NEW JERSEY DAILY MUNICIPAL INCOME FUND INC
497, 1996-01-30
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                                                       Registration No. 33-36317
                                                                     Rule 497(b)
- --------------------------------------------------------------------------------
Evergreen Shares of
Connecticut Daily Tax Free Income Fund, Inc.
Florida Daily Municipal Income Fund
New Jersey Daily Municipal Income Fund, Inc.
New York Daily Tax Free Income Fund, Inc.
North Carolina Daily Municipal Income Fund, Inc. 

             (collectively the "Funds" and individually the "Fund")

                                        P.O. Box 9021, Boston MA 02205-9827
                                        (800) 807-2940
================================================================================


SUPPLEMENT DATED OCTOBER 12, 1995


Reich  & Tang  Asset  Management  L.P.,  the  Fund's  investment  advisor,  is a
wholly-owned subsidiary of New England Investment Companies,  L.P. ("NEIC"). New
England  Mutual Life  Insurance  Company  ("The New  England")  owns NEIC's sole
general partner and a majority of the limited partnership  interest in NEIC. The
New England and  Metropolitan  Life Insurance  Company  ("MetLife") have entered
into an agreement to merge,  with MetLife to be the survivor of the merger.  The
merger is conditioned upon, among other things, approval by the policyholders of
The New England and MetLife  and receipt of certain  regulatory  approvals.  The
merger is not expected to occur until after December 31, 1995.

The merger of The New England into MetLife will  constitute an  "assignment"  of
the  existing  investment  advisory  agreement  relating to the Fund.  Under the
Investment  Company  Act of  1940,  such  an  "assignment"  will  result  in the
automatic  termination of the investment  advisory  agreement,  effective at the
time of the merger. Prior to the merger, shareholders of record of the Fund will
be asked to approve a new investment advisory agreement, intended to take effect
at the time of the merger.  The new agreement will be  substantially  similar to
the existing agreement.  A proxy statement  describing the new agreement will be
sent to  shareholders  of the Fund prior to their being asked to vote on the new
agreement.

<PAGE>

                                                       Registration No. 33-36317
                                                                     Rule 497(b)
- --------------------------------------------------------------------------------
EVERGREEN SHARES OF
NEW JERSEY DAILY
MUNICIPAL INCOME FUND, INC.
                                                               [GRAPHIC OMITTED]
================================================================================
PROSPECTUS
January 19, 1996

New Jersey Daily Municipal Income Fund, Inc. (the "Fund") is a  non-diversified,
open-end management investment company that is a short-term,  tax-exempt,  money
market fund whose  investment  objectives are to seek as high a level of current
income  exempt from  Federal  income taxes and to the extent  possible  from New
Jersey gross income tax, as is believed to be consistent  with  preservation  of
capital,  maintenance of liquidity and stability of principal.  No assurance can
be given that those  objectives  will be  achieved.  Only  Evergreen  Shares are
offered by this Prospectus.

This  Prospectus  sets  forth  concisely  the  information  about  the Fund that
prospective  investors  should know before investing in the Fund. A Statement of
Additional Information containing additional and more detailed information about
the Fund,  has been filed with the  Securities  and Exchange  Commission  and is
available  upon  request  and  without  charge  by  calling  the Fund at  1(800)
807-2940. The "Statement of Additional  Information" bears the same date as this
Prospectus  and  is  incorporated  by  reference  into  this  Prospectus  in its
entirety.

Investors  should be aware that the Evergreen  shares may not be purchased other
than through certain  securities  dealers with whom Evergreen Funds Distributor,
Inc.  ("EFD") has entered into agreements for this purpose or directly from EFD.
Evergreen  shares have been  created for the primary  purpose of providing a New
Jersey  tax-free  money market fund product for  shareholders  of certain  funds
distributed by EFD.  Shares of the Fund other than Evergreen  shares are offered
pursuant to a separate Prospectus.

Reich & Tang Asset  Management L.P. acts as Manager of the Fund and Reich & Tang
Distributors  L.P. acts as distributor of the Fund's shares.  Reich & Tang Asset
Management L.P. is a registered  investment  adviser.  Reich & Tang Distributors
L.P. is a registered  broker-dealer  and member of the National  Association  of
Securities Dealers, Inc.


AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES
GOVERNMENT.  THE FUND  INTENDS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE ALTHOUGH THERE CAN BE NO ASSURANCE THAT THIS VALUE WILL BE MAINTAINED.

SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK,  AND THE SHARES ARE NOT FEDERALLY  INSURED BY THE FEDERAL  DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.

THIS PROSPECTUS SHOULD BE READ AND RETAINED BY INVESTORS FOR FUTURE REFERENCE.


THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE  COMMISSION OR ANY STATE  SECURITIES  COMMISSION NOR HAS THE SECURITIES
AND  EXCHANGE  COMMISSION  OR ANY STATE  SECURITIES  COMMISSION  PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE

<PAGE>


                                TABLE OF CONTENTS

TABLE OF FEES AND EXPENSES          3      SHAREHOLDER SERVICES            13
SELECTED FINANCIAL INFORMATION      3          Effect of Banking Laws      15
INTRODUCTION                        4      DISTRIBUTION AND SERVICE PLAN   15
INVESTMENTS OBJECTIVES,                    FEDERAL INCOME TAXES            16
POLICIES AND RISKS CONSIDERATIONS   5      NEW JERSEY INCOME TAXES         17
NEW JERSEY RISK FACTORS             8      GENERAL INFORMATION             18
MANAGEMENT OF THE FUND             10      NET ASSET VALUE                 18
DESCRIPTION OF COMMON STOCK        11      CUSTODIAN AND TRANSFER AGENT    19
DIVIDENDS AND DISTRIBUTIONS        12       
HOW TO PURCHASE AND REDEEM SHARES  12       
  How to Buy Shares                12
  How to Redeem Shares             12

<PAGE>
- --------------------------------------------------------------------------------
                           TABLE OF FEES AND EXPENSES
- --------------------------------------------------------------------------------

Annual Fund Operating Expenses
(as a percentage of average net assets)

Management Fees.............................                     0.30%
12b-1 Fees - After Fee Waiver...............                     0.00%
Other Expenses..............................                     0.36 %
     Administration Fees - After Fee Waiver.         0.15%
Total Fund Operating Expenses...............                     0.66%
<TABLE>
<CAPTION>
<S>                                          <C>                 <C>                 <C>                      <C>

Example                                     1 year              3 years             5 years               10 years
- -------                                     ------              -------             -------               --------

You would pay the following expenses on a
$1000 investment, assuming 5% annual return
(cumulative through the end of each year):     $7                 $21                 $37                   $83

</TABLE>

The purpose of the above fee table is to assist an investor in understanding the
various  costs and expenses  that an investor in the Fund will bear  directly or
indirectly.  For a further discussion of these fees see "Management of the Fund"
and "Distribution and Service Plan" herein. The Manager and the Distributor have
voluntarily waived administration fees and 12b-1 fees amounting to .06% and .20%
of average net assets, respectively;  absent such waivers the Administration Fee
and the 12b-1 Fee would  have  been .20% and .20%,  respectively.  In  addition,
absent such waivers the Total Fund Operating Expenses would have been .92%.

THE  FIGURES   REFLECTED  IN  THIS  EXAMPLE   SHOULD  NOT  BE  CONSIDERED  AS  A
REPRESENTATION  OF PAST OR FUTURE  EXPENSES.  ACTUAL  EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN ABOVE.

<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------
                         SELECTED FINANCIAL INFORMATION
                 (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------

The  Following  selected  financial  information  of New Jersey Daily  Municipal
Income  Fund,  Inc.  has been  audited by  McGladrey & Pullen  LLP,  Independent
Certified  Public  Accountants,  whose  thereon  appears  in  the  Statement  of
Additional Information.
<S>                                                    <C>                    <C>                  <C>                  <C>

                                                                                                                  October 26, 1990
                                                     Year Ended            Year Ended           Year Ended        (Inception) to
                                                  October 31, 1994      October 31, 1993     October 31, 1992    October 31, 1991
                                                  ----------------      ----------------     ----------------    ----------------
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
                                                  -----------           -----------          -----------           ----------

Net investment income...............                    0.020                 0.020                0.030                 0.042

Dividends from investment income....             (      0.020)          (     0.020)         (     0.030)          (     0.042)
                                                  ------------            ----------           ----------            ----------

Net asset value, end of year........              $      1.00            $    1.00           $     1.00            $     1.00
                                                  ============           ===========          ===========           ==========

Total Return........................                     2.03%                1.98%                3.01%                 4.62%

Ratios/Supplemental Data

Net assets, end of year (000).......              $   105,929            $   78,347           $   46,374            $   26,238

Ratios to average net assets:

   Expenses...........................                    .66%+               0.61%+               0.42%+                0.27%*+

   Net investment income..............                   2.02%+               1.95%+               2.88%+                4.32%*+

*    Annualized

+    Net  of  management,  administration and shareholder  servicing fees waived
equivalent to .26%, .35%, .70% and .70% of average net assets respectively, plus
expenses  reimbursement  equivalent to .00%,  .00%, .04% and .53% of average net
assets, respectively.
</TABLE>

                                       3
<PAGE>
- --------------------------------------------------------------------------------
                                  INTRODUCTION
- --------------------------------------------------------------------------------

         New  Jersey  Daily  Municipal  Income  Fund,  Inc.  (the  "Fund")  is a
non-diversified,  open-end  management  investment company that is a short-term,
tax-exempt money market fund whose  investment  objectives are to seek as high a
level of current income exempt under current law, in the opinion of bond counsel
to the issuer at the date of issuance,  from regular Federal income tax, and, to
the extent  possible,  from New Jersey  gross  income  tax, as is believed to be
consistent with preservation of capital,  maintenance of liquidity and stability
of  principal  by  investing  principally  in  short-term,   high  quality  debt
obligations  of the State of New  Jersey,  Puerto Rico and other  United  States
territories,  and their political  subdivisions  as described under  "Investment
Objectives,  Policies and Risks"  herein.  The Fund also may invest in municipal
securities  of issuers  located in states  other than New Jersey,  the  interest
income on which  will be, in the  opinion  of bond  counsel to the issuer at the
date of issuance, exempt from regular Federal income tax, but will be subject to
New Jersey income tax for New Jersey residents.

         Interest on certain municipal securities purchased by the Fund may be a
preference  item for purposes of the Federal  alternative  minimum tax. The Fund
seeks  to  maintain  an  investment  portfolio  with a  dollar-weighted  average
maturity of 90 days or less, and to value its investment  portfolio at amortized
cost and maintain a net asset value of $1.00 per share, although there can be no
assurance that this value will be maintained.  The Fund intends to invest all of
its assets in tax-exempt  obligations;  however, it reserves the right to invest
up to 20% of its assets in taxable obligations.  This is a summary of the Fund's
fundamental  investment  policies which are set forth in full under  "Investment
Objectives,  Policies  and Risks"  herein  and in the  Statement  of  Additional
Information and may not be changed without  approval of a majority of the Fund's
outstanding  shares.  Of course, no assurance can be given that these objectives
will be achieved.

         The Fund's  investment  adviser is Reich & Tang Asset  Management  L.P.
(the "Manager"),  which is a registered  investment  adviser and which currently
acts  as  investment   manager  or  administrator  to  eighteen  other  open-end
management investment companies. The Fund's shares are distributed through Reich
& Tang  Distributors  L.P. (the  "Distributor"),  with whom the Fund has entered
into a Distribution  Agreement and a Shareholder Servicing Agreement pursuant to
the Fund's  distribution  and service  plan  adopted  under Rule 12b-1 under the
Investment  Company Act of 1940, as amended (the "Act").  (See "Distribution and
Service Plan.")

         On any day on  which  the New York  Stock  Exchange,  Inc.  is open for
trading  ("Fund  Business  Day"),  investors  may,  without  charge by the Fund,
purchase and redeem  shares of the Fund's  common stock at their net asset value
next determined after receipt of the order. An investor's  subscription  will be
accepted after the payment is converted  into Federal funds,  and shares will be
issued as of the Fund's next net asset value  determination  which is made as of
12 noon on each Fund Business Day. (See "How to Purchase and Redeem Shares," and
"Net Asset Value" herein.) Dividends from accumulated net income are declared by
the Fund on each Fund Business Day.

