acquired by it and monies then owned by it or
from time to time coming into its possession during the time this
Agreement shall continue in effect. Custodian shall have no
responsibility or liability whatsoever for or on account of securities
or monies not so delivered.
B. Delivery of Accounts and Records
Fund shall turn over or cause to be turned over to Custodian all of
the Fund's relevant accounts and records previously maintained.
Custodian shall be entitled to rely conclusively on the completeness
and
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correctness of the accounts and records turned over to it, and Fund
shall indemnify and hold Custodian harmless of and from any and all
expenses, damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other deficiency of
such accounts and records or in the failure of Fund to provide, or to
provide in a timely manner, any accounts, records or information
needed by the Custodian to perform its functions hereunder.
C. Delivery of Assets to Third Parties
Custodian will receive delivery of and keep safely the assets of Fund
delivered to it from time to time segregated in a separate account,
and if Fund is comprised of more than one portfolio of investment
securities (each a "Portfolio") Custodian shall keep the assets of
each Portfolio segregated in a separate account. Custodian will not
deliver, assign, pledge or hypothecate any such assets to any person
except as permitted by the provisions of this Agreement or any
agreement executed by it according to the terms of Section 3.S. of
this Agreement. Upon delivery of any such assets to a subcustodian
pursuant to Section 3.S. of this Agreement, Custodian will create and
maintain records identifying those assets which have been delivered to
the subcustodian as belonging to the Fund, by Portfolio if applicable.
The Custodian is
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responsible for the safekeeping of the securities and monies of Fund
only until they have been transmitted to and received by other persons
as permitted under the terms of this Agreement, except for securities
and monies transmitted to subcustodians appointed under Section 3.S.
of this Agreement, for which Custodian remains responsible to the
extent provided in Section 3.S. hereof. Custodian may participate
directly or indirectly through a subcustodian in the Depository Trust
Company (DTC), Treasury/Federal Reserve Book Entry System (Fed
System), Participant Trust Company (PTC) or other depository approved
by the Fund (as such entities are defined at 17 CFR Section
270.17f-4(b)) (each a "Depository") and collectively, the
"Depositories").
D. Registration of Securities
The Custodian shall at all times hold registered securities of the
Fund in the name of the Custodian, the Fund, or a nominee of either of
them, unless specifically directed by instructions to hold such
registered securities in so-called "street name", provided that, in
any event, all such securities and other assets shall be held in an
account of the Custodian containing only assets of the Fund, or only
assets held by the Custodian as a fiduciary or custodian for
customers, and provided further, that the
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records of the Custodian at all time shall indicate the Fund or other
customer for which such securities and other assets are held in such
account and the respective interests therein. If, however, the Fund
directs the Custodian to maintain securities in "street name",
notwithstanding anything contained herein to the contrary, the
Custodian shall be obligated only to utilize its best efforts to
timely collect income due the Fund on such securities and to notify
the Fund of relevant corporate actions including, without limitation,
pendency of calls, maturities, tender or exchange offers. All
securities, and the ownership thereof the Fund, which are held by
Custodian hereunder, however, shall at all time be identifiable on the
records of the Custodian. The Fund agrees to hold Custodian and its
nominee harmless for any liability as a shareholder of record of
securities held in custody.
E. Exchange of Securities
Upon receipt of instructions as defined herein in Section 4.A,
Custodian will exchange, or cause to be exchange, portfolio securities
held by it for the account of Fund for other securities or cash issued
or paid in connection with any reorganization, recapitalization,
merger, consolidation, split-up of shares, change of par value,
conversion or otherwise, and will deposit any such securities in
accordance with
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the terms of any reorganization or protective plan. Without
instructions, Custodian is authorized to exchange securities held by
it in temporary form for securities in definitive form, to effect an
exchange of shares when the par value of the stock is changed, and,
upon receiving payment therefor, to surrender bonds or other
securities held by it at maturity or when advised of earlier call for
redemption, except that Custodian shall receive instructions prior to
surrendering any convertible security.
F. Purchases of Investments of the Fund
Fund will, on each business day on which a purchase of securities
shall be made by it, deliver to custodian instructions which shall
specify with respect to each such purchase.
1. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the security;
3. The number of shares and the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
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<PAGE>
7. The total amount payable upon such purchase; and
8. The name of the person from whom or the broker or dealer through
whom the purchase was made.
9. Whether the security is to be received in certificated form or
via a specified Depository.
In accordance with such instructions, Custodian will pay for out of monies held
for the account of Fund, but only insofar as such monies are available for such
purpose, and receive the portfolio securities so purchased by or for the account
of Fund, except that Custodian may in its sole discretion advance funds to the
Fund, which may result in an overdraft because the monies held by the Custodian
on behalf of the Fund are insufficient to pay the total amount payable upon such
purchase. Except as otherwise instructed by Fund, such payment shall be made by
the Custodian only upon receipt of securities: (a) by the Custodian; (b) by a
clearing corporation of a national exchange of which the Custodian is a member;
or (c) by a Depository. Notwithstanding the foregoing, (i) in the case of a
repurchase agreement, the Custodian may release funds to a Depository prior to
the receipt of advice from the Depository that the securities underlying such
repurchase agreement have been transferred by book-entry into the account
maintained with such Depository by the Custodian, on behalf of its customers,
provided that the Custodian's instructions to the Depository require that the
Depository make payment of such funds only upon transfer by book-entry of the
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<PAGE>
securities underlying the repurchase agreement in such amount; (ii) in the case
of time deposits, call account deposits, currency deposits and other deposits,
foreign exchange transactions, futures contracts or options, the Custodian may
make payment therefor before receipt of an advice or confirmation evidencing
said deposit or entry into such transaction; and (iii) in the case of the
purchase of securities, the settlement of which occurs outside of the United
States of America, the Custodian may make, or cause a subcustodian appointed
pursuant to Section 3.S.2. of this Agreement to make, payment therefor in
accordance with generally accepted local custom and market practice.
G. Sales and deliveries of Investments of the Fund - Other than Options
and Futures
Fund will, on each business day on which a sale of investment
securities (other than options and futures) of Fund has been made,
deliver to Custodian instructions specifying with respect to each such
sales:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares and principal amount sold, and accrued
interest, if any;
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<PAGE>
4. The date on which the securities sold were purchased or other
information identifying the securities sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such sale; and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
In accordance with such instructions, Custodian will deliver or cause to be
delivered the securities thus designated as sold for the amount of Fund to the
broker or other person specified in the instructions relating to such sale.
Except as otherwise instructed by Fund, such delivery shall be made upon receipt
of payment therefor: (a) in such form as is satisfactory to the Custodian; (b)
credit to the account of the Custodian with a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) credit to the
amount of the Custodian, on behalf of its customers, with a Depository.
Notwithstanding the foregoing: (i) in the case of securities held in physical
form, such securities shall be delivered in accordance with "street delivery
custom" to a broker or its clearing agent;
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or (ii) in the case of the sale of securities, the settlement of which occurs
outside of the United States of America, the Custodian may make, or cause a
subcustodian appointed pursuant to Section 3.S.2. of this Agreement to make,
payment therefor in accordance with generally accepted local custom and market
practice.
H. Purchases of Sales of Options and Futures
Fund will, on each business day on which a purchase or sale of the
following options and/or futures shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase or sale:
1. If appliable, the name of the Portfolio making such purchase or
sale;
2. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
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<PAGE>
j. Name and address of the broker or dealer through whom the
sale or purchase was made.
3. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising,
expiring or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through whom
the sale or purchase was made, or other applicable
settlement instructions.
4. Security Index Future Contracts
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
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e. The need for a segregated margin account (in addition to
instructions, and if not already in the possession of
Custodian, Fund shall deliver a substantially complete and
executed custodial safekeeping account and procedural
agreement which shall be incorporated by reference into this
Custody Agreement); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made or other
applicable settlement instructions.
5. Options on Index Future Contracts
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening,exercising,
expiring or closing transaction;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Securities Pledged or Loaned
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If specifically allowed for in the prospectus of Fund, and subject to such
additional terms and conditions as Custodian may require:
1. Upon receipt of instructions, Custodian will release or cause to be
released securities held in custody to the pledge designated in such
instructions by way of pledge or hypothecation to secure any loan
incurred by Fund; provided, however, that the securities shall be
released only upon payment to Custodian of the monies borrowed, except
that in cases where additional collateral is required to secure a
borrowing already made, further securities may be released or caused
to be released for that purpose upon receipt of instructions. Upon
receipt of instructions, Custodian will pay, but only from funds
available for such purpose, any such loan upon redelivery to it of the
securities pledge or hypothecated therefor and upon surrender of the
note or notes evidencing such loan.
2. Upon receipt of instructions, Custodian will release securities held
in custody to the borrower designated in such instructions; provided,
however, that the securities will be released only upon deposit with
Custodian of full cash collateral as specified in such instructions,
and
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<PAGE>
that Fund will retain the right to any dividends, interest or
distribution on such loaned securities. upon receipt of instructions
and the loaned securities, Custodian will release the cash collateral
to the borrower.
J. Routine Matters
Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution, purchase,
transfer, or other dealing with securities or other dealing with
securities or other property of Fund except as may be otherwise
provided in this Agreement or directed from time to time by the Fund
in writing.
K. Deposit Accounts
Custodian will open and maintain one or more special purpose deposit
account in the name of Custodian ("Account"), subject only to draft or
order by Custodian upon receipt of instructions. All monies received
by Custodian from or for the account of Fund shall be deposited in
said Accounts. Barring events not in the control of the Custodian such
as strikes, lockouts or labor disputes, riots, war or equipment or
transmission failure or damage, fire, flood, earthquake or other
natural disaster, action or inaction of governmental authority or
other causes beyond its control, at 9:00 a.m., Kansas City time, on
the second business day after deposit of any check into an
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<PAGE>
Account, Custodian agrees to make Fed Funds available to the Fund in
the amount of the check. Deposits made by Federal Reserve wire will be
available to the Fund immediately and ACH wires will be available to
the Fund on the next business day. Income earned on the portfolio
securities will be credited to the Fund based on the schedule attached
as Exhibit A. The Custodian will be entitled to reverse any credited
amounts where credits have been made and monies are not finally
collected. If monies are collected after such reversal, the Custodian
will credit the Funds in that amount. Custodian may open and maintain
Accounts in its own banking department, or in such other banks or
trust companies as may be designated by it or by Fund in writing, all
such Accounts, however, to be in the name of Custodian and subject
only to its draft or order. Funds received and held for the account of
different Portfolios shall be maintained in separate Accounts
established for each Portfolio.
L. Income and other Payments to Fund
Custodian will:
1. Collect, claim, and receive and deposit for the account of Fund
all income and other payments which become due and payable on or
after the effective date of this Agreement with respect to the
securities deposited under this Agreement,and
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credit the account of Fund in accordance with the schedule
attached hereto as Exhibit A. If, for any reason, the Fund is
credited with income that is not subsequently collected,
Custodian may reverse that credited amount.
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the
collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. the collection, receipt and deposit of such income and other
payments, including but not limited to the presentation for
payment of:
1. all coupons and other income items requiring
presentation; and
2. all other securities which may mature or be called,
redeemed, retired or otherwise become payable and
regarding which the custodian has actual knowledge, or
should reasonably be expected to have knowledge; and
b. the endorsement for collection, in the name of Fund, of all
checks, drafts or other negotiable instruments.
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Custodian, however, will not be required to institute suit or take
other extraordinary action to enforce collection except upon receipt
of instructions and upon being indemnified to its satisfactory against
the costs and expenses of such suit or other actions. Custodian will
receive, claim and collect all stock dividends, rights and other
similar items and will deal with the same pursuant to instructions.
Unless prior instructions have been received to the contrary,
Custodian will, without further instructions, sell any rights held for
the account of Fund on the last trade date prior to the date of
expiration of such rights.
M. Payment of Dividends and other Distributions
On the declaration of any dividend or other distribution on the shares
of capital stock of Fund ("Fund Shares") by the Board of Directors of
Fund, Fund shall deliver to Custodian instructions with respect
thereto. On the date specified in such instructions for the payment of
such dividend or other distribution, Custodian will pay out of the
monies held for the account of Fund, insofar as the same shall be
available for such purposes, and credit to the account of the Dividend
Disbursing Agent for Fund, such amount as may be necessary to pay the
amount per share payable in cash on Fund Shares issued and outstanding
on the record date established by such resolution.
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N. Shares of Fund Purchased by Fund
Whenever any Fund Shares are repurchased or redeemed by Fund, Fund or
its agent shall advise Custodian of the aggregate dollar amount to be
paid for such shares and shall confirm such advice in writing. Upon
receipt of such advice, Custodian shall charge such aggregate dollar
amount to the amount of Fund and either deposit the same in the
account maintained for the purpose of paying for the repurchase or
redemption of Fund Shares or deliver the same in accordance with such
advice. Custodian shall not have any duty or responsibly to determine
that Fund Shares have been removed form the proper shareholder account
or accounts or that the proper number of Fund Shares have been
cancelled and removed from the shareholder records.
O. Shares of Fund Purchased from Fund
Whenever Fund Shares are purchased from Fund, Fund will deposit or
cause to be deposited with Custodian the amount received for such
shares. Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been added to the
proper shareholder account or accounts or that the proper number of
such shares have been added to the shareholder records.
P. Proxies and Notices
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Custodian will promptly deliver or mail or have delivered or mailed to
Fund all proxies properly signed, all notices of meetings, all proxy
statements and other notices, requests or announcements affecting or
relating to securities held by Custodian for Fund and will, upon
receipt of instructions, execute and deliver or cause its nominee to
execute and deliver or mail or have delivered or mailed such proxies
or other authorizations as may be required. Except as provided by this
Agreement or pursuant to instructions hereafter received by Custodian,
neither it nor its nominee will exercise any power inherent in any
such securities, including any power to vote the same, or execute any
proxy, power of attorney, or other similar instrument voting any of
such securities, or give any consent, approval or waiver with respect
thereto, or take any other similar action.
Q. Disbursements
Custodian will pay or cause to be paid, insofar as funds are available
for the purpose, bills, statements and other obligations of Fund
(including but not limited to obligations in connection with the
conversion, exchange or surrender of securities owned by Fund,
interest charges, dividend disbursements, taxes, management fees,
custodian fees, legal fees, auditors' fee, transfer agents' fee,
brokerage
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commissions, compensation to personnel, and other operating expenses
of Fund) pursuant to instructions of Fund setting forth the name of
the person to whom payment is to be made, the amount of the payment,
and the purpose of the payment.
