As filed with the Securities and Exchange Commission on August 27, 1999
Registration No. 33-25747
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. 13 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 15 [X]
(Check appropriate box or boxes)
TAX EXEMPT PROCEEDS FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5200
BERNADETTE N. FINN
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
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[X] on October 28, 1999 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
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TAX EXEMPT 600 FIFTH AVENUE
PROCEEDS FUND, INC. NEW YORK, N.Y. 10020
(212) 830-5220
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PROSPECTUS
November 1, 1999
A money market fund whose investment objective is to seek to provide its
investors with high current interest income exempt from Federal income tax,
preservation of capital and maintenance of liquidity.
The Fund is offered primarily to entities that are issuers of tax exempt state
and local bonds, such as states and local municipalities, and their authorities,
agencies, instumentalities and subdivisions ("Qualified Investors").
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
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TABLE OF CONTENTS
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2 Risk/Return Summary: Investments, Risks, 7 Management, Organization and Capital Structure
and Performance 7 Shareholder Information
4 Risk/Return Summary: Fee Table 11 Tax Consequences
5 Investment Objectives, Principal Investment 12 Distribution Arrangements
Strategies and Related Risks 14 Financial Highlights
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I. RISK/RETURN SUMMARY: INVESTMENTS, RISKS, AND PERFORMANCE
Investment Objective
The Fund seeks to provide its investors with high current interest income
exempt from Federal income tax, preservation of capital and maintenance of
liquidity. There can be no assurance that the Fund will achieve its investment
objective.
Principal Investment Strategies
The Fund intends to achieve its investment objective by investing
principally in short-term, high quality, tax exempt fixed rate and variable rate
obligations issued by state and municipal governments and by public authorities.
These debt obligations are collectively referred to throughout the Prospectus as
Municipal Obligations. The Fund will also invest in Participation Certificates,
which evidence ownership of an interest in the underlying Municipal Obligations,
purchased from banks, insurance companies, or other financial institutions and
which meet the Federal income tax definition of "tax-exempt bond."
The Fund will only invest in securities that would qualify an investment in
the Fund as an investment in "tax-exempt bonds" for Federal income tax purposes.
Therefore, shareholders of the Fund that are tax exempt bond issuers will, in
the opinion of counsel be exempt from the arbitrage rebate provisions of the
Internal Revenue Code of 1986, as amended (the "Code") with respect to their
investment in the Fund.
The Fund will not invest in securities if the interest income from such
securities could be subject to the Federal alternative minimum tax.
The Fund is a money market fund and seeks to maintain an investment
portfolio with a dollar-weighted average maturity of 90 days or less, to value
its investment portfolio at amortized cost and to maintain a net asset value of
$1.00 per share.
The Fund also expects to invest primarily in municipal notes and industrial
revenue bonds ("IRBs") issued before August 8, 1986.
Principal Risks
o Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund. The value
of the Fund's shares and the securities held by the Fund can each decline
in value.
o An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other governmental agency.
o Because the Fund purchases Participation Certificates and IRBs (issued
before August 8, 1986) from banks and these instruments are backed by bank
letters of credit or bank guarantees, investment in the Fund should be made
with an understanding of the risks which an investment in the banking
industry may entail.
o Payment of interest and preservation of capital are dependent upon the
continuing ability of issuers and/or obligators of state, municipal and
public authority debt obligations to meet their payment obligations.
Risk/Return Bar Chart
The following bar chart and table may assist you in your decision to invest
in the Fund. The bar chart shows the change in the annual returns of the Fund
over the last nine calendar years. The table shows the average annual returns
for the last one and five year periods and the average annual return since
inception. While analyzing this information, please note that the Fund's past
performance is not an indicator of how the Fund will perform in the future. The
Fund's current 7-day yield may be obtained by calling the Fund toll-free at
1-800- 221-3079.
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Tax Exempt Proceeds Fund, Inc. (1),(2)
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[GRAPHIC OMITTED]
Calendar Year End % Total Return
1990 5.59%
1991 4.23%
1992 2.67%
1993 2.10%
1994 2.56%
1995 3.48%
1996 3.16%
1997 3.33%
1998 3.15%
(1) [As of September 30, 1999, the Fund had a year-to-date return of _____%.]
(2) [The Fund's highest quarterly return was 1.57% for the quarter ended
______; the lowest quarterly return was ____% for the quarter ended
____________.]
Average Annual Total Returns - Tax Exempt Proceeds Fund, Inc.
For the periods ended December 31, 1998
One Year 3.15%
Five Years 3.13%
Average Annual Total Return Since Inception* 3.61%
* Inception date of February 9, 1989.
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FEE TABLE
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees*............................... 0.40%
Distribution and Service (12b-1) Fees.......... 0.00%
Other Expenses................................. 0.00%
Total Annual Fund Operating Expenses......... 0.40%
* The Management Fee may be lower than 0.40% depending on the net assets of
the Fund (see "Management, Organization and Capital Structure").
Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
Assume that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. Also assume that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
$41 $128 $224 $505
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II. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objective
The Fund is a diversified, short-term, tax-exempt money market fund whose
investment objective is to seek to provide its investors with high current
interest income exempt from Federal income taxes , preservation of capital and
maintenance of liquidity.
The investment objective of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund with the exception of the Fund's policy regarding "tax exempt
bonds." The Fund's fundamental policies of investing in securities that would
qualify an investment in the Fund as an investment in "tax exempt bonds" and of
not investing in securities the interest income on which may be subject to the
Federal individual alternative minimum tax, may only be changed with the
approval of 90% of the Fund's outstanding shares.
Principal Investment Strategies
Generally
The Fund will invest primarily in short-term, high quality, tax-exempt,
fixed rate and variable rate Municipal Obligations issued by or on behalf of
states, municipal governments, their authorities, agencies, instrumentalities
and political subdivisions.
The Fund will also invest in Participation Certificates in Municipal
Obligations. These Participation Certificates are purchased by the Fund from
banks, insurance companies or other financial institutions and in the opinion of
Battle Fowler LLP, counsel to the Fund, cause the Fund to be treated as the
owner of the underlying Municipal Obligations for Federal income tax purposes.
The Fund expects to invest in Participation Certificates purchased from banks in
IRBs and other Municipal Obligations. The Fund will not invest in IRBs issued
after August 7, 1986 the interest income from which may be subject to the
Federal individual alternative minimum tax.
The Fund will only invest in securities that would qualify an investment in
the Fund as an investment in "tax exempt bonds" as defined in Section 150(a)(6)
of the Code and amplified in Treasury Department Regulations and, therefore,
shareholders of the Fund that are tax exempt bond issuers are expected to be
exempt from the arbitrage rebate provisions of the Code with respect to income
from the Fund.
The Fund will not invest in securities if the interest income could be
subject to the Federal alternative minimum tax.
The Fund may hold uninvested cash reserves pending investment.
The Fund's investments may also include "when-issued" Municipal Obligations
and stand-by commitments (however, the Fund expects to invest less than 5% of
its assets in such securities).
The Fund's investment manager considers the following factors when buying
and selling securities for the portfolio: (i) availability of cash, (ii)
redemption requests, (iii) yield management, and (iv) credit management. It is
anticipated that Qualified Investors will utilize the Fund for short-term
investment purposes. While this may result in a higher rate of portfolio
turnover with increased transaction costs, it will not affect the Fund's expense
ratio because of the manager's obligation to pay all expenses of the Fund (other
than the Management Fee).
In order to maintain a share price of $1.00, the Fund must comply with
certain industry regulations. Other requirements pertain to the maturity and
credit quality of the securities in which the Fund may invest. The Fund will
only invest in securities which have or are deemed to have a remaining maturity
of 397 days or less. Also, the average maturity for all securities contained in
the Fund, on a dollar-weighted basis, will be 90 days or less.
The Fund will only invest in either securities which have been rated (or
whose issuers have been rated) in the two highest short-term rating categories
by nationally recognized statistical rating organizations, or are unrated
securities but which have been determined by the Fund's Board of Directors to be
of comparable quality.
Subsequent to its purchase by the Fund, the quality of an investment may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. If this occurs, the Board of Directors of the Fund shall
reassess the security's
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credit risks and shall take such action as it determines is in the best interest
of the Fund and its shareholders. Reassessment is not required, however, if the
security is disposed of or matures within five business days of the Manager
becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Manager's actions.
For a more detailed description of (i) the securities that the Fund will
invest in, (ii) fundamental investment restrictions, and (iii) industry
regulations governing credit quality and maturity, please refer to the Statement
of Additional Information.
The Fund's investment policiies were developed for the particular Federal
income tax needs of Qualified Investors. Investors that are not issuers of state
and local bonds and that desire to invest in a tax exempt money market fund may
consider an investment in the other tax exempt money market funds managed by
Reich & Tang Asset Management L.P.
Risks
The Fund complies with industry-standard requirements on the quality,
maturity and diversification of its investments which are designed to help
maintain a $1.00 share price. A significant change in interest rates or a
default on the Fund's investments could cause its share price (and the value of
your investment) to change.
By investing in liquid, short-term, high quality investments that have high
quality credit support from banks, insurance companies or other financial
institutions (i.e. Participation Certificates and other variable rate demand
instruments), the Fund's management believes that it can protect the Fund
against credit risks that may exist on long-term Municipal Obligations. The Fund
may still be exposed to the credit risk of the institution providing the
investment. Changes in the credit quality of the provider could affect the value
of the security and your investment in the Fund.
Investment by the Fund in other than "tax exempt bonds" will subject the
Fund's shareholders that are tax exempt bond issuers to the arbitrage rebate
provisions of the Code with respect to income from the Fund. However, the Fund's
fundamental investment policies prohibit the Fund from investing in other "tax
exempt bonds" as that term is defined in this Prospectus.
Because the Fund may invest in Participation Certificates and IRBs (issued
before August 8, 1986) 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. This includes extensive governmental regulations, changes
in the availability and cost of capital funds, and general economic conditions
(see "Variable Rate Demand Instruments and Participation Certificates" in the
Statement of Additional Information) 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.
As the Year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the Year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur material costs
to be Year 2000 compliant. Although the Manager does not anticipate that the
Year 2000 issue will have a material impact on the Fund's ability to provide
service at current levels, there can be no assurance that steps taken in
preparation for the Year 2000 will be sufficient to avoid an adverse impact on
the Fund. The Year 2000 Problem may also adversely affect issuers of the
securities contained in the Fund, to varying degrees based upon various factors,
and thus may have a corresponding adverse effect on the Fund's performance. The
Manager is unable to predict what effect, if any, the Year 2000 Problem will
have on such issuers.
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III. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of September 30, 1999, the Manager was the
investment manager, adviser or supervisor with respect to assets aggregating in
excess of [$13.6 billion]. The Manager has been an investment adviser since 1970
and currently is manager of eighteen other registered investment companies and
also advises pension trusts, profit-sharing trusts and endowments.
Pursuant to the Investment Management Contract, the Manager manages the
Fund's portfolio of securities and makes decisions with respect to the purchase
and sale of investments, subject to the general control of the Board of
Directors of the Fund. Pursuant to the Investment Management Contract, the Fund
pays the Manager a fee equal to .40% per annum of the Fund's average daily net
assets up to $250 million; .35% per annum of the average daily net assets
between $250 million and $500 million; and .30% per annum of the average daily
net assets over $500 million for managing the Fund's investment portfolio and
performing related administrative and clerical services.
The Investment Management Contract also provides that the Manager will bear
the cost of, or reimburse the Fund for, all other expenses of the Fund.
Therefore, the fee payable under the Investment Management Contract will be the
only expense of the Fund. The fees are accrued daily and paid monthly. Any
portion of the Management Fee received by the Manager may be used by the Manager
and the Distributor to provide shareholder and administrative services and for
distribution of Fund shares. (See "Distribution Arrangements" herein.)
IV. SHAREHOLDER INFORMATION
The Fund sells and redeems its shares on a continuing basis at their net
asset value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent, who
accepts orders for purchases and redemptions from Participating Organizations
and from investors directly.
Pricing of Fund Shares
The net asset value of the Fund's shares is determined as of 12 noon, New
York City time, on each Fund Business Day. Fund Business Day means weekdays
(Monday through Friday) except days on which the New York Stock Exchange is
closed for trading. The net asset value is computed by dividing the value of the
Fund's net assets (i.e., the value of its securities and other assets less its
liabilities, including expenses payable or accrued, but excluding capital stock
and surplus) by the total number of shares outstanding. The Fund intends to
maintain a stable net asset value at $1.00 per share although there can be no
assurance that this will be achieved.
The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost
valuation involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium. If fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument is higher or lower
than the price an investment company would receive if the instrument were sold.
Shares are issued as of the first determination of the Fund's net asset
value per share made after acceptance of the investor's purchase order. In order
to maximize earnings on its portfolio, the Fund normally has its assets as fully
invested as is practicable. Many securities in which the Fund invests require
the immediate settlement in funds of Federal Reserve member banks on deposit at
a Federal Reserve Bank (commonly known as "Federal Funds"). Fund shares begin
accruing income on the day the shares are issued to an investor. The Fund
reserves the right to reject any purchase order for its shares. Certificates for
Fund shares will not be issued to an investor.
Purchase of Fund Shares
The Fund does not accept a purchase order until an investor's payment has
been converted into Federal
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Funds and is received by the Fund's transfer agent. Orders accompanied by
Federal Funds and received after 12 noon, New York City time, on a Fund Business
Day will result in the issuance of shares on the following Fund Business Day.
The Fund will send a personalized monthly statement to all shareholders
listing (i) the total number of Fund shares owned as of the statement closing
date, (ii) purchase and redemptions of Fund shares and (iii) the dividends paid
on Fund shares (including dividends paid in cash or reinvested in additional
Fund shares). Each shareholder will also receive a confirmation of each purchase
and redemption of Fund shares.
Direct Purchases
Investors who wish to invest in the Fund directly may obtain a current
Prospectus and the subscription order form necessary to open an account by
telephoning the Fund at the following numbers:
Within New York 212-830-5220
Outside New York (TOLL FREE) 800-221-3079
Mail
Investors may send a check made payable to "Tax Exempt Proceeds Fund, Inc."
along with a completed subscription order form to:
Tax Exempt Proceeds Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
will normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's purchase order will not be
accepted until the Fund receives Federal Funds. There is no minimum investment.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of
money among banks, investors should first obtain a new account number by
telephoning the Fund at 212-830-5220 (within New York) or at 800-221-3079
(outside New York) and then instruct a member commercial bank to wire money
immediately to:
Investors Fiduciary Trust Company
ABA # 101003621
Reich & Tang Funds
DDA # 890752-953-8
For Tax Exempt Proceeds Fund, Inc.
Account of (Investor's Name)
Fund Account #
SS#/Tax ID#
The investor should then promptly complete and mail the subscription order
form.
Investors planning to wire funds should instruct their bank so the wire
transfer can be accomplished before 12 noon, New York City time, on the same
day. There may be a charge by the investor's bank for transmitting the money by
bank wire, and there also may be a charge for use of Federal Funds. The Fund
does not charge investors in the Fund for its receipt of wire transfers. Payment
in the form of a "bank wire" received prior to 12 noon, New York City time, on a
Fund Business Day will be treated as a Federal Funds payment received on that
day.
Subsequent Purchases of Shares
Subsequent purchases can be made by bank wire, as indicated above, or by
mailing a check to:
Tax Exempt Proceeds Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
There is no minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number.
Provided that the information on the subscription form on file with the Fund
is still applicable, a shareholder may reopen an account without filing a new
subscription order form at any time during the year the shareholder's account is
closed or during the following calendar year.
Redemption of Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next
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determination of net asset value per share upon receipt by the Fund's transfer
agent of the redemption order (and any supporting documentation which it may
require). Normally, payment for redeemed shares is made on the same Fund
Business Day after the redemption is effected, provided the redemption request
is received prior to 12 noon, New York City time. However, redemption payments
will not be effected unless the check (including a certified or cashier's check)
used for investment has been cleared for payment by the investor's bank, which
could take up to 15 days after investment. Shares redeemed are not entitled to
participate in dividends declared on the day a redemption becomes effective.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have
"Signature Guaranteed" stamped under his signature. It should be signed and
guaranteed by an eligible guarantor institution which includes a domestic bank,
a domestic savings and loan institution, a domestic credit union, a member bank
of the Federal Reserve system or a member firm of a national securities
exchange, pursuant to the Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written
request to the Fund addressed to:
Tax Exempt Proceeds Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
Normally the redemption proceeds are paid by check and mailed to the
shareholder of record.
Checks
By making the appropriate election on their subscription form, shareholders
may request a supply of checks which may be used to effect redemptions. The
checks, which will be issued in the shareholder's name, are drawn on a special
account maintained by the Fund with the agent bank. For Qualified Investors,
checks will be pre-printed with a legend certifying compliance with specific
limitations for withdrawal. Checks may be drawn in any amount and may be used
like an ordinary commercial bank check, except that they may not be certified.
When a check is presented to the Fund's agent bank for payment, 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 through the Fund Business Day on which
the check clears. Checks provided by the Fund may not be certified. Fund shares
purchased by check may not be redeemed by check for 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 interest of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures,
rules and regulations of the Fund's agent bank governing checking accounts. The
Fund's agent bank will not honor checks which are in amounts exceeding the value
of the shareholder's account at the time the check is presented for payment. The
Fund reserves the right to terminate or modify the check redemption procedure at
any time or to impose additional fees following notification to the Fund's
shareholders.
Investors wishing to avail themselves of this method of redemption should
elect it on their subscription order form.
Qualified Investors making this election, are required to complete a
certified resolution or other evidence of authorization in accordance with the
normal practices of the Fund's agent bank. Appropriate authorization forms will
be sent by the Fund's agent bank to shareholders who select this option. As soon
as the authorization forms are filed in good order with the Fund's agent bank,
it will provide
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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 on their subscription order form. The proceeds of a telephone
redemption may be sent to the shareholders at their addresses or to their bank
accounts, both as set forth in the subscription order form or in a subsequent
written authorization. The Fund may accept telephone redemption instructions
from any person with respect to accounts of shareholders who elect this service
and thus such shareholders risk possible loss of principal and interest in the
event of a telephone redemption not authorized by them. The Fund will employ
reasonable procedures to confirm that telephone redemption instructions are
genuine, and will require that shareholders electing such option provide a form
of personal identification. Failure by the Fund to employ such reasonable
procedures may cause the Fund to be liable for the losses incurred by investors
due to unauthorized or fraudulent telephone redemptions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York at 800-221-3079, and state: (i) the name of the
shareholder appearing on the Fund's records; (ii) the shareholder's account
number with the Fund; (iii) the amount to be withdrawn; (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address; and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time. Proceeds are sent the next Fund Business Day if the
redemption request is received after 12 noon, New York City time. The Fund
reserves the right to terminate or modify the telephone redemption service in
whole or in part at any time and will notify shareholders accordingly.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholders' address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Additional exceptions
include any period during which an emergency (as determined by the SEC) exists
as a result of which disposal by the Fund of its portfolio securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or for such other
period as the SEC may by order permit for the protection of the shareholders of
the Fund.
The Fund has reserved the right to redeem the shares of any shareholder if
the net asset value of all the remaining shares in the shareholder's account
after a withdrawal is less than $1,000 solely because of withdrawals and not
because of fluctuations in the value of the account. 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. During the notice period a
shareholder 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.
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.
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Net realized capital gains, if any, are distributed at least annually and in
no event later than 60 days after the end of the Fund's fiscal year.
All dividends and distributions of capital gains are automatically invested,
at no charge, in additional Fund shares immediately upon payment thereof unless
a shareholder has elected by written notice to the Fund to receive either of
such distributions in cash.
Tax Consequences
The purchase of Fund shares will be the purchase of an asset. Dividends paid
by the Fund that are "exempt-interest dividends" by virtue of being properly
designated by the Fund as derived from Municipal Obligations and Participation
Certificates will be exempt from regular Federal income tax provided the Fund
complies with Section 852(b)(5) of the Code.
If distributions are made in this manner, dividends 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,
corporations may be required to include such "exempt-interest dividends"
distributed by the Fund in determining their 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.
Although it is not intended, it is possible that the Fund may realize short-term
or long-term capital gains or losses. The Fund will inform shareholders of the
amount and nature of its income and gains in a written notice mailed to
shareholders not later than 45 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. Although 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, the Fund will not invest in securities
the interest income on which may be subject to the Federal individual
alternative minimum tax.
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 tax item). 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, the
sale or redemption of shares or the exchange of shares for shares of another
Fund may result in the investor's receipt of more or less than it paid for its
shares and, thus, in a taxable gain or loss to the investor.
With respect to variable rate demand instruments, including participation
certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner of an interest in the underlying Municipal Obligations and that the
interest thereon will be exempt from Federal income taxes to the Fund to the
same extent as the interest on the underlying Municipal Obligations. Counsel has
pointed out that the Internal Revenue Service has announced 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.
The United States Supreme Court has held that there is no constitutional
prohibition against the Federal government's taxing the interest earned on state
or other municipal bonds. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Municipal Obligations.
If an issuer of a state or local tax exempt bond invests the proceeds of the
bond issue in any "tax exempt bond", the income on which is not an item of tax
preference and is not includible in the alternative minimum tax computation for
individual taxpayers, such issuer is not subject to the rebate provisions of
11
<PAGE>
Code Section 148 with respect to the income from such bond. The rebate
provisions would require an issuer that invests the bond proceeds in "higher
yielding investments" (other than in "tax exempt bonds") to rebate a portion of
the income from such investments in order for the bond income to remain tax
exempt to the bondholders. The term "tax exempt bond" means any bond the
interest on which is excludable from gross income under Section 103(a) of the
Code. Regulations provide that for purposes of the arbitrage rebate provision of
Section 148 of the Code, the term "tax exempt bond" includes an interest in a
regulated investment company to the extent that at least 95% of the income to
the holder of the interest is interest that is excludable from gross income
under Section 103 of the Code. The Fund anticipates that it will comply with all
requirements that must be satisfied in order for an investment in its shares to
be treated as a "tax exempt bond" for arbitrage purposes. If the Fund does not
comply with such requirements, issuers who invest in the Fund will be subject to
the rebate provisions of Code Section 148.
Since the Fund is established primarily for issuers of tax exempt bonds that
do not wish to be subject to the Code's rebate requirements, the Fund intends to
comply with the provisions of these Regulations and will invest only in tax
exempt bonds the interest from which, in the opinion of bond counsel at the date
of issuance is excludable from gross income under Section 103 of the Code and is
not subject to the individual alternative minimum tax provisions.
The exemption of interest income for Federal income tax purposes does not
necessarily result in an exemption under the income or other tax laws of any
state or local taxing authority. Shareholders of the Fund may be exempt from
state and local taxes on distributions of tax-exempt interest income derived
from obligations of the state and/or municipalities of the state in which they
may reside but may be subject to tax on income derived from obligations of other
jurisdictions.
Shareholders are urged to consult their tax advisers with respect to the
treatment of distributions from the Fund and ownership of shares of the Fund in
their own states and localities.
V. DISTRIBUTION ARRANGEMENTS
Rule 12b-1 Fees
Investors do not pay a sales charge to purchase shares of the Fund.
The Fund's Board of Directors has adopted a Rule 12b-1 distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc. (the "Distributor") have entered into a Distribution
Agreement. There are no fees or expenses chargeable to the Fund under the Plan.
The Fund's Board of Directors has adopted the Plan in case certain expenses of
the Fund are deemed to constitute indirect payment by the Fund for distribution
expenses. If a payment of fees under the Investment Management Contract by the
Fund to the Manager should be deemed to be indirect financing by the Fund of the
distribution of its shares, such payments are authorized by the Plan.
Under the Distribution Agreement, the Distributor serves as distributor of
the Fund's shares. For nominal consideration (i.e., $1.00) and as agent for the
Fund, the Distributor solicits orders for the purchase of the Fund's shares,
provided that any orders will not be binding on the Fund until accepted by the
Fund as principal.
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
with whom the Distributor has entered into written agreements, for performing
shareholder servicing and related administrative functions on behalf of the
Fund; (ii) to compensate certain organizations for providing assistance in
distributing the Fund's shares; and (iii) to pay the costs of printing and
distributing the Fund's prospectus to prospective investors and to defray the
cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. The
Distributor, 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
12
<PAGE>
is required to pay to the Manager and Distributor for any fiscal year under the
Investment Management Contract in effect for that year.
13
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by McGladrey and Pullen, LLP, whose report, along
with the Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income................... 0.029 0.033 0.032 0.033 0.032
Less distributions:
Dividends from net investment income ( 0.029) ( 0.033) ( 0.032) ( 0.033) ( 0.032)
--------- --------- --------- --------- ---------
Net asset value, end of year.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Return.............................. 2.92% 3.31% 3.23% 3.31% 3.22%
Ratios/Supplemental Data:
Net assets, end of year (000)............. $ 189,536 $ 192,016 $ 199,050 $ 254,251 $ 213,134
Ratios to average net assets:
Expenses................................ 0.40% 0.40% 0.40% 0.40% 0.40%
Net investment income................... 2.89% 3.26% 3.18% 3.26% 3.22%
</TABLE>
14
<PAGE>
A Statement of Additional Information (SAI) dated November 1, 1999, and the
Fund's Annual and Semi-Annual Reports include additional information about the
Fund and its investments and are incorporated by reference into this prospectus.