         The Fund generally pays interest dividends monthly.  Net capital gains,
if any, will be distributed at least annually, and in no event later than within
60 days after the end of the Fund's fiscal year. All dividends and distributions
of capital gains are  automatically  invested in  additional  shares of the Fund
unless a shareholder has elected by written notice to the Fund to receive either
of such distributions in cash. (See "Dividends and Distributions" herein.)

         The Fund intends that its investment  portfolio may be  concentrated in
New  Jersey  Municipal  Obligations  as defined  herein  and bank  participation
certificates  therein.  A summary of special risk factors affecting the State of
New Jersey is set forth  under "New Jersey Risk  Factors"  in the  Statement  of
Additional Information.

         The Fund's  Board of  Directors  is  authorized  to divide the unissued
shares  into  separate  series of  stock,  one for each of the  Fund's  separate
investment portfolios that may be created in the future.

     Evergreen  shares  are  identical  to other  shares of the Fund,  which are
offered pursuant to a separate prospectus, with respect to investment objectives
and  yield,  but differ  with  respect to  certain  other  matters.  See "How to
Purchase     and     Redeem     Shares"     and     "Shareholder      Services."

                                       4
<PAGE>

- --------------------------------------------------------------------------------
            INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
- --------------------------------------------------------------------------------

     The Fund is a non-diversified,  open-end management investment company that
is a short-term, tax-exempt money market fund whose investment objectives are to
seek as high a level of current  income exempt from regular  Federal  income tax
and, to the extent possible,  from New Jersey gross income tax, as is believedto
be consistent  with the  preservation  of capital,  maintenance of liquidity and
stability of principal. There can be no assurance that the Fund will achieve its
investment objectives.

     The  Fund's  assets  will  be  invested  primarily  in  high  quality  debt
obligations  issued by or on behalf of the State of New  Jersey,  other  states,
territories  and  possessions  of the  United  States,  and  their  authorities,
agencies,  instrumentalities and political  subdivisions,  the interest on which
is, in the  opinion  of bond  counsel  to the  issuer  at the date of  issuance,
currently exempt from regular Federal income taxation ("Municipal  Obligations")
and in participation  certificates  (which, in the opinion of Battle Fowler LLP,
counsel to the Fund, cause the Fund to be treated as the owner of the underlying
Municipal  Obligations) in Municipal Obligations purchased from banks, insurance
companies or other financial institutions.  Dividends paid by the Fund which are
"exempt-interest  dividends" by virtue of being properly  designated by the Fund
as  derived  from  Municipal  Obligations  and  participation   certificates  in
Municipal  Obligations  will be exempt from regular  Federal income tax provided
the Fund complies with Section 852(b)(5) of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code").

     Although the Supreme Court has  determined  that Congress has the authority
to subject the interest on bonds such as the  Municipal  Obligations  to regular
Federal  income  taxation,  existing law  excludes  such  interest  from regular
Federal income tax. However,  "exempt-interest  dividends" may be subject to the
Federal alternative minimum tax. Securities, the interest income on which may be
subject  to  the  Federal  alternative  minimum  tax  (including   participation
certificates  in such  securities),  may be purchased by the Fund without limit.
Securities,  the interest income on which is subject to regular  Federal,  state
and local  income  tax,  will not exceed  20% of the value of the  Fund's  total
assets. (See "Federal Income Taxes" herein.)  Exempt-interest  dividends paid by
the Fund correctly  identified by the Fund as derived from obligations issued by
or on behalf of the State of New Jersey or any New Jersey local  government,  or
their  instrumentalities,   authorities  or  districts  ("New  Jersey  Municipal
Obligations")   will  be  exempt   from  the  New  Jersey   gross   income  tax.
Exempt-interest  dividends  correctly  identified  by the Fund as  derived  from
obligations of Puerto Rico and the Virgin Islands, as well as any other types of
obligations  that New Jersey is prohibited  from taxing under the  Constitution,
the  laws  of the  United  States  of  America  or the New  Jersey  Constitution
("Territorial  Municipal Obligations") also should be exempt from the New Jersey
Income Tax  provided  the Fund  complies  with New Jersey law.  (See "New Jersey
Income Taxes" herein.) To the extent suitable New Jersey  Municipal  Obligations
are not available for  investment by the Fund,  the Fund may purchase  Municipal
Obligations issued by other states,  their agencies and  instrumentalities,  the
dividends  on which  will be  designated  by the Fund as derived  from  interest
income  which will be, in the opinion of bond  counsel to the issuer at the date
of issuance,  exempt from regular  Federal income tax but will be subject to the
New Jersey gross income tax.  However,  except as a temporary  defensive measure
during  periods of adverse market  conditions as determined by the Manager,  the
Fund  will  invest at least 65% of its  total  assets  in New  Jersey  Municipal
Obligations,  although  the exact amount of the Fund's  assets  invested in such
securities  will vary from time to time.  The  Fund's  investments  may  include
"when-issued" Municipal Obligations, stand-by commitments and taxable repurchase
agreements.  Although  the Fund will  attempt  to invest  100% of its  assets in
Municipal   Obligations   and  in   participation   certificates   in  Municipal
Obligations, the Fund reserves the right to invest up to 20% of the value of its
total assets in securities,  the interest  income on which is subject to regular
Federal,  state and local  income tax. The Fund will invest more than 25% of its
assets in participation  certificates purchased from banks in industrial revenue
bonds and other New Jersey Municipal  Obligations.  The investment objectives of
the Fund described in this  paragraph may not be changed unless  approved by the
holders  of a  majority  of the  outstanding  shares of the Fund  that  would be
affected by such a change. As used in this Prospectus, the term "majority of the
outstanding shares" of the Fund means,  respectively,  the vote of the lesser of
(i) 67% or more of the shares of the Fund  present at a meeting,  if the holders
of  more  than  50%  of the  outstanding  shares  of the  Fund  are  present  or
represented  by proxy or (ii)  more  than 50% of the  outstanding  shares of the
Fund.

                                       5
<PAGE>
     The Fund may only purchase Municipal  Obligations that have been determined
by the Fund's Board of Directors  to present  minimal  credit risks and that are
Eligible  Securities at the time of  acquisition.  The term Eligible  Securities
means (i) Municipal  Obligations  with remaining  maturities of 397 days or less
and rated in the two highest  short-term rating categories by any two nationally
recognized statistical rating organizations  ("NRSROs") or in such categories by
the only  NRSRO  that has rated the  Municipal  Obligations  (collectively,  the
"Requisite  NRSROs")  (acquisition in the latter situation must also be ratified
by the Board of Directors); (ii) Municipal Obligations with remaining maturities
of 397 days or less but that at the time of issuance were  long-term  securities
(i.e., with maturities greater than 366 days) and whose issuer has received from
the Requisite NRSROs a rating with respect to comparable  short-term debt in the
two highest short-term rating categories and (iii) unrated Municipal Obligations
determined by the Fund's Board of Directors to be of comparable  quality.  Where
the  issuer of a  long-term  security  with a  remaining  maturity  which  would
otherwise  qualify it as an Eligible  Security,  does not have rated  short-term
debt  outstanding,  the long-term  security is treated as unrated but may not be
purchased  if it has a  long-term  rating  from any NRSRO  that is below the two
highest long-term  categories.  A determination of comparability by the Board of
Directors is made on the basis of its credit evaluation of the issuer, which may
include an  evaluation  of a letter of  credit,  guarantee,  insurance  or other
credit facility issued in support of the Municipal  Obligations or participation
certificates.   (See  "Variable  Rate  Demand   Instruments  and   Participation
Certificates"  in the  Statement  of  Additional  Information.)  While there are
several  organizations  that currently qualify as NRSROs, two examples of NRSROs
are Standard & Poor's Corporation  ("S&P'") and Moody's Investors Service,  Inc.
("Moody's").  The two  highest  ratings by S&P and Moody's are "AAA" and "AA" by
S&P in the case of  long-term  bonds or notes,  and "Aaa" and "Aa" by Moody's in
the case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in
the case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's,
in the case of tax-exempt  commercial  paper.  The highest rating in the case of
variable and floating  demand notes is "VMIG-1" by Moody's and "SP-1/AA" by S&P.
Such  instruments  may produce a lower yield than would be  available  from less
highly rated  instruments.  The Fund's Board of Directors  has  determined  that
Municipal  Obligations which are backed by the credit of the Federal  government
(the  interest  on which is not exempt from  Federal  income  taxation)  will be
considered to have a rating equivalent to Moody's "Aaa".

     Subsequent to its purchase by the Fund,  the quality of an  investment  may
cease to be rated or its rating may be reduced  below the minimum  required  for
purchase by the Fund.  If this occurs,  the Board of Directors of the Fund shall
reassess  promptly whether the security  presents minimal credit risks and shall
cause the Fund to take such action as the Board of  Directors  determines  is in
the best interest of the Fund and its shareholders. However, reassessment is not
required if the security is disposed of or matures  within five business days of
the Manager becoming aware of the new rating and provided further that the Board
of Directors is subsequently notified of the Manager's actions.

     In addition,  in the event that a security (1) is in default, (2) ceases to
be an  eligible  investment  under Rule 2a-7 or (3) is  determined  to no longer
present  minimal  credit risks,  the Fund will dispose of the security  absent a
determination  by the Fund's  Board of Directors  that  disposal of the security
would not be in the best interest of the Fund. In the event that the security is
disposed  of, it shall be disposed of as soon as  practicable,  consistent  with
achieving an orderly  disposition by sale,  exercise of any demand  feature,  or
otherwise.  In  the  event  of  a  default  with  respect  to a  security  which
immediately  before default  accounted for 1/2 of 1% or more of the Fund's total
assets, the Fund shall promptly notify the Securities and Exchange Commission of
such fact and of the  actions  that the Fund  intends to take in response to the
situation.

     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.

     In  view  of  the   "concentration"  of  the  Fund  in  bank  participation
certificates in New Jersey Municipal  Obligations,  which may be secured by bank
letters of credit or  guarantees,  an investment in the Fund should be made with
an  understanding of the  characteristics  of the banking industry and the risks
which  such an  investment  may  entail  which  include  extensive  governmental
regulation,  changes in the  availability and cost of capital funds, and general
economic  conditions.  (See "Variable Rate Demand  Instruments and Participation

                                       6
<PAGE>
Certificates" in the Statement of Additional  Information.) Banks are subject to
extensive governmental regulations which may limit both the amounts and types of
loans and other financial  commitments  which may be made and interest rates and
fees  which may be  charged.  The  profitability  of this  industry  is  largely
dependent  upon the  availability  and cost of capital  funds for the purpose of
financing  lending  operations under prevailing money market  conditions.  Also,
general  economic  conditions  play an important  part in the operations of this
industry  and  exposure  to  credit  losses  arising  from  possible   financial
difficulties  of borrowers might affect a bank's ability to meet its obligations
under a letter of  credit.  The Fund may invest 25% or more of the net assets of
any  portfolio  in  securities  that are related in such a way that an economic,
business or political  development  or change  affecting  one of the  securities
would also affect the other securities  including,  for example,  securities the
interest  upon  which  is paid  from  revenues  of  similar  type  projects,  or
securities the issuers of which are located in the same state.

     The Fund has  adopted the  following  fundamental  investment  restrictions
which apply to all portfolios and which may not be changed unless  approved by a
majority  of the  outstanding  shares of each  series of the Fund's  shares that
would be  affected by such a change.  The Fund is subject to further  investment
restrictions that are set forth in the Statement of Additional Information.  The
Fund may not:

(1)  Borrow Money. This restriction shall not apply to borrowings from banks for
     temporary or emergency (not leveraging) purposes,  including the meeting of
     redemption  requests that might otherwise require the untimely  disposition
     of  securities,  in an amount up to 15% of the  value of the  Fund's  total
     assets  (including the amount  borrowed)  valued at market less liabilities
     (not  including  the amount  borrowed) at the time the  borrowing was made.
     While  borrowings  exceed 5% of the value of the Fund's total  assets,  the
     Fund will not make any investments. Interest paid on borrowings will reduce
     net income.