R. Daily Statement of Accounts.
Custodian will, within a reasonable time, render to Fund a detailed
statement of the amounts received or paid and of securities received
or delivered for the account of Fund during each business day.
Custodian will, from time to time, upon request by Fund, render a
detailed statement of the securities and monies held for Fund under
this Agreement, and Custodian will maintain such books and records as
are necessary to enable it to do so. Custodian will permit such
persons as are authorized by Fund, including Fund's independent public
accounts, reasonable access to such records or will provide reasonable
confirmation of the contents of such records, and if demanded,
Custodian will permit federal and state regulatory agencies to examine
the securities, books and records. Upon the written instructions of
Fund or as demanded by federal or state regulatory agencies, Custodian
will instruct any subcustodian to permit such persons as are
authorized by Fund, including Fund's independent public accounts,
reasonable access to such records, or to
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provide reasonable confirmation of the contents of such records, and
to permit such agencies to examine the books, records and securities
held by such subcustodian which relate to Fund.
S. Appointment of Subcustodians
1. Notwithstanding any other provisions of this Agreement, all or
any of the monies or securities of Fund may be held in
Custodian's own custody or in the custody of one or more other
banks or trust companies acting as subcustodians as may be
selected by Custodian. Any such subcustodian selected by the
Custodian must have the qualifications required for a custodian
under the 1940 Act, as amended. It is understood that Custodian
initially intends to appoint United Missouri Bank, N.A. (UMB) and
United Missouri Trust Company of New York (UMTCNY) as
subcustodians. Custodian shall be responsible to the Fund for any
loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of UMB, UMTCNY and any
other subcustodians selected and appointed by Custodian (except
subcustodians appointed as the request of Fund and as provided in
Subsection 2 below) to the same extent Custodian would be
responsible to the Fund under Section 5. of this Agreement if it
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<PAGE>
committed the act or omission itself. Upon request of the Fund,
Custodian shall be willing to contract with other subcustodians
reasonably acceptable to the Custodian for purposes of (i)
effecting third-party repurchase transactions with banks,
brokers, dealers or other entities through the use of a common
custodian or subcustodian, or (ii) providing depository and
clearing agency services with respect to certain variable rate
demand note securities; or (iii) for other reasonable purposes
specified by Fund; provided, however, that the Custodian shall be
responsible to the Fund for any loss, damage or expense suffered
or incurred by the Fund resulting from the actions or omissions
of any such subcustodian only to the same extent such
subcustodian is responsible to the Custodian. The Fund shall be
entitled to review the Custodian's contracts with any such
subcustodians appointed at the request of Fund. Custodian shall
be responsible to the Fund for any loss, damage or expense
suffered or incurred by the Fund resulting from the actions or
omission of any Depository only to the same extent such
Depository is responsible to Custodian.
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2. Notwithstanding any other provisions of this Agreement, Fund's
foreign securities (as defined in Rule 17F-5(c)(1) under the 1940
Act) and Fund's cash or cash equivalents, in amounts deemed by
the Fund to be reasonably necessary to effect Fund's foreign
securities transactions, may be held in the custody of one or
more banks or trust companies acting as subcustodians, and
thereafter, pursuant to a written contract or contracts as
approved by Fund's Board of Directors, may be transferred to
accounts maintained by any such subcustodian with eligible
foreign custodians, as defined in Rule 17f-5(c)(2). Custodian
shall be responsible to the Fund for any loss, damage or expense
suffered or incurred by the Fund resulting from the actions or
omissions of any foreign subcustodians or a domestic
subcustodians or a domestic subcustodian contracting with such
foreign subcustodians only to the same extent such domestic
subcustodian is responsible to the Custodian.
T. Accounts and Records Property of Fund
Custodian acknowledges that all of accounts and records maintained by
Custodian pursuant to this Agreement are the property of Fund, and
will be made available to Fund for inspection or reproduction within a
reasonable period of time, upon demand. Custodian
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<PAGE>
will assist Fund's independent auditors, or upon approval of Fund, or
upon demand, any regulatory body, in any requested review of Fund's
accounts and records but shall be reimbursed by Fund for all expenses
and employee time invested in any such review outside of routine and
normal periodic reviews. Upon receipt from Fund of the necessary
information or instructions, Custodian will supply information from
the books and records it maintains for Fund that Fund needs for tax
returns, questionnaires, periodic reports to shareholders and such
other reports and information requests as Fund and Custodian shall
agree upon from time to time.
U. Adoption of Procedures
Custodian and Fund may from time to time adopt procedures as they
agree upon, and Custodian may conclusively assume that no procedure
approved or directed by Fund or its accountants or other advisors
conflicts with of violates any requirements of its prospectus,
articles of incorporation, bylaws, any applicable law, rule or
regulation, or any order, decree or agreement by which Fund may be
bound. Fund will be responsible to notify Custodian of any changes in
statutes, regulations, rules requirements or policies which might
necessitate changes in Custodian's responsibilities or procedures.
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<PAGE>
V. Overdrafts
If Custodian shall in its sole discretion advance funds to the account
of the Fund which results in an overdraft in any Account because the
monies held therein by Custodian on behalf of the Fund are
insufficient to pay the total amount payable upon a purchase of
securities as specified in Fund's instructions or for some other
reason, the amount of the overdraft shall be payable by the Fund to
Custodian upon demand together with the overdraft charge set forth on
the then-current Fee Schedule from the date advanced until the date of
payment. Fund hereby grants Custodian a lien on any security interest
in the assets of the Fund to secure the full amount of any outstanding
overdraft and related overdraft charges.
W. Exercise of Rights; Tender Offers
Upon receipt of instructions, the Custodian shall: (a) deliver
warrants, puts calls, rights or similar securities to the trustee
therefor, or to the agent of such issuer or trustee, for the purpose
of exercise or sale, provided that the new securities, cash or other
assets, if any, are to be delivered to the Custodian; and (b) deposit
securities upon invitations for tenders thereof, provided that the
consideration for such securities is to be paid or
26
<PAGE>
delivered to the Custodian or the tendered securities are to be
returned to the Custodian.
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means written (including
telecopied or telexed) or oral instructions which Custodian reasonably
believes were given by a designated representative of Fund. Fund shall
deliver to Custodian, prior to delivery of any assets to Custodian and
thereafter from time to time as changes therein are necessary, written
instructions naming one or more designated representatives to give
instructions in the name and on behalf of Fund, which instructions may
be received and accepted by Custodian as conclusive evidence of the
authority of any designated representative to act for Fund and may be
considered to be in full force and effect (and Custodian will be fully
protected in acting in reliance thereon) until receipt by Custodian of
notice to the contrary. Unless such written instructions delegating
authority to any person to give instructions specifically limit such
authority to specific matters or require that the approval of anyone
else will first have been obtained, Custodian will be under no
obligation to inquire into the right of such person, acting alone, to
give any instructions whatsoever which Custodian may receive from such
person. If Fund fails to prove Custodian any such instructions naming
designated representatives, any instructions received by Custodian
from
27
<PAGE>
a person reasonably believed to be an appropriate representative of
Fund shall constitute valid and proper instructions hereunder.
B. No later than the next business day immediately following each oral
instruction, Fund will send Custodian written confirmation of such
oral instruction. At Custodian's sole discretion, Custodian may record
on tape, or otherwise, any oral instruction whether given in person or
via telephone, each such recording identifying the parties, the date
and the time of the beginning and ending of such oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN
A. Custodian shall at all time use reasonable care and due diligence and
act good faith in performing its duties under this Agreement.