You may obtain the SAI and the Annual and Semi-Annual Reports and other material
incorporated by reference without charge by calling the Fund at 1-800-221-3079.
To request other information, please call your financial intermediary or the
Fund.
======================================================
TAX EXEMPT
PROCEEDS
INCOME
FUND, INC.
PROSPECTUS
November 1, 1999
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, NY 10020
(212) 830-5220
======================================================
A current SAI has been filed with the Securities and Exchange Commission. You
may visit the Securities and Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material incorporated by reference and other
information. These materials can also be reviewed and copied at the Commission's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C.
20549-6009.
811-5698
TEP1199P
<PAGE>
TAX EXEMPT
PROCEEDS FUND, INC. 600 Fifth Avenue, New York, NY 10020
(212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1999
RELATING TO THE TAX EXEMPT PROCEEDS FUND, INC.
PROSPECTUS DATED NOVEMBER 1, 1999
This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current Prospectus
of Tax Exempt Proceeds Fund, Inc. (the "Fund"), dated November 1, 1999 and
should be read in conjunction with the Fund's Prospectus.
A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll-free at 1-(800) 221-3079. The Financial Statements of
the Fund have been incorporated by reference to the Fund's Annual Report. The
section entitled "Purchase, Redemption and Pricing of Shares" has been
incorporated by reference to the Fund's Prospectus. The Annual Report is
available, without charge, upon request by calling the toll-free number
provided.
This Statement of Additional Information is incorporated by reference into the
respective Prospectus in its entirety.
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Fund History........................................ 2 Capital Stock and Other Securities......................14
Description of the Fund and its Investments and Purchase, Redemption and Pricing of Shares..............14
Risks............................................. 2 Taxation of the Fund....................................15
Management of the Fund...............................9 Underwriters............................................17
Control Persons and Principal Holders of Calculation of Performance Data.........................17
Securities........................................10 Financial Statements....................................18
Investment Advisory and Other Services..............11 Description of Ratings..................................19
Brokerage Allocation and Other Practices............13
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
I. FUND HISTORY
The Fund was incorporated on November 18, 1988 in the state of Maryland.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund is a diversified, open-end, management investment company that is a
short-term, tax-exempt money market fund. The Fund's investment objective is to
provide its investors with high current interest income exempt from Federal
income taxes, preservation of capital and liquidity. No assurance can be given
that this objective 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 short-term high quality, tax
exempt fixed rate and variable rate obligations issued by or on behalf of states
and municipal governments and their authorities, agencies, instrumentalities and
political subdivisions ("Municipal Obligations") and in participation
certificates in such obligations purchased from banks, insurance companies or
other financial institutions, where such securities and participation
certificates therein meet this Federal income tax definition. The Fund will not
invest in Municipal Obligations the interest income on which may be subject to
the Federal individual alternative minimum tax.
The Fund will only invest in securities that would qualify an investment in the
Fund as an investment in "tax exempt bonds" as defined in Section 150(a)(6) of
the Internal Revenue Code of 1986, as amended (the "Code") and amplified in
Treasury Department Regulations. Therefore, Fund shareholders that are tax
exempt bond issuers are expected to be exempt from the arbitrage rebate
provisions of the Code with respect to income from the Fund.
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. 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 and stand-by
commitments. The Fund expects to invest its assets in participation certificates
issued by banks in industrial revenue bonds (issued before August 8, 1986) and
other Municipal Obligations. In view of this investment in bank participation
certificates in Municipal Obligations, an investment in Fund shares should be
made with an understanding of the characteristics of the banking industry and
the risks which such an investment may entail.
(See "Variable Rate Demand Instruments and Participation Certificates" herein.)
The investment objectives of the Fund described in the preceding paragraphs 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; except that the
Fund's fundamental investment policies of investing in securities that would
qualify an investment in the Fund as a "tax exempt bond" and of not investing in
securities, the interest income on which may be subject to the Federal
individual alternative minimum tax, may only be changed with the approval of 90%
of the Fund's outstanding shares. As used herein, the term "majority of the
outstanding shares" of the Fund means, respectively, the vote of the lesser of
(i) 67% or more of the shares of the Fund present at a meeting, if the holders
of more than 50% of the outstanding shares of the Fund are present or
represented by proxy or (ii) more than 50% of the outstanding shares of the
Fund.
The Fund may only purchase securities 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"); (ii) Municipal Obligations which are subject to a Demand Feature or
Guarantee (as such terms are defined in Rule 2a-7 of the Investment Company Act
of 1940 (the "1940 Act")) and have received a rating from an NRSRO, or such
guarantor has received a rating from an NRSRO, with respect to a class of debt
obligations (or any debt obligation within that class) that is comparable in
priority and security to the Guarantee (unless, the guarantor, directly or
indirectly, controls, is controlled by or is under common control with the
issuer of the security subject to the Guarantee); and the issuer of the Demand
Feature or Guarantee, or another institution, has undertaken promptly to notify
the holder of the security in the event the Demand Feature or Guarantee is
substituted with another Demand Feature or Guarantee; or (iii) unrated Municipal
Obligations determined by the Fund's Board of Directors to be of comparable
quality. In addition, Municipal Obligations with remaining maturities of 397
days or less but that at the time of issuance were long-term securities (i.e.
with maturities greater than 366 days) are deemed unrated and may be purchased
if such has received a long-term rating from the Requisite NRSROs in one of the
three highest rating categories. Provided however, that such may not be
purchased if it (i) does not satisfy the rating requirements set forth in the
preceding sentence and (ii) has received a long-term rating from any NRSRO that
is not within the three highest long-term rating categories. A determination of
comparability by the Board of Directors is made on
2
<PAGE>
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.)
There are several organizations that currently qualify as NRSROs including
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies,
("S&P") and Moody's Investors Service, Inc. ("Moody's"). The two highest ratings
by S&P and Moody's are "AAA" and "AA" by S&P in the case of long-term bonds and
notes or "Aaa" and "Aa" by Moody's in the case of bonds; "SP-1" and "SP-2" by
S&P or "MIG-1" and "MIG-2" by Moody's in the case of notes; "A-1" and "A-2" by
S&P or "Prime-1" and "Prime-2" by Moody's in the case of tax-exempt commercial
paper. The highest rating in the case of variable and floating demand notes is
"VMIG-1" by Moody's or "SP-1/AA" by S&P. Such instruments may produce a lower
yield than would be available from less highly rated instruments.
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 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.
The Fund has elected and intends to continue to qualify as a "regulated
investment company" under the Code. The Fund will be restricted in that at the
close of each quarter of the taxable year, at least 50% of the value of its
total assets must be represented by cash, government securities, regulated
investment company securities and other securities limited in respect of any one
issuer to not more than 5% in value of the total assets of the Fund and 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 herein, "Municipal Obligations" include the following as well as
"Variable Rate Demand Instruments and Participation Certificates".
1. Municipal Bonds with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. Municipal Bonds are debt
obligations of states, cities, counties, municipalities and municipal
agencies (all of which are generally referred to as "municipalities"). They
generally have a maturity at the time of issue of one year or more and are
issued to raise funds for various public purposes such as construction of a
wide range of public facilities, to refund outstanding obligations and to
obtain funds for institutions and facilities.
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 facilities
(hereinafter referred to as "industrial revenue bonds" or "IRBs"). Interest
on IRBs is generally exempt, with certain exceptions, from regular Federal
income tax pursuant to Section 103(a) of the Code, provided the issuer and
corporate obligor thereof continue to meet certain conditions. (See
"Federal Income Taxes" herein.) IRBs are, in most cases, revenue bonds and
generally do not 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 any guarantor of the bonds 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. In accordance with Investment Restriction 7 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
3
<PAGE>
not be readily marketable or have a liquidity feature. The Fund will not
invest in IRBs (issued after August 7, 1986) the interest income from which
may be subject to the Federal alternative minimum tax.
In view of the investment of the Fund in IRBs issued before August 8, 1986
and participation interests therein secured by letters of credit or
Guarantees of banks, 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. 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.
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.
3. Municipal Commercial Paper that is an Eligible Security at the time of
acquisition. Issues of Municipal Commercial Paper typically represent very
short-term, unsecured, negotiable promissory notes. These obligations are
often issued to meet seasonal working capital needs of municipalities or to
provide interim construction financing. They are paid from general revenues
of municipalities or are refinanced with long-term debt. In most cases
Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the
event of default by the issuer of the commercial paper.
4. [Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications
equipment and other capital assets. Municipal Leases frequently have
special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance
limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses. These clauses provide that the governmental
issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. To reduce this risk,
the Fund will only purchase Municipal Leases subject to a non-appropriation
clause where the payment of principal and accrued interest is backed by an
unconditional irrevocable letter of credit, a guarantee, insurance or other
comparable undertaking of an approved financial institution. These types of
Municipal Leases may be considered illiquid and subject to the 10%
limitation of investments in illiquid securities set forth under
"Investment Restrictions" contained herein. The Board of Directors may
adopt guidelines and delegate to the Manager the daily function of
determining and monitoring the liquidity of Municipal Leases. In making
such determination, the Board and the Manager may consider such factors as
the frequency of trades for the obligation, the number of dealers willing
to purchase or sell the obligations and the number of other potential
buyers and the nature of the marketplace for the obligations, including the
time needed to dispose of the obligations and the method of soliciting
offers. If the Board determines that any Municipal Leases are illiquid,
such lease will be subject to the 10% limitation on investments in illiquid
securities.]
5. Any other Federal 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
will be consistent with the "Description of the Fund and its Investments
and Risks" herein and permissible under Rule 2a-7 under the 1940 Act.
Subsequent to its purchase by the Fund, a rated Municipal Obligation may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. If this occurs, the Board of Directors of the Fund shall promptly
reassess whether the Municipal Obligation presents minimal credit risks and
shall cause the Fund to take such action as the Board of Directors determines is
in the best interest of the Fund and its shareholders. However, reassessment is
not
4
<PAGE>
required if the Municipal Obligation is disposed of or matures within five
business days of the Manager becoming aware of the new rating and provided
further that the Board of Directors is subsequently notified of the Manager's
actions.
In addition, in the event that a Municipal Obligation (i) is in default, (ii)
ceases to be an Eligible Security under Rule 2a-7 of the 1940 Act or (iii) is
determined to no longer present minimal credit risks, or an event of insolvency
occurs with respect to the issues of a portfolio security or the provider of any
Demand Feature or Guarantee, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. Disposal of the security shall
occur as soon as practicable consistent with achieving an orderly disposition by
sale, exercise of any demand feature or otherwise. In the event of a default
with respect to a security which immediately before default accounted for 1/2 of
1% or more of the Fund's total assets, the Fund shall promptly notify the SEC of
such fact and of the actions that the Fund intends to take in response to the
situation. Certain Municipal Obligations issued by instrumentalities of the
United States government are not backed by the full faith and credit of the
United States Treasury but only by the creditworthiness of the instrumentality.
The Fund's Board of Directors has determined that any Municipal Obligation that
depends directly, or indirectly through a government insurance program or other
Guarantee, on the full faith and credit of the United States government will be
considered to have a rating in the highest category. Where necessary to ensure
that the Municipal Obligations are Eligible Securities, or where the obligations
are not freely transferable, the Fund will require that the obligation to pay
the principal and accrued interest be backed by an unconditional irrevocable
bank letter of credit, a Guarantee, insurance or other comparable undertaking of
an approved financial institution that would qualify the investment as an
Eligible Security.
Variable Rate Demand Instruments and Participation Certificates
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations. They provide for a periodic adjustment in the interest
rate paid on the instrument and permit the holder to demand payment of the
unpaid principal balance plus accrued interest at specified intervals upon a
specified number of days notice either from the issuer or by drawing on a bank
letter of credit, a guarantee or insurance issued with respect to such
instrument.
The variable rate demand instruments in which the Fund may invest are payable on
demand on not more than 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. Variable rate demand instruments that can not be disposed of
properly within seven days in the ordinary course of business are illiquid
securities. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to 397 days. The adjustments
are based upon the "prime rate"* of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The Fund decides
which variable rate demand instruments it will purchase in accordance with
procedures prescribed by its Board of Directors to minimize credit risks. A fund
utilizing the amortized cost method of valuation under Rule 2a-7 of the 1940 Act
may purchase variable rate demand instruments only if (i) the instrument is
subject to an unconditional demand feature, exercisable by the Fund in the event
of a default in the payment of principal or interest on the underlying
securities, that is an Eligible Security or (ii) the instrument is not subject
to an unconditional demand feature but does qualify as an Eligible Security and
has a long-term rating by the Requisite NRSROs in one of the two highest rating
categories, or if unrated, is determined to be of comparable quality by the
Fund's Board of Directors. The Fund's Board of Directors may determine that an
unrated variable rate demand instrument meets the Fund's high quality criteria
if it is backed by a letter of credit or guarantee or is insured by an insurer
that meets the quality criteria for the Fund stated herein or on the basis of a
credit evaluation of the underlying obligor. If an instrument is ever not deemed
to be an Eligible Security, the Fund either will sell it in the market or
exercise the demand feature.
The variable rate demand instruments that the Fund may invest in include
Participation Certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Obligations (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations. The Fund will not purchase Participation Certificates
in fixed rate tax-exempt Municipal Obligations without obtaining an opinion of
counsel that the Fund will be treated as the owner of an interest in the
underlying Municipal Obligations 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 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.
5
<PAGE>
the issuing bank with respect to the possible repurchase of the certificate of
participation) or insurance policy of an insurance company that the Board of
Directors of the Fund has determined meets the prescribed quality standards for
the Fund. The Fund has the right to sell the participation certificate back to
the institution. Where applicable, the Fund can draw on the letter of credit or
insurance after no more than 30 days notice either at any time or at specified
intervals not exceeding 397 days (depending on the terms of the participation),
for all or any part of the full principal amount of the Fund's participation
interest in the security plus accrued interest. The Fund intends to exercise the
demand only (i) upon a default under the terms of the bond documents, (ii) as
needed to provide liquidity to the Fund in order to make redemptions of Fund
shares or (iii) to maintain a high quality investment portfolio. The
institutions issuing the participation certificates will retain a service and
letter of credit fee (where applicable) and a fee for providing the demand
repurchase feature, in an amount equal to the excess of the interest paid on the
instruments over the negotiated yield at which the participations were purchased
by the Fund. The total fees generally range from 5% to 15% of the applicable
prime *rate or other interest rate index. With respect to insurance, the Fund
will attempt to have the issuer of the participation certificate bear the cost
of the insurance. However, the Fund retains the option to purchase insurance if
necessary, in which case the cost of insurance will be an expense of the Fund
subject to the expense limitation (see "Expense Limitation" herein). The Manager
has been instructed by the Fund's Board of Directors to continually monitor the
pricing, quality and liquidity of the variable rate demand instruments held by
the Fund, including the participation certificates, on the basis of published
financial information and reports of the rating agencies and other bank
analytical services to which the Fund may subscribe. Although these instruments
may be sold by the Fund, the Fund intends to hold them until maturity, except
under the circumstances stated above (see "Federal Income Taxes" herein).
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The portfolio may contain variable maximum rates set by state law,
which limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent state law contains such limits,
increases or decreases in value may be somewhat greater than would be the case
without such limits. Additionally, the portfolio may contain variable rate
demand participation certificates in fixed rate Municipal Obligations. The fixed
rate of interest on these Municipal Obligations will be a ceiling on the
variable rate of the participation certificate. In the event that interest rates
increase so that the variable rate exceeds the fixed rate on the Municipal
Obligations, the Municipal Obligations can no longer be valued at par and may
cause the Fund to take corrective action, including the elimination of the
instruments from the portfolio. Because the adjustment of interest rates on the
variable rate demand instruments is made in relation to movements of the
applicable banks' "prime rates", or other interest rate adjustment index, the
variable rate demand instruments are not comparable to long-term fixed rate
securities. Accordingly, interest rates on the variable rate demand instruments
may be higher or lower than current market rates for fixed rate obligations of
comparable quality with similar maturities.
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (i) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (ii) the period remaining until the instrument's next interest
rate adjustment. The maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity. If a variable rate demand instrument
ceases to be an Eligible Security it will be sold in the market or through
exercise of the repurchase demand feature to the issuer.
When-Issued Securities
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on these Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date of the Fund's
commitment to purchase. Although the Fund will only make commitments to purchase
when-issued Municipal Obligations with the intention of actually acquiring them,
the Fund may sell these securities before the settlement date if deemed
advisable by the Manager.
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
6
<PAGE>
decline and depreciation when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
income tax.
Stand-by Commitments
When the Fund purchases Municipal Obligations, it may also acquire stand-by
commitments from banks and other financial institutions. Under a stand-by
commitment, a bank or broker-dealer agrees to purchase at the Fund's option a
specified Municipal Obligation at a specified price with same day settlement. A
stand-by commitment is the equivalent of a "put" option acquired by the Fund
with respect to a particular Municipal Obligation held in its portfolio.
The amount payable to the Fund upon its exercise of a stand-by commitment
normally would be (i) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (ii) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank or dealer during the
time a stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment would be unconditional and
unqualified. A stand-by commitment would not be transferable by the Fund,
although it could sell the underlying Municipal Obligation to a third party at
any time.
The Fund expects stand-by commitments to generally be available without the
payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio will not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after the
acquisition of each stand-by commitment.
The Fund will enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks. If the issuer of the Municipal Obligation does not meet the eligibility
criteria, the issuer of the stand-by commitment will have received a rating
which meets the eligibility criteria or, if not rated, will present a minimal
risk of default as determined by the Board of Directors. The Fund's reliance
upon the credit of these banks and broker-dealers will be supported by the value
of the underlying Municipal Obligations held by the Fund that were subject to
the commitment.
The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income tax
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment. The acquisition
of a stand-by commitment would not affect the valuation or assumed maturity of
the underlying Municipal Obligations which will continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund will be valued at zero in determining net asset value. In those cases in
which the Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund. Stand-by commitments will not affect the
dollar-weighted average maturity of the Fund's portfolio. The maturity of a
security subject to a stand-by commitment is longer than the stand-by repurchase
date.
The stand-by commitments the Fund may enter into are subject to certain risks.
These include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not
7
<PAGE>
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.
Investment Restrictions
The Fund has adopted the following fundamental investment restrictions which may
not be changed unless approved by a majority of the outstanding shares of the
Fund; except that fundamental investment restriction number 2 below may only be
changed with the approval of 90% of the outstanding shares of the Fund. The Fund
may not:
1. Make portfolio investments other than as described under "Investment
Objectives, Policies & Risks" in the Prospectus and herein.
2. Purchase any security (i) the interest income on which may be subject to
the Federal individual alternative minimum tax or (ii) that would
disqualify an investment in the Fund as an investment in "tax exempt bonds"
as defined in Section 150(a) (6) of the Code.
3. 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.
4. 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.
5. 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."
6. 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.
7. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"). The Fund will not invest
more than 10% of the Fund's total net assets in securities that are not
readily marketable (including participation certificates and variable rate
demand instruments with a right to demand payment on more than 7 days
notice).
8. 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.
9. Make loans to others.
10. Invest more than 5% of the value of its total assets in the securities of
issuers where the entity providing the revenues from which the issue is to
be paid has a record, including predecessors, of fewer than three years of
continuous operation, except obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities.
11. Invest more than 5% of its assets in the obligations of any one issuer
except for securities backed by the United States Government, or its
agencies or instrumentalities, which may be purchased without limitation,
and except to the extent that investment restriction 13 permits a single
bank to issue its letters of credit covering up to 10% of the total assets
of the Fund.
12. Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
13. 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 net
assets in IRBs bonds and that there shall be no limitation on the purchase
of those Municipal Obligations and other obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities. When
the assets and revenues of an agency, authority,
8
<PAGE>
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 IRB, 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).
14. Invest in securities of other investment companies except (i) the Fund may
purchase unit investment trust securities where such unit investment trust
meets 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 and (ii) as permitted by Section
12(d) of the 1940 Act.
15. 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.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, employs the Manager to serve as investment manager
of the Fund. The Manager provides persons satisfactory to the Fund's Board of
Directors to serve as officers of the Fund. Such officers, as well as certain
other employees and directors of the Fund, may be directors or officers of Reich
& Tang Asset Management, Inc., the sole general partner of the Manager or
employees of the Manager or its affiliates. Due to the services performed by the
Manager, the Fund currently has no employees and its officers are not required
to devote their full-time to the affairs of the Fund.
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. Unless otherwise specified, the address
of each of the following persons is 600 Fifth Avenue, New York, New York 10020.
Mr. Duff may be deemed an "interested person" of the Fund, as defined in the
1940 Act, on the basis of his affiliation with Reich & Tang Asset Management
L.P.
Marian R. Chertow, 44- Director of the Fund, is Director, Industrial
Governmental Management Program, School of Forestry and Environmental Studies at
Yale University since July 1991. Her address is 35 Huntington Street, New Haven,
Connecticut 06511.
John C. Richmond, 75- Director of the Fund, was Deputy Treasurer - Debt
Management for the State of Connecticut from March 1975 until his retirement in
June 1987. His address is 69 Valley Brook Road, Centerville, Massachusetts
02632.
Glenn S. Klocko, 44- Director of the Fund, Comptroller, City of Bristol,
Connecticut Director since May 1998. Formerly Director of Finance, Town of Avon,
Connecticut from May 1988 to May 1998. Mr. Klocko was Deputy Controller, Town of
Wallingford, Connecticut from 1985 to 1988. His address is 111 North Main
Street, Bristol, Connecticut 06010.
Francesco Mancini, 33- Director of the Fund, is Assistant Treasurer - Financial
Reporting & Disclosure and Investment Officer of the Pension Funds Management
Division since 1996. Mr. Mancini was Senior Vice President and Chief Credit
Officer of Founders Bank from 1994 to 1995, and was Audit Manager, Coopers &
Lybrand from 1989 to 1994. His address is 55 Elm Street, Hartford, Connecticut
06106.
Steven W. Duff, 45 - President and Chief Executive Officer of the Fund, has been
President of the Mutual Funds Division of the Manager since September 1994. Mr.
Duff was formerly Director of Mutual Fund Administration at NationsBank which he
was associated with from June 1981 to August 1994. Mr. Duff is also President
and a Director/Trustee of 14 other funds in the Reich & Tang Fund Complex,
Director of Pax World Money Market Fund, Inc., President of Back Bay Funds,
Inc., Executive Vice President of Reich & Tang Equity Fund, Inc. and Executive
Vice President of Delafield Fund, Inc.
9
<PAGE>
Molly Flewharty, 48 - 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 16
other funds in the Reich & Tang Fund Complex.
Bernadette N. Finn, 51 - Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn was formerly
Vice President and Assistant Secretary of Reich & Tang, Inc. which she was
associated with from September 1970 to September 1993. Ms. Finn is also
Secretary of 13 other funds in the Reich & Tang Fund Complex, and a Vice
President and Secretary of 5 funds in the Reich & Tang Fund Complex.
Richard De Sanctis, 43 - Treasurer of the Fund, has been Assistant Treasurer of
NEIC since September 1993. Mr. De Sanctis was formerly Controller of Reich &
Tang, Inc., from January 1991 to September 1993 and Vice President and Treasurer
of Cortland Financial Group, Inc. and Vice President of Cortland Distributors,
Inc. from 1989 to December 1990. Mr. De Sanctis is also Treasurer of 17 other
funds in the Reich & Tang Fund Complex and is Vice President and Treasurer of
Cortland Trust, Inc.
Rosanne Holtzer, 35 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she was
associated with from June 1986. Ms. Holtzer is also Assistant Treasurer of 18
other funds in the Reich & Tang Fund Complex.
Directors of the Fund not affiliated with the Manager receive from the Fund (1)
an annual retainer of $1000 and a fee of $375 for each Board of Directors
meeting attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. See "Compensation Table".
COMPENSATION TABLE
------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name of Person, Aggregate Pension or Retirement Estimated Annual Total Compensation from
Position Compensation from Benefits Accrued as Benefits upon Fund and Fund Complex
the Fund (1) Part of Fund Expenses Retirement Paid to Directors (1)(2)
Marian R. Chertow,
Director $2,875 0 0 $2,875 (1 Fund)
John C. Richmond,
Director $2,875 0 0 $2,875 (1 Fund)
Glenn S. Klocko,
Director $0 0 0 $0 (1 Fund)
Francesco Mancini
Director $0 0 0 $0 (1 Fund)
</TABLE>
(1) The Directors are paid by the Manager from its Management Fee.