(2)  Pledge,  hypothecate,  mortgage or otherwise encumber its assets, except in
     an amount up to 15% of the  value of its  total  assets  and only to secure
     borrowings for temporary or emergency purposes.

(3)  Purchase  securities  subject  to  restrictions  on  disposition  under the
     Securities  Act of 1933  ("restricted  securities"),  except  the  Fund may
     purchase  variable rate demand  instruments which contain a demand feature.
     The Fund will not invest in  repurchase  agreements  maturing  in more than
     seven days if any such  investment  together with  securities  that are not
     readily marketable held by the Fund exceed 15% of the Fund's net assets.

(4)  Invest more than 25% of its assets in the  securities  of  "issuers" in any
     single  industry,  provided  that the Fund may invest  more than 25% of its
     assets in bank participation  certificates and there shall be no limitation
     on the purchase of those Municipal Obligations and other obligations issued
     or   guaranteed  by  the  United   States   government,   its  agencies  or
     instrumentalities. With respect to 75% of the total amortized cost value of
     the Fund's assets, not more than 5% of the Fund's assets may be invested in
     securities that are subject to underlying  puts from the same  institution,
     and no single bank shall issue its letter of credit and no single financial
     institution shall issue a credit  enhancement  covering more than 5% of the
     total assets of the Fund.  However, if the puts are exercisable by the Fund
     in the event of  default  on  payment  of  principal  and  interest  on the
     underlying  security,  then the Fund may  invest up to 10% of its assets in
     securities  underlying  puts issued or guaranteed by the same  institution;
     additionally,  a single  bank can  issue  its  letter of credit or a single
     financial  institution can issue a credit enhancement covering up to 10% of
     the Fund's assets, when the puts offer the Fund such default protection.

(5)  Invest in securities  of other  investment  companies,  except the Fund may
     purchase unit investment  trust  securities where such unit trusts meet the
     investment  objectives of the Fund and then only up to 5% of the Fund's net
     assets,  except as they may be acquired as part of a merger,  consolidation
     or acquisition of assets.

     As a  non-diversified  investment  company,  the Fund is not subject to any
statutory  restriction under the Act with respect to investing its assets in one
or relatively few issuers.  This  non-diversification  may present greater risks
than in the case of a diversified company.  However, the Fund intends to qualify
as a "regulated  investment  company"  under  Subchapter M of the Code. The Fund
will be  restricted in that at the close of each quarter of the taxable year, at
least  50% of the  value  of its  total  assets  must be  represented  by  cash,
government  securities,  investment  company  securities  and  other  securities
limited  in  respect of any one issuer to not more than 5% in value of the total
assets of the Fund and to not more than 10% of the outstanding voting securities
of such 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.

                                       7
<PAGE>
The  limitations  described  in  this  paragraph  regarding  qualification  as a
"regulated  investment company" are not fundamental  policies and may be revised
to the extent  applicable  Federal  income tax  requirements  are revised.  (See
"Federal Income Taxes" herein.)

     The primary  purpose of investing  in a portfolio  of New Jersey  Municipal
Obligations is the special tax treatment accorded New Jersey resident individual
investors.  However,  payment of interest  and  preservation  of  principal  are
dependent upon the continuing  ability of the New Jersey issuers and/or obligors
of  state,  municipal  and  public  authority  debt  obligations  to meet  their
obligations thereunder. Investors should consider the greater risk of the Fund's
concentration  versus the safety that comes with a less concentrated  investment
portfolio and should compare yields available on portfolios of New Jersey issues
with those of more diversified  portfolios including  out-of-state issues before
making  an  investment   decision.   The  Fund's  management  believes  that  by
maintaining the Fund's investment portfolio in liquid, short-term,  high quality
investments,  including the  participation  certificates and other variable rate
demand  instruments that have high quality credit support from banks,  insurance
companies or other financial  institutions,  the Fund is largely  insulated from
the credit risks that may exist on long-term New Jersey  Municipal  Obligations.
For  additional  information,  please  refer  to  the  Statement  of  Additional
Information.


- -------------------------------------------------------------------------------
                            NEW JERSEY RISK FACTORS
- -------------------------------------------------------------------------------

         This  summary  is  included  for the  purpose  of  providing  a general
description  of the credit and financial  conditions of the State of New Jersey.
For a more  complete  description  of these risk  factors,  see "New Jersey Risk
Factors" in the Statement of Additional Information.

         The combination of the northeast  region's cyclical  adjustment and the
national  recession  which  officially  began  in July  1990  (according  to the
National  Bureau of  Economic  Research)  adversely  affected  the growth of New
Jersey's  economy.  New Jersey  experienced  declines  in its  construction  and
manufacturing sectors and overall increases in the rates of unemployment. In the
wake of the  continued  expansion  of the national  economy  which began in late
1993, New Jersey's  economy has  experienced a protracted  recovery that in 1994
began to generate  internal  momentum due to increases in employment  and income
levels.  Although  employment  growth in New Jersey has occurred in a variety of
employment  sectors,  business services and trade sectors have been the greatest
generators of employment growth in New Jersey while manufacturing jobs continued
to trend downward albeit at a more moderate pace. Other evidence of New Jersey's
improving  economy can be found in increased  home-building  above the depressed
levels of 1990 through 1992 and rising consumer spending.

         New Jersey's  Constitution and budget and appropriations system require
a balanced  budget.  Pursuant to the State  Constitution,  no money may be drawn
from the State Treasury except for appropriations made by law. In addition,  all
monies for the support of State  purposes  must be  provided  for in one general
appropriation   law  covering   one  and  the  same  fiscal  year.   No  general
appropriations law or other law appropriating money for any State purpose may be
enacted if the total  amount of  appropriations  for the fiscal  year exceed the
total revenue  anticipated for that fiscal year. The State's current Fiscal Year
ends June 30, 1995.  The largest part of the total  financial  operations of the
State is  accounted  for in the General  Fund,  which is the fund into which all
State revenues not otherwise  restricted by statute are deposited and from which
appropriations are made.

         The primary method for State  financing of capital  projects is through
the sale of the general obligation bonds of the State. These bonds are backed by
the full faith and credit of the State.  State tax  revenues  and certain  other
fees are pledged to meet the principal and interest  payments  required to fully
pay the debt.  No  general  obligation  debt can be issued by the State  without
prior voter approval.

         New Jersey's  local  finance  system is  regulated by various  statutes
designed  to assure that all local  governments  and their  issuing  authorities
remain on a sound financial basis. Regulatory and remedial statutes are enforced
by the  Division of Local  Government  Services  (the  "Division")  in the State
Department of Community Affairs. The Local Budget Law imposes specific budgetary
procedures upon counties and  municipalities  ("local units").  Every local unit
must adopt an operating  budget which is balanced on a cash basis,  and items of
revenue  and  appropriation  must  be  independently  audited  by  a  registered
municipal  accountant.  The Division  reviews all  municipal  and county  annual
budgets  prior to adoption.  This process 

                                       8
<PAGE>
insures that every  municipality and county annually adopts a budget balanced on
a cash basis, within limitations on appropriations or tax levies,  respectively,
and making  adequate  provision  for  principal of and interest on  indebtedness
falling due in the fiscal year, deferred charges and other statutory expenditure
requirements.

         The Local  Government  Cap Law (the "Cap  Law")  generally  limits  the
year-to-year  increase of the total  appropriations  of any municipality and the
tax levy of any county to either 5% or an index rate determined  annually by the
Director,  whichever  is  less.  Certain  exceptions  exist  to  the  Cap  Law's
limitation on increases in  appropriations.  The  principal  exceptions to these
limitations  are  municipal  and  county  appropriations  to  pay  debt  service
requirements;  to comply with other State or Federal  mandates enacted after the
effective date of the Cap Law; amounts approved by referendum;  and, in the case
of municipalities  only, to fund the preceding year's cash deficit or to reserve
for shortfalls in tax collections.

         The Local Budget Law limits the amount of tax  anticipation  notes that
may be issued by local units and  requires  the  repayment  of such notes within
three  months of the end of the fiscal year (six months in the case of counties)
in which  issued.  No local unit is  permitted to issue bonds for the payment of
current   expenses.   Local  units  may  not  issue  bonds  to  pay  outstanding
obligations,  except for refunding purposes,  and then only with the approval of
the Local  Finance  Board.  Local  units may issue bond  anticipation  notes for
temporary  periods not exceeding in the aggregate  approximately  ten years from
the date of issue.  The debt that any local unit may  authorize  is limited to a
percentage of its equalized  valuation basis, which is the three-year average of
the  equalized  value of all taxable real property and  improvements  within the
geographic boundaries of the local unit.

     Chapter 75 of the Pamphlet Laws of 1991, signed into law on March 28, 1991,
requires certain  municipalities  and permits all other  municipalities to adopt
the  State  fiscal  year  in  place  of  the  existing   calendar  fiscal  year.
Municipalities that change fiscal years must adopt a six month transition budget
for January to June.  Since  expenditures  would be expected to exceed  revenues
primarily  because  state aid for the calendar year would not be received by the
municipality  until  after  the  end of the  transition  year  budget,  the  act
authorizes  the  issuance of Fiscal Year  Adjustment  Bonds to fund the one time
deficit for the six month transition  budget.  The act provides that the deficit
in  the  six  month  transition   budget  may  be  funded  initially  with  bond
anticipation  notes based on the estimated  deficit in the six month transition.
Notes  issued  in  anticipation  of  Fiscal  Year  Adjustment  Bonds,  including
renewals,  can only be issued for up to one year unless the Local  Finance Board
permits the  municipality to renew them for a further period.  The Local Finance
Board must  confirm the actual  deficit  experienced  by the  municipality.  The
municipality  then may issue Fiscal Year Adjustment Bonds to finance the deficit
on a permanent  basis. The purpose of the act is to assist  municipalities  that
are heavily  dependent on state aid and that have had to issue tax  anticipation
notes to fund  operating  cash flow deficits  each year.  While the act does not
authorize  counties to change their fiscal years,  it does provide that counties
with cash flow deficits may issue Fiscal Year Adjustment Bonds as well.

         New Jersey's  school  districts  operate  under the same  comprehensive
review and regulation as do its counties and municipalities.  Certain exceptions
and  differences  are  provided,  but the State  supervision  of school  finance
closely parallels that of local  governments.  The State Department of Education
has been empowered  with the necessary and effective  authority in extreme cases
to take over the  operation of local school  districts  which cannot or will not
correct severe and complex educational deficiencies.

         In each school district having a Board of School Estimate, the Board of
School Estimate examines the budget request and fixes the appropriation  amounts
for the next year's operating budget after a public hearing.  This board,  whose
composition is fixed by statute, certifies the budget to the municipal governing
bodies  and to the local  board of  education.  If the local  board of  estimate
either  disagrees,  it must appeal to the State  Commissioner  of Education (the
"Commissioner") to request changes.

         In each school district without a Board of School Estimate, the elected
board of  education  develops the budget  proposal  and,  after public  hearing,
submits to the voters of such district for approval.  Previously authorized debt
service is not subject to referendum in the annual budget process.  If approved,
the  budget  goes  into  effect.  If  defeated,   the  governing  body  of  each
municipality in the school district has  approximately  20 days to determine the
amount  necessary  to be  appropriated  for each item  appearing in such budget.

                                       9
<PAGE>
Should the  governing  body fail to certify any amount  determined by them to be
necessary for any item rejected at the election,  the board of education of such
district may appeal the action to the Commissioner.

         School district bonds and temporary notes are issued in conformity with
the School Bond Law.  Schools are subject to debt limits and to State regulation
of their  borrowing.  The debt  limitation on school district bonds depends upon
the  classification  of the  school  district,  but  may be as high as 4% of the
average equalized  valuation basis of the constituent  municipality.  In certain
cases involving school districts in cities with populations  exceeding  100,000,
the debt limit is 8% of the average equalized valuation basis of the constituent
municipality,  and in cities with population in excess of 80,000, the debt limit
is 6% of the aforesaid average equalized valuation.