Custodian shall not be responsible for, and the Fund shall indemnify
and hold Custodian harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability which may be asserted against Custodian, incurred by
Custodian or for which Custodian may be held to be liable, arising out
of or attributable to:
1. All actions taken by Custodian pursuant to this Agreement or any
instructions provided to it hereunder, provided that Custodian
has acted in good faith and with due diligence and reasonable
care; and
28
<PAGE>
2. The Fund's refusal or failure to comply with the terms of this
Agreement (including without limitation the Fund's failure to pay
or reimburse Custodian under this indemnification provision), the
Fund's negligence or willful misconduct, or the failure of any
representation or warranty of the Fund hereunder to be and remain
true and correct in all respects at all times.
B. Custodian may request and obtain at the expense of Fund the advice and
opinion of counsel for Fund or of its own counsel with respect to
questions or matters of law, and it shall be without liability to Fund
for any action taken or omitted by it in good faith, in conformity
with such advice or opinion. If Custodian reasonably believes that it
could not prudently act according to the instructions of the Fund or
the Fund's accountants or counsel, it may in its discretion, with
notice to the Funds, not act according to such instruction.
C. Custodian may rely upon the advice and statements of Fund, Fund's
accountants and officers or the other authorized individuals, and
other persons believed by it in good faith to be exert in matters upon
which they are consulted, and Custodian shall not be liable for any
actions taken, in good faith, upon such advice and statements.
D. If Fund requests Custodian in any capacity to take any action which
involves the payment of money by Custodian, or which might make it or
its nominee liable for payment of
29
<PAGE>
monies or in any other way, Custodian shall be indemnified and held
harmless by Fund against any liability on account of such action;
provided, however, that nothing herein shall obligate Custodian to
take any such action except in its sole discretion.
E. Custodian shall be protected in acting as custodian hereunder upon any
instructions, advice, notice, request, consent, certificate or other
instrument or paper appearing to it to be genuine and to have been
properly executed and shall be entitled to receive upon request as
conclusive proof of any fact or matter required to be ascertained from
Fund hereunder a certificate signed by an officer or designated
representative of Fund.
F. Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any securities purchased by or for
Fund, the legality of the purchase of any securities or foreign
currency positions or evidence of ownership required by Fund to
be received by Custodian, or propriety of the decision to
purchase or amount paid therefor;
2. The legality of the sale of any securities or foreign currency
positions by or for Fund, or the propriety of the amount for
which the same are sold;
30
<PAGE>
3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any Fund Shares,
or the propriety of the amount to be paid therefor; or
5. The legality of the declaration of any dividend by Fund, or the
legality of the issue of any Fund Shares in payment of any stock
dividend.
G. Custodian shall not be liable for, or considered to be Custodian of,
any money represented by any check , draft wire transfer,
clearinghouse funds, uncollected funds, or instrument for payment of
money to be received by it on behalf of Fund until Custodian actually
receives such money; provided, however, that it shall advise Fund
promptly if it fails to receive any such money in the ordinary course
of business and shall cooperate with Fund toward the end that such
money shall be received.
H. Except as provided in Section 3.S., Custodian shall not be responsible
for loss occasioned by the acts, neglects, defaults or insolvency of
any broker, bank, trust company, or any other person with whom
Custodian may deal.
I. Custodian shall not be responsible or liable for the failure or delay
in performance of its obligations under this Agreement, or those of
any entity for which it is responsible hereunder, arising out of or
caused, directly or
31
<PAGE>
indirectly by circumstances beyond the affected entity's reasonable
control, including, without limitations: any interruption, loss or
malfunction of any utility, transportation, computer(hardware or
software) or communication service; inability to obtain labor,
material, equipment or transportation, or a delay in mails;
governmental or exchange action, statute, ordinance, ruling,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornadoes, acts of God or public enemy,
revolutions, or insurrection.
J. IN NO EVENT AND UNDER NO CIRCUMSTANCES SHALL EITHER PARTY TO THIS
AGREEMENT BE LIABLE TO ANYONE, INCLUDING, WITHOUT LIMITATION TO THE
OTHER PARTY, FOR CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES FOR ANY
ACT OR FAILURE TO ACT UNDER ANY PROVISION OF THIS AGREEMENT EVEN IF
ADVISED OF THIS POSSIBILITY THEREOF.
6. COMPENSATION. In consideration for its services hereunder, Fund will pay to
Custodian such compensation as shall be set forth in a separate fee
schedule to be agreed to by Fund and Custodian from time to time. A copy of
the initial fee schedule is attached hereto and incorporated herein by
reference. Custodian shall also be entitled to receive, and Fund agrees to
pay a Custodian, on demand, reimbursement
32
<PAGE>
for Custodian's cash disbursements and reasonable out-of-pocket costs and
expenses, including attorney's fees, incurred by Custodian in connection
with the performance of services hereunder. Custodian may charge such
compensation against monies held by it for the account of Fund. Custodian
will also be entitled to charge against any monies held by it for the
account of Fund the amount of any loss, charge, liability, advance,
overdraft or expense for which it shall be entitled to reimbursement from
Fund, including but not limited to fees and expenses due to Custodian for
other services provided to the Fund by Custodian. Custodian will be
entitled to reimbursement by the Fund for losses, damages, liabilities,
advances, overdrafts and expenses of subcustodians only to the extent that
(i) Custodian would have been entitled to reimbursement hereunder if it had
incurred that same itself directly, and (ii) Custodian is obligated to
reimburse the subcustodian therefor.
7. TERM AND TERMINATION. The initial term of this Agreement shall be for a
period of _________. Thereafter, either party to this Agreement may
terminate the same by notice in writing, delivered or mailed, postage
prepaid, to the other party hereto and received not less than ninety (90)
days prior to the date upon which such termination will take
33
<PAGE>
effect. Upon termination of this Agreement, Fund will pay Custodian its
fees and compensation due hereunder and its reimbursable disbursements,
costs and expenses paid or incurred to such date and Fund shall designate a
successor custodian by notice in writing to Custodian by the termination
date. In the event no written order designating a successor custodian has
been delivered to Custodian on or before the date when such termination
becomes effective, then Custodian may, at its option, deliver the
securities, funds and properties of Fund to a bank or trust company at the
selection of Custodian, and meeting the qualifications for custodian set
forth in the 1940 Act and having not less that Two Million Dollars
($2,000,000) aggregate capital, surplus and undivided profits, as shown by
its last published report, or apply to a court of competent jurisdiction
for the appointment of a successor custodian or other proper relief, or
take any other lawful action under the circumstances; provided, however,
that Fund shall reimburse Custodian for its costs and expenses, including
reasonable attorney's fees, incurred in connection therewith. Custodian
will, upon termination of this Agreement and payment of all sums due to
Custodian from Fund hereunder or otherwise deliver to the successor
custodian so specified or appointed, or as specified by the court, at
Custodian office, all securities then held by Custodian hereunder, duly
endorsed and in form for transfer, and all
34
<PAGE>
funds and other properties of Fund deposited with or held by Custodian
hereunder and Custodian will co-operate in effecting changes in
book-entries at all Depositories. Upon delivery to a successor custodian or
as specified by the court, Custodian will have no further obligations or
liabilities under this Agreement. Thereafter such successor will be the
successor custodian under this Agreement and will be entitled to reasonable
compensation for its services. In the event that securities, funds and
other properties remain in the possession of the Custodian after the date
of termination thereof owing to failure of the Fund to appoint a successor
custodian, the Custodian shall be entitled to compensation as provided in
the then-current fee schedule hereunder for its services during such period
as the Custodian retains possession of such securities, funds and other
properties, and the provisions of this Agreement relating to the duties and
obligations of the Custodian shall remain in full force and effect.
8. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at ______________________, or at such other address as Fund may have
designated to Custodian in writing, will be deemed to have been properly
given to Fund hereunder; and notices, requests, instructions and other
writings addressed to Custodian at its offices at 801 Pennsylvania,
Kansas City, Missouri 64105, Attention: Custody Department, or to such
35
<PAGE>
other address as it may have designated to Fund in writing, will be deemed
to have been properly given to Custodian hereunder.
9. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio:
A. Each Portfolio shall be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to
relate solely to the particular Portfolio to which such transaction
relates. Under no circumstances shall the rights, obligation or
remedies with respect to a particular Portfolio constitute a right,
obligation or remedy applicable to any other Portfolio. The use of
this single document to memorialize the separate agreement of each
Portfolio is understood to be for clerical convenience only and shall
not constitute any basis for joining the Portfolios for any reason.
B. Additional Portfolios may be added to this Agreement, provided that
Custodian consents to such addition. Rates or charges for each
additional Portfolio shall be as agreed upon by Custodian and Fund in
writing.
36
<PAGE>
10. MISCELLANEOUS.
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of
the State of Missouri, without reference to the choice of laws
principle thereof.
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties and the indemnification extended
hereunder are intended to and shall continue after and survive the
expiration, termination or cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by each party hereto.
E. The failure of either party to insist upon the performance of any
terms or conditions of this Agreement or to enforce any rights
resulting form any breach of any of the terms or conditions of this
Agreement, including the payment of damages, shall not be construed as
a continuing or permanent waiver of any such terms, conditions,
37
<PAGE>
rights or privileges, but the same shall continue and remain in full
force and effect as if no such forbearance or waiver had occurred. No
waiver, release or discharge of any party's rights hereunder shall be
effective unless contained in a written instrument signed by the party
sought to be charged.
F. The captions in the Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect
G. This Agreement may be executed into or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
H. If any part, term or provision of this Agreement is determined by the
courts or any regulatory authority to be illegal, in conflict with any
law or otherwise invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
38
<PAGE>
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
J. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and between
Custodian and Fund.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by either party hereunder shall not
affect any rights or obligations of the other party hereunder.
39
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By:
Title:
MICHIGAN DAILY TAX FREE
INCOME FUND, INC.
By:
Title:
40
<PAGE>
EXHIBIT A
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
<TABLE>
<CAPTION>
TRANSACTION DTC PHYSICAL FED
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
<S> <C> <C> <C> <C> <C> <C>
Calls Puts As Received C or F* As Received C or F*
Maturities As Received C or F* Maturity Date C or F* Maturity Date F
Tender Reorgs. As Received C As Received C N/A
Dividends Paydate C Paydate C N/A
Floating Rate Paydate C Paydate C N/A
Int.
Floating Rate As Rate C N/A
Int. (No Rate) N/A Received
Mtg. Backed Paydate C Paydate + 1 C Paydate F
P&I Bus. Day
Fixed Rate
Inc. Paydate C Paydate C Paydate F
Euroclear N/A C Paydate C
</TABLE>
Legend
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based in how received.
41
<PAGE>
--------------
CABLE ADDRESS
"COUNSELLOR"
--------------
TELEX 127053
--------------
TELECOPIER
(212) 986-5135
--------------
BATTLE FOWLER
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
280 PARK AVENUE
NEW YORK, NY 10017
(212) 949-8300
WRITER'S DIRECT DIAL NUMBER
February 23, 1987
Michigan Daily Tax Free
Income Fund, Inc.
100 Park Avenue
New York, New York 10017
Gentlemen:
We have acted as counsel to Michigan Daily Tax Free Income Fund, Inc., a
Maryland corporation (the "Fund"), in connection with the preparation and filing
of Registration Statement No. 33-11642 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.
1
<PAGE>
Michigan Daily Tax Free Page 2
Income Fund, Inc.
February 23, 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
EXHIBIT 11
McGLADREY & PULLEN LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated March 31, 1998 on the
financial statements of Michigan Daily Tax Free Income Fund, Inc., referred to
therein, which is incorporated by reference, in Post-Effective Amendment No. 17
to the Registration Statement on Form N-1A, File No. 33-11642 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 Additional
Information under the caption "Counsel and Auditors."
/s/McGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
June 19, 1998
EXHIBIT 13
February 23, 1987
Board of Directors of
Michigan Daily Tax Free
Income Fund, Inc.
Gentlemen:
We hereby subscribe for 100,000 shares of the Common Stock, $.001
par value per share, of Michigan 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:___________________________
Bernadette N. Finn
Confirmed and Accepted:
MICHIGAN DAILY TAX FREE
INCOME FUND, INC.
By:________________________________
William Berkowitz
MICHIGAN DAILY TAX FREE INCOME FUND, INC.
Distribution and Service Plan Pursuant to Rule
12b-1 Under the Investment Company Act of 1940
The Distribution and Service Plan (the "Plan") is adopted by
Michigan Daily Tax Free Income Fund, Inc. (the "Fund") in accordance with the
provisions of Rule 12b-1 under the Investment Company Act of 1940 (the "Act").
The Plan
1. The Fund and Reich & Tang Distributors, Inc. (the
"Distributor"), have entered into a Distribution Agreement, in a form
satisfactory to the Fund's Board of Directors, under which the Distributor will
act as distributor of the Fund's shares. Pursuant to the Distribution Agreement,
the Distributor, as agent of the Fund, will solicit orders for the purchase of
the Fund's Shares, provided that any subscriptions and orders for the purchase
of the Fund's shares will not be binding on the Fund until accepted by the Fund
as principal.
2. The Fund and the Distributor have entered into a
Shareholder Servicing Agreement with respect to the Class A Shares of the Fund,
in a form satisfactory to the Fund's Board of Directors, which provides that the
Distributor will be paid a service fee for providing or for arranging for others
to provide all personal shareholder servicing and related maintenance of
shareholder account functions not performed by us or our transfer agent.
1
<PAGE>
3. The Manager may make payments from time to time from its
own resources, which may include the management fees and administrative services
fees received by the Manager from the Fund and from other companies, and past
profits for the following purposes:
(i) to pay the costs of, and to compensate others, including
organizations whose customers or clients are Class A Fund Shareholders
("Participating Organizations"), for performing personal shareholder
servicing and related maintenance of shareholder account functions on
behalf of the Fund;
(ii) to compensate Participating Organizations for providing
assistance in distributing the Fund's Class A Shares; and
(iii) to pay the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective
shareholders, advertising, and other promotional activities, including
salaries and/or commissions of sales personnel of the Distributor and
other persons, 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 service fee and past profits for the purpose enumerated in
(i) above. Further, the Distributor may determine the amount of such payments
made pursuant to the Plan, provided that such payments will not
2
<PAGE>
increase the amount which the Fund is required to pay to (1) the Manager for any
fiscal year under the Investment Management Contract or the Administrative
Services Agreement in effect for that year or otherwise or (2) to the
Distributor under the Shareholder Servicing Agreement in effect for that year or
otherwise. The Investment Management Contract will also require the Manager to
reimburse the Fund for any amounts by which the Fund's annual operating
expenses, including distribution expenses, exceed in the aggregate in any fiscal
year the limits prescribed by any state in which the Fund's shares are qualified
for sale.