(2) The total compensation paid to such persons for the fiscal year ending June
30, 1999. 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 adviser.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On September 30, 1999 there were________ shares of common stock outstanding. As
of September 30, 1999, the amount of shares owned by all officers and directors
of the Fund, as a group, was less than 1% of the outstanding shares. Set forth
below is certain information as to persons who owned 5% or more of the Fund's
outstanding shares as of September 30, 1999:
Name and Address Percentage of Nature of
Ownership Ownership
---------------- ------------- -----------
10
<PAGE>
V. INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020. The Manager was as of September 30, 1999, investment
manager, adviser, or supervisor with respect to assets aggregating in excess of
[$13.6 billion.] In addition to the Fund, the Manager acts as investment manager
and administrator of eighteen other investment companies and also advises
pension trusts, profit-sharing 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 is the leader among United States life insurance
companies in terms of total life insurance in force. MetLife and its affiliates
provide insurance or other financial services to approximately 36 million people
worldwide.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through more than seventeen
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 L.P., Greystone Partners; L.P., Harris Associates,
L.P., Jurika & Voyles, L.P., Kobrick Funds, LLC, Loomis, Sayles & Company, L.P.,
New England Funds, L.P., Nvest Advisor Services, L.P., Nvest Associates, Inc.,
Nvest Retirement Services, Nvest Services Company, 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 of more than 80 other registered investment companies.
The recent name change did not result in a change of control of the Manager and
has no impact upon the Manager's performance of its responsibilities and
obligations.
On December 3, 1998, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved the annual continuance of the Investment
Management Contract extending the term to December 31, 1999.
It is continued in force thereafter for successive twelve-month periods
beginning each January 1, provided that it is approved by a majority vote of the
Fund's outstanding voting securities or by a majority of the directors who are
not parties to the Investment Management Contract or interested persons of any
such party, by votes cast in person at a meeting called for the purpose of
voting on such matter.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Manager provides persons satisfactory to the Board of Directors of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of NEIC, the
sole general partner of the Manager, or employees of the Manager or its
affiliates.
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
11
<PAGE>
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 .40% per annum of the Fund's average daily net
assets up to $250 million, .35% per annum of the average net assets between $250
million and $500 million and .30% per annum of the average daily net assets over
$500 million for managing the Fund's investment portfolio and performing related
administrative and clerical services. The Investment Management Contract also
provides that the Manager will bear the cost of, or reimburse the Fund for, all
other expenses of the Fund. Therefore, the fees payable under the Investment
Management Contract will be the only expenses of the Fund. 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.
Pursuant to the Investment Management Contract for the fiscal years ended June
30, 1999, June 30, 1998, and June 30, 1997, the Manager received investment
management fees aggregating $774,901, $817,240 and $916,263 respectively.
Expense Limitation
The Manager has agreed, pursuant to the Investment Management Contract, (See
"Distribution and Service Plan" herein), to reimburse the Fund for its expenses
(exclusive of interest, taxes, brokerage and extraordinary expenses) which in
any year exceed the limits on investment company expenses prescribed by any
state in which the Fund's shares are qualified for sale. For the purpose of this
obligation to reimburse expenses, the Fund's annual expenses are estimated and
accrued daily, and any appropriate estimated payments are made to it on a
monthly basis. Subject to the obligations of the Manager to reimburse the Fund
for its excess expenses as described above, the Fund has, under the Investment
Management Contract, confirmed its obligation for payment of all its other
expenses (except for the Management fee payable to the Manager under the
Investment Management Contract). This includes all operating expenses, taxes,
brokerage fees and commissions, commitment fees, certain insurance premiums,
interest charges and expenses of the custodian, transfer agent and dividend
disbursing agent's fees, telecommunications expenses, auditing and legal
expenses, bookkeeping agent fees, costs of forming the corporation and
maintaining corporate existence, compensation of directors, officers and
employees of the Fund and costs of other personnel performing services for the
Fund who are not officers of the Manager or its affiliates, costs of investor
services, shareholders' reports and corporate meetings, SEC registration fees
and expenses, state securities laws registration fees and expenses, expenses of
preparing and printing the Fund's Prospectus for delivery to existing
shareholders and of printing application forms for shareholder accounts.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties as discussed herein. The
management of the Fund intends to do so whenever it appears advantageous to the
Fund. The Fund's expenses for employees and for such services are among the
expenses borne by the Manager.
Distribution And Service Plan
The Fund's distributor is Reich & Tang Distributors, Inc., a Delaware
corporation with principal officers at 600 Fifth Avenue, New York, New York
10020. Pursuant to Rule 12b-1 under the 1940 Act, the SEC has required that an
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Fund's Board of Directors has adopted a distribution and service plan (the
"Plan") and, pursuant to the Plan, the Fund has entered into a Distribution
Agreement with Reich & Tang Distributors, Inc., (the "Distributor"), as
distributor of the Fund's shares.
There are no fees or expenses chargeable to the Fund under the Plan. The Fund's
Board of Directors has adopted the Plan in case certain expenses of the Fund are
deemed to constitute indirect payment by the Fund for distribution expenses. If
a payment of fees under the Investment Management Contract by the Fund to the
Manager should be deemed to be indirect financing by the Fund of the
distribution of its shares, such payments are authorized by the Plan.
Under the Distribution Agreement, the Distributor, for nominal consideration
(i.e., $1.00) and as agent for the Fund, will solicit orders for the purchase of
the Fund's shares, provided that any subscriptions and orders will not be
binding on the Fund until accepted by the Fund as principal. This consideration
of $1.00 per year is also subject to the Manager's expense reimbursement
obligation and, therefore, will not be an expense borne by the Fund. The shares
of the Fund will be offered primarily to entities that are issuers of tax exempt
state and local bonds, such as states and municipalities and their authorities,
agencies, instrumentalities and subdivisions.
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 with
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whom the Distributor has entered into written agreements for performing
shareholder servicing and related administrative functions on behalf of the
Fund; (ii) to compensate certain organizations for providing assistance in
distributing the Fund's shares; and (iii) to pay the costs of printing and
distributing the Fund's Prospectus to prospective investors, and to defray the
cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. [The
Distributor may also make payments from time to time from its own resources.]
The Distributor determines the amount of such payments made pursuant to the
Plan, provided that such payments will not increase the amount which the Fund is
required to pay to the Manager or the Distributor for any fiscal year under the
Investment Management Contract or the Shareholder Servicing Agreement in effect
for that year.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
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 Plan provides that it may continue in effect for successive annual periods
provided it is approved by a majority of the shareholders or by the Board of
Directors, including a majority of directors who are not interested persons of
the Fund and who have no direct or indirect interest in the operation of the
Plan or in the agreements related to the Plan. The Plan was approved by a
majority of the shareholders on [December 11, 1989]. The continuance of the Plan
was most recently approved by the Board of Directors on December 3, 1998 and
shall continue in effect until December 31, 1999. The Plan further provides that
it may not be amended to increase materially the costs which may be spent by the
Fund for distribution pursuant to the Plan without shareholder approval, and the
other material amendments must be approved by the directors in the manner
described in the preceding sentence. The Plan may be terminated at any time by a
vote of a majority of the disinterested directors of the Fund or the Fund's
shareholders.
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., an affiliate of the Fund's Manager, located at 600 Fifth Avenue, New York,
NY 10020, is transfer agent and dividend agent for the shares of the Fund. The
custodian and transfer agent do not assist in, and are not responsible for
investment decisions involving assets of the Fund.
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th
Street, New York, New York
10022.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Thus, the Fund will select a broker
for such a transaction based upon which broker can effect the trade at the best
price and execution available. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases participation
certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the participation certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
Investment decisions for the Fund are 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
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<PAGE>
accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal.
VII. CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Fund consists of twenty billion shares of
stock having a par value of one tenth of one cent ($.001) per share. Each share
when issued has equal dividend, distribution and liquidation rights. Each
fractional share has those rights in proportion to the percentage that the
fractional share represents of a whole share. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares, when
issued in accordance with the terms of the offering, will be fully paid and
nonassessable. Shares are redeemable at net asset value, at the option of the
shareholder.
Under its amended Articles of Incorporation, the Fund has the right to redeem
for cash shares of stock owned by any shareholder to the extent and at such
times as the Fund's Board of Directors determines to be necessary or appropriate
to prevent an undue concentration of stock ownership which will cause the Fund
to become a "personal holding company" for Federal income tax purposes. In this
regard, the Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so. In
that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. The Fund's By-laws provide that the
holders of one-third of the outstanding shares of the Fund present at the
meeting in person or proxy will constitute a quorum for the transaction of
business at a meeting, except that the Articles of Incorporation provide that a
meeting to consider an amendment to the Fund's fundamental investment policies
of investing in securities that would qualify an investment in the Fund as a
"tax exempt bond" and of not investing in securities the interest income on
which may be subject to the Federal individual alternative minimum tax, 90% of
the outstanding shares of the Fund effected by the proposal must be present in
person or by proxy to constitute a quorum for this purpose. Unless specifically
requested by an investor, the Fund will not issue certificates evidencing Fund
shares.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. The By-laws of the Fund provide for annual or special
meetings only for (i) the election (or re-election) of directors, (ii) approval
of the revised investment advisory contracts with respect to a particular class
or series of stock, (iii) ratification of the selection of independent public
accountants, (iv) approval of the Fund's distribution agreement with respect to
a particular class or series of stock, and (v) upon the written request of
shareholders entitled to cast not less than 25% of all the votes entitled to be
cast at such meeting. Annual and other meetings may be required with respect to
such additional matters relating to the Fund as may be required by the 1940 Act,
including the removal of Fund director(s) and communication among shareholders,
any registration of the Fund with the SEC or any state, or as the Directors may
consider necessary or desirable. Each Director serves until his successor is
elected and qualified.
III. PURCHASE, REDEMPTION AND PRICING SHARES
The material relating to the purchase and redemption of shares in the Prospectus
is hereby incorporated by reference.
Net Asset Value
The Fund does not determine net asset value per share of each Class on any day
in which the New York Stock Exchange is closed for trading. Those days include:
New Year's Day, Martin Luther King Jr.'s Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. The net asset value is computed by
dividing the value of the Fund's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued but
excluding capital stock and surplus) by the total number of shares outstanding.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. If fluctuating interest
rates cause the market value of the Fund's
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<PAGE>
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 "Description of the Fund
and its Investments and Risks" herein.)
IX. TAXATION OF THE FUND
Federal Income Taxes
The Fund has elected to qualify under the Code, as a "regulated investment
company" that distributes "exempt-interest dividends". The Fund intends to
continue to qualify for regulated investment company status so long as such
qualification is in the best interests of its shareholders. Such qualification
relieves the Fund of liability for Federal income taxes to the extent its
earnings are distributed in accordance with the applicable provisions of the
Code.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its tax-exempt interest income, net of certain deductions.
Dividends paid by the Fund that are attributable to interest on obligations, the
interest on which is exempt from regular Federal income tax, and are 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
are defined by the Code as "exempt interest dividends." 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 treated as items of interest excludable from gross
income by the Fund's shareholders under Section 103(a) of the Code although the
amount of that interest will have to be disclosed by the shareholder on their
Federal tax return. A shareholder should consult its tax advisors with respect
to whether exempt-interest dividends retain the exclusion under Section 103 of
the Code if the 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 any
"private activity" bonds held by the Fund. If a shareholder receives an
exempt-interest dividend with respect to any share that it has 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. For
Social Security recipients, interest on tax-exempt bonds, including
exempt-interest dividends paid by the Fund, must be added to adjusted gross
income for purposes of computing the amount of social security benefits
includible in gross income. Corporations are required to increase their
alternative minimum taxable income for purposes of calculating their alternative
minimum tax liability by 75% of the amount by which the adjusted current
earnings (which will include tax-exempt interest) of the corporation exceeds the
alternative minimum taxable income (determined without this item). 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.
If an issuer of a tax exempt bond invests the proceeds of the bond issue in any
"tax exempt bond", the income on which is not an item of tax preference
includible in the Federal alternative minimum tax computation for individual
taxpayers, such issuer is not subject to the rebate provisions of Code Section
148. The rebate provisions would require an issuer that invests the bond
proceeds in "higher yielding investments" (other than in "tax exempt bonds") to
rebate a portion of the income from such investments in order for the bond
interest to remain tax exempt to the bond holders. The term "tax exempt bond"
means any bond the interest on which is excluded from gross income. Regulations
provide that for purposes of the arbitrage rebate provision of Section 148, the
term "tax exempt bond" includes an interest in a regulated investment company to
the extent that at least 95% of the income from the regulated investment company
is interest excludable from gross income under Section 103 of the Code. The Fund
intends to comply with all requirements that must be satisfied in order for an
investment in its shares to be treated as a "tax exempt bond" and will invest
only in tax exempt bonds the interest from which, in the opinion of bond counsel
at the date of issuance is excludable from gross income
15
<PAGE>
under Section 103 of the Code and is not subject to the Federal individual
alternative minimum tax provisions. If the Fund does not comply with all
requirements that must be satisfied in order for an investment in its shares to
be treated as a "tax exempt bond" for arbitrage purposes, issuers who invest in
the Fund will be subject to the rebate provisions of Code Section 148.
Although 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 marked discount income, short-term or long-term capital gains upon
the maturity or disposition of securities acquired at discounts resulting from
market fluctuations. Accrued market discount income and short-term capital gains
will be taxable to shareholders as ordinary income when they are distributed.
Any net capital gains (the excess of net realized long-term capital gain from
sales of assets with a holding period of more than twelve months over net
realized short-term capital loss) will be distributed annually to the Fund's
shareholders. The Fund will have no tax liability with respect to distributed
net capital gains, and the distributions will be taxable to shareholders as
long-term capital gains regardless of how long the shareholders have held Fund
shares. However, Fund shareholders who at the time of such a net capital gain
distribution have not held their Fund shares for more than 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 45 days after the close of the Fund's taxable year. Capital gains realized
by corporations are generally taxed at the same rate as ordinary income.
However, long-term capital gains are generally taxable at a maximum rate of 20%
to non-corporate shareholders. Corresponding maximum rate and holding period
rules apply with respect to capital gains realized by a holder on the
disposition of shares.
The Fund also intends to distribute at least 90% of its investment company
taxable income (taxable income including short term capital gain but 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. This distribution
will be taxable to shareholders as ordinary income. The Fund will be subject to
Federal income tax on any undistributed investment company taxable income.
Expenses paid or incurred by the Fund will be allocated between tax-exempt and
taxable income in the same proportion as the amount of the Fund's tax-exempt
income bears to the total of such exempt income and its gross income (excluding
from gross income the excess of capital gains over capital losses). If the Fund
does not distribute 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 (other than a corporation) fails to provide the Fund with a
current taxpayer identification number, the Fund is generally required to
withhold 31% of taxable 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 has obtained and is relying on the opinion of
Battle Fowler LLP, counsel to the Fund, that it will be treated for Federal
income tax purposes as the owner of an interest in the underlying Municipal
Obligations and that the interest thereon will be exempt from Federal income
taxes to the Fund to the same extent as interest on the underlying Municipal
Obligation. Battle Fowler, LLP has pointed out that the Internal Revenue Service
has announced that it will not ordinarily issue advance rulings on the question
of ownership of securities or participation interests therein subject to a put
and, as a result, the Internal Revenue Service could reach a conclusion
different from that reached by counsel.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of the Fund is not deductible. Therefore, a certain
proportion of interest on indebtedness incurred, or continued, to purchase or
carry securities,including margin interest, may not be deductible during the
period an investor holds shares of the Fund. The Clinton Administration's
Revenue Proposals for fiscal year 2000 would extend the application of this rule
as it applies to financial institutions.
In South Carolina v. Baker, the United States 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 Municipal Obligations and to tax such bonds
in the future. The decision does not, however, affect the current exemption from
regular income taxation of the interest earned on the Municipal Obligations in
accordance with Section 103 of the Code.
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<PAGE>
From time to time, proposals have been introduced before Congress to restrict or
eliminate the Federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund would reevaluate its investment objective and policies and consider
changes in the structure.
The exemption for Federal income tax purposes of dividends derived from interest
on Municipal Obligations does not necessarily result in an exemption under the
income or other tax laws of any state or local taxing authority. Shareholders of
the Fund may be exempt from state and local taxes on distributions of tax-exempt
interest income derived from obligations of the state and/or municipalities of
the state in which they may reside but may be subject to tax on income derived
from obligations of other jurisdictions. Shareholders are advised to consult
with their tax advisers concerning the application of state and local taxes to
investments in the Portfolio, which may differ from the Federal income tax
consequences described above.
X. UNDERWRITERS
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge. The Distributor does not receive an
underwriting commission. In effecting sales of Fund shares under the
Distribution Agreement, the Distributor, for nominal consideration (i.e., $1.00)
and as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. In the opinion of the Manager,
however, based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Directors will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution would result in loss to shareholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register ad dealers pursuant to
state law.
XI. CALCULATION OF PERFORMANCE DATA
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the SEC. Under that method, the Fund's yield figure,
which is based on a chosen seven-day period, is computed as follows: the Fund's
return for the seven-day period is obtained by dividing the net change in the
value of a hypothetical account having a balance of one share at the beginning
of the period by the value of such account at the beginning of the period
(expected to always be $1.00). This is multiplied by (365/7) with the resulting
annualized figure carried to the nearest hundredth of one percent. For purposes
of the foregoing computation, the determination of the net change in account
value during the seven-day period reflects (i) dividends declared on the
original share and on any additional shares, including the value of any
additional shares purchased with dividends paid on the original share, and (ii)
fees charged to all shareholder accounts. Realized capital gains or losses and
unrealized appreciation or depreciation of the Fund's portfolio securities are
not included in the computation. Therefore, annualized yields may be different
from effective yields quoted for the same period.
The Fund's "effective yield" is obtained by adjusting its "current yield" to
give effect to the compounding nature of the Fund's portfolio, as follows: the
unannualized base period return is compounded and brought out to the nearest one
hundredth of one percent by adding one to the base period return, raising the
sum to a power equal to 365 divided by 7, and subtracting one from the result,
i.e., effective yield = [(base period return + 1)365/7] - 1.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day. The Fund's yield for any given period is not an indication, or
representation by the Fund, of future yields or rates of return on the Fund's
shares, and may not provide a basis for comparison with bank deposits or other
investments that pay a fixed yield for a stated period of time.
The Fund may from time to time advertise its tax equivalent current yield. The
tax equivalent yield is computed based upon a 30-day (or one month) period ended
on the date of the most recent balance sheet included in this Statement of
Additional Information. It is computed by dividing that portion of the yield of
the Fund (as computed pursuant to the formulae previously discussed) which is
tax exempt by one minus a stated income tax rate and adding the quotient to that
17
<PAGE>
portion, if any, of the yield of the Fund that is not tax exempt. The tax
equivalent yield for the Fund may also fluctuate daily and does not provide a
basis for determining future yields.
The Fund may from time to time advertise a tax equivalent effective yield table
which shows the yield that an investor needs to receive from a taxable
investment in order to equal a tax-free yield from the Fund. This is calculated
by dividing that portion of the Fund's effective yield that is tax-exempt by 1
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's effective yield that is not tax-exempt. See "Taxable Equivalent
Yield Table" herein.
The Fund's yield for the seven day period ended June 30, 1999 was 3.12% which is
equivalent to an effective yield of 3.16%.
XII. FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended June 30,
1999 and the report therein of McGladrey & Pullen, LLP, are herein incorporated
by reference to the Fund's Annual Report. The Annual Report is available upon
request and without charge.
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<PAGE>
DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s Two Highest Municipal Bond
Ratings:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. (c): Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (i) earnings of projects under construction, (ii) earnings of
projects unseasoned in operating experience, (iii) rentals which begin when
facilities are completed, or (iv) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc.'s Two Highest Ratings of State
and Municipal Notes and Other Short-Term Loans:
Moody's ratings for state and municipal notes and other short-term loans are
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 are as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services Two Highest Debt Ratings:
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only to a small degree.
Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Standard & Poor's does not provide ratings for state and municipal notes.
Description of Standard & Poor's Rating Services Two Highest Commercial Paper
Ratings:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Moody's Investors Service, Inc.'s Two Highest Commercial Paper
Ratings:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues: Prime-1, highest
quality; Prime-2, higher quality.
- ----------
*As described by the rating agencies.
<PAGE>
PART C - OTHER INFORMATION
Item 23. Exhibits.
(a) Articles of Amendment and Restatement of Articles of Incorporation of
the Registrant filed with the State Department of Assessments and
Taxation on January 12, 1994.
(b) By-Laws of the Registrant (originally filed as Exhibit 2 to
Pre-Effective Amendment No. 2 to Registration Statement, and re-filed
herein for EDGAR purposes only).
(c) Form of certificate for shares of Common Stock, par value $.001 per
share, of the Registrant (originally filed as Exhibit 4 to
Pre-Effective Amendment No. 1 to Registration Statement, and re-filed
herein for EDGAR purposes only).
* (d) Investment Management Contract between the Registrant and New England
Investment Companies, L.P.
* (e) Amended Distribution Agreement between the Registrant and Reich & Tang
Distributors, Inc.
(f) Not applicable.
(g) Custody agreement between the Registrant and Investors Fiduciary Trust
Company. (originally filed as Exhibit 8 to Post-Effective Amendment
No. 6 to Registration Statement, and re-filed herein for EDGAR
purposes only).
(h) Transfer Agency Agreement and Addendum to the Transfer Agency
Agreement Between Registrant and Investors Fiduciary Trust Company.
(i) Opinion of Messrs. Battle Fowler LLP as to the legality of the
Securities being registered, including their consent to the filing
thereof and to the use of their name under the headings "Federal
Income Taxes" in the Prospectus and in the Statement of Additional
Information and "Counsel and Auditors" in the Statement of Additional
Information and as to certain federal tax matters. (originally filed
as Exhibit 10 to Pre-Effective Amendment No. 2 to Registration
Statement, and re-filed herein for EDGAR purposes only).
(j) Consent of PricewaterhouseCoopers, LLP, Independent Accountants.
(k) Not applicable.
(l) Written assurance of New England Investment Companies, L.P. that its
purchase of shares of the registrant was for investment purposes
without any present intention of redeeming or reselling. (originally
filed as Exhibit 13 to Pre-Effective Amendment No. 2 to Registration
Statement, and re-filed herein for EDGAR purposes only).
* (m) Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940.
(m.1) Amended Distribution Agreement between the Registrant and Reich &
Tang Distributors, Inc. (see Exhibit e)
(n) Not Applicable.
(o) Not Applicable.
(p) Powers of Attorney.
- ----------
* Filed with Post-Effective Amendment No. 11 to said registration
statement on October 23, 1997 and incorporated herein by reference.
C-1
<PAGE>
Item 24. Persons controlled by or Under Common Control with Registrant.
None.
Item 25. Indemnification.
Registrant incorporates herein by reference the response to Item 27 of
Pre-Effective Amendment No. 1 of this Registration Statement filed with the
Commission on December 30, 1988.
Item 26. Business and Other Connections of the Investment Adviser.
The description of Reich & Tang Asset Management L.P. ("RTAMLP") under
the caption "Management, Organization and Capital Structure" in the Prospectus
and "Investment Advisory and Other Services" and "Management of the Fund" in the
Statement of Additional Information constituting parts A and B, respectively, of
this Post-Effective Amendment to the Registration Statement are incorporated
herein by reference.
Registrant's investment advisor, RTAMLP, is a registered investment
advisor. Nvest Companies, L.P. (Nvest) is the limited partner and owner of a
99.5% interest in RTAMLP. Reich & Tang Asset Management, Inc. ("RTAM")(an
indirect wholly-owned subsidiary of Nvest) is the sole general partner and owner
of the remaining .05% interest in RTAMLP. RTAMLP's investment advisory clients
include more than twenty-one registered investment companies which invest in
money market instruments, equity securities and debt securities. In addition,
RTAMLP is the sole general partner of ten investment partnerships organized as
limited partnerships.
Peter S. Voss, President, has been 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, 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. Edward N. Wadsworth, Executive Vice President, General Counsel, Clerk and
Secretary of Nvest Corporation since December 1989, 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, and Vice President of Reich & Tang Mutual Funds since July 1994. Richard
E. Smith, III has been a Director of RTAM since July 1994, and President and
Director of RTAM since July 1994, President and Chief Operating Officer of the
Reich & Tang Capital Management Group since July 1994. Steven W. Duff has been a
Director of RTAM since October 1994, and President and Chief Executive Officer
of Reich & Tang Mutual Funds since August 1994. Mr. Duff is President and a
Director/Trustee of 14 funds in the Reich & Tang Fund Complex, President of Back
Bay Funds, Inc., Director of Pax World Money Market Fund, Inc., 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, and Vice President of Reich & Tang
Mutual Funds since July 1994. Ms. Finn is also Secretary of 14 funds in the
Reich & Tang Complex and a Vice President and Secretary of 5 funds in the Reich
& Tang Fund Complex. Richard DeSanctis has been Treasurer of RTAM since July
1994, Assistant Treasurer of NEIC since September 1993, Treasurer of the Reich &
Tang Mutual Funds since July 1994. Mr. DeSanctis is also Treasurer of 18 funds
in the Reich & Tang Fund Complex. and is Vice President and Treasurer of
Cortland Trust, Inc. Richard I. Weiner has been Vice President of RTAM since
July 1994, Vice President of NEIC since September 1993, and Vice President of
Reich & Tang Asset Management L.P. Capital Management Group since July 1994. Mr.