         In 1982,  school districts were given an alternative to the traditional
method of bond  financing  capital  improvements  pursuant to the Lease Purchase
Law.  The Lease  Purchase  Law permits  school  districts  to acquire a site and
school  buildings  through a lease  purchase  agreement  with a  private  lessor
corporation.  The lease purchase agreement does not require voter approval.  The
rent payments attributable to the lease purchase agreement are subject to annual
appropriation  by the school  district  and are  required  to be included in the
annual current  expense  budget of the school  district.  Furthermore,  the rent
payments  attributable to the lease purchase agreement do not constitute debt of
the school  district and therefore do not impact on the school  district's  debt
limitation.  Lease  purchase  agreements  in excess of five  years  require  the
approval of the Commissioner and the Local Finance Board.

     The Local Authorities  Fiscal Control Law provides for State supervision of
the  fiscal  operations  and  debt  issuance   practices  of  independent  local
authorities  and special taxing  districts by the State  Department of Community
Affairs.  The Local  Authorities  Fiscal  Control Law applies to all  autonomous
public  bodies  created by counties or  municipalities,  which are  empowered to
issue bonds,  to impose facility or service  charges,  or to levy taxes in their
districts.   This  encompasses  most  autonomous  local  authorities  (sewerage,
municipal utilities, parking, pollution control, improvement,  etc.) and special
taxing districts (fire, water, sewer, street lighting,  etc.). The Local Finance
Board exercises  approval power over the creation of new authorities and special
districts as well as their  dissolution.  The Local  Finance Board also reviews,
conducts public hearings and issues findings and recommendations on any proposed
project  financing of an authority  or district,  and on any proposed  financing
agreement between a municipality or county and an authority or special district.
The Director  reviews and approves  annual  budgets of  authorities  and special
districts.

- --------------------------------------------------------------------------------
                             MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

         The Fund's Board of  Directors,  which is  responsible  for the overall
management  and  supervision  of the  Fund,  has  employed  Reich  & Tang  Asset
Management L.P. (the "Manager") to serve as investment  manager of the Fund. The
Manager provides persons  satisfactory to the Fund's Board of Directors to serve
as officers of the Fund.  Such officers,  as well as certain other employees and
directors  of the Fund,  may be  directors  or  officers  of Reich & Tang  Asset
Management,  Inc.,  the sole general  partner of the Manager or employees of the
Manager or its  affiliates.  Due to the services  performed by the Manager,  the
Fund  currently  has no  employees  and its  officers are not required to devote
full-time to the affairs of the Fund.  The Statement of  Additional  Information
contains general  background  information  regarding each director and principal
officer of the Fund.

         The Manager is a Delaware limited partnership with its principal office
at 600 Fifth Avenue,  New York,  New York 10020.  The Manager was at January 31,
1995  manager,   advisor  or  supervisor  with  respect  to  assets  aggregating
approximately  $8.6  billion.  The Manager acts as manager or  administrator  of
eighteen  other  investment  companies and also advises  pension  trust,  profit
sharing trusts and endowments.

         Effective  October 1, 1994, the Board of Directors of the Fund approved
the  re-execution  of the  Investment  Management  Contract  and  Administrative
Services  Contract  with the Manager.  The  Manager's  predecessor,  New England
Investment  Companies,  L.P.  ("NEICLP")  is the limited  partner and owner of a
99.5%  interest in the newly  created  limited  partnership,  Reich & Tang Asset
Management  L.P.,  the  Manager.   Reich  &  Tang  Asset  Management,   Inc.  (a
wholly-owned  subsidiary  of NEICLP)  is the  general  partner  and owner of the
remaining .5% interest of the Manager.  Reich & Tang Asset  Management  L.P. has
succeeded  NEICLP as the Manager of the Fund. The re-execution of the Investment
Management Contract does not

                                       10
<PAGE>
result in "assignment" of the Investment  Management  Contract with NEICLP under
the Act, since there is no change in actual control or management of the Manager
caused by the re-execution.

         New  England  Investment  Companies,   Inc.  ("NEIC")  a  Massachusetts
corporation,  serves as the sole  general  partner  of NEICLP.  The New  England
Mutual Life Insurance  Company ("The New England") owns  approximately  68.1% of
the total partnership units outstanding of NEICLP,  and Reich & Tang, Inc., owns
approximately 22.8% of the outstanding partnership units of NEICLP. In addition,
NEIC is a  wholly-owned  subsidiary  of The New  England,  which may be deemed a
"controlling person" of the Manager.  NEIC is a holding company offering a broad
array of investment styles across a wide range of asset categories through eight
investment  advisory/management  affiliates and three distribution subsidiaries.
These  include,  in addition to the  Manager,  Loomis,  Sayles & Company,  L.P.;
Copley Real Estate Advisors,  Inc.; Back Bay Advisors, L.P.; Marlborough Capital
Advisors, L.P.; Westpeak Investment Advisors, L.P.; Draycott Partners, Ltd.; TNE
Investment  Services,  L.P.;  New England  Investment  Associates,  Inc.; and an
affiliate,  Capital Growth Management Limited  Partnership.  These affiliates in
the  aggregate  are  investment  advisors  or  managers  to 57 other  registered
investment companies.

         The  re-executed  Investment  Management  Contract  and  Administrative
Services Contract contain the same terms and conditions  governing the Manager's
investment   management  and  administrative   responsibilities  as  the  Fund's
predecessor Investment Management Contract and Administrative  Services Contract
except for (i) the dates of execution and (ii) the identity of the Manager.

         Pursuant to the Investment Management Contract, the Manager manages the
Fund's  portfolio of securities and makes decisions with respect to the purchase
and  sale of  investments,  subject  to the  general  control  of the  Board  of
Directors  of the Fund.  Pursuant to the  Investment  Management  Contract,  the
Manager  receives  from the Fund a fee  equal  to .30% per  annum of the  Fund's
average  daily net  assets for  managing  the Fund's  investment  portfolio  and
performing related services.

     Pursuant to the Administrative  Services Contract for the Fund, the Manager
performs clerical,  accounting  supervision and office service functions for the
Fund and provides the Fund with the personnel to (i)  supervise the  performance
of bookkeeping and related  services by Investors  Fiduciary Trust Company,  the
Fund's  bookkeeping  agent,  (ii) prepare reports to and filings with regulatory
authorities  and (iii) perform such other  services as the Fund may from time to
time  request of the  Manager.  The  personnel  rendering  such  services may be
employees of the Manager or its affiliates.  The Manager, at its discretion, may
voluntarily waive all or a portion of the  administrative  services fee. For its
services under the Administrative  Services Contract, the Manager receives a fee
equal to .21% per annum of the Fund's  average daily net assets.  Any portion of
the total  fees  received  by the  Manager  may be used to  provide  shareholder
services and for  distribution of Fund shares.  (See  "Distribution  and Service
Plan" herein.) In addition,  Reich & Tang  Distributors  L.P., the  Distributor,
receives a servicing fee equal to .20% per annum of the average daily net assets
of the shares of the Fund under the Shareholder  Servicing  Agreement.  The fees
are accrued daily and paid monthly.

- --------------------------------------------------------------------------------
                          DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------

         The Fund was  incorporated in Maryland on July 24, 1990. The authorized
capital  stock of the Fund consists of twenty  billion  shares of stock having a
par  value of one tenth of one cent  ($.001)  per  share.  The  Fund's  Board of
Directors is  authorized to divide the unissued  shares into separate  series of
stock, each series  representing a separate,  additional  investment  portfolio.
Shares of all series will have identical  voting rights,  except where,  by law,
certain  matters  must be approved  by a majority of the shares of the  affected
series.  Each share of any  series of shares  when  issued  has equal  dividend,
distribution,  liquidation  and voting rights within the series for which it was
issued,  and each  fractional  share  has  those  rights  in  proportion  to the
percentage that the fractional share represents of a whole share. Shares will be
voted in the  aggregate.  There  are no  conversion  or  pre-emptive  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.  As of January
31, 1995,  the amount of shares  owned by all officers and  directors as a group
was less than 1% of the outstanding shares of the Fund.

                                       11
<PAGE>
     The shares of the Fund have non-cumulative  voting rights, which means that
the holders of more than 50% of the shares  outstanding  voting for the election
of directors  can elect 100% of the  directors  if the holders  choose to do so,
and, in that  event,  the  holders of the  remaining  shares will not be able to
elect    any    person    or    persons    to   the    Board    of    Directors.

- --------------------------------------------------------------------------------
                          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.  Fund Business
Day means weekdays  (Monday through Friday) except customary  business  holidays
and Good Friday.  There is no fixed dividend rate. In computing these dividends,
interest earned and expenses are accrued daily.

     Net realized  capital gains,  if any, are distributed at least annually and
in no event later than within 60 days after the end of the Fund's  fiscal  year.
All dividends and distributions of capital gains are  automatically  invested in
additional Fund shares immediately upon payment thereof unless a shareholder has
elected by written notice to the Fund to receive either of such distributions in
cash.

- --------------------------------------------------------------------------------
                       HOW TO PURCHASE AND REDEEM SHARES
- --------------------------------------------------------------------------------

HOW TO BUY SHARES
         You can purchase  shares of the Fund through  broker-dealers,  banks or
other  financial  intermediaries,  or directly  through EFD. The minimum initial
investment  is $1,000  which may be waived in  certain  situations.  There is no
minimum for subsequent  investments.  In states where EFD is not registered as a
broker-dealer, shares of the Fund will only be sold through other broker-dealers
or other financial  institutions that are registered.  Only Evergreen shares are
offered through this  Prospectus.  Instructions on how to purchase shares of the
Fund are set forth in the Share  Purchase  Application.

ADDITIONAL PURCHASE INFORMATION.  As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the Fund's Manager incurs.
If such investor is an existing shareholder, the Fund may redeem shares from his
or her account to  reimburse  the Fund or the Fund's  Manager  for any loss.  In
addition,  such  investors may be prohibited or restricted  from making  further
purchase in any of the Evergreen mutual funds.

HOW TO REDEEM SHARES

     You may  "redeem",  i.e.,  sell your  shares in the Fund to the Fund on any
Fund Business Day, either directly or through your financial  intermediary.  The
price you will  receive is the net asset  value next  calculated  after the Fund
receives  your request in proper form.  Proceeds  generally  will be sent to you
within seven days.However, for shares recently purchased by check, the Fund will
not send  proceeds  until it is  reasonably  satisfied  that the  check has been
collected  (which may take up to ten days).  Once a redemption  request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.

REDEEMING  SHARES  THROUGH YOUR  FINANCIAL  INTERMEDIARY.  The Fund must receive
instructions  from your financial  intermediary  before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value.  Your financial  intermediary  is
responsible  for  furnishing  all  necessary  documentation  to the Fund and may
charge you for this service.  Certain financial  intermediaries may require that
you give instructions  earlier than 4:00 p.m.  (Eastern time).

REDEEMING  SHARES  DIRECTLY  BY MAIL  OR  TELEPHONE.  Send a  signed  letter  of
instruction  or stock power form to State Street Bank and Trust Company  ("State
Street") which is the registrar,  transfer agent and dividend  disbursing  agent
for the Fund. Stock power forms are available from your financial  intermediary,
State Street,  and many commercial banks.  Additional  documentation is required
for the sale of shares by corporations,  financial  intermediaries,  fiduciaries
and surviving joint owners. Signature guarantees are required for all redemption
requests  for shares with a value of more than  $10,000 or where the  redemption
proceeds  are to be mailed to an address  other  than that shown in the  account
registration.  A signature guarantee must be provided by a bank or trust company
(not a Notary  Public),  a member firm of a domestic  stock exchange or by other
financial institutions whose guarantees are acceptable to State Street.

                                       12
<PAGE>
     Shareholders  may withdraw amounts of $1,000 or more from their accounts by
calling State Street at 800-423-2615 between the hours of 8:00 a.m. to 5:30 p.m.
(Eastern time) each Fund Business Day.  Redemption requests made after 4:00 p.m.
(Eastern  time) will be processed  using the net asset value  determined  on the
next  business  day. Such  redemption  requests  must include the  shareholder's
account  name,  as  registered  with the Fund,  and the account  number.  During
periods of drastic  economic  or market  changes,  shareholders  may  experience
difficulty in effecting  telephone  redemptions.  Shareholders who are unable to
reach State Street by telephone should follow the procedures  outlined above for
redemption by mail.