4. The Fund will pay for (i) telecommunications expenses, including the
cost of dedicated lines and CRT terminals, incurred by the Distributor in
carrying out its obligations under the Shareholder Servicing Agreement with
respect to the Class A Shares of the Fund 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.
5. Payments by the Distributor or Manager to Participating Organizations as
set forth herein are subject to compliance by them with the terms of written
agreements in a form satisfactory to the Fund's Board of Directors to be entered
into between the Distributor and the Participating Organizations.
6. The Fund and the Distributor will prepare and furnish to the Fund's
Board of Directors, at least quarterly,
3
<PAGE>
written reports setting forth all amounts expended for servicing and
distribution purposes by the Fund, the Distributor and the Manager, pursuant to
the Plan and identifying the servicing and distribution activities for which
such expenditures were made.
7. The Plan became effective upon approval by (i) a majority of the
outstanding voting securities of the Fund (as defined in the Act), and (ii) a
majority of the Board of Directors of the Fund, including a majority of the
Directors who are not interested persons (as defined in the Act) of the Fund and
who have no direct or indirect financial interest in the operation of the Plan
or in any agreement entered into in connection with the Plan, pursuant to a vote
cast in person at a meeting called for the purpose of voting on the approval of
the Plan.
8. The Plan will remain in effect until ______________ unless earlier
terminated in accordance with its terms, and thereafter may continue in effect
for successive annual periods if approved each year in the manner described in
clause (ii) of paragraph 7 hereof.
9. The Plan may be amended at any time with the approval of
the Board of Directors of the Fund, provided that (i) any material amendments of
the terms of the Plan will be effective only upon approval as provided in clause
(ii) of paragraph 7 hereof, and (ii) any amendment which increases materially
the amount which may be spent by the Fund pursuant to the Plan will be effective
only upon the additional approval as provided
4
<PAGE>
in clause (i) of paragraph 7 hereof (with each class of the Fund voting
separately).
10. The Plan may be terminated without penalty at any time (i) by a vote of
the majority of the entire Board of Directors of the Fund and by a vote of a
majority of the Directors of the Fund who are not interested persons (as defined
in the Act) of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreement related to the Plan, or (ii) by a
vote of a majority of the outstanding voting securities of the Fund (with each
class of the Fund voting separately) (as defined in the Act).
5
DISTRIBUTION AGREEMENT
MICHIGAN DAILY TAX FREE INCOME FUND, INC.
the "Fund"
600 Fifth Avenue
New York, New York 10020
_________________, 1998
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, New York 10020
Ladies and Gentlemen:
We hereby confirm our agreement with you as follows:
1. In consideration of the agreements on your part herein contained and of
the payment by us to you of a fee of $1 per year and on the terms and conditions
set forth herein, on behalf of our Fund, we have agreed that you shall be, for
the period of this agreement, a distributor, as our agent, for the unsold
portion of such number of shares of our common stock, $.001 par value per share,
as may be effectively registered from time to time under the Securities Act of
1933, as amended (the "1933 Act"). This agreement is being entered into pursuant
to the Distribution and Service Plan (the "Plan") adopted by us in accordance
with Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act").
2. We hereby agree that you will act as our agent, and hereby appoint you
our agent, to offer, and to solicit offers to subscribe to, the unsold balance
of shares of our common stock as shall then be effectively registered under the
Act. All subscriptions for shares of our common stock obtained by you shall be
directed to us for acceptance and shall not be binding on us until accepted by
us. You shall have no authority to make binding subscriptions on our behalf. We
reserve the right to sell shares of our common stock through other distributors
or directly to investors through subscriptions received by us at our principal
office in New York, New York. The right given to you under this agreement shall
not apply to shares of our common stock issued in connection with (a) the merger
or consolidation of any other investment company with us, (b) our acquisition by
purchase or otherwise of all or substantially all of the assets or stock of any
other investment company, or (c) the reinvestment in shares of our common stock
by our stockholders of dividends or
1
<PAGE>
other distributions or any other offering by us of securities to our
stockholders.
3. You will use your best efforts to obtain subscriptions to shares of our
common stock upon the terms and conditions contained herein and in our
Prospectus, as in effect from time to time. You will send to us promptly all
subscriptions placed with you. We shall furnish you from time to time, for use
in connection with the offering of shares of our common stock, such other
information with respect to us and shares of our common stock as you may
reasonably request. We shall supply you with such copies of our Registration
Statement and Prospectus, as in effect from time to time, as you may request.
Except as we may authorize in writing, you are not authorized to give any
information or to make any representation that is not contained in the
Registration Statement or Prospectus, as then in effect. You may use employees,
agents and other persons, at your cost and expense, to assist you in carrying
out your obligations hereunder, but no such employee, agent or other person
shall be deemed to be our agent or have any rights under this agreement. You may
sell our shares to or through qualified brokers, dealers and financial
institutions under selling and servicing agreements provided that no dealer,
financial institution or other person shall be appointed or authorized to act as
our agent without our written consent.
With respect to the Class A Shares of the Fund, you will arrange for
organizations whose customers or clients are shareholders of our corporation
("Participating Organizations") to enter into agreements with you for the
performance of shareholder servicing and related administrative functions not
performed by you or the Transfer Agent. Pursuant to our Shareholder Servicing
Agreement with you with respect to the Class A Shares, you may make payments to
Participating Organizations for performing shareholder servicing and related
administrative functions with respect to the Class A Shares. Such payments will
be made only pursuant to written agreements approved in form and substance by
our Board of Directors to be entered into by you and the Participating
Organizations. It is recognized that we shall have no obligation or liability to
you or any Participating Organization for any such payments under the agreements
with Participating Organizations. Our obligation is solely to make payments to
you under the Shareholder Servicing Agreement (with respect to the Class A
Shares) and to the Manager under the Investment Management Contract and the
Administrative Services Contract. All sales of our shares effected through you
will be made in compliance with all applicable federal securities laws and
regulations and the Constitution, rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD").
4. We reserve the right to suspend the offering of shares of our common
stock at any time, in the absolute
2
<PAGE>
discretion of our Board of Directors, and upon notice of such suspension you
shall cease to offer shares of our common stock hereunder.
5. Both of us will cooperate with each other in taking such action as may
be necessary to qualify shares of our common stock for sale under the securities
laws of such states as we may designate, provided, that you shall not be
required to register as a broker-dealer or file a consent to service of process
in any such state where you are not now so registered. Pursuant to the
Investment Management Contract in effect between us and the Manager, we will pay
all fees and expenses of registering shares of our common stock under the Act
and of qualification of shares of our common stock, and to the extent necessary,
our qualification under applicable state securities laws. You will pay all
expenses relating to your broker-dealer qualification.