Weiner has served as a Vice President of Reich & Tang, Inc. since September
1982. Rosanne Holtzer 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, in
addition she is also Assistant Treasurer of 19 funds in the Reich & Tang Fund
Complex.
Item 27. 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, Georgia 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.
C-2
<PAGE>
(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 Positions and Offices
Name with the Distributor with the Registrant
---- -------------------- -------------------
Peter S. Voss Director None
G. Neal Ryland Director None
Edward N. Wadsworth Executive Officer None
Richard E. Smith III President None
Peter DeMarco Executive Vice President None
Steven W. Duff Director President
Bernadette N. Finn Vice President Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Treasurer Treasurer
Richard I. Weiner Vice President None
(c) Not applicable.
Item 28. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of Registrant at 600 Fifth
Avenue, New York, New York 10020 the Registrant's Manager, and at Investors
Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri 64105, the
Registrant's custodian.
Item 29. Management Services.
Not Applicable.
Item 30. Undertakings.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, 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 27th day of August, 1999.
TAX EXEMPT PROCEEDS 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 its Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
SIGNATURE CAPACITY DATE
(l) Principal Executive
Officer:
\s\ Steven W. Duff President 8/27/99
------------------
Steven W. Duff
(2) Principal Financial
and Accounting Officer:
\s\ Richard De Sanctis Treasurer 8/27/99
-----------------------
Richard De Sanctis
(3) All Directors:
Marian R. Chertow Director*
John C. Richmond Director*
Glenn S. Klocko Director*
Francesco Mancini Director*
By: \s\ Bernadette N. Finn Secretary 8/27/99
-----------------------
Bernadette N. Finn
Attorney-in-Fact*
- ----------
* See Exhibit (p) herein for Powers of Attorney.
C-4
ARTICLES OF AMENDMENT & RESTATEMENT
OF
TAX EXEMPT PROCEEDS FUND, INC.
To the State Department
of Assessments and Taxation
State of Maryland
Pursuant to the provisions of Section 2-609 of the Maryland General
Corporation Law, Tax Exempt Proceeds Fund, Inc. (the "Corporation"), a Maryland
corporation having its principal office in Baltimore City, hereby certifies
that:
FIRST: The Corporation desires to amend and restate its character as
currently in effect.
SECOND: The amendment to the charter of the Corporation effected
hereby is to (i) amend Article FIFTH of the Articles to clarify the language
contained therein in order to explicitly provide for the authority of the Board
of Directors to create separate classes; (ii) delete Article NINTH of the
Articles as the language therein is already contained in new Article FIFTH of
the Articles; (iii) amend line two of subsection (a)(ii) of Article SEVENTH of
the Articles to read "of any class or series of the Corporation's stock"; (iv)
amend line eight of subsection (a)(ii) of Article SEVENTH of the Articles to
change the reference from Article NINTH to Article FIFTH; (v) amend Article
EIGHTH which provides indemnification rights for the Fund's officers and
directors; (vi) amend Article SIXTH to reflect the current board of directors;
and (vii) amend Article TENTH to change the reference from Article TENTH to new
Article NINTH.
THIRD: The amendment and the restatement of the charter of the
Corporation herein certified was approved by a majority of the entire Board of
Directors of the Corporation, followed by the approval of a majority of the
holders of all of the outstanding shares of the Corporation entitled to vote.
FOURTH: The provisions hereinafter set forth in the Articles of
Restatement are all the provisions of the charter of the Corporation as
currently in effect.
FIFTH: The current address of the principal office of the Corporation
in the State of Maryland is Prentice-Hall Corporation System, Maryland, 11 East
Chase Street, Baltimore, Maryland 21202.
<PAGE>
SIXTH: The name and the address of the current resident agent of the
Corporation in the State of Maryland is Prentice-Hall Corporation System,
Maryland, 11 East Chase Street, Baltimore, Maryland 21202.
SEVENTH: The number of directors of the Corporation is six, and the
names of the directors of the Corporation currently in office are:
Benson R. Cohn
Marion R. Chertow
Terry Helming
Glenn S. Klocko
John C. Richmond
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
TAX EXEMPT PROCEEDS 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 TAX EXEMPT PROCEEDS 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
-2-
<PAGE>
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;
(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;
-3-
<PAGE>
(g) to carry out all or any part of the foregoing purposes or objects
as principal or agent, or in conjunction with any other person, firm,
association, corporation or other entity, or as a partner or member of a
partnership, syndicate or joint venture or otherwise, and in any part of the
world to the same extent and as fully as natural persons might or could do;
(h) to have and exercise all of the powers and privileges conferred by
the laws of the State of Maryland upon corporations formed under the laws of
such State; and
(i) to do any and all such further acts and things and to exercise any
and all such further powers and privileges as may be necessary, incidental,
relative, conducive, appropriate or desirable for the foregoing purposes.
The enumeration herein of the objects and purposes of the Corporation
shall be construed as powers as well as objects and purposes and shall not be
deemed to exclude by inference any powers, objects or purposes which the
Corporation is empowered to exercise, whether expressly by force of the laws of
the State of Maryland now or hereafter in effect, or impliedly by the reasonable
construction of the said law.
FOURTH: The post office address of the principal office of the
Corporation within the State of Maryland is Prentice-Hall Corporation System,
Maryland, 11 East Chase Street, Baltimore, Maryland 21202.
The resident agent of the Corporation in the State of Maryland is
Prentice-Hall Corporation System, Maryland, at 11 East Chase Street, Baltimore,
Maryland 21202.
FIFTH: (a) The total number of shares of stock of all classes and
series which the Corporation has authority to issue is 20,000,000,000 shares of
capital stock (par value $.001 per share), amounting in aggregate par value to
$20,000,000. All of such shares are classified as "Common Stock". The Board of
Directors may classify or reclassify any unissued shares of capital stock
(whether or not such shares have been previously classified or reclassified)
from time to time by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption of such shares of stock.
(b) Unless otherwise prohibited by law, so long as the Corporation is
registered as an open-end company under the Investment Company Act, the Board of
Directors shall have the power and authority, without the approval of the
holders of any
-4-
<PAGE>
outstanding shares, to increase or decrease the number of shares
of capital stock or the number of shares of capital stock of any class or series
that the Corporation has authority to issue.
(c) Any series of Common Stock shall be referred to herein
individually as a "Series" and collectively, together with any further series
from time to time established, as the "Series".
(d) The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of any
additional Series of Common Stock of the Corporation (unless provided otherwise
by the Board of Directors with respect to any such additional Series at the time
it is established and designated):
(1) Asset Belonging to Series. All consideration received by the
Corporation from the issue or sale of shares of a particular Series,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation of such assets,
and any funds or payments derived from any investment or reinvestment of
such proceeds in whatever form the same may be, shall irrevocably belong to
that Series for all purposes, subject only to the rights of creditors, and
shall be so recorded upon the books of account of the Corporation. Such
consideration, assets, income, earnings, profits and proceeds, together
with any General Items allocated to that Series as provided in the
following sentence, are herein referred to collectively as "assets
belonging to" that Series. In the event that there are any assets, income,
earnings, profits or proceeds which are not readily identifiable as
belonging to any particular Series (collectively, "General Items"), such
General Items shall be allocated by or under the supervision of the Board
of Directors to and among any one or more of the Series established and
designated from time to time in such manner and on such basis as the Board
of Directors, in its sole discretion, deems fair and equitable; and any
General Items so allocated to a particular Series shall belong to that
Series. Each such allocation by the Board of Directors shall be conclusive
and binding for all purposes.
(2) Liabilities of Series. The assets belonging to each particular
Series shall be charged with the liabilities of the Corporation in respect
of that Series and all expenses, costs, charges and reserves attributable
to that Series, and any general liabilities, expenses, costs, charges or
reserves of the Corporation which are not readily identifiable as
pertaining to any particular Series, shall
-5-
<PAGE>
be allocated and charged by or under the supervision of the Board of
Directors to and among any one or more of the Series established and
designated from time to time in such manner and on such basis as the Board
of Directors, in its sole discretion, deems fair and equitable. The
liabilities, expenses, costs, charges and reserves allocated and so charged
to a Series are herein referred to collectively as "liabilities of" that
Series. Each allocation of liabilities, expenses, costs, charges and
reserves by or under the supervision of the Board of Directors shall be
conclusive and binding for all purposes.
(3) Dividends and Distributions. Dividends and capital gains
distributions on shares of a particular Series may be paid with such
frequency, in such form and in such amount as the Board of Directors may
determine by resolution adopted from time to time, or pursuant to a
standing resolution or resolutions adopted only once or with such frequency
as the Board of Directors may determine, after providing for actual and
accrued liabilities of that Series. All dividends on shares of a particular
Series shall be paid only out of the income belonging to that Series and
all capital gains distributions on shares of a particular Series shall be
paid only out of the capital gains belonging to that Series. All dividends
and distributions on shares of a particular Series shall be distributed pro
rata to the holders of that Series in proportion to the number of shares of
that Series held by such holders at the date and time of record established
for the payment of such dividends or distributions, except that in
connection with any dividend or distribution program or procedure, the
Board of Directors may determine that no dividend or distribution shall be
payable on shares as to which the stockholder's purchase order and/or
payment have not been received by the time or times established by the
Board of Directors under such program or procedure.
Dividends and distributions may be paid in cash, property or
additional shares of the same or another Series, or a combination thereof,
as determined by the Board of Directors or pursuant to any program that the
Board of Directors may have in effect at the time for the election by
stockholders of the form in which dividends or distributions are to be
paid. Any such dividend or distribution paid in shares shall be paid at the
current net asset value thereof.
(4) Voting. On each matter submitted to a vote of the stockholders,
each holder of shares shall be entitled to one vote for each share standing
in his name on the books of the Corporation, irrespective of the Series
thereof, and all shares of all Series shall vote as a single class ("Single
Class Voting"); provided, however, that (i) as to any matter
-6-
<PAGE>
with respect to which a separate vote of any Series is required by the
Investment Company Act or by the Maryland General Corporation Law, such
requirement as to a separate vote by that Series shall apply in lieu of
Single Class Voting; (ii) in the event that the separate vote requirement
referred to in clause (i) above applies with respect to one or more Series,
then, subject to clause (iii) below, the shares of all other Series shall
vote as a single class; and (iii) as to any matter which does not affect
the interest of a particular Series, including liquidation of another
Series as described in subsection (7) below, only the holders of shares of
the one or more affected Series shall be entitled to vote.
(5) Redemption by Stockholders. Each holder of shares of a particular
Series shall have the right at such times as may be permitted by the
Corporation to require the Corporation to redeem all or any part of his
shares of that Series, at a redemption price per share equal to the net
asset value per share of that Series next determined after the shares are
properly tendered for redemption, less such redemption fee or sales charge,
if any, as may be established from time to time by the Board of Directors
in its sole discretion. Payment of the redemption price shall be in cash;
provided, however, that if the Board of Directors determines, which
determination shall be conclusive, that conditions exist which make payment
wholly in cash unwise or undesirable, the Corporation may, to the extent
and in the manner permitted by the Investment Company Act, make payment
wholly or partly in securities or other assets belonging to the Series of
which the shares being redeemed are a part, at the value of such securities
or assets used in such determination of net asset value.
Payment by the Corporation for shares of stock of the Corporation
surrendered to it for redemption shall be made by the Corporation within
such period from surrender as may be required under the Investment Company
Act and the rules and regulations thereunder. Notwithstanding the
foregoing, the Corporation may postpone payment of the redemption price and
may suspend the right of the holders of shares of any Series to require the
Corporation to redeem shares of that Series during any period or at any
time when and to the extent permissible under the Investment Company Act.
(6) Redemption by Corporation. The Board of Directors may cause the
Corporation to redeem at their net asset value the shares of any Series
held in an account having, because of redemptions or exchanges, a net asset
value on the date of the notice of redemption less than the Minimum Amount,
as defined below, in that Series specified by the Board of
-7-
<PAGE>
Directors from time to time in its sole discretion, provided that at least
30 days prior written notice of the proposed redemption has been given to
the holder of any such account by first class mail, postage prepaid, at the
address contained in the books and records of the Corporation and such
holder has been given an opportunity to purchase the required value of
additional shares.
(i) the term "Minimum Amount" when used herein shall mean One
Thousand Dollars ($1,000) unless otherwise fixed by the Board of
Directors from time to time, provided that the Minimum Amount may not
in any event exceed Twenty-Five Thousand Dollars ($25,000). The Board
of Directors may establish differing Minimum Amounts for each class
and series of the Corporation's stock and for holders of shares of
each such class and series of stock based on such criteria as the
Board of Directors may deem appropriate.
(ii) the Corporation shall be entitled but not required to redeem
shares of stock from any stockholder or stockholders, as provided in
this subsection (6), to the extent and at such times as the Board of
Directors shall, in its absolute discretion, determine to be necessary
or advisable to prevent the Corporation from qualifying as a "personal
holding company", within the meaning of the Internal Revenue Code of
1986, as amended from time to time.
(7) Liquidation. In the event of the liquidation of a particular
Series, the stockholders of the Series that is being liquidated shall be
entitled to receive, as a class, when and as declared by the Board of
Directors, the excess of the assets belonging to that Series over the
liabilities of that Series. The holders of shares of any particular Series
shall not be entitled thereby to any distribution upon liquidation of any
other Series. The assets so distributable to the stockholders of any
particular Series shall be distributed among such stockholders in
proportion to the number of shares of that Series held by them and recorded
on the books of the Corporation. The liquidation of any particular Series
in which there are shares then outstanding may be authorized by vote of a
majority of the Board of Directors then in office, subject to the approval
of a majority of the outstanding voting securities of that Series, as
defined in the Investment Company Act, and without the vote of the holders
of shares of any other Series. The liquidation of a particular Series may
be accomplished, in whole or in part, by the transfer of assets of such
Series to another Series or by the exchange of shares of Series for the
shares of another Series.
-8-
<PAGE>
(8) Net Asset Value Per Share. The net asset value per share of any
Series shall be the quotient obtained by dividing the value of the net
assets of that Series (being the value of the assets belonging to that
Series less the liabilities of that Series) by the total number of shares
of that Series outstanding, all as determined by or under the direction of
the Board of Directors in accordance with generally accepted accounting
principles and the Investment Company Act. Subject to the applicable
provisions of the Investment Company Act, the Board of Directors, in its
sole discretion, may prescribe and shall set forth in the By-Laws of the
Corporation or in a duly adopted resolution of the Board of Directors such
bases and times for determining the value of the assets belonging to, and
the net asset value per share of outstanding shares of, each Series, or the
net income attributable to such shares, as the Board of Directors deems
necessary or desirable. The Board of Directors shall have full discretion,
to the extent not inconsistent with the Maryland General Corporation Law
and the Investment Company Act, to determine which item shall be treated as
income and which items as capital and whether any item of expense shall be
charged to income or capital. Each such determination and allocation shall
be conclusive and binding for all purposes.
The Board of Directors may determine to maintain the net asset value
per share of any Series at a designated constant dollar amount and in
connection therewith may adopt procedures not inconsistent with the
Investment Company Act for the continuing declaration of income
attributable to that Series as dividends and for the handling of any losses
attributable to that Series. Such procedures may provide that in the event
of any loss, each stockholder shall be deemed to have contributed to the
capital of the Corporation attributable to that Series his pro rata portion
of the total number of shares required to be canceled in order to permit
the net asset value per share of that Series to be maintained, after
reflecting such loss, at the designated constant dollar amount. Each
stockholder of the Corporation shall be deemed to have agreed, by his
investment in any Series with respect to which the Board of Directors shall
have adopted any such procedure, to make the contribution referred to in
the preceding sentence in the event of any such loss.
(9) Equality. All shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series
(subject to the liabilities of that Series), and each share of any
particular Series shall be equal to each other share of that Series. The
Board of Directors may from time to time divide or combine the shares of
any particular Series into a greater or lesser
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number of shares of that Series without thereby changing the proportionate
interest in the assets belonging to that Series or in any way affecting the
rights of holders of shares of any other Series.
(10) Conversion or Exchange Rights. Subject to compliance with the
requirements of the Investment Company Act, the Board of Directors shall
have the authority to provide that holders of shares of any Series shall
have the right to convert or exchange said shares into shares of one or
more other Series of shares in accordance with such requirements and
procedures as may be established by the Board of Directors.
(e) The Board of Directors may, from time to time and without
stockholder action, classify shares of a particular Series into one or more
additional classes of that Series, the voting, dividend, liquidation and other
rights of which shall differ from the classes of common stock of that Series to
the extent provided in Articles Supplementary for such additional class, such
Articles to be filed for record with the appropriate authorities of the State of
Maryland. Each class so created shall consist, until further changed, of the
lesser of (x) the number of shares classified in Section (c) of this Article
FIFTH or (y) the number of shares that could be issued by issuing all of the
shares of that Series currently or hereafter classified less the total number of
shares of all classes of such Series then issued and outstanding. Any class of a
Series of Common Stock shall be referred to herein individually as a "Class" and
collectively, together with any further class or classes of such Series from
time to time established, as the "Classes".
(f) All Classes of a particular Series of Common Stock of the
Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights with any other shares
of Common Stock of that Series; provided, however, that notwithstanding anything
in the charter of the Corporation to the contrary:
(1) Any class of shares may be subject to such sales loads, contingent
deferred sales charges, Rule 12b-1 fees, administrative fees, service fees,
or other fees, however designated, in such amounts as may be established by
the Board of Directors from time to time in accordance with the Investment
Company Act.
(2) Expenses related solely to a particular Class of a Series
(including, without limitation, distribution expenses under a Rule 12b-1
plan and administrative expenses under an administration or service
agreement, plan or other arrangement, however designated) shall be borne by
that Class and shall be appropriately reflected (in the manner
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determined by the Board of Directors) in the net asset value, dividends,
distributions and liquidation rights of the shares of that Class.
(3) As to any matter with respect to which a separate vote of any
Class of a Series is required by the Investment Company Act or by the
Maryland General Corporation Law (including, without limitation, approval
of any plan, agreement or other arrangement referred to in subsection (2)
above), such requirement as to a separate vote by that Class shall apply in
lieu of Single Class Voting, and if permitted by the Investment Company Act
or the Maryland General Corporation Law, the Classes of more than one
Series shall vote together as a single class on any such matter which shall
have the same effect on each such Class. As to any matter which does not
affect the interest of a particular Class of a Series, only the holders of
shares of the affected Classes of that Series shall be entitled to vote.
(g) The Corporation may issue and sell fractions of shares of capital
stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the words
"share" or "shares" are used in the charter or By-Laws of the Corporation, they
shall be deemed to include fractions of shares where the context does not
clearly indicate that only full shares are intended.
(h) The Corporation shall not be obligated to issue certificates
representing shares of any Class or Series of capital stock. At the time of
issue or transfer of shares without certificates, the Corporation shall provide
the stockholder with such information as may be required under the Maryland
General Corporation Law.
(i) No holder of any shares of stock of the Corporation shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any such
shares which the Corporation shall issue or propose to issue; and any and all of
the shares of stock of the Corporation, whether now or hereafter authorized, may
be issued, or may be reissued or transferred if the same have been reacquired
and have treasury status, by the Board of Directors to such persons, firms,
corporations and associations, and for such lawful consideration, and on such
terms, as Board of Directors in its discretion may determine, without first
offering same, or any thereof, to any said holder.
(j) All persons who shall acquire stock or other securities of the
Corporation shall acquire the same subject to the provisions of these Articles
of Incorporation, as from time to time amended."
SIXTH: The number of directors of the Corporation,
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until such number shall be increased pursuant to the By-Laws of the Corporation,
shall be six. The number of directors shall never be less than the number
prescribed by the General Corporation Law of the State of Maryland and shall
never be more than twenty. The names of the persons who shall act as directors
of the Corporation until the first annual meeting or until their successors are
duly chosen and qualify are Benson R. Cohn, Marion R. Chertow, Terry Helming,
Glenn S. Klocko and John C. Richmond.
SEVENTH: The following provisions are inserted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the Board
of Directors and stockholders.
(a) The business and affairs of the Corporation shall be managed under
the direction of the Board of Directors which shall have and may exercise all
powers of the Corporation except those powers which are by law, by these
Articles of Incorporation, or by the By-Laws conferred upon or reserved to the
stockholders. In furtherance and not in limitation of the powers conferred by
law, the Board of Directors shall have power:
(i) to make, alter and repeal the By-Laws of the Corporation;
(ii) to issue and sell, from time to time, shares of any class or
series 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 FIFTH hereof or the par value thereof;
(iii) from time to time to set apart out of any assets of the
Corporation otherwise available for dividends a reserve or reserves for
working capital or for any other proper purpose or purposes, and to reduce,
abolish or add to any such reserve or reserves from time to time as said
Board of Directors may deem to be in the best interests of the Corporation;
and to determine in its discretion what part of the assets of the
Corporation available for dividends in excess of such reserve or reserves
shall be declared in dividends and paid to the stockholders of the
Corporation; and
(iv) from time to time to determine to what extent and at what times
and places and under what conditions and regulations the accounts, books
and records of the Corporation, or any of them, shall be open to the
inspection of the stockholders; and no stockholder shall have any right
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<PAGE>
to inspect any account or book or document of the Corporation, except as
conferred by the laws of the State of Maryland, unless and until authorized
to do so by resolution of the Board of Directors or of the stockholders of
the Corporation.
(b) Except as otherwise provided in subsection (c) of this Article
SEVENTH, notwithstanding any provision of the General Corporation Law of the
State of Maryland requiring a greater proportion than a majority of the votes of
all classes or of any class of the Corporation's stock entitled to be cast in
order to take or authorize any action, any such action may be taken or
authorized upon the concurrence of a majority of the aggregate number of votes
entitled to be cast thereon subject to any applicable requirements of the
Investment Company Act of 1940, as from time to time in effect, or rules or
orders of the Securities and Exchange Commission or any successor thereto.
(c) Any amendment or change to the fundamental investment policies of
the Corporation of investing in securities that would qualify an investment in
the Corporation as a "tax exempt bond" and of not investing in securities the
interest income on which may be subject to the individual alternative minimum
tax (as such are set forth in the Corporation's most recent Prospectus filed as
part of its Registration Statement with the Securities and Exchange Commission
under the Investment Company Act of 1940 and the Securities Act of 1933) shall
be authorized and effective upon the concurrence of 90% of the votes entitled to
be cast thereon.
(d) 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; provided, however,
that the presence in person or by proxy of the holders of 90% of the shares of
stock of the Corporation entitled to vote shall constitute a quorum at any
meeting of stockholders at which an amendment or change to the Corporation's
fundamental investment policies specified in subsection (c) of this Article
SEVENTH is being considered pursuant to subsection (c) of this Article SEVENTH
and at any meeting of stockholders at which a proposal to amend, alter, change
or repeal subsections (c) or (d) of this Article SEVENTH or Article TENTH of
these Articles of Incorporation of the Corporation is being considered pursuant
to Article TENTH.
(e) Any determination made in good faith and, so far as accounting
matters are involved, in accordance with generally accepted accounting
principles by or pursuant to the discretion of the Board of Directors, as to the
amount of the assets, debts, obligations, or liabilities of the Corporation, as
to the amount
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<PAGE>
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.
(f) 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.
(g) Specifically and without limitation of the foregoing subsection
(e) but subject to the exception therein
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<PAGE>
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 L.P., and any parent, subsidiary, partner, or
affiliate of such firm or any affiliates of any such affiliate, or the
stockholders, directors, officers, partners 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, partners or
employees of such firm and/or its parents, subsidiaries or affiliates and that
officers of the Corporation may have been, be or become directors, officers, or
employees of such firm and/or its parents, subsidiaries or affiliates, and
neither such management or advisory, underwriting, distribution or
administration contracts nor any other contract or transaction between the
Corporation and such firm and/or its parents, subsidiaries or affiliates shall
be invalidated or in any way affected thereby, nor shall any director or officer
of the Corporation be liable to the Corporation or to any stockholder or
creditor thereof or to any person for any loss incurred by it or him under or by
reason of such contract or transaction; provided that nothing herein shall
protect any director or officer of the Corporation against any liability to the
Corporation or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office; and provided always that
such contract or transaction shall have been on terms that were not unfair to
the Corporation at the time at which it was entered into.
EIGHTH: (a) The Corporation shall indemnify (i) its currently acting
and former directors and officers, whether serving the Corporation or at its
request any other entity, to the fullest extent required or permitted by the
General Laws of the State of Maryland now or hereafter in force, including the
advance of expenses under the procedures and to the fullest extent permitted by
law, and (ii) other employees and agents to such extent as shall be authorized
by the Board of Directors or the By-Laws and as permitted by law. Nothing
contained herein shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be entitled. The
Board of Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such by-laws, resolutions or contracts implementing such
provisions or such indemnification arrangements as may be permitted by law. No
amendment of the charter of the Corporation
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or repeal of any of its provisions shall limit or eliminate the right of
indemnification provided hereunder with respect to acts or omissions occurring
prior to such amendment or repeal.