     The  telephone   redemption   service  is  not  available  to  shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the Share  Purchase  Application  and choose how the redemption
proceeds are to be paid.  Redemption proceeds will either (i) be mailed by check
to the  shareholder at the address in which the account is registered or (ii) be
wired to an account with the same registration as the  shareholder's  account in
the Fund at a designated commercial bank. State Street currently deducts a $5.00
wire charge from all redemption proceeds wired. This charge is subject to change
without notice. Redemption proceeds will be wired on the same day if the request
is made prior to 12 noon (Eastern  time).  Such shares,  however,  will not earn
dividends for that day.  Redemption  requests  received  after 12 noon will earn
dividends for that day, and the proceeds will be wired on the following business
day.  A  shareholder  who  decides  later  to use  this  service,  or to  change
instructions already given, should fill out a Shareholder Services Form and send
it to State Street Bank and Trust Company, P.O. Box 9021, Boston,  Massachusetts
02205-9827,  with such  shareholder's  signature  guaranteed  by a bank or trust
company (not a Notary Public),  a member firm of a domestic stock exchange or by
other financial  institutions  whose  guarantees are acceptable to State Street.
Shareholders  should allow approximately ten days for such form to be processed.
The  Fund  will  employ  reasonable  procedures  to  confirm  that  instructions
communicated by telephone are genuine.  These procedures  include requiring some
form of  personal  identification  prior to acting  upon  instructions  and tape
recording  of  telephone  instructions.   If  the  Fund  fails  to  follow  such
procedures,  it may be liable for any losses due to  unauthorized  or fraudulent
instructions.  The Fund will not be liable for following telephone  instructions
reasonably  believed  to be  genuine.  The Fund  reserves  the right to refuse a
telephone   redemption  if  it  is  believed   advisable  to  do  so.  Financial
intermediaries may charge a fee for handling telephone requests.  Procedures for
redeeming Fund shares by telephone may be modified or terminated  without notice
at any time.

REDEMPTIONS BY CHECK.  Upon request,  the Fund will provide holders of Evergreen
shares,  without  charge,  with checks drawn on the Fund that will clear through
State  Street.  Shareholders  will  be  subject  to  State  Street's  rules  and
regulations governing such checking accounts. Checks will be sent usually within
ten business days following the date the account is  established.  Checks may be
made  payable to the order of any payee in an amount of $250 or more.  The payee
of the check may cash or  deposit  it like a check  drawn on a bank.  (Investors
should be aware that, as in the case with regular bank checks, certain banks may
not provide cash at the time of deposit,  but will wait until they have received
payment from State  Street.)  When such a check is presented to State Street for
payment,  State Street, as the shareholder's  agent, causes the Fund to redeem a
sufficient number of full and fractional shares in the shareholder's  account to
cover the amount of the check.  Checks will be returned by State Street if there
are  insufficient or  uncollectable  shares to meet the withdrawal  amount.  The
check writing procedure for withdrawal enables  shareholders to continue earning
income  on the  shares  to be  redeemed  up to but not  including  the  date the
redemption check is presented to State Street for payment.

     Shareholders  wishing to use this method of redemption  should fill out the
appropriate  part of the Share  Purchase  Application  (including  the Signature
Card) and mail the completed form to State Street Bank and Trust  Company,  P.O.
Box 9021, Boston, Massachusetts 02205-9827. Shareholders requesting this service
after an account has been opened must  contact  State  Street  since  additional
documentation  will be required.  Currently there is no charge either for checks
or for the clearance of any checks. This service may be terminated or altered at
any time.
- --------------------------------------------------------------------------------
                              SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
     The Fund offers the following  shareholder  services.  For more information
about these services or your account, contact EFD or the toll-free number on the
front of this  Prospectus.  Some  services  are  described in more detail in the
Share Purchase Application.
                                       13
<PAGE>
SYSTEMATIC  INVESTMENT PLAN. You may make monthly or quarterly  investments into
an existing account automatically in amounts of not less than $25.

TELEPHONE  INVESTMENT  PLAN. You may make  investments  into an existing account
electronically  in  amounts  of not less  than  $100 or more  than  $25,000  per
investment.  Telephone  investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's  account two business days after the request
is received.

SYSTEMATIC CASH WITHDRAWAL PLAN. When an account of $10,000 or more is opened or
when an existing  account  reaches that size, you may  participate in the Fund's
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase  Application.  Under this plan,  you may receive (or designated a third
party to receive) a monthly or  quarterly  check in a stated  amount of not less
than  $100.  Fund  shares  will be  redeemed  as  necessary  to meet  withdrawal
payments.  All participants  must elect to have their dividends and capital gain
distributions reinvested automatically.  In order to make a payment, a number of
shares equal in aggregate net asset value to the payment  amount are redeemed at
their net asset value on the Fund Business Day immediately preceding the date of
payment.  To the extent that the  redemptions  to make plan payments  exceed the
number of shares purchased through  reinvestment of dividends and distributions,
the redemptions  reduce the number of shares  purchased on original  investment,
and may ultimately liquidate a shareholder's investment.  Because the withdrawal
plan involves the  redemption of Fund shares,  such  withdrawals  may constitute
taxable events to the shareholder,  but the Fund does not expect that there will
be any realizable capital gains.

INVESTMENTS  THROUGH  EMPLOYEE BENEFIT AND SAVINGS PLAN.  Certain  qualified and
non-qualified  benefit  and  savings  plans may make  shares of the Fund and the
other  Evergreen  mutual  funds  available  to their  participants.  Each Fund's
investment   adviser  may  provide   compensation  to  organizations   providing
administrative  and  recordkeeping  services  to plans  which make shares of the
Evergreen mutual funds available to their participants.

AUTOMATIC REINVESTMENT PLAN. For the convenience of investors, all dividends and
distributions are automatically  reinvested in full and fractional shares of the
Fund at the net  asset  value per  share at the  close of  business  on the last
business  day of each month,  unless  otherwise  requested by a  shareholder  in
writing. If the transfer agent does not receive a written request for subsequent
dividends  and/or  distributions to be paid in cash at least three full business
days prior to a given record date, the dividends and/or distributions to be paid
to a  shareholder  will be  reinvested.  If you elect to receive  dividends  and
distributions in cash and the U.S. Postal Service cannot deliver the checks,  or
if the checks remain uncashed for six months, the checks will be reinvested into
your account at the then current net asset value.

TAX  SHELTERED  RETIREMENT  PLANS.  You may open a pension  and  profit  sharing
account in any Evergreen  mutual fund (except those funds having an objective of
providing  tax free  income),  including:  (i)  Individual  Retirement  Accounts
("IRAs") and Rollover  IRAs;  (ii)  Simplified  Employee  Pension (SEP) for sole
proprietors,  partnerships and corporations;  and (iii) Profit-Sharing and Money
Purchase Pension Plans for corporations and their employees.

     The Fund sells and  redeems its shares on a  continuing  basis at their net
asset value and does not impose a charge for either sales or redemptions.


     In order to maximize  earnings on its portfolio,  the Fund normally has its
assets as fully invested as is  practicable.  Many  securities in which the Fund
invests require immediate settlement in funds of Federal Reserve member banks on
deposit  at  a  Federal  Reserve  Bank  (commonly  known  as  "Federal  Funds").
Accordingly,  the Fund does not accept a  subscription  or invest an  investor's
payment in  portfolio  securities  until the  payment  has been  converted  into
Federal Funds.

     Shares will be issued as of the first determination of the Fund's net asset
value per share made after  acceptance of the investor's  order at the net asset
value per share  first  determined  after  receipt  of the order.  Shares  begin
accruing income  dividends on the day they are purchased.  The Fund reserves the
right to reject any  subscription  for its shares.  Certificates for Fund shares
will not be issued to an investor.

     Shares are issued as of 12 noon,  Eastern time, on any Fund Business Day on
which an order for the shares and accompanying Federal Funds are received by the
Fund's  transfer agent before 12 noon.  Orders  accompanied by Federal Funds and
received after 12 noon,  Eastern time, on a Fund Business Day will not result in
share issuance until the following Fund Business Day. Fund shares begin accruing
income on the day the shares are issued to an investor.

                                       14
<PAGE>
     There is no redemption charge, no minimum period of investment,  no minimum
amount  for a  redemption,  and no  restriction  on  frequency  of  withdrawals.
Proceeds of redemptions are paid by check.  Unless other  instructions are given
in proper  form to the Fund's  transfer  agent,  a check for the  proceeds  of a
redemption will be sent to the shareholder's address of record. If a shareholder
elects to redeem all the shares of the Fund he owns,  all  dividends  accrued to
the  date of such  redemption  will be paid to the  shareholder  along  with the
proceeds of the redemption.

     The right of  redemption  may not be  suspended or the date of payment upon
redemption  postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than  customary  weekend and holiday  closings) or during which
the  Securities  and Exchange  Commission  determines  that  trading  thereon is
restricted,  or for any period during which an emergency  (as  determined by the
Securities and Exchange  Commission) exists as a result of which disposal by the
Fund of its portfolio securities is not reasonably practicable or as a result of
which it is not  reasonably  practicable  for the Fund fairly to  determine  the
value of its net assets, or for such other period as the Securities and Exchange
Commission  may by order permit for the  protection of the  shareholders  of the
Fund.

     Redemption  requests  received by the Fund's transfer agent before 12 noon,
Eastern  time,  on any Fund  Business Day become  effective at 12 noon that day.
Shares redeemed are not entitled to participate in dividends declared on the day
a redemption  becomes  effective.  A redemption  request received after 12 noon,
Eastern  time,  on any Fund  Business  Day  becomes  effective  on the next Fund
Business Day.

     The  Fund  has  reserved  the  right  to  close  an  account  that  through
redemptions has remained below $1,000 for 30 days.  Shareholders will receive 60
days' written notice to increase the account value before the account is closed.

     The  redemption of shares may result in the  investor's  receipt of more or
less than is paid for the shares  and,  thus,  in a taxable  gain or loss to the
investor.

EFFECT OF BANKING LAWS

     The  Glass-Steagall  Act limits the ability of a depository  institution to
become an underwriter or  distributor  of  securities.  However,  it is the Fund
management's  position  that  banks  are not  prohibited  from  acting  in other
capacities  for  investment  companies,  such as  providing  administrative  and
shareholder  account  maintenance  services and receiving  compensation from the
Manager for providing such services.  However,  this is an unsettled area of the
law and if a determination contrary to the Fund management's position is made by
a  bank  regulatory  agency  or  court  concerning   shareholder  servicing  and
administration  payments to banks from the Manager,  any such  payments  will be
terminated and any shares  registered in the banks' names,  for their underlying
customers,  will be re-registered in the name of the customers at no cost to the
Fund or its shareholders.  In addition,  state securities laws on this issue may
differ from the  interpretations  of Federal law expressed  herein and banks and
financial  institutions may be required to register as dealers pursuant to state
law.

     The election to receive  automatic  withdrawal  payments may be made at the
time of the original  subscription  by so indicating on the  subscription  order
form. The election may also be made,  changed or terminated at any later time by
the participant.

- --------------------------------------------------------------------------------
                          DISTRIBUTION AND SERVICE PLAN
- --------------------------------------------------------------------------------

     Pursuant  to  Rule  12b-1  under  the  Act,  the  Securities  and  Exchange
Commission  has required  that an  investment  company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan  permitted  by the  Rule.  The  Fund's  Board of  Directors  has  adopted a
distribution  and service plan (the "Plan") and,  pursuant to the Plan, the Fund
and Reich & Tang  Distributors  L.P.  (the  "Distributor")  have  entered into a
Distribution Agreement and a Shareholder Servicing Agreement.