6. We represent to you that our Registration Statement and Prospectus have
been carefully prepared to date in conformity with the requirements of the 1933
Act and the 1940 Act and the rules and regulations of the Securities and
Exchange Commission (the "SEC") thereunder. We represent and warrant to you, as
of the date hereof, that our Registration Statement and Prospectus contain all
statements required to be stated therein in accordance with the 1933 Act and the
1940 Act and the SEC's rules and regulations thereunder; that all statements of
fact contained therein are or will be true and correct at the time indicated or
the effective date as the case may be; and that neither our Registration
Statement nor our Prospectus, when they shall become effective or be authorized
for use, will include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of shares of our common stock. We will
from time to time file such amendment or amendments to our Registration
Statement and Prospectus as, in the light of future development, shall, in the
opinion of our counsel, be necessary in order to have our Registration Statement
and Prospectus at all times contain all material facts required to be stated
therein or necessary to make any statements therein not misleading to a
purchaser of shares of our common stock. If we shall not file such amendment or
amendments within fifteen days after our receipt of a written request from you
to do so, you may, at your option, terminate this agreement immediately. We will
not file any amendment to our Registration Statement or Prospectus without
giving you reasonable notice thereof in advance; provided, however, that nothing
in this agreement shall in any way limit our right to file such amendments to
our Registration Statement or Prospectus, of whatever character, as we may deem
advisable, such right being in all respects absolute and unconditional. We
represent and warrant to you that any amendment to our Registration Statement or
Prospectus hereafter
3
<PAGE>
filed by us will be carefully prepared in conformity within the requirements of
the 1933 Act and the 1940 Act and the SEC's rules and regulations thereunder and
will, when it becomes effective, contain all statements required to be stated
therein in accordance with the 1933 Act and the 1940 Act and the SEC's rules and
regulations thereunder; that all statements of fact contained therein will, when
the same shall become effective, be true and correct; and that no such
amendment, when it becomes effective, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of our
shares.
<PAGE>
7. We agree to indemnify, defend and hold you, and any person who controls
you within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which you or any such controlling person
may incur, under the 1933 Act or the 1940 Act, or under common law or otherwise,
arising out of or based upon any alleged untrue statement of a material fact
contained in our Registration Statement or Prospectus in effect from time to
time or arising out of or based upon any alleged omission to state a material
fact required to be stated in either of them or necessary to make the statements
in either of them not misleading; provided, however, that in no event shall
anything herein contained be so construed as to protect you against any
liability to us or our security holders to which you would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of your duties, or by reason of your reckless disregard of your
obligations and duties under this agreement. Our agreement to indemnify you and
any such controlling person is expressly conditioned upon our being notified of
any action brought against you or any such controlling person, such notification
to be given by letter or by telegram addressed to us at our principal office in
New York, New York, and sent to us by the person against whom such action is
brought within ten days after the summons or other first legal process shall
have been served. The failure so to notify us of any such action shall not
relieve us from any liability which we may have to the person against whom such
action is brought other than on account of our indemnity agreement contained in
this paragraph 7. We will be entitled to assume the defense of any suit brought
to enforce any such claim, and to retain counsel of good standing chosen by us
and approved by you. In the event we do elect to assume the defense of any such
suit and retain counsel of good standing approved by you, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case we do not elect to assume the
defense of any such suit, or in case you, in good faith, do not approve of
counsel chosen by us, we will
4
<PAGE>
reimburse you or the controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any counsel retained by
you or them. Our indemnification agreement contained in this paragraph 7 and our
representations and warranties in this agreement shall remain in full force and
effect regardless of any investigation made by or on behalf of you or any
controlling person and shall survive the sale of any shares of our common stock
made pursuant to subscriptions obtained by you. This agreement of indemnity will
inure exclusively to your benefit, to the benefit of your successors and
assigns, and to the benefit of any of your controlling persons and their
successors and assigns. We agree promptly to notify you of the commencement of
any litigation or proceeding against us in connection with the issue and sale of
any shares of our common stock.
8. You agree to indemnify, defend and hold us, our several officers and
directors, and any person who controls us within the meaning of Section 15 of
the 1933 Act, free and harmless from and against any and all claims, demands,
liabilities, and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees incurred in
connection therewith) which we, our officers or directors, or any such
controlling person may incur under the 1933 Act or under common law or
otherwise, but only to the extent that such liability or expense incurred by us,
our officers or directors or such controlling person shall arise out of or be
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by you to us for use in our Registration
Statement or Prospectus as in effect from time to time, or shall arise out of or
be based upon any alleged omission to state a material fact in connection with
such information required to be stated in the Registration Statement or
Prospectus or necessary to make such information not misleading. Your agreement
to indemnify us, our officers and directors, and any such controlling person is
expressly conditioned upon your being notified of any action brought against us,
our officers or directors or any such controlling person, such notification to
be given by letter or telegram addressed to you at your principal office in New
York, New York, and sent to you by the person against whom such action is
brought, within ten days after the summons or other first legal process shall
have been served. You shall have a right to control the defense of such action,
with counsel of your own choosing, satisfactory to us, if such action is based
solely upon such alleged misstatement or omission on your part, and in any other
event you and we, our officers or directors or such controlling person shall
each have the right to participate in the defense or preparation of the defense
of any such action. The failure so to notify you of any such action shall not
relieve you from any liability which you may have to us, to our officers
5
<PAGE>
or directors, or to such controlling person other than on account of your
indemnity agreement contained in this paragraph 8.
9. We agree to advise you immediately:
a. of any request by the SEC for amendments to our Registration
Statement or Prospectus or for additional information,
b. of the issuance by the SEC of any stop order suspending the
effectiveness of our Registration Statement or Prospectus or the initiation
of any proceedings for that purpose,
c. of the happening of any material event which makes untrue any
statement made in our Registration Statement or Prospectus or which
requires the making of a change in either of them in order to make the
statements therein not misleading, and
d. of all action of the SEC with respect to any amendments to our
Registration Statement or Prospectus.
10. This Agreement will become effective on the date hereof and will remain
in effect thereafter for successive twelve-month periods (computed from each
____________), provided that such continuation is specifically approved at least
annually by vote of our Board of Directors and of a majority of those of our
directors who are not interested persons (as defined in the 1940 Act) and have
no direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan, cast in person at a meeting called for the
purpose of voting on this agreement. This agreement may be terminated at any
time, without the payment of any penalty, (a) on sixty days' written notice to
you (i) by vote of a majority of our entire Board of Directors, and by a vote of
a majority of our Directors who are not interested persons (as defined in the
1940 Act) and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan, or (ii) by vote of a
majority of our outstanding voting securities, as defined in the Act, or (b) by
you on sixty days' written notice to us.
11. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you and this Agreement shall terminate automatically
in the event of any such transfer, assignment, sale, hypothecation or pledge by
you. The terms "transfer", "assignment" and "sale" as used in this paragraph
shall have the meanings ascribed thereto by governing law and in applicable
rules or regulations of the SEC thereunder.
6
<PAGE>
12. Except to the extent necessary to perform your obligations hereunder,
nothing herein shall be deemed to limit or restrict your right, the right of any
of your employees, officers or directors, who may also be a director, officer or
employee of ours, or of a person affiliated with us, as defined in the 1940 Act,
to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to another corporation,
firm, individual or association.
If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
MICHIGAN DAILY TAX FREE INCOME
FUND, INC.
By ____________________________
Accepted: ________________, 1998
REICH & TANG DISTRIBUTORS, INC.
By: ____________________________
7
SHAREHOLDER SERVICING
AGREEMENT
MICHIGAN DAILY TAX FREE INCOME FUND, INC.