(b) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company Act, no
director or officer of the Corporation shall be personally liable to the
Corporation or its stockholders for money damages; provided, however, that
nothing herein shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. No amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of liability provided to
directors and officers hereunder with respect to any act or omission occurring
prior to such amendment or repeal.
NINTH: 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; except that any action to amend, alter, change or repeal
subsections (c) or (d) of Article SEVENTH and/or this Article NINTH requires
authorization by a vote of 90% of the votes entitled to be cast on the matter.
All rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF: TAX EXEMPT PROCEEDS FUND, INC., has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary on December , 1993.
TAX EXEMPT PROCEEDS FUND, INC.
By:\s\ William Berkowitz
ATTEST: William Berkowitz
President
By: \s\ Bernadette N. Finn
Bernadette N. Finn
Secretary
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THE UNDERSIGNED, President of TAX EXEMPT PROCEEDS FUND, INC., who
executed on behalf of said corporation, the foregoing Amended and Restated
Articles of Incorporation, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Amended and Restated Articles of Incorporation to be the corporate act of said
corporation and further certifies that, to the best of his knowledge,
information, and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
\s\William Berkowitz
William Berkowitz
President
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BY LAWS
OF
TAX EXEMPT PROCEEDS FUND, INC.
a Maryland corporation
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The Corporation shall have a
principal office in the City of Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have offices also at
such other places within and without the State of Maryland as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
Meeting 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. The Corporation shall not be required to
hold an annual meeting of its stockholders in any year in which none of the
following is required to be acted on by the holders of any class or series of
stock under the Investment Company Act of 1940: (a) election of the directors,
(b) approval of the Corporation's investment advisory agreement with respect to
a particular class or series; (c) ratification of the selection of independent
public accountants; and (d) approval of the Corporation's distribution agreement
with respect to a particular class or series. In the event that the Corporation
shall be required to hold an annual meeting of stockholders by the Investment
Company Act of 1940, such meeting 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 eighty days following the end of such fiscal year 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
<PAGE>
upon the written request of holders of shares entitled to cast not less than
twenty-five percent of all the votes entitled to be cast at such meeting. Such
request shall state the purpose or purposes of such meeting and the matters
proposed to be acted on thereat. In the case of such request for a special
meeting, upon payment by such stockholders to the Corporation of the estimated
reasonable cost of preparing and mailing a notice of such meeting, the secretary
shall give the notice of such meeting. The secretary shall not be required to
call a special meeting to consider any matter which is substantially the same as
a matter acted upon at any special meeting of stockholders held within the
preceding twelve months unless requested to do so by the holders of shares
entitled to cast not less than a majority of all votes entitled to be cast at
such meeting.
Section 5. Notice of Special Meeting. Written or printed notice of a
special meeting of stockholders, stating the place, date, hour and purpose
thereof, shall be given by the secretary to each stockholder entitled to vote
thereat not less than ten nor more than ninety days before the date fixed for
the meeting.
Section 6. Business of Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice thereof.
Section 7. Quorum. Except as may otherwise be expressly provided by
applicable statutes regulations or the Articles of Incorporation, 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 meetings
of the stockholders for the transaction of business.
Section 8. Voting. When a quorum is present at any meeting, the
affirmative vote of 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
2
<PAGE>
prior to the date on which the particular action requiring such determination of
stockholders is to be taken. In lieu of fixing a record date, the Board of
Directors may provide that the stock transfer books shall be closed for a stated
period, but not to exceed, in any case, twenty days. If the stock transfer books
are closed for the purpose of determining stockholders entitled to notice of or
to vote at a meeting of stockholders, such books shall be closed for at least
ten days immediately preceding such meeting. If no record date is fixed and the
stock transfer books are not closed for the determination of stockholders: (1)
the record date for the determination of stockholders entitled to notice of, or
to vote at, a meeting of stockholders shall be at the close of business on the
day on which notice of the meeting of stockholders is mailed or the day thirty
days before the meeting, whichever is the closer date to the meeting; and (2)
the record date for the determination of stockholders entitled to receive
payment of a dividend or an allotment of any rights shall be at the close of
business on the day on which the resolution of the Board of Directors, declaring
the dividend or allotment of rights, is adopted, provided that the payment or
allotment date shall not be more than ninety days after the date of the adoption
of such resolution.
Section 11. Inspection 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 a 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.
3
<PAGE>
ARTICLE III
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 cause 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 such vacancy, at least two-thirds of the directors
then holding office shall have been elected to such office at a meeting of
stockholders. A director elected by the Board of Directors to fill a vacancy
shall be elected to hold office until the next annual meeting of stockholders or
until his successor is elected and qualifies.
Section 3. Powers. The business and affairs of the Corporation shall
be managed under the direction of the Board of Directors which shall exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Articles of Incorporation or by these By-Laws conferred
upon or reserved to the stockholders.
Section 4. Annual Meeting. The first meeting of each newly elected
Board of Directors shall be held immediately following the adjournment of the
annual meeting of stockholders and at the place thereof. No notice of such
meeting to the directors shall be necessary in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not so
held, the meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors.
Section 5. Other Meetings. The Board of Directors of the Corporation
or any committee thereof may hold meetings, both regular and special, either
within or without the State of Maryland. Regular meetings of the Board of
Directors may be held without notice at
4
<PAGE>
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.
Section 8. Minutes of Committee Meetings. The committees shall keep
regular minutes of their proceedings.
Section 9. Informal Action by the Board of Directors and Committees.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any
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committee thereof may be taken without a meeting if a written consent thereto is
signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or committee.
Section 10. Meetings by Conference Telephone. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, the members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and such participation shall constitute presence in person at such meeting.
Section 11. Fees and Expenses. The directors may be paid their
expenses of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and stockholders mailed to
them at their post office addresses appearing on the books of the Corporation
shall be deemed to be given at the time when deposited in the United States
mail.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes, of the Article of Incorporation or
of these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed the equivalent of notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors at its first meeting after each annual meeting of
stockholders and shall be a chairman of the Board of Directors, a president, a
secretary and a treasurer. The Board of Directors may also choose such vice
presidents and additional officers or assistant officers as it may deem
advisable. Any number of offices, except the offices of president and vice
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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 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 or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of to some other officer or agent of the
Corporation.
Section 6. Vice Presidents. The vice presidents shall act under the
direction of the president and in the absence or disability of the president
shall perform the duties and exercise the power of the president. They shall
perform such other duties and have such other powers as the president or the
Board of Directors may from time to time prescribe. The Board of Directors may
designate on or more executive vice presidents or may otherwise specify the
order of seniority of the vice presidents and, in that event, the duties and
powers of the president shall descend to the vice presidents in the specified
order of seniority.
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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 treasurer. They shall perform
such other duties and have such other powers as the president or the Board of
Directors may from time to time prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the Corporation who has
made full payment of the consideration for such stock shall be entitled upon
request to have a certificate, signed by, or in the name of the Corporation by,
the president or a vice president and countersigned by the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
Corporation, certifying the number and class of whole shares of stock owned by
him in the Corporation.
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Section 2. Fractional Share Interests or Scrip. The Corporation may,
but shall not be obliged to, issue fractions of a share of stock, arrange for
the disposition of fractional interests by those entitled thereto, pay in cash
the fair value of fractions of a share of stock as of the time when those
entitled to receive such fractions are determined, or issue scrip or other
evidence of ownership which shall entitle the holder to receive a certificate
for a full share of stock upon the surrender of such scrip or other evidence of
ownership aggregating a full share. Fractional shares of stock shall have
proportionately to the respective fractions represented thereby all the rights
of whole shares, including the right to vote, the right to receive dividends and
distributions and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate representing such
fractional shares. The Board of Directors may cause such scrip or evidence of
ownership to be issued subject to the condition that it shall become void if not
exchanged for certificates representing full shares of stock before a specified
date or subject to the condition that the shares of stock for which such scrip
or evidence of ownership is exchangeable may be sold by the Corporation and the
proceeds thereof distributed to the holders of such scrip or evidence of
ownership, or subject to any other reasonable conditions which the Board of
Directors shall deem advisable, including provision for forfeiture of such
proceeds to the Corporation if not claimed within a period of not less than
three years after the date of the original issuance of scrip certificates.
Section 3. Signatures on Certificates. Any of or all the signatures on
a certificate may be a facsimile. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall cease to be such
officer before such certificate is issued, it may be issued with the same effect
as if he were such officer at the date of issue. The seal of the Corporation or
a facsimile thereof may, but need not, be affixed to certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal 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
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record the transaction upon its books, issue a new certificate to the person
entitled thereto upon request for such certificate, and cancel the old
certificate, if any.
Section 6. Registered Owners. The Corporation shall be entitled to
recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including, redemption, voting and dividends,
and the Corporation shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from 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 purpose of additional property, or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may modify or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock of the Corporation may,
subject to the provisions of the Article of Incorporation and of the provisions
of applicable law, be declared by the Board of Directors at any time. Dividends
may be paid in cash, in property or in shares of the Corporation's stock,
subject to the provisions of the Articles of Incorporation and of applicable
law.
Section 3. Capital Gains Distributions. The amount and number of
capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.
Section 4. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words, "Corporate
Seal, Maryland". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in another manner reproduced.
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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 otherwise called there
shall be submitted for ratification or rejection the name of the firm of
independent public accountants which has been selected for the current fiscal
year in which such annual meeting is held by a majority of those members of the
Board of Directors who are not investment advisers of, or interested person (as
defined in the Investment Company Act of 1940) of, an investment adviser of, or
officers or employees of, the Corporation.
Section 11. Custodian. All securities and similar investments owned by
the Corporation shall be held by a custodian which shall be either a trust
company or a national bank of good standing, having a capital surplus and
undivided profits aggregating not less than two million dollars ($2,000,000), or
a member firm of the New York Stock Exchange, Inc. The terms of custody of such
securities and cash shall include such provisions required to be contained
therein by the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission.
Upon the resignation or inability to serve of any such custodian the
Corporation shall (a) use its best efforts to obtain a successor custodian, (b)
require the cash and securities of the Corporation held by the custodian to be
delivered directly to the successor custodian, and (c) in the event that no
successor custodian can be found, submit to the stockholders of the Corporation,
before permitting delivery of such cash and securities to anyone other than a
successor custodian, the question whether the Corporation shall be dissolved or
shall function
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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.
ARTICLE VIII
Amendments
The Board of Directors shall have the power, by a majority vote of the
entire Board of Directors at any meeting thereof, to make, alter and repeal
By-Laws of the Corporation; except that the holders of 90% of the stock issued
and outstanding, present in person or represented by proxy, shall be required to
amend, alter, change or repeal Section 7 or 8 of Article II of this Article VIII
of these By-Laws of the Corporation.
12
{NUMBER} [GRAPHIC OMITTED] {SHARES}
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
TAX EXEMPT BOND PROCEEDS FUND, INC.
The Corporation is authorized to issue 20,000,000,000 Common Shares - Par Value
$.001 each
THIS CERTIFIES THAT [ SPECIMEN ] IS THE OWNER OF [ ]
FULLY PAID AND NON-ASSESABLE SHARES OF THE ABOVE CORPORATION TRANSFERABLE ONLY
ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEROF IN PERSON OR BY DULY
AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND TO BE SEALED WITH THE SEAL OF THE
CORPORATION.
DATED [ ]
CUSTODY AGREEMENT
THIS AGREEMENT made the 1st day of April , 1994, by and between INVESTORS
FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of the state
of Missouri, having its trust office located at 127 West 10th Street, Kansas
City, Missouri 64105 ("Custodian"), and The Funds listed in Exhibit A , a
_______________ 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 and 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 as
custodian of the securities and monies at any time owned by the Fund.
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to Custodian:
1. That it is a corporation or trust (as specified above) duly
organized and existing and in good standing under the laws of its
state of organization, and that it is registered under the
Investment Company Act of 1940 (the "1940 Act"); and
2. That it has the requisite power and authority under applicable
law, its articles of incorporation and its bylaws to enter into
this Agreement; that it has taken all requisite action necessary
to appoint Custodian as custodian for the Fund; that this
Agreement has been duly executed and delivered by Fund; and that
this Agreement constitutes a legal, valid and binding obligation
of Fund, enforceable in accordance with its terms.
<PAGE>
B. Custodian hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in
good standing under the laws of the State of Missouri; and
2. That it has the requisite power and authority under applicable
law, its charter and its bylaws to enter into and perform this
Agreement; that this Agreement has been duly executed and
delivered by Custodian; and that this Agreement constitutes a
legal, valid and binding obligation of Custodian, enforceable in
accordance with its terms.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
Except as permitted by the 1940 Act, Fund will deliver or cause to be
delivered to Custodian on the effective date of this Agreement, or as
soon thereafter as practicable, and from time to time thereafter, all
portfolio securities acquired by it and monies then owned by it or
from time to time coming into its possession during the time this
Agreement shall continue in effect. Custodian shall have no
responsibility or liability whatsoever for or on account of securities
or monies not so delivered.
B. Delivery of Accounts and Records
Fund shall turn over or cause to be turned over to Custodian all of
the Fund's relevant accounts and records previously maintained.
Custodian shall be entitled to rely conclusively on the completeness
and correctness of the accounts and records turned over to it, and
Fund shall indemnify and hold Custodian harmless of and from any and
all expenses, damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other deficiency of
such accounts and records or in the failure of Fund to provide, or to
provide in a timely manner, any accounts, records or information
needed by the Custodian to perform its functions hereunder.
C. Delivery of Assets to Third Parties
Custodian will receive delivery of and keep safely the assets of Fund
delivered to it from time to time segregated in a separate account,
and if Fund
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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, Custo-dian will create and maintain
records identifying those assets which have been delivered to the
subcustodian as belonging to the Fund, by Portfolio if applicable. The
Custodian is responsible for the safekeeping of the securities and
monies of Fund only until they have been transmitted to and received
by other persons as permitted under the terms of this Agreement,
except for securities and monies transmitted to subcustodians
appointed under Section 3.S. of this Agreement, for which Custodian
remains responsible to the extent provided in Section 3.S. hereof.
Custodian may participate directly or indirectly through a
subcustodian in the Depository Trust Company (DTC), Treasury/Federal
Reserve Book Entry System (Fed System), Participant Trust Company
(PTC) or other depository approved by the Fund (as such entities are
defined at 17 CFR Section 270.17f-4(b)) (each a "Depository" and
collectively, the "Depositories").
D. Registration of Securities
The Custodian shall at all times hold registered securities of the
Fund in the name of the Custodian, the Fund, or a nominee of either of
them, unless specifically directed by instructions to hold such
registered securities in so-called "street name," provided that, in
any event, all such securities and other assets shall be held in an
account of the Custodian containing only assets of the Fund, or only
assets held by the Custodian as a fiduciary or custodian for
customers, and provided further, that the records of the Custodian at
all time shall indicate the Fund or other customer for which such
securities and other assets are held in such account and the
respective interests therein. If,
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<PAGE>
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 by Fund, which are held by Custodian hereunder,
however, shall at all times 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 exchanged, portfolio
securities held by it for the account of Fund for other securities or
cash issued or paid in connection with any reorganization,
recapitalization, merger, consolidation, split-up of shares, change of
par value, conversion or otherwise, and will deposit any such
securities in accordance with the terms of any reorganization or
protective plan. Without instructions, Custodian is authorized to
exchange securities held by it in temporary form for securities in
definitive form, to effect an exchange of shares when the par value of
the stock is changed, and, upon receiving payment therefor, to
surrender bonds or other securities held by it at maturity or when
advised of earlier call for redemption, except that Custodian shall
receive instructions prior to surrendering any convertible security.
F. Purchases of Investments of the Fund
Fund will, on each business day on which a purchase of securities
shall be made by it, deliver to Custodian instructions which shall
specify with respect to each such purchase:
1. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the security;
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<PAGE>
3. The number of shares and the principal amount purchased, and accrued
interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes and
other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase; and
8. The name of the person from whom or the broker or dealer through whom
the purchase was made.
9. Whether the security is to be received in certificated form or via a
specified Depository.
In accordance with such instructions, Custodian will pay for out of
monies held for the account of Fund, but only insofar as such monies
are available for such purpose, and receive the portfolio securities
so purchased by or for the account of Fund, except that Custodian may
in its sole discretion advance funds to the Fund which may result in
an overdraft because the monies held by the Custodian on behalf of the
Fund are insufficient to pay the total amount payable upon such
purchase. Except as otherwise instructed by Fund, such payment shall
be made by the Custodian only upon receipt of securities: (a) by the
Custodian; (b) by a clearing corporation of a national exchange of
which the Custodian is a member; or (c) by a Depository.
Notwithstanding the foregoing, (i) in the case of a repurchase
agreement, the Custodian may release funds to a Depository prior to
the receipt of advice from the Depository that the securities
underlying such repurchase agreement have been transferred by
book-entry into the account maintained with such Depository by the
Custodian, on behalf of its customers, provided that the Custodian's
instructions to the Depository require that the Depository make
payment of such funds only upon transfer by book-entry of the
securities underlying the repurchase agreement in such account; (ii)
in the case of time deposits, call account deposits, currency deposits
and other deposits, foreign
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<PAGE>
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
sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares and principal amount sold, and accrued
interest, if any;
4. The date on which the securities sold were purchased or other
information identifying the securities sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such sale; and
9. The name and address of the broker or dealer through whom or person
to whom the sale was made. 1.
In accordance with such instructions, Custodian will deliver or cause
to be delivered the securities thus designated as sold for the account
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
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<PAGE>
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 account of the Custodian, on behalf
of its customers, with a Depository. Notwithstanding the foregoing:
(i) in the case of securities held in physical form, such securities
shall be delivered in accordance with "street delivery custom" to a
broker or its clearing agent; or (ii) in the case of the sale of
securities, the settlement of which occurs outside of the United
States of America, the Custodian may make, or cause a subcustodian
appointed pursuant to Section 3.S.2. of this Agreement to make,
payment therefor in accordance with generally accepted local custom
and market practice.
H. Purchases or 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 applicable, the name of the Portfolio making such purchase or
sale;
2. Security Options
A. The underlying security;
B. The price at which purchased or sold;
C. The expiration date;
D. The number of contracts;
E. The exercise price;
F. Whether the transaction is an opening, exercising, expiring
or closing transaction;
G. Whether the transaction involves a put or call;
H. Whether the option is written or purchased;
I. Market on which option traded; and
J. Name and address of the broker or dealer through whom the
sale or purchase was made.
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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 Futures Contracts
A. The last trading date specified in the contract and, when
available, the closing level, thereof;
B. The index level on the date the contract is entered into;
C. The multiple;
D. Any margin requirements;
E. The need for a segregated margin account (in addition to
instructions, and if not already in the possession of
Custodian, Fund shall deliver a substantially complete and
executed custodial safekeeping account and procedural
agreement which shall be incorporated by reference into this
Custody Agreement); and
F. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions. 1.
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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;
G. Whether the transaction involves a put or call;
H. Whether the option is written or purchased; and
I. The market on which the option is traded.
I. Securities Pledged or Loaned
If specifically allowed for in the prospectus of Fund, and subject to
such additional terms and conditions as Custodian may require:
1. Upon receipt of instructions, Custodian will release or cause to
be released securities held in custody to the pledgee 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 pledged 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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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 dealings 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
accounts in the name of Custodian ("Accounts"), subject only to draft
or order by Custodian upon receipt of instructions. All monies
received by Custodian from or for the account of Fund shall be
deposited in said Accounts. Barring events not in the control of the
Custodian such as strikes, lockouts or labor disputes, riots, war or
equipment or transmission failure or damage, fire, flood, earthquake
or other natural disaster, action or inaction of governmental
authority or other causes beyond its control, at 9:00 a.m., Kansas
City time, on the second business day after deposit of any check into
an Account, Custodian agrees to make Fed Funds available to the Fund
in the amount of the check. Deposits made by Federal Reserve wire will
be available to the Fund immediately and ACH wires will be available
to the Fund on the next business day. Income earned on the portfolio
securities will be credited to the Fund based on the schedule attached
as Exhibit A. The Custodian will be entitled to reverse any credited
amounts where credits have been made and monies are not finally
collected. If monies are collected after such reversal, the Custodian
will credit the Fund 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
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draft or order. Funds received and held for the account of different
Portfolios shall be maintained in separate Accounts established for
each Portfolio.
L. Income and other Payments to Fund
Custodian will:
1. Collect, claim and receive and deposit for the account of Fund
all income and other payments which become due and payable on or
after the effective date of this Agreement with respect to the
securities deposited under this Agreement, and credit the account
of Fund in accordance with the schedule attached hereto as
Exhibit A. If, for any reason, the Fund is credited with income
that is not subsequently collected, Custodian may reverse that
credited amount.
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the
collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. the collection, receipt and deposit of such income and other
payments, including but not limited to the presentation for
payment of:
1. all coupons and other income items requiring
presentation; and
2. all other securities which may mature or be called,
redeemed, retired or otherwise become payable and
regarding which the Custodian has actual knowledge, or
should reasonably be expected to have knowledge; and
b. the endorsement for collection, in the name of Fund, of all
checks, drafts or other negotiable instruments.
Custodian, however, will not be required to institute suit or take
other extraordinary action to enforce collection except upon receipt
of instructions and upon being indemnified to its satisfaction against
the costs and expenses
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of such suit or other actions. Custodian will receive, claim and
collect all stock dividends, rights and other similar items and will
deal with the same pursuant to instructions. Unless prior instructions
have been received to the contrary, Custodian will, without further
instructions, sell any rights held for the account of Fund on the last
trade date prior to the date of expiration of such rights.
M. Payment of Dividends and other Distributions
On the declaration of any dividend or other distribution on the shares
of capital stock of Fund ("Fund Shares") by the Board of Directors of
Fund, Fund shall deliver to Custodian instructions with respect
thereto. On the date specified in such instructions for the payment of
such dividend or other distribution, Custodian will pay out of the
monies held for the account of Fund, insofar as the same shall be
available for such purposes, and credit to the account of the Dividend
Disbursing Agent for Fund, such amount as may be necessary to pay the
amount per share payable in cash on Fund Shares issued and outstanding
on the record date established by such resolution.
N. Shares of Fund Purchased by Fund
Whenever any Fund Shares are repurchased or redeemed by Fund, Fund or
its agent shall advise Custodian of the aggregate dollar amount to be
paid for such shares and shall confirm such advice in writing. Upon
receipt of such advice, Custodian shall charge such aggregate dollar
amount to the account 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 responsibility to
determine that Fund Shares have been removed from 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.
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Custodian shall not have any duty or responsibility to determine that
Fund Shares purchased from Fund have been added to the proper
shareholder account or accounts or that the proper number of such
shares have been added to the shareholder records.
P. Proxies and Notices
Custodian will promptly deliver or mail or have delivered or mailed to
Fund all proxies properly signed, all notices of meetings, all proxy
statements and other notices, requests or announcements affecting or
relating to securities held by Custodian for Fund and will, upon
receipt of instructions, execute and deliver or cause its nominee to
execute and deliver or mail or have delivered or mailed such proxies
or other authorizations as may be required. Except as provided by this
Agreement or pursuant to instructions hereafter received by Custodian,
neither it nor its nominee will exercise any power inherent in any
such securities, including any power to vote the same, or execute any
proxy, power of attorney, or other similar instrument voting any of
such securities, or give any consent, approval or waiver with respect
thereto, or take any other similar action.
Q. Disbursements
Custodian will pay or cause to be paid, insofar as funds are available
for the purpose, bills, statements and other obligations of Fund
(including but not limited to obligations in connection with the
conversion, exchange or surrender of securities owned by Fund,
interest charges, dividend disbursements, taxes, management fees,
custodian fees, legal fees, auditors' fees, transfer agents' fees,
brokerage commissions, compensation to personnel, and other operating
expenses of Fund) pursuant to instructions of Fund setting forth the
name of the person to whom payment is to be made, the amount of the
payment, and the purpose of the payment.
R. Daily Statement of Accounts
Custodian will, within a reasonable time, render to Fund a detailed
statement of the amounts received or paid and of securities received
or delivered for
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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 accountants,
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 instruc-tions 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 accountants,
reasonable access to such records or to provide reasonable
confirmation of the contents of such records, and to permit such
agencies to examine the books, records and securities held by such
subcustodian which relate to Fund.
S. Appointment of Subcustodians
1. Notwithstanding any other provisions of this Agreement, all or
any of the monies or securities of Fund may be held in
Custodian's own custody or in the custody of one or more other
banks or trust companies acting 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 at the request of Fund and as provided in Subsection 2
below) to the same extent Custodian
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<PAGE>
would be responsible to the Fund under Section 5. of this
Agreement if it committed the act or omission itself. Upon
request of the Fund, Custodian shall be willing to contract with
other subcustodians reasonably acceptable to the Custodian for
purposes of (i) effecting third-party repurchase transactions
with banks, brokers, dealers, or other entities through the use
of a common custodian or subcustodian, or (ii) providing
depository and clearing agency services with respect to certain
variable rate demand note securities, or (iii) for other
reasonable purposes specified by Fund; provided, however, that
the Custodian shall be responsible to the Fund for any loss,
damage or expense suffered or incurred by the Fund resulting from
the actions or omissions of any such subcustodian only to the
same extent such subcustodian is responsible to the Custodian.