     Reich & Tang Asset Management,  Inc. serves as the sole general partner for
both Reich & Tang Asset Management L.P. and Reich & Tang Distributors  L.P., and
Reich & Tang Asset  Management  L.P.  serves as the sole limited  partner of the
Distributor.

     Under the  Shareholder  Servicing  Agreement,  the  Distributor  receives a
service fee equal to .20% per annum of the Fund's  average daily net assets (the
"Shareholder  Servicing Fee") for providing personal  shareholders  services and
for the maintenance of shareholder  accounts.  The fee is accrued daily and paid

                                       15
<PAGE>
monthly and any  portion of the fee may be deemed to be used by the  Distributor
for payments to participating  organizations  with respect to their provision of
such services to their clients or customers who are shareholders of the Fund.

     The Plan provides that the Manager may make payments from time to time from
its own resources, which may include the management fee and past profits for the
following  purposes:  (i) to  defray  the costs of,  and to  compensate  others,
including Participating Organizations with whom the Distributor has entered into
written   agreements,   for   performing   shareholder   servicing  and  related
administrative  functions  on  behalf of the Fund;  (ii) to  compensate  certain
Participating  Organizations for providing assistance in distributing the Fund's
shares;  and (iii) to pay the costs of  printing  and  distributing  the  Fund's
prospectus to prospective  investors,  and to defray the cost of the preparation
and  printing  of  brochures  and  other  promotional  materials,   mailings  to
prospective  shareholders,   advertising,   and  other  promotional  activities,
including the salaries and/or  commissions of sales personnel in connection with
the  distribution  of the Fund's shares.  The Distributor may also make payments
from time to time from its own  resources,  which may include  the  Shareholding
Servicing Fee and past profits,  for the purposes  enumerated in (i) above.  The
Manager and Distributor  may make payments to  Participating  Organizations  for
providing  certain of such services up to a maximum of (on an annualized  basis)
 .40 of 1% of the average daily net asset value of the Fund serviced  through the
Participating Organizations. Moreover, the Distributor will determine the amount
of such payments made pursuant to the Plan, provided that such payments will not
increase  the  amount  which  the Fund is  required  to pay to the  Manager  and
Distributor for any fiscal year under either the Investment  Management Contract
in effect for that year or under the Shareholder  Servicing  Agreement in effect
for that year.

     Under the Distribution Agreement,  the Distributor serves as distributor of
the Fund's  shares for  nominal  consideration  and as agent for the Fund,  will
solicit  orders  for the  purchase  of the  Fund's  shares,  provided  that  any
subscriptions  and orders will not be binding on the Fund until  accepted by the
Fund as principal.

     The Plan and the Shareholder  Servicing Agreement provide that, in addition
to the Shareholder  Servicing Fee, the Fund will pay for (i)  telecommunications
expenses,  including the cost of dedicated lines and CRT terminals,  incurred by
the  Manager  and  Distributor  in  carrying  out  their  obligations  under the
Shareholder Servicing Agreement and (ii) preparing,  printing and delivering the
Fund's  prospectus  to  existing  shareholders  of the  Fund and  preparing  and
printing subscription application forms for shareholder accounts.

     For the fiscal year ended October 31, 1994, the total amount spent pursuant
to the Plan was .37% of the  average  daily net  assets of the Fund all of which
was paid by the Manager (which may be deemed an indirect payment by the Fund).

- --------------------------------------------------------------------------------
                              FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------

     The Fund has elected to qualify  under the Code as a  regulated  investment
company that distributes "exempt-interest dividends" as defined in the Code. The
Fund's policy is to distribute as dividends each year 100% (and in no event less
than 90%) of its tax-exempt interest income, net of certain deductions,  and its
investment  company taxable income (if any). If  distributions  are made in this
manner,  dividends derived from the interest earned on Municipal Obligations are
"exempt-interest  dividends" and are not subject to regular  Federal income tax,
although as described below, such "exempt-interest  dividends" may be subject to
Federal alternative minimum tax. Dividends paid from taxable income, if any, and
distributions of any realized  short-term capital gains (whether from tax-exempt
or taxable  obligations)  are taxable to  shareholders  as  ordinary  income for
Federal  income  tax  purposes,  whether  received  in  cash  or  reinvested  in
additional  shares of the Fund.  The Fund does not expect to  realize  long-term
capital  gains,  and  thus,  does not  contemplate  distributing  "capital  gain
dividends" or have  undistributed  capital gain income within the meaning of the
Code. The Fund informs  shareholders  of the amount and nature of its income and
gains in a written  notice mailed to  shareholders  not later than 60 days after
the close of the Fund's taxable year. For Social Security  recipients,  interest
on tax-exempt bonds,  including  tax-exempt interest dividends paid by the Fund,
is to be added to adjusted  gross income for purposes of computing the amount of
Social Security benefits includible in gross income. The Revenue  Reconciliation
Act of 1993 (P.L. 103-66) and other recent tax legislation,  affects many of the
Federal tax aspects of Municipal Obligations and makes many important changes to
the Federal income tax system,  including an increase in marginal tax rates.  In
addition to these changes, the Tax Reform Act

                                       16
<PAGE>
of 1986 (P.L.  99-514)  limited  the annual  amount of many types of  tax-exempt
bonds that a state may issue and revised current  arbitrage  restrictions.  P.L.
99-514  also  provided  that  interest  on  certain  "private   activity  bonds"
(generally,  a bond issue in which more than 10% of the  proceeds are used for a
non-governmental  trade or  business  and which  meets the  private  security or
payment test, or bond issue which meets the private loan financing  test) issued
after August 7, 1986 will  constitute an item of tax  preference  subject to the
individual  alternative  minimum tax and P.L.  103-66  increases the alternative
minimum  tax rate for  taxpayers  other than  corporations  up to 28%.  Further,
corporations will be required to include in alternative  minimum taxable income,
75% of the amount by which its adjusted current earnings  (including  generally,
tax-exempt  interest) exceeds its alternative minimum taxable income (determined
without this item). Certain tax-exempt interest is also included in the tax base
for the additional corporate minimum tax imposed by the Superfund Amendments and
Reauthorization  Act of 1986 for taxable years beginning  before January 1, 1996
and in certain cases  Subchapter S corporations  with  accumulated  earnings and
profits from Subchapter C years will be subject to a tax on "passive  investment
income", including tax-exempt interest.

     With respect to variable rate demand instruments,  including  participation
certificates  therein,  the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund,  that it will be treated for Federal income tax purposes as
the owner thereof and that the interest on the underlying Municipal  Obligations
will be  tax-exempt  to the Fund.  Counsel  has  pointed  out that the  Internal
Revenue Service has announced that it will not ordinarily  issue advance rulings
on the  question of the  ownership  of  securities  or  participation  interests
therein  subject  to a put and  could  reach a  conclusion  different  from that
reached by counsel.

     In South  Carolina v. Baker,  the U.S.  Supreme Court held that the Federal
government may constitutionally  require states to register bonds they issue and
may subject the interest on such bonds to Federal tax if not registered, and the
Court  further  held that there is no  constitutional  prohibition  against  the
Federal  Government's  taxing the  interest  earned on state or other  municipal
bonds.  The  Supreme  Court  decision  affirms  the  authority  of  the  Federal
government to regulate and control bonds such as the Municipal  Obligations  and
to tax such bonds in the future.  The  decision  does not,  however,  affect the
current  exemption  from  taxation  of the  interest  earned  on  the  Municipal
Obligations in accordance with Section 103 of the Code.

- --------------------------------------------------------------------------------
                             NEW JERSEY INCOME TAXES
- --------------------------------------------------------------------------------

     The  designation  of all or a portion of a dividend  paid by the Fund as an
"exempt-interest  dividend"  under the Code does not  necessarily  result in the
exemption  of such amount  from tax under the laws of any state or local  taxing
authority.

     The Fund intends to be a "qualified  investment fund" within the meaning of
the New Jersey  gross  income  tax.  The primary  criteria  for  constituting  a
"qualified  investment  fund"  are that (1) such fund is an  investment  company
registered with the Securities and Exchange  Commission  which, for the calendar
year in which the  distribution is paid, has no investments  other than interest
bearing  obligations,  obligations  issued at a  discount,  cash and cash items,
including  receivables and financial options,  futures,  forward  contracts,  or
other similar financial  instruments  relating to interest-bearing  obligations,
obligations  issued at a discount or bond indexes related thereto and (2) at the
close of each  quarter of the taxable  year,  such fund has not less than 80% of
the aggregate  principal amount of all of its investments,  excluding  financial
options,  futures,  forward  contracts,  or other similar financial  instruments
relating to interest- bearing  obligations,  obligations issued at a discount or
bond indexes related thereto to the extent such instruments are authorized under
the  regulated  investment  company  rules under the Code,  cash and cash items,
which cash items shall include receivables, in New Jersey Municipal Obligations,
Territorial  Municipal  Obligations  and  certain  other  specified  securities.
Additionally,  a qualified  investment fund must comply with certain  continuing
reporting requirements.  In the opinion of Sills Cummis Zuckerman Radin Tischman
Epstein & Gross, P.A., special New Jersey tax counsel to the Fund, assuming that
the Fund constitutes a qualified investment fund and that the Fund complies with
the  reporting  obligations  under New  Jersey  law with  respect  to  qualified
investment  funds, (a)  distributions  paid by the Fund to a New Jersey resident
individual shareholder will not be subject to the New Jersey gross income tax to
the  extent  that the  distributions  are  attributable  to income  received  as
interest  on or gain  from  New  Jersey  Municipal  Obligations  or  Territorial
Municipal Obligations, and (b) gain from the sale of shares in the Fund by a New
Jersey  resident  individual  shareholder  will not be subject to the New Jersey
gross income tax.

                                       17
<PAGE>

     Shareholders  are urged to consult with their tax advisors  with respect to
the treatment of distributions from the Fund and ownership of shares of the Fund
in their own states and localities.

- --------------------------------------------------------------------------------
                               GENERAL INFORMATION
- --------------------------------------------------------------------------------

     The Fund was  incorporated  under the laws of the State of Maryland on July
24, 1990 and it is registered  with the Securities and Exchange  Commission as a
non-diversified, open-end management investment company.

     The Fund prepares  semi-annual  unaudited and annual audited  reports which
include a list of investment  securities  held by the Fund and which are sent to
shareholders.

     As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders.  This is because the By-Laws of the Fund provide for annual
meetings  only (a) for the  election of  directors,  (b) for approval of revised
investment  advisory  contracts with respect to a particular  class or series of
stock, (c) for approval of revisions to the Fund's  distribution  agreement with
respect  to a  particular  class or series of  stock,  and (d) upon the  written
request of holders or shares entitled to cast not less than 25% of all the votes
entitled to be cast at such meeting.  Annual and other  meetings may be required
with respect to such additional  matters relating to the Fund as may be required
by the Act including the removal of Fund  director(s)  and  communication  among
shareholders,  any  registration  of the Fund with the  Securities  and Exchange
Commission  or  any  state,  or as  the  Directors  may  consider  necessary  or
desirable.  Each  Director  serves  until the next  meeting of the  shareholders
called  for the  purpose of  considering  the  election  or  reelection  of such
Director  or of a  successor  to such  Director,  and  until  the  election  and
qualification of his or her successor,  elected at such a meeting, or until such
Director  sooner  dies,  resigns,  retires  or is  removed  by the  vote  of the
shareholders.

     For further  information  with  respect to the Fund and the shares  offered
hereby,  reference is made to the Fund's  Registration  Statement filed with the
Securities  and  Exchange  Commission,   including  the  exhibits  thereto.  The
Registration  Statement  and  the  exhibits  thereto  may  be  examined  at  the
Commission   and  copies  thereof  may  be  obtained  upon  payment  of  certain
duplicating fees.
- --------------------------------------------------------------------------------
                                 NET ASSET VALUE
- --------------------------------------------------------------------------------

     The net  asset  value of the  Fund's  shares is  determined  as of 12 noon,
Eastern time, on each Fund Business Day. It is computed by dividing the value of
the Fund's net assets (i.e.,  the value of its  securities and other assets less
its liabilities,  including  expenses  payable or accrued but excluding  capital
stock and surplus) by the total number of shares outstanding.