CLASS A SHARES
(the "Fund")
600 Fifth Avenue
New York, New York 10020
____________, 1998
Reich & Tang Distributors, Inc. ("Distributor")
600 Fifth Avenue
New York, New York 10020
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We hereby employ you, pursuant to the Distribution and Service Plan, as
amended, adopted by us in accordance with Rule 12b-1 (the "Plan") under the
Investment Company Act of 1940, as amended (the "Act"), to provide the services
listed below on behalf of the Class A Shares. You will perform, or arrange for
others including organizations whose customers or clients are shareholders of
our corporation (the "Participating Organizations") to perform, all personal
shareholder servicing and related maintenance of shareholder account functions
("Shareholder Services") not performed by us or our transfer agent.
2. You will be responsible for the payment of all expenses incurred by you
in rendering the foregoing services, except that we will pay for (i)
telecommunications expenses, including the cost of dedicated lines and CRT
terminals, incurred by the Distributor and Participating Organizations in
rendering such services to the Class A Shareholders, and (ii) preparing,
printing and delivering our prospectus to existing shareholders and preparing
and printing subscription application forms for shareholder accounts.
3. You may make payments from time to time from your own resources,
including the fees payable hereunder and past profits to compensate
Participating Organizations for providing Shareholder Services to the Class A
Shareholders of the Fund. Payments to Participating Organizations to compensate
them for
1
<PAGE>
providing Shareholder Services are subject to compliance by them with the terms
of written agreements satisfactory to our Board of Directors to be entered into
between the Distributor and the Participating Organizations. The Distributor
will in its sole discretion determine the amount of any payments made by the
Distributor pursuant to this Agreement, provided, however, that no such payment
will increase the amount which we are required to pay either to the Distributor
under this Agreement or to the Manager under the Investment Management Contract,
the Administrative Services Agreement, or otherwise.
4. We will expect of you, and you will give us the benefit of, your best
judgment and efforts in rendering these services to us, and we agree as an
inducement to your undertaking these services that you will not be liable
hereunder for any mistake of judgment or for any other cause, provided that
nothing herein shall protect you against any liability to us or to our
shareholders by reason of willful misfeasance, bad faith or gross negligence in
the performance of your duties hereunder, or by reason of your reckless
disregard of your obligations and duties hereunder.
5. In consideration of your performance, the Fund will pay you a service
fee, as defined by Article III, Section 26(b)(9) of the Rules of Fair Practice,
as amended, of the National Association of Securities Dealers, Inc. at the
annual rate of two-tenths of one percent (0.20%) of the Fund's Class A Share's
average daily net assets. Your fee will be accrued by us daily, and will be
payable on the last day of each calendar month for services performed hereunder
during that month or on such other schedule as you shall request of us in
writing. You may waive your right to any fee to which you are entitled
hereunder, provided such waiver is delivered to us in writing.
6. This Agreement will become effective on the date hereof and will remain
in effect thereafter for successive twelve-month periods (computed from each
___________), provided that such continuation is specifically approved at least
annually by vote of our Board of Directors and of a majority of those of our
directors who are not interested persons (as defined in the Act) and have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan, cast in person at a meeting called for the
purpose of voting on this Agreement. This Agreement may be terminated at any
time, without the payment of any penalty, (a) on sixty days' written notice to
you (i) by vote of a majority of our entire Board of Directors, and by a vote of
a majority of our Directors who are not interested persons (as defined in the
Act) and who have no direct or indirect financial interest in the operation of
the Plan or in any agreement related to the Plan, or (ii) by vote of a majority
of the outstanding voting securities of the Fund's
2
<PAGE>
Class A Shares, as defined in the Act, or (b) by you on sixty days' written
notice to us.
7. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you and this Agreement shall terminate automatically
in the event of any such transfer, assignment, sale, hypothecation or pledge by
you. The terms "transfer", "assignment" and "sale" as used in this paragraph
shall have the meanings ascribed thereto by governing law and in applicable
rules or regulations of the Securities and Exchange Commission thereunder.
8. Except to the extent necessary to perform your obligations hereunder,
nothing herein shall be deemed to limit or restrict your right, the right of any
of your employees, officers or directors, who may also be a director, officer or
employee of ours, or of a person affiliated with us, as defined in the Act, to
engage in any other business or to devote time and attention to the management
or other aspects of any other business, whether of a similar or dissimilar
nature, or to render services of any kind to another corporation, firm,
individual or association.
If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
MICHIGAN DAILY TAX FREE INCOME
FUND, INC.
CLASS A SHARES
By:________________________
ACCEPTED: , 1998
REICH & TANG DISTRIBUTORS, INC.
By:
3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
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 23rd day
of February, 1987.
MICHIGAN DAILY TAX FREE INCOME
FUND, INC. (Registrant)
By:________________________________
William Berkowitz, President
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints William Berkowitz 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, No. 33-11642,
and any and all amendments thereto (including pre-effective amendments) filed by
Michigan 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.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
___________________________ President and February 23, 1987
William Berkowitz Director
1
<PAGE>
___________________________ Treasurer February 23, 1987
Dana E. Messina
___________________________ Director February __, 1987
Dr. W. Giles Melon
___________________________ Director February 23, 1987
Dr. Yung Wong
__________________________ Director February 23, 1987
Robert Straniere
2
<PAGE>
___________________________ Treasurer February __, 1987
Dana E. Messina
___________________________ Director February __, 1987
Dr. W. Giles Melon
___________________________ Director February __, 1987
Dr. Yung Wong
__________________________ Director February 23, 1987
Robert Straniere
3
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and supporting
schedules as of the end of the most current period and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000810104
<NAME> Michigan Daily Tax Free Income Fund, Inc.
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 51813685
<INVESTMENTS-AT-VALUE> 51813685
<RECEIVABLES> 475500
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52289185
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 696138
<TOTAL-LIABILITIES> 696138
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51611795
<SHARES-COMMON-STOCK> 51611795
<SHARES-COMMON-PRIOR> 45166400
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18749)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 51593047
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1885048
<OTHER-INCOME> 0
<EXPENSES-NET> 405007
<NET-INVESTMENT-INCOME> 1480041
<REALIZED-GAINS-CURRENT> 42
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1480083
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1480040
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 82174625
<NUMBER-OF-SHARES-REDEEMED> 77167155
<SHARES-REINVESTED> 1437925
<NET-CHANGE-IN-ASSETS> 6445438
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (18791)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 150005
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 510713
<AVERAGE-NET-ASSETS> 50139098
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and supporting
schedules as of the end of the most current period and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000810104
<NAME> Michigan Daily Tax Free Income Fund, Inc.
<SERIES>
<NUMBER> 2
<NAME> CLASS B
<S> <C>
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 51813685
<INVESTMENTS-AT-VALUE> 51813685
<RECEIVABLES> 475500
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52289185
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 696138
<TOTAL-LIABILITIES> 696138
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51611795
<SHARES-COMMON-STOCK> 51611795
<SHARES-COMMON-PRIOR> 45166400
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18749)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 51593047
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1885048
<OTHER-INCOME> 0
<EXPENSES-NET> 405007
<NET-INVESTMENT-INCOME> 1480041
<REALIZED-GAINS-CURRENT> 42
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1480083
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1480040
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 82174625
<NUMBER-OF-SHARES-REDEEMED> 77167155
<SHARES-REINVESTED> 1437925
<NET-CHANGE-IN-ASSETS> 6445438
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (18791)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 150005
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 510713
<AVERAGE-NET-ASSETS> 50139098
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