The Fund shall be entitled to review the Custodian's contracts
with any such subcustodians appointed at the request of Fund.
Custodian shall be responsible to the Fund for any loss, damage
or expense suffered or incurred by the Fund resulting from the
actions or omissions of any Depository only to the same extent
such Depository is responsible to Custodian.
2. Notwithstanding any other provisions of this Agreement, Fund's
foreign securities (as defined in Rule 17f-5(c)(1) under the 1940
Act) and Fund's cash or cash equivalents, in amounts deemed by
the Fund to be reasonably necessary to effect Fund's foreign
securities transactions, may be held in the custody of one or
more banks or trust companies acting as subcustodians, and
thereafter, pursuant to a written contract or contracts as
approved by Fund's Board of Directors, may be transferred to
accounts maintained by any such subcustodian with eligible
foreign custodians, as defined in Rule 17f-5(c)(2). Custodian
shall be responsible to the Fund for any loss, damage or expense
suffered or incurred by the Fund resulting from the actions or
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<PAGE>
omissions of any foreign 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 the accounts and records maintained
by Custodian pursuant to this Agreement are the property of Fund, and
will be made available to Fund for inspection or reproduction within a
reasonable period of time, upon demand. Custodian will assist Fund's
independent auditors, or upon approval of Fund, or upon demand, any
regulatory body, in any requested review of Fund's accounts and
records but shall be reimbursed by Fund for all expenses and employee
time invested in any such review outside of routine and normal
periodic reviews. Upon receipt from Fund of the necessary information
or instructions, Custodian will supply information from the books and
records it maintains for Fund that Fund needs for tax returns,
questionnaires, periodic reports to shareholders and such other
reports and information requests as Fund and Custodian shall agree
upon from time to time.
U. Adoption of Procedures
Custodian and Fund may from time to time adopt procedures as they
agree upon, and Custodian may conclusively assume that no procedure
approved or directed by Fund or its accountants or other advisors
conflicts with or violates any requirements of its prospectus,
articles of incorporation, bylaws, any applicable law, rule or
regulation, or any order, decree or agreement by which Fund may be
bound. Fund will be responsible to notify Custodian of any changes in
statutes, regulations, rules, requirements or policies which might
necessitate changes in Custodian's responsibilities or procedures.
V. Overdrafts
If Custodian shall in its sole discretion advance funds to the account
of the Fund which results in an overdraft in any Account because the
monies held therein by Custodian on behalf of the Fund are
insufficient to pay the total
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<PAGE>
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 and 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 issuer or
trustee thereof, or to the agent of such issuer or trustee, for the
purpose of exercise or sale, provided that the new securities, cash or
other assets, if any, are to be delivered to the Custodian; and (b)
deposit securities upon invitations for tenders thereof, provided that
the consideration for such securities is to be paid or delivered to
the Custodian or the tendered securities are to be returned to the
Custodian.
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means written (including
telecopied or telexed) or oral instructions which Custodian reasonably
believes were given by a designated representative of Fund. Fund shall
deliver to Custodian, prior to delivery of any assets to Custodian and
thereafter from time to time as changes therein are necessary, written
instructions naming one or more designated representatives to give
instructions in the name and on behalf of Fund, which instructions may
be received and accepted by Custodian as conclusive evidence of the
authority of any designated representative to act for Fund and may be
considered to be in full force and effect (and Custodian will be
fully), protected in acting in reliance thereon) until receipt by
Custodian of notice to the contrary. Unless such written instructions
delegating authority to any person to give instructions specifically
limit such authority to specific matters or require that the approval
of anyone else will first have been
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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 provide Custodian any such instructions naming designated
representatives, any instructions received by Custodian from a person
reasonably believed to be an appropriate representative of Fund shall
constitute valid and proper instructions hereunder.
B. No later than the next business day immediately following each oral
instruction, Fund will send Custodian written confirmation of such
oral instruction. At Custodian's sole discretion, Custodian may record
on tape, or otherwise, any oral instruction whether given in person or
via telephone, each such recording identifying the parties, the date
and the time of the beginning and ending of such oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN
A. Custodian shall at all times use reasonable care and due diligence and
act in good faith in performing its duties under this Agreement.
Custodian shall not be responsible for, and the Fund shall indemnify
and hold Custodian harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability which may be asserted against Custodian, incurred by
Custodian or for which Custodian may be held to be liable, arising out
of or attributable to:
1. All actions taken by Custodian pursuant to this Agreement or any
instructions provided to it hereunder, provided that Custodian
has acted in good faith and with due diligence and reasonable
care; and
2. The Fund's refusal or failure to comply with the terms of this
Agreement (including without limitation the Fund's failure to pay
or reimburse Custodian under this indemnification provision), the
Fund's negligence or willful misconduct, or the failure of any
representation or warranty of the Fund hereunder to be and remain
true and correct in all respects at all times.
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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 Fund, not act according to such instructions.
C. Custodian may rely upon the advice and statements of Fund, Fund's
accountants and officers or other authorized individuals, and other
persons believed by it in good faith to be expert in matters upon
which they are consulted, and Custodian shall not be liable for any
actions taken, in good faith, upon such advice and statements.
D. If Fund requests Custodian in any capacity to take any action which
involves the payment of money by Custodian, or which might make it or
its nominee liable for payment of monies or in any other way,
Custodian shall be indemnified and held harmless by Fund against any
liability on account of such action; provided, however, that nothing
herein shall obligate Custodian to take any such action except in its
sole discretion.
E. Custodian shall be protected in acting as custodian hereunder upon any
instruc-tions, 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
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Custodian, or the propriety of the decision to purchase or amount
paid therefor;
2. The legality of the sale of any securities or foreign currency
positions by or for Fund, or the propriety of the amount for
which the same are sold;
3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any Fund Shares,
or the propriety of the amount to be paid therefor; or
5. The legality of the declaration of any dividend by Fund, or the
legality of the issue of any Fund Shares in payment of any stock
dividend.
G. Custodian shall not be liable for, or considered to be Custodian of,
any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the payment
of money to be received by it on behalf of Fund until Custodian
actually receives such money; provided, however, that it shall advise
Fund promptly if it fails to receive any such money in the ordinary
course of business and shall cooperate with Fund toward the end that
such money shall be received.
H. Except as provided in Section 3.S., Custodian shall not be responsible
for loss occasioned by the acts, neglects, defaults or insolvency of
any broker, bank, trust company, or any other person with whom
Custodian may deal.
I. Custodian shall not be responsible or liable for the failure or delay
in performance of its obligations under this Agreement, or those of
any entity for which it is responsible hereunder, arising out of or
caused, directly or indirectly, by circumstances beyond the affected
entity's reasonable control, including, without limitation: 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, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance,
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terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornados, 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 to Custodian, on demand, reimbursement for Custodian's cash
disbursements and reasonable out-of-pocket costs and expenses, including
attorney's fees, incurred by Custodian in connection with the performance
of services hereunder. Custodian may charge such compensation against
monies held by it for the account of Fund. Custodian will also be entitled
to charge against any monies held by it for the account of Fund the amount
of any loss, damage, 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
the 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 the same itself
directly, and (ii) Custodian is obligated to reimburse the subcustodian
therefor.
7. TERM AND TERMINATION. The initial term of this Agreement shall be for a
period of _____. Thereafter, either party to this Agreement may terminate
the same by notice in writing, delivered or mailed, postage prepaid, to the
other party hereto and received not less than ninety (90) days prior to the
date upon which such termination will take effect. Upon termination of this
Agreement, Fund will pay
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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 than 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's office, all securities then held by Custodian hereunder, duly
endorsed and in form for transfer, and all funds and other properties of
Fund deposited with or held by Custodian hereunder, and Custodian will
co-operate in effecting changes in book-entries at all Depositories. Upon
delivery to a successor custodian or as specified by the court, Custodian
will have no further obligations or liabilities under this Agreement.
Thereafter such successor will be the successor custodian under this
Agreement and will be entitled to reasonable compensation for its services.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof 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.
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8. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at __________________, or at such other address as Fund may have
designated to Custodian in writing, will be deemed to have been properly
given to Fund hereunder; and notices, requests, instructions and other
writings addressed to Custodian at its offices at 127 West 10th Street,
Kansas City, Missouri 64105, Attention: Custody Department, or to such
other address as it may have designated to Fund in writing, will be deemed
to have been properly given to Custodian hereunder.
9. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio:
A. Each Portfolio shall be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to
relate solely to the particular Portfolio to which such transaction
relates. Under no circumstances shall the rights, obligations or
remedies with respect to a particular Portfolio constitute a right,
obligation or remedy applicable to any other Portfolio. The use of
this single document to memorialize the separate agreement of each
Portfolio is understood to be for clerical convenience only and shall
not constitute any basis for joining the Portfolios for any reason.
B. Additional Portfolios may be added to this Agreement, provided that
Custodian consents to such addition. Rates or charges for each
additional Portfolio shall be as agreed upon by Custodian and Fund in
writing.
10. MISCELLANEOUS.
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of
the State of Missouri, without reference to the choice of laws
principles thereof.
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
23
<PAGE>
C. The representations and warranties and the indemnifications extended
hereunder are intended to and shall continue after and survive the
expiration, termination or cancellation of this Agreement. 1.
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 from any breach of any of the terms or conditions of this
Agreement, including the payment of damages, shall not be construed as
a continuing or permanent waiver of any such terms, conditions, rights
or privileges, but the same shall continue and remain in full force
and effect as if no such forbearance or waiver had occurred. No
waiver, release or discharge of any party's rights hereunder shall be
effective unless contained in a written instrument signed by the party
sought to be charged.
F. The captions in the Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
H. If any part, term or provision of this Agreement is determined by the
courts or any regulatory authority to be illegal, in conflict with any
law or otherwise invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
24
<PAGE>
J. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and between
Custodian and Fund.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by either party hereunder shall not
affect any rights or obligations of the other party hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers. INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Allen A. Straun?
Title: EVP
FUND
By: /s/ Bernadette N. Finn
Title: Secretary
25
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSACTION DTC PHYSICAL FED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
- ---- ----------- ---------- ----------- ---------- ----------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
Calls Put As Received C or F* As Received C or F*
- ------------------------------------------------------------------------------------------------------------------------------------
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
- ------------------------------------------------------------------------------------------------------------------------------------
Tender Reorgs. As Received C As Received C N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Paydate C Paydate C N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Floating Rate Int. Paydate C Paydate C N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Floating Rate Int. N/A As Rate Received C N/A
(No Rate)
- ------------------------------------------------------------------------------------------------------------------------------------
Mtg. Backed P&I Paydate C Paydate + 1 Bus. Day C Paydate F
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Rate Int. 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 on how received.
26
<PAGE>
EXHIBIT A
Name of Fund
California Daily Tax Free Income Fund, Inc.*
Connecticut Daily Tax Free Income Fund, Inc.*
Cortland Trust, Inc.*
Daily Tax Free Income Fund, Inc.*
Delafield Fund, Inc.*
Florida Daily Municipal Income Fund+
Institutional Daily Income Fund+
Michigan Daily Tax Free Income Fund, Inc.*
New Jersey Daily Municipal Income Fund, Inc.*
New York Daily Tax Free Income Fund, Inc.*
North Carolina Daily Municipal Income Fund, Inc.*
Pennsylvania Daily Municipal Income Fund+
Reich & Tang Equity Fund, Inc.*
Reich & Tang Government Securities Trust+
Short Term Income Fund, Inc.*
Tax Exempt Proceeds Fund, Inc.*
* Maryland Corporation
+ Massachusetts Business Trust
Dated: August 30, 1994
TRANSFER AGENCY AGREEMENT
Agreement made as of the 22 day of April, 1999,
between each fund listed on the attached Schedule A having its principal office
and place of business at 600 Fifth Avenue, New York, New York 10020 (each fund
hereinafter referred to as the "Fund"), and Reich & Tang Services L.P., a
Delaware limited partnership, having its principal office and place of business
at 600 Fifth Avenue NYC, NY 10020 (hereinafter referred to
as the "Transfer Agent").
W I T N E S S E T H
That for and in consideration of the mutual promises
hereinafter set forth, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases shall have the following meanings:
1. "Approved Institution" shall mean an entity so named in a
Certificate. From time to time the Find may amend a previously delivered
Certificate by delivering to the Transfer Agent a Certificate naming an
additional entity or deleting any entity named in a previously delivered
Certificate.
2. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Transfer Agent by the Fund which is signed by any Officer, as hereinafter
defined, and actually received by the Transfer Agent.
3. "Custodian" shall mean The Bank of New York, as custodian
under the terms and conditions of the Custody Agreement between The Bank of New
York and the Fund, or its successor(s).
4. "Fund Business Day" shall be deemed to be each day on which
the New York Stock Exchange, Inc. is open for trading.
5. "Officer" shall be deemed to be the Fund's Chairman of the
Board, the Fund's President, any Vice President of the Fund, the Fund's
Secretary, the Fund's Treasurer, the Fund's Controller, any Assistant Controller
of the Fund, any Assistant to the Board of Directors of the Fund to execute any
Certificate, instruction, notice or other instrument on behalf of the Fund and
named in the Certificate annexed hereto as Appendix
<PAGE>
A, as such Certificate may be amended from time to time, and any person
reasonably believed by the Transfer Agent to be such a person.
6. "Series" shall mean the various portfolios of the
Fund as described from time to time in the current and effective
Prospectus.
7. "Shares: shall mean all or any part of each class of the
shares of capital stock of the Fund and of any Series of the Fund listed in the
Certificate annexed hereto as Appendix B, as may be amended from time to time,
which from time to time are authorized and/or issued by the Fund.
8. "Prospectus" shall mean the last Fund prospectus actually
received by the Transfer Agent from the Fund with respect to which the Fund has
indicated a registration statement under the Federal Securities Act of 1933 has
become effective, including the statement of Additional Information incorporated
by reference therein.
9. "Transfer Agent" shall mean Reich & Tang Services L.P., as
transfer agent and divided disbursing agent under the terms and conditions of
this Agreement, its successor(s) or assign(s).
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Fund hereby constitutes and appoints the Transfer Agent
as transfer agent of all the Shares of the Fund and as dividend disbursing agent
during the period of this Agreement.
2. The Transfer Agent hereby accepts appointment as transfer
agent and dividend disbursing agent and agrees to perform the duties thereof as
hereinafter set forth.
3. In connection with such appointment, the Fund shall deliver
the following documents to the Transfer Agent:
(a) A certified copy of the Articles of Incorporation
of the Fund and all amendments thereto;
(b) A certified copy of the By-Laws of the Fund;
(c) A certified copy of a resolution of the Board of Directors
of the Fund appointing the Transfer Agent and authorizing the execution of this
Transfer Agency Agreement;
<PAGE>
(d) A Certificate signed by the Secretary of the Fund
specifying with respect to each Series: the number of authorized Shares, the
number of authorized Shares issued, and the number of such authorized Shares
issued and currently outstanding, the names and specimen signatures of the
Officers of the Fund, and the name and address of the legal counsel for the
Fund;
(e) Specimen Share certificates for each class of Shares in
the form approved by the Board of Directors of the Fund, together with a
certificate signed by the Secretary of the Fund as to such approval;
(f) Copies of the Fund's Registration Statement, as amended to
date, and the most recently filed Post-Effective Amendment thereto, filed by 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,
together with any applications filed in connection therewith; and
(g) Opinion of counsel for the Fund with respect to the
validity of the authorized and outstanding Shares, whether such Shares are fully
paid and non-assessable and the status of such Shares under the Securities Act
of 1933, as amended, and any other applicable federal law or regulation (i.e.,
if subject to registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the specific grounds
therefor).
4. To the extent that the Fund issues certificates to its shareholders
pursuant to its current prospectus, the Fund shall furnish the Transfer Agent
with a sufficient supply of blank Share certificates and from time to time will
renew such supply upon request of the Transfer Agent. Such blank Share
certificates shall be properly signed, by facsimile or otherwise, by Officers of
the Fund authorized by law or by the by-laws to sign Share certificates, and, if
required, shall bear the corporate seal or facsimile thereof.
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Fund shall deliver to the Transfer Agent the following documents
on or before the effective date of any increase or decrease in the total number
of Shares authorized to be issued:
(a) A certified copy of the amendment to the Articles
of Incorporation giving effect to such increase or decrease;
(b) In the case of an increase, an opinion of counsel for the
Fund with respect to the validity of the Shares of the
<PAGE>
Fund and the status of such Shares under the Securities Act of 1933, as amended,
and any other appropriate federal law or regulation (i.e., if subject to
registration, that they have been registered and that the Registration Statement
has become effective or, if exempt, the specific grounds therefor); and
(c) In the case of an increase, if the appointment of the
Transfer Agent was theretofore expressly limited, if the appointment of the
Transfer Agent was theretofore expressly limited, a certified copy of a
resolution of the Board of Directors of the Fund increasing the authority of the
Transfer Agent.
2. Prior to the issuance of any additional Shares of the Fund pursuant
to stock dividends or stock splits, etc., and prior to any reduction in the
number of shares outstanding, the Fund shall deliver the following documents to
the Transfer Agent:
(a) A certified copy of the resolution(s) adopted by the Board
of Directors and/or the shareholders of the Fund authorizing such issuance of
additional Shares of the Fund or such reduction, as the case may be, and
(b) An opinion of counsel for the Fund with respect to the
validity of the Shares of the Fund and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable federal law or
regulation (i.e., if subject to registration, that they have been registered and
that the Registration Statement has become effective, or, if exempt, the
specific grounds therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or other
capital adjustment requiring a change in the form of Share certificates, the
Transfer Agent will issue Share certificates in the new form in exchange for, or
upon transfer of, outstanding Share certificates in the old form, upon
receiving:
(a) A Certificate authorizing the issuance of Share
certificates in the new form;
(b) A certified copy of any amendment to the Articles of
Incorporation with respect to the change;
(c) Specimen Share certificates for each class of Shares in
the new form approved by the Board of Directors of the Fund, with a Certificate
signed by the Secretary of the Fund as to such approval; and
<PAGE>
(d) An opinion of counsel for the Fund with respect to the
validity of the Shares in the new form and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable federal law or
regulation (i.e., if subject to registration, that the Shares have been
registered and that the Registration Statement has become effective or, if
exempt, the specific grounds therefor).
2. To the extent that the Fund issues certificates to its shareholders
pursuant to its current prospectus, the Fund shall furnish the Transfer Agent
with a sufficient supply of blank Share certificates in the new form, and from
time to time will replenish such supply upon the request of the Transfer Agent.
Such blank Share certificates shall be properly signed by Officers of the Fund
authorized by law or by the by-laws to sign Share certificates and, if required,
shall bear the corporate seal or facsimile thereof. The Fund agrees to indemnify
and exonerate, save and hold the Transfer Agent harmless, from and against any
and all claims or demands that may be asserted against the Transfer Agent with
respect to the genuineness of any Share certificate supplied to the Transfer
Agent pursuant to this section.
ARTICLE V
ISSUANCE, REDEMPTION, EXCHANGE AND TRANSFER OF SHARES
1. (a) The Transfer Agent shall accept with respect to each Fund
Business Day, at such times as are agreed upon from time to time by the Transfer
Agent and the Fund, each (i) purchase order received from a purchaser, or
shareholder, whether or not an Approved Institution, (ii) exchange request
involving shares of certain other investment companies listed in the Fund's
prospectus, and (iii) redemption request either received from a shareholder,
whether or not an Approved Institution, or contained in a Certificate, provided,
that (A) such purchase order or redemption request, as the case may be, is
reasonably believed by the Transfer Agent to be in conformity with the Fund's
purchase and redemption procedures described in the Prospectus, (B) where such
redemption request states redemption instructions which vary from the
instructions indicated on the shareholder's original subscription order form,
such request contains a signature guarantee, (C) such exchange request contains
a signature guarantee and instructs exchange into a fund that is listed in the
Fund's current prospectus, and (D) the Transfer Agent has agreed to accept and
act in accordance with such type of purchase order or redemption request, as the
case may be.
(b) The Transfer Agent shall also accept with respect to each
Fund Business Day, at such times as are agreed upon from time to time by the
Transfer Agent and the Fund, a computer tape consistent in all respects with the
Transfer Agent's tape layout
<PAGE>
package, as amended from time to time, which is believed by the Transfer Agent
to be furnished by or on behalf of any Approved Institution.
2. On each Fund Business Day the Transfer Agent shall, as of the time
at which the Fund computes the net asset value of each Series, issue to, and
redeem from, the accounts specified in a purchase order, redemption request, or
computer tape which in accordance with the Prospectus is effective on such Fund
Business Day the appropriate number of full and fractional Shares based on the
net asset value per Share of such Series specified in an advice received on such
Fund Business Day from the Fund. Notwithstanding the foregoing, if a redemption
specified in a computer tape is for a dollar value of Shares in excess of the
dollar value of uncertificated Shares in the specified account, the Transfer
Agent shall not effect such redemption in whole or in part, and shall orally
advise both the Fund and the Approved Institution which supplied such tape of
such discrepancy.
3. The Transfer Agent shall, as of each Fund Business Day specified in
a Certificate or resolution described in paragraph 1 of succeeding Article VI,
issue Shares of a Series, based on the net asset value per Share of such Series
specified in an advice received from the Fund on such Fund Business Day, in
connection with a reinvestment of a dividend or distribution on Shares of such
Series.
4. On each Fund Business Day the Transfer Agent shall supply the Fund
with a statement specifying with respect to the immediately preceding Fund
Business Day: the total number of Shares of each Series (including fractional
Shares) issued and outstanding at the opening of business on such day; the total
number of Shares of each Series sold to Reich & Tang Services L.P., as agent for
the purchasers, on such day, pursuant to preceding paragraph 2 of this Article;
the total number of Shares of each Series redeemed by Reich & Tang Services
L.P., as agent for the respective redeeming shareholders, on such day; the total
number of Shares of each Series, if any, sold to Reich & Tang Services L.P., as
agent for shareholders, on such day pursuant to preceding paragraph 3 of this
Article, and the total number of Shares of each Series issued and outstanding.
On the same day such statement is received by the Fund, the Fund shall confirm
the information contained therein by delivering to the Transfer Agent a
Certificate with respect to the same.
5. In connection with each purchase, each exchange and each redemption
of Shares, the Transfer Agent shall send such statements as are described in the
Prospectus. If the Prospectus indicates that certificates for Shares are
available, and if specifically requested in writing by any shareholder, or if
otherwise required hereunder, the Transfer Agent will countersign, issue and
mail by not less than first class insured
<PAGE>
mail, to such shareholder at the address set forth in the records of the
Transfer Agent, a Share certificate for any full Shares requested.
6. As of each Fund Business Day the Transfer Agent shall furnish the
Custodian with an advice setting forth the number and dollar amount of Shares to
be redeemed on such Fund Business Day in accordance with paragraph 2 of this
Article.
7. Upon receipt of moneys paid to it by the Custodian in connection
with a redemption of Shares, the Transfer Agent shall cancel the redeemed Shares
and after making appropriate deduction for any withholding of taxes required of
it by applicable law (a) in the case of a redemption of Shares pursuant to a
redemption described in preceding paragraph 1(a) of this Article, make payment
in accordance with the Fund's redemption and payment procedures described in the
Prospectus, and (b) in the case of a redemption of Shares pursuant to a computer
tape described in preceding paragraph 1(b) of the Article, make payment by
directing a federal funds wire order to the account previously designated by the
Approved Institution specified in said computer tape.
8. The Transfer Agent shall not be required to issue any Shares after
it has received from an Officer of the Fund or from an appropriate federal or
state authority written notification that the sale of Shares has been suspended
or discontinued, and the Transfer Agent shall be entitled to rely upon such
written notification.
9. Upon the issuance of any Shares in accordance with this Agreement
the Transfer Agent shall not be responsible for the payment of any original
issue or other taxes required to be paid by the Fund in connection with such
issuance of any Shares.
10. Shares which are subject to restriction on transfer or redemption
(including, without limitation, Shares acquired pursuant to a restrictive
investment representation, Shares held by controlling persons, Shares subject to
shareholder's agreements, etc.), other than the general restrictions on the
transferability of the shares described in the Prospectus, must be issued in
Share certificate form and must be stamped on the face thereof with a legend
describing the extent and conditions of the restriction or referring to the
source of such restriction, and shall be so issued and so legended by the
Transfer Agent only if the Fund so directs in a Certificate. Legended Shares may
not be transferred or redeemed except upon receipt by the Transfer Agent of an
opinion of counsel for the Fund stating that such transfer or redemption is in
accordance with applicable law, and may be properly effected. The Transfer Agent
shall be entitled to rely upon such opinion and shall be
<PAGE>
indemnified by the Fund for any transfer or redemption made in
reliance upon any such opinion.
11. The Transfer Agent shall accept a computer tape consistent with the
Transfer Agent's tape layout package, as amended from time to time, which is
reasonably believed by the Transfer Agent to be furnished by or on behalf of any
Approved Institution and is represented to be instructions with respect to the
transfer of Shares from one account of such Approved Institution to another such
account, and shall effect the transfers specified in said computer tape.