     The  Fund's  portfolio  securities  are valued at their  amortized  cost in
compliance  with the  provisions  of Rule  2a-7  under the Act.  Amortized  cost
valuation  involves valuing an instrument at its cost and thereafter  assuming a
constant  amortization  to maturity of any  discount or premium,  except that if
fluctuating  interest  rates cause the market  value of the Fund's  portfolio to
deviate more than 1/2 of 1% from the value  determined on the basis of amortized
cost,  the  Board of  Directors  will  consider  whether  any  action  should be
initiated.  Although the amortized cost method provides  certainty in valuation,
it may result in periods  during which the value of an  instrument  is higher or
lower than the price an investment  company would receive if the instrument were
sold.  The Fund  intends to maintain a stable net asset value at $1.00 per share
although there can be no assurance that this will be achieved.
- --------------------------------------------------------------------------------
                          CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------

     Investors  Fiduciary  Trust  Company,  127 West 10th  Street,  Kansas City,
Missouri  64105 is custodian  for the Fund's cash and  securities.  State Street
Bank and Trust Company, P.O. Box 9021, Boston,  Massachusetts  02205-9827 is the
registrar,  transfer agent and dividend  disbursing  agent for the shares of the
Fund.  The Fund's  transfer  agent and  custodian  do not assist in, and are not
responsible for, investment decisions involving assets of the Fund.


                                       18
<PAGE>








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DISTRIBUTOR
Evergreen Funds Distributor, Inc., 230 Park Avenue, New York, New York 10169

For further information contact the Fund at 2500 Westchester Avenue Purchase,
New York 10577

<PAGE>
EVERGREEN FUNDS APPLICATION

FOR PURCHASES OF CLASS A, B, C OR EVERGREEN SHARES ONLY

DO NOT USE FOR EVERGREEN'S, IRA OR KEOGH ACCOUNTS

If   you   need   assistance   in   completing  this  application,  please  call
1-800-235-0064.
Mail  check  and  completed  application  to: The Evergreen  Funds, State Street
Bank & Trust Co., P.O. Box 9021, Boston, MA, 02205-9827

1.       YOUR ACCOUNT REGISTRATION   (please print)
         (Check only one box here to indicate type of registration.)

[    ]  INDIVIDUAL

- --------------------       --------------------------------------
First Name                 Initial                   Last Name

- ----------------------------------------------
Social Security Number  1

[    ]  JOINT TENANT  2


- -------------------------------------------------------------------------------
1 Only one Social Security Number is needed for tax reporting.

2 The account  registration will be joint tenants with right of survivorship and
not  tenants  in  common  unless   tenants  in  common  or  community   property
registrations are requested

[    ]   GIFT TO A MINOR

____________________________________ as custodian for
Custodian's Name (Only One Permitted)

________________________________________under the
Minor's Name (Only One Permitted)

_______________________Uniform Gifts to Minors Act
State
                           -------------------------------
                           Minor's Social Security Number


- -------------------------------------------------------------------------------
[    ]  A TRUST (Please include copy of Trust document)

_________________________________________as trustee for
Name of Trustee

_______________________________under agreement dated
Name of Trust

- -------------------.                -----------------------
Date of Trust Agreement             Taxpayer Identification Number


- --------------------------------------------------------------------------------
[    ] A CORPORATION, PARTNERSHIP OR OTHER ENTITY
       (Please include copy of Corporate Resolution)


- --------------------------------------------------------
Name of corporation or other entity

- ---------------------------------------------
Taxpayer Identification Number


2.       YOUR MAILING ADDRESS   (please print)

- -----------------------------------------------------
Street Address

- -----------------------------------------------------
City                       State                     Zip

- -----------------------------------------------------
Home Phone                          Business Phone

I am a citizen of [    ]  U.S.      [    ]  Other ____________________
                                            (please specify)


3.       DEALER INFORMATION   (please print)

- ------------------------------------------------------
Dealer Name

- ------------------------------------------------------
Dealer Address

- ------------------------------------------------------
City                       State                     Zip

Dealer Authorized Signature  __________________________________

- -------------------------------------------------------
Branch Address

- -------------------------------------------------------
City                       State                     Zip

- --------------------------------------------------------
Dealer Branch Office Number                          Branch Phone Number

- -------------------------------------------------------
Rep Number                          Rep Last Name

4. YOUR INITIAL INVESTMENT   (minimum of $1,000 per account)


Fund Name                  Share Class**                                Amount
                            A       B       C   Evergreen Shares
- -----------------------   [   ]   [   ]   [   ]   [   ]             $-----------
- -----------------------   [   ]   [   ]   [   ]   [   ]             $-----------
- -----------------------   [   ]   [   ]   [   ]   [   ]             $-----------


[    ] Check    or   [    ] Wire * (Make check payable to Evergreen Funds)

* To wire funds,  obtain an account  number and wiring  instructions  by calling
800-423-2615, and fill in the information below.

On _______________________Account No. _______________________________
         (Date of Wire)

- --------------------------------------------------------------------
Name of Bank                                         Branch


**  If no class is chosen, it will be assumed you wish to invest in Class A

5.       DIVIDEND AND DISTRIBUTION INSTRUCTIONS

Dividends are to be:       [    ]  Reinvested               [    ] Paid in Cash

Capital Gain
Distributions are to be:   [    ]  Reinvested               [    ] Paid in Cash

If no boxes are checked,  all dividends and capital gain  distributions  will be
reinvested.

                                                            CONTINUED ON REVERSE
<PAGE>
6.       SYSTEMATIC WITHDRAWAL PLAN
                  (Minimum initial investment $10,000)

[    ] Systematic Withdrawal Plan

I, We request that the Fund or its transfer agent send a check for

$____________________________($75 minimum) monthly beginning

the 25th day of _____________________or [    ] quarterly beginning
                  month
the 25th day of ______________________.  The check is to be drawn

to the order of ________________________________.

and mailed to:

- ---------------------------------------------------------
Name

- ---------------------------------------------------------
Address

- ---------------------------------------------------------
City                       State                     Zip


7.       TELEPHONE EXCHANGE/REDEMPTION OPTION
                  (minimum $1,000 per transaction)

I, We authorize you to honor any telephone requests for the following:

[        ] Exchange  existing shares of one of the Evergreen funds for shares of
         any of the other  Evergreen  funds within the same class with no change
         in registration.

Redemption Options (choose only one)

[        ] Mail redemption  proceeds from a designated  Evergreen fund or to the
         name and address in which the fund account is registered.

         or

[        ] Wire  redemption  proceeds  from a  designated  Evergreen  fund to an
         account with the same registration as the registration
         in the fund at the commercial  bank you specify in the following  text.
         (Please  attach a voided  check for the account  listed).  If you would
         like  more  than  one  bank  file,  please  attach  additional  banking
         information, including a voided check, for each bank listed.

- -----------------------------------------------------------
Name of Bank                                Account #

- -----------------------------------------------------------
Address

- -----------------------------------------------------------
City                       State                     Zip

The records of the  Evergreen  Funds and State Street Bank and Trust  Company of
such instructions will be binding on all parties and neither the Evergreen Funds
nor State  Street  will be liable for any loss,  expense or cost  arising out of
such transactions.

X_________________________________________________________
         Shareholder Signature

X_________________________________________________________
         Joint Shareholder Signature, if any


8.       CHECK WRITING SERVICES

[ ] Please open a check writing  service  account at State Street Bank and Trust
Company in my (our) name(s) as registered in Part I of this application and send
me (us) a supply of checks.  I (we)  understand  that checks may not be drawn on
the  account for less than  $250.00.  Please be sure to  complete  the  attached
signature card. Checks cannot be issued until it is on file.


9.      YOUR SIGNATURE

The  undersigned  warrants that he/she has full authority and is of legal age to
purchase  shares of the Fund and has received and read a current  Prospectus  of
the Fund and agrees to its terms.  The Fund's  Transfer Agent will not be liable
for acting upon  instructions  it  believes  are  genuine.  Under  penalties  of
perjury,  the undersigned whose Social Security (Tax I.D.) number is shown above
certifies (I) that number is my correct taxpayer  identification number and (ii)
currently  I am  not  under  IRS  notification  that I am  subject  to  back  up
withholding (delete (ii) if under notification). If no such number is shown, the
undersigned  further  certifies,  under  penalties of perjury,  that (a) no such
number has been issued,  and a number has been or soon will be applied for; if a
number is not provided to you within  sixty days,  the  undersigned  understands
that all payments  (including  redemptions) are subject to 31% withholding under
Federal tax law, until a number is provided;  or (b) that the undersigned is not
a citizen or resident  of the U.S.  and either does not expect to be in the U.S.
for 183 days  during each  calendar  year and does not conduct a business in the
U.S.  which would  receive any gain from the Fund,  or is exempt under an income
tax treaty.  THE INVESTMENT ADVISOR TO THE EVERGREEN FUNDS IS REICH & TANG ASSET
MANAGEMENT LP. INVESTMENTS IN THE EVERGREEN FUNDS ARE NOT ENDORSED OR GUARANTEED
BY ANY  BANK  OR ANY  SUBSIDIARIES  OF ANY  BANK,  ARE  NOT  DEPOSITS  OR  OTHER
OBLIGATIONS  OF ANY BANK OR ANY  SUBSIDIARIES  OF ANY BANK,  ARE NOT  INSURED OR
OTHERWISE  PROTECTED  BY THE  FEDERAL  RESERVE  BOARD,  OR ANY OTHER  GOVERNMENT
AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.  THE
EVERGREEN FUNDS ARE DISTRIBUTED BY EVERGREEN FUNDS  DISTRIBUTOR,  INC., WHICH IS
INDEPENDENT OF REICH & TANG ASSET MANAGEMENT LP.

X_________________________________________________________
Shareholder Signature (or Custodian)                 Date

X_________________________________________________________
Joint Shareholder Signature, if any                  Date

X_________________________________________________________
Corporate Officer, Partner, Trustee, etc.

__________________________________________________________
Title                                                Date
<PAGE>
SYSTEMATIC INVESTMENT PLAN

12.      SYSTEMATIC INVESTMENT PLAN

[    ] Systematic Investment Plan

This service allows you to regularly and automatically add to the Evergreen Fund
named below by debiting  your checking  account.  Please allow 30 days for us to
establish this service.


         I wish to make automatic investments of

         $_________________________ in the
              ($25 Minimum investment)


- -------------------------------------------------------
Name of Evergreen Fund                  Class of shares



Please debit my account
(Please attach a voided check)

[    ] Monthly    [    ] Quarterly

on the

[    ] 5th                 [    ] 20th


SIGNATURES AND ACCOUNT INFORMATION

- -------------------------------             -----------------------------
Shareholder Name (Please print)                      Name of Bank Account

X______________________________             _____________________________
Shareholder Signature                       Bank account number

- --------------------------------------------------
Joint Shareholder Name, if any (Please print)

X_________________________________________
Joint Shareholder Signature


- --------------------------------------------------
Investment Representative # and Full Name


SIGNATURE CARD FOR CHECKWRITING OPTION      (Please Print)
(see part eight of application)

[    ]   Evergreen Money Market Fund

[    ]   Evergreen Tax Exempt Money Market Fund

[    ]   Evergreen Treasury Money Market Fund
         Only one signature will be required on checks unless
         the box below is checked off

[    ] Check  here  only if you wish to have  both  signatures  required  on
         checks.


- ------------------------------------------------------------------
Account Number             Last Name        First   Middle Initial

- ------------------------------------------------------------------
Account Number             Last Name        First   Middle Initial


BY SIGNING THIS  SIGNATURE  CARD THE  UNDERSIGNED  AGREE(S) TO BE SUBJECT TO THE
RULES AND  REGULATIONS  OF STATE STREET BANK & TRUST  COMPANY,  NOW OR HEREAFTER
PERTAINING THERETO AND AS AMENDED FROM TIME TO TIME, AND AS SET FORTH BELOW.