12. (a) Except as otherwise provided in sub-paragraph (b) of this
paragraph and in paragraph 13 of this Article, Shares will be transferred,
exchanged or redeemed upon presentation to the Transfer Agent of Share
certificates, telephone redemption requests where such requests are authorized
in the subscription order form or in a subsequent written authorization or
instructions properly endorsed for transfer, exchange or redemption, and bearing
satisfactory evidence of the payment of stock transfer taxes. In the case of
small estates, where no administration is contemplated, the Transfer Agent may,
when furnished with an appropriate surety bond, and without further approval of
the Fund, transfer, exchange or redeem Shares registered in the name of a
decedent where the current market value of the Shares being transferred does not
exceed such amount as may from time to time be prescribed by various states. The
Transfer Agent reserves the right to refuse to transfer, exchange or redeem
Shares until it is satisfied that the endorsement on the stock certificate or
instructions is valid and genuine, and for that purpose it will require, unless
otherwise instructed by an authorized officer of the Fund, a guarantee of
signature by an eligible guarantor institution which includes a domestic bank, a
domestic credit union, a member bank of the Federal Reserve System or a member
firm of a national securities exchange; pursuant to the Transfer Agent's
standards and procedures. The Transfer Agent also reserves the right to refuse
the transfer, exchange or redeem Shares until it is satisfied that the requested
transfer or redemption is legally authorized, and it shall incur no liability
for the refusal, in good faith, to make transfers, exchanges or redemptions
which the Transfer Agent, in its judgment, deems improper or unauthorized, or
until it is satisfied that there is no basis to any claims adverse to such
transfer, exchange or redemption. The Transfer Agent may, in effecting
transfers, exchanges and redemptions of Shares, rely upon those provisions of
the Uniform Act for the Simplification of Fiduciary Security Transfers or the
Uniform Commercial Code, as the same may be amended from time to time,
applicable to the transfer of securities, and the Fund shall indemnify the
Transfer Agent for any act done or omitted by it in good faith in reliance upon
such laws except where such laws conflict with the
<PAGE>
Securities Act of 1933, the Securities Exchange Act of 1934 or the Investment
Company Act of 1940.
(b) Notwithstanding the foregoing or any other provisions
contained in this Agreement to the contrary, the Transfer Agent shall be fully
protected by the Fund in not requiring any instruments, documents, assurances,
endorsements or guarantees, including, without limitation, any signature
guarantees, in connection with a redemption, or transfer, of Shares whenever the
Transfer Agent reasonably believes that requiring the same would be inconsistent
with the transfer and redemption procedures as described in the Prospectus.
13. Notwithstanding any provision contained in this Agreement to the
contrary, the Transfer Agent shall not be required or expected to require, as a
condition to any transfer of any Shares pursuant to paragraph 11 of this Article
or any exchange or redemption of any Shares pursuant to a computer tape
described in this Article, any documents, including, without limitation, any
documents of the kind described in sub-paragraph (a) of paragraph 12 of this
Article, to evidence the authority of the person requesting the transfer or
redemption and/or the payment of any stock transfer taxes, and shall be fully
protected in acting in accordance with the applicable provisions of this
Article.
14. (a) As used in this Agreement, the terms "computer tape" and
"computer tape believed by the Transfer Agent to be furnished by an Approved
Institution", shall include any tapes generated by the Transfer Agent to reflect
information believed by the Transfer Agent to have been inputted by an Approved
Institution, via a remote terminal or other similar link, into a data
processing, storage, or collection system, or similar system (the "System"),
located on the Transfer Agent's premises. For purposes of paragraph 1 of this
Article, such a computer tape shall be deemed to have been furnished at such
times as are agreed upon from time to time by the Transfer Agent and Fund only
if the information reflected thereon was inputted into the System at such times
as are agreed upon from time to time by the Transfer Agent and the Fund.
(b) Nothing contained in this Agreement shall constitute any
agreement or representation by the Transfer Agent to permit, or to agree to
permit, any Approved Institution to input information into a System.
<PAGE>
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Fund shall furnish to the Transfer Agent a copy of a resolution
of its Board of Directors, certified by the Secretary or any Assistant
Secretary, either (i) setting forth with respect to a Series the date of the
declaration of a dividend or distribution, the date of accrual or payment, as
the case may be, thereof, the record date as of which Shareholders entitled to
payment, or accrual, as the case may be, shall be determined, the amount per
Share of such dividend or distribution, the payment date on which all previously
accrued and unpaid dividends are to be paid, and the total amount, if any,
payable to the Transfer Agent on such payment date, or (ii) authorizing the
declaration of dividends and distributions on a daily or other periodic basis
and authorizing the Transfer Agent to rely on a Certificate setting forth the
information described in subsection (i) of this paragraph.
2. Upon the payment date specified in such Certificate or resolution,
as the case may be, the Fund shall, in the case of a cash dividend or
distribution, cause the Custodian to pay to the Transfer Agent an amount of
cash, if any, sufficient for the Transfer Agent to make the payment, if any,
specified in such Certificate or resolution, as the case may be, to the
Shareholders of record as of such payment date. The Transfer Agent will, upon
receipt of any such cash, make payment of such cash dividends or distributions
to the Shareholders of record as of the record date by: (i) mailing a check,
payable to the registered shareholder, to the address of record or dividend
mailing address, or (ii) wiring such amounts to the accounts previously
designated by an Approved Institution, as the case may be. The Transfer Agent
shall not be liable for any improper payments made in accordance with a
Certificate or resolution described in the preceding paragraph. If the Transfer
Agent shall not receive from the Custodian sufficient cash to make payments of
any cash dividend or distribution to all shareholders of the Fund as of the
record date, the Transfer Agent shall, upon notifying the Fund, withhold payment
to all shareholders of record as of the record date until sufficient cash is
provided to the Transfer Agent.
3. It is understood that the Transfer Agent shall in no way be
responsible for the determination of the rate or form of dividends or capital
gain distributions due to the shareholders.
4. It is understood that the Transfer Agent shall file such appropriate
information returns concerning the payment of dividends and capital gain
distributions with the proper federal, state and local authorities as are
required by law to be filed by the Fund but shall in no way be responsible for
the collection or
<PAGE>
withholding of taxes due on such dividends or distributions due to shareholders,
except and only to the extent, required of it by applicable law.
ARTICLE VII
CONCERNING THE FUND
1. The Fund shall promptly deliver to the Transfer Agent written notice
of any change in the Officers authorized to sign Share certificates,
Certificates, notifications or requests, together with a specimen signature of
each new Officer. In the event any Officer who shall have signed manually or
whose facsimile signature shall have been affixed to blank Share certificates
shall die, resign or be removed prior to issuance of such Share certificates,
the Transfer Agent may issue such Share certificates of the Fund notwithstanding
such death, resignation or removal, and the Fund shall promptly deliver to the
Transfer Agent such approval, adoption or ratification as may be required by
law.
2. Each copy of the Articles of Incorporation of the Fund and copies of
all amendments thereto shall be certified by the Secretary of State (or other
appropriate official) of the state of organization, and if such Articles of
Incorporation and/or amendments are required by law also to be filed with a
county or other officer or official body, a certificate of such filing shall be
filed with a certified copy submitted to the Transfer Agent. Each copy of the
By-Laws and copies of all amendments thereto, and copies of resolutions of the
Board of Directors of the Fund, shall be certified by the Secretary of the Fund
under the corporate seal.
3. It shall be the sole responsibility of the Fund to deliver to the
Transfer Agent the Fund's currently effective Prospectus.
ARTICLE VIII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent shall not be liable and shall be fully protected
in acting upon any computer tape, writing or document reasonably believed by it
to be genuine and to have been signed or made by the proper person or persons
and shall not be held to have any notice of any change or authority of any
person until receipt of written notice thereof from the Fund or such person. It
shall also be protected in processing Share certificates which it reasonably
believes to bear the proper manual or facsimile signatures of the Officers of
the Fund and the property countersignature of the Transfer Agent.
<PAGE>
2. The Transfer Agent may establish such additional procedures, rules
and regulations governing the transfer or registration of certificates of stock
as it may deem advisable and consistent with such rules and regulations
generally adopted by bank transfer agents.
3. The Transfer Agent shall keep such records as are specified in
Appendix C hereto in the form and manner, and for such period, as it may deem
advisable but not inconsistent with the rules and regulations of appropriate
government authorities, in particular Rules 31a-2 and 31a-3 under the federal
Investment Company Act of 1940 as amended from time to time. The Transfer Agent
may deliver to the Fund from time to time at its discretion, for safekeeping or
disposition by the Fund in accordance with law, such records, papers, Share
certificates which have been canceled in transfer, exchange or redemption, or
other documents accumulated in the execution of its duties as such Transfer
Agent, as the Transfer Agent may deem expedient, other than those which the
Transfer Agent is itself required to maintain pursuant to applicable laws and
regulations, and the Fund shall assume all responsibility for any failure
thereafter to produce any record, paper, canceled Share certificate, or other
document so returned, if and when required. The records specified in Appendix C
hereto maintained by the Transfer Agent pursuant to this paragraph 3 shall be
considered to be the property of the Fund, shall be made available upon request
for inspection by the officers, employees, and auditors of the Fund, and records
shall be delivered to the Fund upon request and in any event upon the date of
termination of this Agreement, as specified in Article IX of this Agreement, in
the form and manner kept by the Transfer Agent on such date of termination or
such earlier date as may be requested by the Fund.
4. The Transfer Agent may employ agents or attorneys-in-fact at the
expense of the Fund, and shall not be liable for any loss or expense arising out
of, or in connection with, the actions or omissions to act of its agents or
attorneys-in-fact so long as the Transfer Agent acts in good faith and without
negligence or willful misconduct in connection with the selection of such agents
or attorneys-in-fact.
5. The Transfer Agent shall not be liable for any loss or damage,
including counsel fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its own failure to act
in good faith, negligence or willful misconduct.
6. The Fund shall indemnify and exonerate, save and hold harmless the
Transfer Agent from and against any and all claims (whether with or without
basis in fact or law), demands, expenses (including attorney's fees) and
liabilities of any and every nature which the Transfer Agent may sustain or
incur or which may
<PAGE>
be asserted against the Transfer Agent by any person by reason of or as a result
of any action taken or omitted to be taken by the Transfer Agent in good faith
and without negligence or willful misconduct or in reliance upon (i) any
provision of this Agreement; (ii) the Prospectus; (iii) any instruction or order
including, without limitation, any computer tape reasonably believed by the
Transfer Agent to have been received from an Approved Institution; (iv) any
instrument, order or Share certificate reasonably believed by it to be genuine
and to be signed, countersigned or executed by any duly authorized Officer of
the Fund; (v) any Certificate or other instructions of an Officer; or (vi) any
opinion of legal counsel for the Fund or the Transfer Agent. The Fund shall
indemnify and exonerate, save and hold the Transfer Agent harmless from and
against any and all claims (whether with or without basis in fact or law),
demands, expenses (including attorney's fees) and liabilities of any and every
nature which the Transfer Agent may sustain or incur or which may be asserted
against the Transfer Agent by any person by reason of or as a result of any
action taken or omitted to be taken by the Transfer Agent in good faith and
without negligence or willful misconduct in connection with its appointment or
in reliance upon any law, act, regulation or any interpretation of the same even
though such law, act or regulation may thereafter have been altered, changed,
amended or repealed.
7. Specifically, but not by way of limitation, the Fund shall indemnify
and exonerate, save and hold the Transfer Agent harmless from and against any
and all claims (whether with or without basis in fact or law), demands, expenses
(including attorney's fees) and liabilities of any and every nature which the
Transfer Agent may sustain or incur or which may be asserted against the
Transfer Agent by any person in connection with the Transfer Agent's capacity
and authorization to issue Shares and the form and amount of authorized Shares.
8. Notwithstanding the foregoing, the Transfer Agent shall be liable to
the Fund with respect to any redemption check which the Transfer Agent pays on
which the signature of the drawer is forged, but only to the extent of the
lesser of (a) the amount of such redemption check minus $2,500.00 and (b) the
amount of insurance proceeds received by the Transfer Agent with respect to such
redemption check, and only if, and for so long as each of the following
conditions is satisfied: (i) insurance with respect to Fund redemption checks is
maintained by the Transfer Agent, and (ii) the Fund pays to the Transfer Agent
monthly the amount which the Transfer Agent determines to be the Fund's pro rata
share of the cost of such insurance coverage. The Fund agrees that the insurance
may be discontinued or canceled without any prior notice, and that the Transfer
Agent shall at all times have the absolute right, without any prior notice to
the Fund, to cease to maintain such insurance, and the Transfer Agent agrees to
notify the Fund promptly upon canceling or discontinuing any
<PAGE>
such insurance or upon learning of any such cancellation or discontinuance. In
the event such insurance is not maintained, or in the event the Fund does not
pay monthly to the Transfer Agent the amount which the Transfer Agent determines
to be the Fund's pro rata share of the cost of such insurance coverage, the
Transfer Agent shall not be liable for any loss or damage, including counsel
fees, resulting from its paying or not paying any redemption check, unless such
loss or damage arises out of the Transfer Agent's failure to use good faith,
negligence or willful misconduct.
9. At any time the Transfer Agent may apply to an Officer of the Fund
for written instructions with respect to any matter arising in connection with
the Transfer Agent's duties and obligations under this Agreement, and the
Transfer Agent shall not be liable for any action taken or permitted by it in
good faith in accordance with such written instructions. Such application by the
Transfer Agent for written instructions from an Officer of the Fund may, at the
option of the Transfer Agent, set forth in writing any action proposed to be
taken or omitted by the Transfer Agent with respect to its duties or obligations
under this Agreement and the date on and/or after which such action shall be
taken, and the Transfer Agent shall not be liable for any action taken or
omitted in accordance with a proposal included in any such application on or
after the date specified therein unless, prior to taking or omitting any such
action, the Transfer Agent has received written instructions in response to such
application specifying the action to be taken or omitted. The Transfer Agent may
consult counsel to the Fund, or its own counsel, at the expense of the Fund and
shall be fully protected with respect to anything done or omitted by it in good
faith in accordance with the advice or opinion of counsel to the Fund or its own
counsel.
10. When mail is used for delivery of non-negotiable Share
certificates, the value of which does not exceed the limits of the Transfer
Agent's Blanket Bond, the Transfer Agent shall send such non-negotiable Share
certificates by first class mail, and such deliveries will be covered while in
transit by the Transfer Agent's Blanket Bond. Non-negotiable Share certificates,
the value of which exceed the limits of the Transfer Agent's Blanket Bond, will
be sent by insured registered mail. Negotiable Share certificates will be sent
by insured registered mail. The Transfer Agent shall advise the Fund of any
Share certificates returned as undelivered after being mailed as herein provided
for.
11. To the extent that the Fund issues certificates to its shareholders
pursuant to its current propspectus, the Transfer Agent may issue new Share
certificates in place of Share certificates represented to have been lost,
stolen, or destroyed upon receiving instructions in writing from an Officer and
<PAGE>
indemnity satisfactory to the Transfer Agent. Such instructions from the Fund
shall be in such form as approved by the Board of Directors of the Fund in
accordance with the provisions of law or of the By-Laws of the Fund governing
such matters. If the Transfer Agent receives written notification from the owner
of the lost, destroyed or stolen Share certificate within a reasonable time
after he has notice of it, the Transfer Agent shall promptly notify the Fund and
shall act pursuant to written instructions signed by an Officer. If the Fund
receives such written notification from the owner of the lost, destroyed or
stolen Share certificate within a reasonable time after he has notice of it, the
Fund shall promptly notify the Transfer Agent and the Transfer Agent shall act
pursuant to written instructions signed by an Officer. The Transfer Agent shall
not be liable for any act done or omitted by it pursuant to the written
instructions described herein. The Transfer Agent may issue new Share
certificates in exchange for, and upon surrender of, mutilated Share
certificates.
12. The Transfer Agent will issue and mail subscription warrants for
Shares of capital stock, Shares representing stock dividends, exchange or
splits, or act as conversion agent upon receiving written instructions from an
Officer and such other documents as the Transfer Agent may deem necessary.
13. The Transfer Agent will supply shareholder lists to the Fund from
time to time upon receiving a request therefor from an Officer of the Fund.
14. In case of any requests or demands for the inspection of the
shareholder records of the Fund, the Transfer Agent will endeavor to notify the
Fund and to secure instructions from an Officer as to such inspection. The
Transfer Agent reserves the right, however, to exhibit the Shareholder records
to any person whenever it receives an opinion from its counsel that there is a
reasonable likelihood that the Transfer Agent will be held liable for the
failure to exhibit the shareholder records to such person.
15. At the request of an Officer, the Transfer Agent will address and
mail such appropriate notices to shareholders as the Fund may direct.
16. Notwithstanding any of the foregoing provisions of this Agreement,
the Transfer Agent shall be under no duty or obligation to inquire into, and
shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority of the
Approved Institution or of the Fund, as the case may be, to request such sale or
issuance;
<PAGE>
(b) The legality of a transfer of Shares or of a redemption of
any Shares, the propriety of the amount to be paid therefor, or the authority of
the Approved Institution or of the Fund, as the case may be, to request such
transfer or redemption;
(c) The legality of the declaration of any dividend by the
Fund, or the legality of the issue of any Shares in payment of any stock
dividend; or
(d) The legality of any recapitalization or readjustment of
the Shares.
17. The Transfer Agent shall be entitled to receive and the Fund hereby
agrees to pay to the Transfer Agent for its performance hereunder, including its
performance of the duties and functions set forth in Appendix C hereto, (i) its
reasonable out-of-pocket expenses (including legal expenses and attorney's fees)
incurred in connection with this Agreement and its performance hereunder and
(ii) such compensation as may be agreed upon in writing from time to time by the
Transfer Agent and the Fund.
18. The Transfer Agent shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Transfer Agent.
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than 90 days after the date of receipt of
such notice. In the event such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board of Directors of the Fund,
certified by the Secretary or any Assistant Secretary, electing to terminate
this Agreement and designating a successor transfer agent or transfer agents. In
the event such notice is given by the Transfer Agent, the Fund shall, on or
before the termination date, deliver to the Transfer Agent a copy of a
resolution of its Board of Directors certified by the Secretary or any Assistant
Secretary designating a successor transfer agent. If the Fund fails to designate
a successor transfer agent and if the Transfer Agent is unable to find a
successor transfer agent, the Fund shall, upon the date specified in the notice
of termination of this Agreement and delivery of the records maintained
hereunder, be deemed to be its own transfer agent and the Transfer Agent shall
thereby be relieved of all duties and responsibilities pursuant to this
Agreement.
<PAGE>
ARTICLE X
MISCELLANEOUS
1. The Fund agrees that, prior to effecting any change in the
Prospectus which would increase or alter the duties and obligations of the
Transfer Agent hereunder, it shall advise the Transfer Agent of such proposed
change at least 30 days prior to the intended date of the same, and shall
proceed with such change only if it shall have received the written consent of
the Transfer Agent thereto.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address first
above written, or at such other place as the Fund may from time to time
designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Transfer Agent shall be sufficiently given if
addressed to the Transfer Agent and mailed or delivered to it at its office as
indicated on page 1 of this Agreement or at such other place as the Transfer
Agent may from time to time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the formality of this
Agreement, and, except for an amendment to Appendix B or Appendix C hereto,
authorized or approved by a resolution of the Board of Directors of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Transfer Agent.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
7. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
8. The provisions of this Agreement are intended to benefit only the
Transfer Agent and the Fund, and no rights shall be granted to any other person
by virtue of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
Attest:
/s/ Christine A. Bivetto By: /s/ Bernadette N. Finn
Attest: REICH & TANG SERVICES INC.
by Reich & Tang Asset Management, Inc.
as General Partner
/s/ Christine A. Bivetto By: /s/ Lorraine C. Hylser
<PAGE>
Schedule A
California Daily Tax Free Income Fund, Inc.
Connecticut Daily Tax Free Income Fund, Inc.
Cortland Trust, Inc.
Daily Dollar International, Ltd.
Daily Tax Free Income Fund, Inc.
Delafield Fund, Inc.
Florida Daily Municipal Income Fund
Institutional Daily Income Fund
Mexico Dollar Income Fund, Ltd.
Michigan Daily Tax Free Income Fund, Inc.
New Jersey Daily Municipal Income Fund, Inc.
New York Daily Tax Free Income Fund, Inc.
North Carolina Daily Municipal Income Fund, Inc.
Pennsylvania Daily Municipal Income Fund
Reich & Tang Equity Fund, Inc.
Short Term Income Fund, Inc.
Tax Exempt Proceeds Fund, Inc.
<PAGE>
ADDENDUM
TO THE
TRANSFER AGENCY AGREEMENT
Addendum ("Addendum") to the Transfer Agency Agreement (the
"TA Agreement"), made as of the 22nd day of April, 1996, between each fund
listed in the Schedule A attached to the TA Agreement having its principal
office and place of business at 600 Fifth Avenue, New York, NY 10020 (each fund
hereinafter referred to as the "Fund"), and Reich & Tang Services L.P., a
Delaware limited partnership, having its principal office and place of business
at 600 Fifth Avenue, New York, New York 10020 (the "Transfer Agent").
W I T N E S S E T H
WHEREAS, all defined terms in the TA Agreement shall have the
same meaning with respect to this Addendum,
WHEREAS, Article V, Section 7 of the TA Agreement authorizes
the Transfer Agent to honor check cashing redemptions as described in the Fund's
Prospectus and to process such redemptions upon receipt of moneys paid to it by
Investors Fiduciary Trust Company, the Funds' custodian (the "Custodian");
WHEREAS, the Transfer Agent has entered into a cash management
agreement (the "Delaware Express Agreement"), a copy of which is attached hereto
as Exhibit A, with Bankers Trust Company, a New York banking corporation
("BTCo") and Bankers Trust (Delaware), a Delaware state bank ("BT Delaware"),
together sometimes referred to hereinafter as "BT", to facilitate check
redemptions by each Fund's shareholders and, in accordance with the terms of the
Delaware Express Agreement, BT serves as the "paying agent";
WHEREAS, pursuant to the Delaware Express Agreement, BT
Delaware has established a zero-balance account (the "Account") for the Transfer
agent on behalf of the Fund;
WHEREAS, pursuant to the Delaware Express Agreement, the
Account is funded from a deposit account maintained by the Transfer Agent on
behalf of the Fund with BTCo (the "Source Account");
WHEREAS, from time to time the Transfer Agent makes payment or
transfer of monies on behalf of the Fund for which there would be, at the close
of business on the date of such payment or transfer, insufficient monies held by
the Transfer
<PAGE>
Agent in the Account or Source Account to allow the completion of
such payment or transfer;
WHEREAS, the Fund acknowledges that it is necessary and
appropriate to authorize the Transfer Agent on the Fund's behalf to request that
the Custodian process certain daily anticipatory redemptions effected in
accordance with such Fund's check cashing privilege with BT,
WHEREAS, the Transfer Agent desires to have available funds
deposited by the Custodian with BT in order to meet such anticipatory redemption
requests upon the exercise of the check cashing privilege,
WHEREAS, from time to time, pursuant to the Express Agreement,
BTCo may permit overdrafts (each an "Overdraft") on the Source Account;
WHEREAS, the purpose of such Overdrafts is to provide
temporary liquidity for redemptions on behalf of the Fund;
That for and in consideration of the mutual promises hereinafter set
forth, the parties hereto covenant and agree as follows:
Notwithstanding the provisions of Article V, Section 7 of the
TA Agreement, the Transfer Agent may honor the payment of redemption requests
through the use of certain anticipatory redemptions for the Fund prior to its
receipt of proper instructions from a redeeming shareholder in accordance with
the terms of the current prospectus and the receipt of the full redemption
proceeds from the Custodian.
The Transfer Agent shall notify the Fund upon receiving
written notification from BT of an overdraft of the Source Account.
The Fund hereby authorizes the Transfer Agent to instruct the
Custodian to advance additional monies immediately to BT to cover any shortage
in the Source Account upon receipt of such written notice of such overdraft from
BT.
The Fund shall notify its Custodian in writing that 1% of
its net assets shall be held by the Custodian in a segregated account solely for
the benefit of BT to cover any potential shortage in the Source Account as a
result of an Overdraft created by BT honoring the check redemption privilege.
The Transfer Agent will deliver to BT, within five
days of the end of each calendar month, certification in a form reasonably
acceptable to BT of (i) the amount held in such segregated account on behalf of
the Fund, (ii) the net assets of
<PAGE>
the Fund, (iii) the average Overdraft activity for the fund for such month and
(iv) evidence that the segregated account is being maintained as required by
this Addendum, each as of the end of such month.
The Fund agrees that upon notice from BT that the
agreed-upon percentage set forth in Section 4 of this Addendum is more or less
than the historical Overdraft rate incurred by the Fund over the previous two
calendar months, the Fund shall immediately direct its Custodian in writing to
withdraw or deposit, as the case may be, sufficient assets from or into, as the
case may be, such segregated account to cause the amount held in such segregated
account to equal the percentage so indicated by the Fund.
Notwithstanding Article X, Section 8 of the TA
Agreement, the provisions of this Addendum to the Transfer Agent may be relied
upon by and shall inure to the benefit of BT, its successors and assigns, and
all rights granted to the Transfer Agent hereunder, shall be exercisable by BT
as if granted directly to BT by this Addendum.
8. In the event of the addition or deletion of any Fund to the
TA Agreement, the Transfer Agent shall notify BT of any such changes prior to
such change and shall provide BT with a re-executed copy of this Addendum, as
may be amended from time to time.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Addendum to be executed in counterpart as of November , 1996.
Attest: Daily Tax Free Income Fund, Inc.
Florida Daily Municipal Income Fund
Short Term Income Fund, Inc.
California Daily Tax Free Income Fund, Inc.
New York Daily Tax Free Income Fund, Inc.
North Carolina Daily Municipal Income Fund, Inc.
Michigan Daily Tax Free Income Fund, Inc.
New Jersey Daily Municipal Income Fund, Inc.
Tax Exempt Proceeds Fund, Inc.
Pennsylvania Daily Municipal Income Fund
Cortland Trust, Inc.
Connecticut Daily Tax Free Income Fund, Inc.
/s/ Christine Bivetto By:/s/ Bernadette N. Finn
Name: Bernadette N. Finn
Title: Secretary
Attest: REICH & TANG SERVICES L.P.
By: REICH & TANG ASSET MANAGEMENT,
INC., as General Partner
/s/ Christine Bivetto By:/s/ Richard DeSanctis
Name: Richard DeSanctis
Title: Treasurer
AGREED AND ACCEPTED:
Bankers Trust Company
By: /s/ John P. Zori
Name: John P. Zori
Title: Vice President
Bankers Trust (Delaware)
By: /s/ Edward A. Reznick
Name: Edward A. Reznick
Title: Vice President & COO
BATTLE FOWLER
A PARTNERHSIP INCLUDING PROFESSIONAL CORPORATION
280 PARK AVENUE
NEW YORK, NY 10017
(212) 949-8300
WRITER'S DIRECT DIAL NUMBER
Cable Address
"Counsellor"
______________
TELEX 127053
______________
Facsimile
(212) 986-5135
January 17, 1989
Tax Exempt Proceeds Fund, Inc.
c/o Reich & Tang L.P.
100 Park Avenue
New York, New York 10017
Dear Sirs:
We have acted as counsel to the Tax Exempt Proceeds Fund, Inc. (the
"Fund"), a Maryland corporation, in connection with the preparation of the
Registration Statement of the Fund (the "Registration Statement").
You have asked for our opinion as to whether the Fund is a "qualified
regulated investment company" as defined in Internal Revenue Service Notice
87-22, 1987-10 I.R.B. 1, ("Notice 97-22").
The Registration Statement states that "Since the Fund is established
primarily for issuers of tax exempt bonds that do not wish to be subject to the
Code's rebate requirements, the Fund intends to comply with the provisions of
Notice 87-22 and will invest only in tax exempt bonds the income from which, in
the opinion of bond counsel at the date of issuance, is not subject to the
individual alternative minimum tax provisions."
Section 148 of the Internal Revenue Code of 1986, as amended, (the
"Code") provides that an issuer of state or local tax exempt bonds that invests
the bond proceeds in higher yielding "investment property" must rebate all or a
portion of the income from such investments in order for the bond interest to
remain tax exempt to the bond holders. Code Section 148 excludes from the term
"investment property" any "tax-exempt bond" that is not a specified private
activity bond" as defined in Section 57(a) (5) (C), the interest income on which
is an item of tax preference and subject to the alternative minimum tax
provisions of the Code. The reference in Code Section 148 to specified private
activity bonds was added by the recently enacted Technical and Miscellaneous
Revenue Act of 1988. (P.L. 100-647) ("TAMRA").
<PAGE>
Tax Exempt Proceeds Fund, Inc.
c/o Reich & Tang L.P.
-2-
Notice 87-22 provides in part that for purposes of the rebate
requirement, the term "tax-exempt bond" includes stock of a "qualified regulated
investment company", i.e., a company that (a) is a regulated investment company
as defined in Section 851 (a) of the Code which meets the requirements of Code
Section 852(a); (b) has authorized and outstanding only one class of stock; (c)
to the extent practicable, invests all its assets in tax exempt bonds; and (d)
at least 98% of its income is attributable to, or 98% of the weighted average
value of its assets are, tax-exempt bonds. This Notice which was issued prior to
TAMRA's addition of the reference to "specified private activity bonds" provides
that the rules announced therein may be relied on until the issuance of proposed
regulations relating to the definition of "investment property" for purposes of
the arbitrage and rebate provisions of the Code.
Whether or not the Fund will qualify as a "qualified regulated
investment company" depends on facts and circumstances many of which have not
yet occurred. However, in rendering this opinion, we have reviewed the Fund's
Articles of Incorporation, as amended, By-Laws, as amended and the Deposit and
Withdrawal Provisions Form. Furthermore, we have relied on your representations
that (1) at all times during the Fund's existence, the Fund will have authorized
and outstanding only one class of stock and will be registered under the
Investment Company Act of 1940, as amended, as a management company; (2) in
respect of each taxable year of the Fund, the Fund will distribute a sufficient
amount of its investment company taxable income to satisfy the deduction for
dividends paid requirement of Code Section 852(a) and will comply with the
registration and filing requirements and the income and investment limitations
of Code Section 851; and (3) the Fund will invest only in bonds which are exempt
from regular federal income tax and are not subject to the federal individual
alternative minimum tax.
Accordingly, based on the foregoing and assuming the Fund will exist
and continue to be operated in accordance with the representations described
above, it is our opinion that the Fund will be a "qualified regulated investment
company" as defined in Notice 87-22, and, therefore, issuers of tax exempt bonds
that invest the proceeds thereof in the Fund will be exempt as to those bonds
from the rebate provisions of Section 148 of the Code.
<PAGE>
Tax Exempt Proceeds Fund, Inc.
c/o Reich & Tang L.P.
-3-
This opinion represents our view as to the interpretation of existing
law and cannot be taken as an assurance as to the manner in which the law will
subsequently develop. Although Notice 87-22 states that it is anticipated that
proposed regulations regarding "investment property" will provide the same rules
set forth in Notice 87-22, no assurance can be given that the Internal Revenue
Service will not alter its present position or adopt new positions with regard
to the matters upon which we are rendering an opinion.
Very truly yours,
\s\ Battle Fowler
<PAGE>
BATTLE FOWLER
A PARTNERHSIP INCLUDING PROFESSIONAL CORPORATION
280 PARK AVENUE
NEW YORK, NY 10017
(212) 949-8300
WRITER'S DIRECT DIAL NUMBER
Cable Address
"Counsellor"
______________
TELEX 127053
______________
Facsimile
(212) 986-5135
January 18, 1989
Tax Exempt Proceeds
Fund, Inc.
100 Park Avenue
New York, NY 10017
Dear Sirs:
You have asked for our opinion on the issue whether the Tax Exempt
Proceeds Fund, Inc. (the "Fund") will be treated for federal income tax purposes
as the owner of so-called "tax-exempt" bonds or participation interests therein
acquired by it in circumstances in which the Fund also acquires rights to
exercise a "demand feature" and thereby demand repurchase of such bonds or
participation interests therein for creditworthiness or liquidity purposes.
In rendering this opinion, we have examined (i) the Registration
Statement dated November 23, 1988 and all amendments thereto to date, (ii) the
proposed form of Participation and Servicing Agreement to be entered into by the
Fund, (iii) the Representation Letter from the Fund dated January 18, 1989 and
(iv) such other documents as we deemed relevant. We have relied on the validity
of said documents and on the accuracy and completeness of the facts set forth
therein.
I. Facts
The Fund will purchase variable or floating rate tax-exempt bonds and
participation interests in such bonds held in commercial banks'
portfolios. 1/ Most of the bonds will be
- ------------------
1/ The Fund has the authority to purchase variable or floating rate
participation interests in fixed rate "tax-exempt" bonds. We are not at
this time opining as to
(Footnote cont'd)
<PAGE>
BATTLE FOWLER PAGE 2
secured by the selling bank's letter of credit or a confirming letter of credit
from another bank. The Fund will buy each bond or participation interest from a
bank at par value and at a negotiated yield based on a percentage of the prime
rate (or some other interest rate based on a different rate adjustment index).
The difference between the interest rates on the bonds and the yield of the
participation interests represents the bank's fees for (1) the risk it assumes
pursuant to its repurchased commitment in case of default and (2) the risk it
assumes pursuant to its repurchase commitment in order to provide liquidity to
the Fund.
The Fund will purchase bonds or participations in bonds from a bank
portfolio at par. In order to insure that the bonds in the Fund's portfolio are
liquid, the Fund will contract with each selling bank for a commitment to
repurchase the bonds or the participations ("demand features") on not more than
thirty days' notice, in whole or in part, exercisable at any time or at
specified intervals not exceeding one year, at the par value of the underlying
bonds. The Fund's right to exercise the demand features for liquidity purposes
(the "liquidity demand feature") will not be assignable or transferable and will
expire on the earlier of (i) the transfer or assignment of the Fund's
participation interest or the bond to a third party, or (ii) a date not beyond
one-half the remaining term of the bond. In addition, the Fund will contract
with each selling bank to repurchase on demand a bond or the Fund's entire
participation interest in a bond, at a purchase price equal to the principal
amount of the bond plus accrued interest, if any, thereon to the date of
repurchase, upon the occurrence of an event of default on the fond (the "default
demand feature"). Each bank will issue its irrevocable transferable letter of
credit to the account of the Fund in the full amount of each bond plus an amount
equal to a stated period of accrued interest on the bonds.
You have represented that the Fund will exercise its rights under a
default demand feature only upon a default under the terms of the underlying
bond documents, and that it will
- ------------------
(Footnote cont'd from previous page)
whether the Fund will be treated for federal income tax purposes as the
owner of such bonds or participation interests therin. The Fund will
not purchase such participation interests without a favorable opinion
of counsel.
<PAGE>
BATTLE FOWLER PAGE 3
exercise its rights under the liquidity demand features only to provide
liquidity for the Fund in order to meet redemptions of Fund shares or to
maintain a "high quality" investment portfolio, and that the liquidity demand
feature is obtained by the Fund solely to meet Securities and Exchange
Commission requirements. You have also represented that the amount of separate
consideration for the demand features paid to a selling bank, though the
retention by the selling bank of a portion of the interest paid on the
underlying bonds (the interest in excess of the negotiated yield to the Fund),
approximates the fair market value of the demand features.
II. Summary of Opinion
It is our opinion that for federal income tax purposes, the Fund will
be treated as the owner of the bonds and the participation interests acquired by
it subject to is rights to exercise demand features for liquidity and
creditworthiness purposes. We point out, however, that the IRS 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" or demand
feature and could reach a different conclusion from that reached herein.
III. Law and Analysis
The classification of a transfer of ownership of property for federal
income tax purposes is dependent upon whether the transferor has relinquished
substantial incidents of ownership and upon whether the transferee bears the
risk of economic loss and has the opportunity of economic profit. American
National Bank of Austin v.
Untied States, 421 F.2d 442 (5th Cir.), cert. denied, 400 U.S. 819 (1970).
In Rev. Rul. 82-144, 1982-2 C.B. 34, the IRS addressed the issue
whether a bond fund is the owner of tax-exempt obligations notwithstanding the
fact that it shifted the risk of loss with respect to some of the obligations
through the simultaneous purchase of puts. The purpose for the acquisition of
the puts was to increase the liquidity of some of the tax-exempt obligations
purchased by the bond fund in order to provide cash for the demands of
shareholders deciding to withdraw their investments. The bond fund paid a
separate consideration for the puts, which were purchased at their fair market
value. The puts provided that the taxpayer had the opportunity or right to
require the seller to repurchase the tax-exempt obligations at a fixed price.
The puts were for periods substantially less than the life of the tax-exempt
obligations to which they applied, were non-assignable, and terminated if the
<PAGE>
BATTLE FOWLER PAGE 4
tax-exempt obligations to which they related were disposed of by the bond fund.
In concluding that the bond fund was the owner of the tax-exempt obligations for
federal income tax purposes notwithstanding the fact that a put agreement was
acquired simultaneously with the acquisition of the tax-exempt obligation, the
IRS relied on the following three factors: (1) the purchaser paid an arm's
- -length price for the puts - - a price that represented the parties' estimation
of the value of the risk that the seller was assuming under the put: (2) the
primary purpose of the puts was to increase the liquidity of the bond fund's
portfolio obligations rather than to shift the risk of loss; and (3) the
shifting of the risk of loss was for a definite period that was substantially
less than the life of the obligations.
In Citizens National Bank of Waco v. Untied States, 551 F. 2d 832 (Ct.
Cl. 1977), a bank had entered into a contract with one of its customers to
purchase at par value certain tax-exempt securities from the customer. As part
of the agreement, the customer (seller) agreed that it would repurchase the
securities at par value upon demand; however, the bank was not required to
resell the bonds to the customer. The court stated that this was a very
important fact that "tends to prove and indicates that the [b]ank was the owner
of the bonds and could keep them to maturity or sell them to [the seller] or
anyone else." Id. at 842. Furthermore, there was no evidence that a loan was
being considered by the taxpayers nor was there a payment of specified interest
on the amount paid. Accordingly, the court held that this was a valid sale to
the bank, and that for federal income tax purposes, the bank was the owner of
the tax-exempt securities.
In American National Bank of Austin v. Untied States, 421 F.2d 442 (5th
Cir.), cert. denied, 400 U.S. 819 (1970), the taxpayer bank paid an issuing
authority for municipal bonds awarded to dealers and subsequently sold by those
dealers to their customers. The bank had collected the interest income during
the period prior to the sale to the dealer's customers. The dealer would always
pay the bank an amount equal to the bank's bid price of the bonds whether such
price would result in a profit or loss for the dealer when the bond was sold to
a customer; the bank looked to the interest paid on the bonds and that the bank
was only a secured lender, the court stated:
The dealer exercised complete dominion over the bonds
after they came into the bank's possession. He sold
them at his pleasure, at prices he determined, and
without reference to the bank,
<PAGE>
BATTLE FOWLER PAGE 5
except that the proceeds were collected from the
customer by the bank and applied to the dealer's
account.......Taxpayer took only the risks of a
lender in these transactions.........Id. at 452.
Similarly, in Union Planters National Bank of Memphis v. United States,
426 F.2d 115 (6th Cir.), cert. denied, 400 U.S. 827 (1970), the court found that
the bank was not the true owner of municipal bonds, but rather was a secured
lender. In this case, the bank held legal title to the bonds; however, the bond
dealers listed these bonds for sale in trade publications in the same manner as
bonds in which they held legal title. When a dealer found a customer for the
bonds, he would repurchase them from the bank, which never refused to resell,
although there was no written requirement that it needed to do so. The only gain
that the bank incurred was the coupon interest accruing during the time it held
the bonds.
Both Union Planters National Bank of Memphis and American national Bank
of Austin contained various factors that led to the courts' findings that the
"transferee" of the obligations did not economically own them. First, it appears
that the banks did not have the unconditional right to hold the obligations
until maturity. Second, there appears to have been no means for the banks to
realize the capital appreciation on the obligations that they were holding.
Third, there appears to have been no risk of a decline in value of the security
to the banks. Instead, the ownership of the bonds was completely transitory with
the banks awaiting an order by the dealers to transfer the bonds to their
customers. The banks' sole source of gain was limited to the interest on the
bonds during this period.
In Rev. Rul. 74-27, 1974-1 C.B. 24, the IRS addressed a situation in
which a bank entered into "purchase and resale" agreements with some of its
customers under which the bank purchased tax-exempt bonds from its customers. As
part of the agreement, the bank was required to hold the identical bonds for
repurchase by the customer when the customer performed its obligation under its
agreement to repurchase the bonds. The customer was legally bound to repurchase
the obligations when demanded by the bank; if the customer did not comply with
this obligation, the bank was entitled to sell the bonds in the market and the
customer was obligated to pay any deficiency remaining unpaid after the
application of the proceeds of sale. In addition, the customer could demand the
return of the securities at any time it agreed to pay interest at a stipulated
rate of the amount paid by the bank. Based on these facts, the IRS held that the
sales by the customer to the bank were in
<PAGE>
BATTLE FOWLER PAGE 6
fact loans from the bank to the customer and that ownership of the securities
remained in the hands of the customers.
In Rev. Rul. 72-134, 1972-1 C.B. 29, as amplified by Rev. Rul. 72-575,
1972-2 C.B. 74, the IRS held that insurance protection obtained by a political
subdivision of a state or by an underwriter against default of principal or
interest payments on bonds issued by the political subdivision did not affect
the exclusion from gross income of interest on the bonds, and that the defaulted
interest paid by the insurance company was excludable from the gross income of
the underwriter and other bondholders under Section 103(a) (1) of the Internal
Revenue Code of 1954, as amended (the "Code"). In Rev. Rul. 76-78, 1976-1 C.B.
25, the IRS further amplified its position and held that proceeds of insurance,
purchased by individual investors or municipal bond funds, representing maturing
interest on defaulted obligations of a state or political subdivision, were
excludable from the gross income of the insured investors or funds under section
103(a)(1) of the Code. This latter ruling stated that upon payment by the
insurance company of principal or interest that was in default, the insurance
company would be subrogated to all of the bondholders' rights to payment and the
insurance company would be vested in all of the bondholders' options, votes,
rights and powers pursuant to the instruments governing the issuance of the
bonds. Further, payment by the insurance company to the bondholders would not
relieve the issuer of its obligation to pay the obligations according to their
terms.
Under the authority of Rev. Rul. 72-134, as amplified by Rev. Ruls.
72-575 and 76-78, bonds issued by a political subdivision which are insured by a
private company do not lose their tax-exempt status as a result of being
insured. In addition, the IRS has concluded in various private letter rulings
that a purchaser of tax-exempt status as a result of being insured. In addition,
the IRS has concluded in various private letter rulings that a purchaser of
tax-exempt securities subject to a contractual obligation by the seller to
repurchase the securities if the issuer defaults on any of its obligations would
be treated for federal income tax purposes as the owner of the securities. See,
e.t., PLR 8317017 (January 21, 1983); PLR 8247025 (August 18, 1982); PLR 8213052
(December 30, 1981); PLR 8213029 (December 29, 1981); PLR 8108032 (November 25,
1980). 2/
- --------------
2/ We point out that a private letter ruling has no precedential value and
can be relied upon only by the taxpayer who requested it; however, such
a ruling does reflect the position of certain IRS personnel as to a
stated set of facts as of the time the ruling was issued.
<PAGE>
BATTLE FOWLER PAGE 7
The foregoing authorities establish that the purchaser of tax-exempt securities
subject to a put for protection against default by the obligor may be treated
for federal income tax purposes as the owner of such securities.
Citizens National Bank of Waco and Rev. Rul. 82-144 conclude that the
purchaser of municipal bonds subject to liquidity puts or demand features will
be treated as the owner of the bonds if the following factors are present, as
they are in the case of the Fund: (1) the purchaser will be free to dispose of
the bonds at any time to any party during the term of the bonds; (2) the
purchaser will not be in the business of acting as a lender but rather will be
engaged in the business of investing in a portfolio of municipal bonds for its
benefit or for the benefit of its shareholders; (3) the purchaser pays value for
securing the benefit of reducing its risk of loss through the purchase of the
puts; and (4) the puts are being purchased primarily for the purpose of
increasing the liquidity of the purchaser's portfolio of investments. These
factors were relied upon by IRS in PLR 8038104 (June 26, 1980) and, in part, in
Rev. Rul. 82-144, in concluding that a bond fund acquiring obligations subject
to puts for liquidity purposes would be the owner of the underlying obligations.
Further, in Citizens National Bank of Waco the court held that the purchaser was
the owner of the underlying bonds even though the put was exercisable at par
value. While the court found that the obligation to repurchase placed the risk
of loss on the customer (seller), the court also found that the bank was free to
dispose of the bonds to third parties.
The Fund, unlike the taxpayers in Rev. Rul. 74-27, Union Planters
National Bank of Memphis and American National Bank of Austin, will not be
holding the bonds (either directly or through its participation interests) for
the account of the originating banks, but instead will be holding them for its
own account as its own property. The Fund will have the unconditional right to
hold the bonds until maturity. It will not be required to resell the
participation interests to the originating banks; rather, the Fund will have the
right to sell its interests to third parties and retain any profit therefrom.
In Rev. Proc. 83-55, 1983-2 C.B. 572, the IRS announced that it would
not ordinarily issue an advance ruling requiring a determination as to who is
the true owner of property involving securities or participation interests
therein where the purchaser has a contractual right to cause the property to be
purchased by the seller or a third party. This position is currently expressed
in Rev. Proc. 89-3, 1989-1 I.R. B. 29.
<PAGE>
BATTLE FOWLER PAGE 8
IV. Conclusion
Based on the foregoing, it is our opinion that for federal income tax
purposes, the Fund will be treated as the owner of the bonds and the
participation interests acquired by it subject to its rights to exercise demand
features for liquidity or creditworthiness purposes. We point out, however, that
the demand features to be acquired by the Fund contain certain features that
differ from the puts described in Rev. Rul. 82-144. Further, the IRS has not
specified what constitutes a period substantially less than the life of the
obligations. It is possible, therefore, that the IRS could reach a different
conclusion from that reached in this opinion and if it were to contend that the
Fund is not the owner of the bonds, there can be no assurance that a court would
not agree with the IRS' contention.
Very truly yours,
\s\ Battle Fowler LLP
<PAGE>
BATTLE FOWLER
A PARTNERHSIP INCLUDING PROFESSIONAL CORPORATION
280 PARK AVENUE
NEW YORK, NY 10017
(212) 949-8300
WRITER'S DIRECT DIAL NUMBER
Cable Address
"Counsellor"
______________
TELEX 127053
______________
Facsimile
(212) 986-5135
January 17, 1989
Tax Exempt Proceeds Fund, Inc.
100 Park Avenue
New York, New York 10017
Gentlemen:
We have acted as counsel to Tax Exempt Proceeds Fund, Inc., a Maryland
corporation (the "Fund"), in connection with the preparation and filing of
Registration Statement No. 33-25747 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, as amended, the Registration Statement, and such other corporate
records, proceedings and documents, including the consent of the Board of
Directors and the minutes of the meetings of the Board of Directors of the Fund,
as we have deemed necessary for the purpose of this opinion. We have also
examined such other documents, papers, statutes and authorities as we deemed
necessary to form a basis for the opinion hereinafter expressed. In our
examination of such material, we have assumed the genuineness of all signatures
and the conformity to original documents of all copies submitted to us. As to
various questions of fact material to such opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
Based upon the foregoing, we are of the opinion that the shares of
Common Stock, par value $.001 per share, of the Fund, to be issued in accordance
with the terms of the offering, as set forth in the Prospectus and Statement of
Additional Information included as part of the Registration Statement, and in
accordance with applicable state securities laws, when so issued and paid for,
will constitute validly authorized and legally issued shares of Common Stock,
fully paid and non-assessable.
<PAGE>
BATTLE FOWLER PAGE 2
Tax Exempt Proceeds Fund, Inc.
January 17, 1989
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 J
McGLADREY & PULLEN, L.L.P.
Certified Public Accountants & Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated July 21, 1999, on the
financial statements of Tax Exempt Proceeds Fund, Inc., referred to therein,
which is incorporated by reference, in Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A File No. 33-25747 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 captions "Counsel and Auditors" and "Financial Statements".
/s/McGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
August 26, 1999
Reich & Tang L.P.
100 Park Avenue
New York, New York 10017
January 5, 1989
Board of Directors of
Tax Exempt Proceeds Fund, Inc.
Gentlemen:
We hereby subscribe for 100,000 of the Common Stock, $.001 par value per
share, of Tax Exempt Proceeds Fund, Inc., a Maryland corporation (the
"Corporation"). Our payment in full is confirmed.
We hereby represent and agree that we are purchaseing these shares of stock
for investment purposes, for our 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.
Very truly yours,
Reich & Tang L.P.
By: Reich & TAng, Inc.
General Partner
By: \s\ Harold C. Butler
Confirmed and Accepted:
TAX EXEMPT PROCEEDS FUND, INC>
By: \s\ Bernadette N. Finn
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Richard De Sanctis and Bernadette N. Finn,
and each of them, with full power of substitution, as his/her true and lawful
attorney and agent to execute in his/her name on his/her behalf, in any and all
capacities, the Registration Statement on Form N-1A, No. 33-25747, and any and
all amendments thereto (including pre-effective amendments) filed by Tax Exempt
Proceeds 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 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
\s\ Steven W. Duff President August 24, 1999
- ------------------
Steven W. Duff
\s\ Marian R. Chertow Director August 24, 1999
- ---------------------
Marian R. Chertow
\s\ Glenn S. Klocko Director August 24, 1999
- ----------------------
Glenn S. Klocko
\s\ Francesco Mancini Director August 24, 1999
- -----------------------
Francesco Mancini
\s\ John C. Richmond Director August 24, 1999
- ----------------------
John C. Richmond