X_________________________________________________________
SIGNATURE

X_________________________________________________________
SIGNATURE


THE  PAYMENT OF FUNDS ON THE  CONDITIONS  SET FORTH BELOW IS  AUTHORIZED  BY THE
SIGNATURE(S)  APPEARING  ABOVE.  If this card is signed  by two  persons  either
signature  will be accepted on checks unless the box requiring tow signatures is
checked off. Each signatory guarantees the genuineness of the other's signature.
The  Bank  is  hereby  appointed  agent  by  the  person(s)  signing  this  card
("Depositors") and, as such agent is directed to request redemption of shares of
the fund checked off above registered in the name of such person(s) upon receipt
of, and to the amount of checks drawn upon this checking  account and to deposit
the proceeds of such redemptions in this checking account. In so acting the Bank
shall be liable only for its own  negligence.  Depositors will be subject to the
Bank's rules and  regulations  governing  such checking  accounts  including the
right of the Bank not to honor  checks  in  amounts  exceeding  the value of the
Depositor's  shareholder  account  with the Fund  checked off above the time the
check is presented for payment. It is further agreed as follows:

1.       Deposits in this account may be made only from proceeds of
         shares of the fund checked off above.

2.       The Bank  reserves  the  right to  change,  modify  or  terminate  this
         agreement at any time upon notification mailed to the address appearing
         in the shareholder records of the fund checked off above.

<PAGE>

                                                       Registration No. 33-36317
                                                                         497 (b)
- --------------------------------------------------------------------------------

600 Fifth Avenue, New York, NY 10020
(212) 830-5220
================================================================================

NEW JERSEY
DAILY MUNICIPAL
INCOME FUND, INC.
                       STATEMENT OF ADDITIONAL INFORMATION
             RELATED TO THE NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
      VISTA SELECT SHARES OF NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.,
           FFB SHARES OF NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
                        PROSPECTUSES DATED MARCH 1, 1995
                                    AND THE
           EVERGREEN SHARES OF NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
                       PROSPECTUS DATED JANUARY 19, 1996

This Statement of Additional  Information,  although not in itself a Prospectus,
expands upon and supplements the information contained in the current Prospectus
of New Jersey Daily  Municipal  Income Fund,  Inc.,  (the "Fund"),  Vista Select
Shares  of the  Fund and FFB  Shares  of the Fund  dated  March 1,  1995 and the
prospectus of the Evergreen Shares of the Fund dated January 19, 1995 and should
be read in conjunction with the respective Prospectus. The respective Prospectus
may be obtained from any Participating Organization or by writing or calling the
Fund.

If you wish to  invest in Vista  Select  Shares of New  Jersey  Daily  Municipal
Income Fund,  Inc. you should  obtain a separate  prospectus by writing to Vista
Service Center, P.O. Box 419392,  Kansas City, Missouri 64141-6392 or by calling
(800)34-VISTA. If you wish to invest in FFB Shares of New Jersey Daily Municipal
Income Fund,  Inc.  you should  obtain a separate  prospectus  by writing to FFB
Funds,  P.O. Box 4490,  Grand Central  Station,  New York,  New York 10163 or by
calling (800)437-8790. If you wish to invest in Evergreen Shares of the Fund you
should  obtain a separate  prospectus  by writing to State Street Bank and Trust
Company,  P.O. Box 9021,  Boston,  Massachusetts  02205-9827 or by calling (800)
807-2840.

This Statement of Additional  Information is  incorporated by reference into the
respective Prospectuses in its entirety.
<TABLE>
<CAPTION>
                                             Table of Contents
- -----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>       <C>                                                     <C>

Investment Objectives,                                      Yield Quotations........................................14
    Policies and Risks.............................2        Manager.................................................15
Description of Municipal Obligations...............3        Expense Limitation......................................16
   Variable Rate Demand Instruments                         Management of the Fund..................................16
         and Participation Certificates............5            Compensation Table..................................18
   When-Issued Securities..........................7            Counsel and Auditors................................18
   Stand-by Commitments............................7        Distribution and Service Plan...........................18
Taxable Securities.................................8        Description of Common Stock.............................19
   Repurchase Agreements...........................8        Federal Income Taxes....................................20
New Jersey Risk Factors............................9        New Jersey Income Taxes.................................22
Investment Restrictions...........................12        Custodian and Transfer Agent............................22
Portfolio Transactions............................13        Description of Ratings..................................23
How to Purchase and Redeem Shares.................13        Independent Auditor's Report............................24
Net Asset Value...................................13        Financial Statements....................................25
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS

As stated in the Prospectus, the Fund is a non-diversified,  open-end management
investment  company that is a  short-term,  tax-exempt  money  market Fund.  The
Fund's  investment  objectives  are to seek as high a level of  current  income,
exempt from  regular  Federal  income tax and, to the extent  possible,  the New
Jersey  gross  income tax (the "New Jersey  Income  Tax"),  as is believed to be
consistent with preservation of capital,  maintenance of liquidity and stability
of principal.  No assurance can be given that these objectives will be achieved.
The following  discussion  expands upon the description of the Fund's investment
objectives and policies in the Prospectus.

The Fund's  assets will be invested  primarily in high quality debt  obligations
issued by or on behalf of the State of New Jersey, other states, territories and
possessions   of  the   United   States   and   their   authorities,   agencies,
instrumentality's and political  subdivisions,  the interest on which is, in the
opinion of bond counsel to the issuer at the date of issuance,  currently exempt
from  regular  Federal  income  taxation   ("Municipal   Obligations")   and  in
participation  certificates (which, in the opinion of Battle Fowler LLP, counsel
to the  Fund,  cause  the Fund to be  treated  as the  owner  of the  underlying
Municipal  Obligations) in Municipal Obligations purchased from banks, insurance
companies or other financial institutions.  Dividends paid by the Fund which are
"exempt-interest  dividends" by virtue of being properly  designated by the Fund
as  derived  from  Municipal  Obligations  and  participation   certificates  in
Municipal  Obligations  will be exempt from regular  Federal income tax provided
the Fund complies with Section 852(b)(5) of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). Although the Supreme Court has determined
that  Congress  has the  authority  to subject the interest on bonds such as the
Municipal Obligations to regular Federal income taxation,  existing law excludes
such  interest  from  regular  Federal  income  tax.  However,  "exempt-interest
dividends" may be subject to the Federal alternative minimum tax.

Securities,  the  interest  income  on  which  may be  subject  to  the  Federal
alternative   minimum  tax  (including   participation   certificates   in  such
securities,  together  with  securities),  may be  purchased by the Fund without
limit.  Securities,  the interest income on which is subject to regular Federal,
state and local income tax, will not exceed 20% of the value of the Fund's total
assets.  (See "Federal  Income Taxes"  herein.)  Further,  interest on Municipal
Obligations is includable in a 0.12% additional corporate minimum tax imposed by
the  SuperFund  Amendments  and  Reauthorization  Act of  1986.  Exempt-interest
dividends paid by the Fund that are correctly  identified by the Fund as derived
from  obligations  issued by or on behalf of the State of New  Jersey or any New
Jersey local government,  or their  instrumentality's,  authorities or districts
("New Jersey Municipal  Obligations")  will be exempt from the New Jersey Income
Tax. Exempt-interest  dividends correctly identified by the Fund as derived from
obligations of Puerto Rico and the Virgin Islands, as well as any other types of
obligations  that New Jersey is prohibited  from taxing under the  Constitution,
the  laws  of the  United  States  of  America  or the New  Jersey  Constitution
("Territorial  Municipal  Obligations"),  also  should be exempt from New Jersey
Income Tax provided  the Fund  complies  with New Jersey laws.  (See "New Jersey
Income  Taxes"  herein.)  To the  extent  that  suitable  New  Jersey  Municipal
Obligations  are not available for investment by the Fund, the Fund may purchase
Municipal   Obligations   issued   by   other   states,   their   agencies   and
instrumentalities,  the  dividends  on which will be  designated  by the Fund as
derived  from  interest  income which will be, in the opinion of bond counsel to
the issuer at the date of issuance,  exempt from regular  Federal income tax but
will be subject to the New Jersey  Income Tax.  Except as a temporary  defensive
measure  during  periods of  adverse  market  conditions  as  determined  by the
Manager, the Fund will invest at least 65% of its assets in New Jersey Municipal
Obligations,  although  the exact amount of the Fund's  assets  invested in such
securities will vary from time to time. The Fund seeks to maintain an investment
portfolio  with a  dollar-weighted  average  maturity  of 90 days or less and to
value its investment  portfolio at amortized cost and maintain a net asset value
at a $1.00  per  share.  There  can be no  assurance  that  this  value  will be
maintained.  The Fund may hold uninvested cash reserves pending investment.  The
Fund's investments may include  "when-issued"  Municipal  Obligations,  stand-by
commitments and taxable repurchase agreements.

Although  the Fund will  attempt  to  invest  100% of its  assets  in  Municipal
Obligations and in participation certificates in Municipal Obligations, the Fund
reserves  the right to  invest  up to 20% of the  value of its  total  assets in
securities,  the interest income on which is subject to regular  Federal,  state
and local  income  tax.  The Fund  will  invest  more than 25% of its  assets in
participation  certificates purchased from banks in industrial revenue bonds and
other New Jersey Municipal Obligations.  In view of this "concentration" in bank
participation certificates in New Jersey Municipal Obligations, an investment in
Fund shares should be made with an understanding of the  characteristics  of the
banking  industry  and the risks  which  such an  investment  may  entail.  (See
"Variable Rate Demand Instruments and Participation  Certificates"  herein.) The
investment objectives of the Fund described in this paragraph may not be changed
unless approved by the holders of a majority of the

                                       2
<PAGE>
outstanding  shares of the Fund that would be affected by such a change. As used
herein,  the term  "majority  of the  outstanding  shares"  of the  Fund  means,
respectively,  the vote of the  lesser  of (i) 67% or more of the  shares of the
Fund  present at a meeting,  if the holders of more than 50% of the  outstanding
shares of the Fund are present or  represented by proxy or (ii) more than 50% of
the outstanding shares of the Fund.

The Fund may only purchase  Municipal  Obligations  that have been determined by
the Fund's  Board of  Directors  to present  minimal  credit  risks and that are
Eligible  Securities at the time of  acquisition.  The term Eligible  Securities
means (i) Municipal  Obligations  with remaining  maturities of 397 days or less
and rated in the two highest  short-term rating categories by any two nationally
recognized statistical rating organizations  ("NRSROs") or in such categories by
the only  NRSRO  that has rated the  Municipal  Obligations  (collectively,  the
"Requisite  NRSROs")  (acquisition in the latter situation must also be ratified
by the Board of Directors); (ii) Municipal Obligations with remaining maturities
of 397 days or less but that at the time of issuance were  long-term  securities
(i.e., with maturities greater than 366 days) and whose issuer has received from
the Requisite NRSROs a rating with respect to comparable  short-term debt in the
two highest short-term rating categories and (iii) unrated Municipal Obligations
determined by the Fund's Board of Directors to be of comparable  quality.  Where
the  issuer of a  long-term  security  with a  remaining  maturity  which  would
otherwise  qualify it as an Eligible  Security,  does not have rated  short-term
debt  outstanding,  the long-term  security is treated as unrated but may not be
purchased  if it has a  long-term  rating  from any NRSRO  that is below the two
highest long-term  categories.  A determination of comparability by the Board of
Directors is made on the basis of its credit evaluation of the issuer, which may
include an  evaluation  of a letter of  credit,  guarantee,  insurance  or other
credit facility issued in support of the Municipal  Obligations or participation
certificates.   (See  "Variable  Rate  Demand   Instruments  and   Participation
Certificates"  herein.)  While there are several  organizations  that  currently
qualify as NRSROs,  two  examples  of NRSROs are  Standard & Poor's  Corporation
("S&P") and Moody's Investors Service, Inc. ("Moody's"). The two highest ratings
by S&P and  Moody's are "AAA" or "AA" by S&P in the case of  long-term  bonds or
notes,  or "Aaa" or "Aa" by Moody's  in the case of bonds;  "SP-1" and "SP-2" by
S&P or "MIG-1" or "MIG-2" by Moody's in the case of notes; "A-1" or "A-2" by S&P
or  "Prime-1"  or "Prime-2"  by Moody's,  in the case of  tax-exempt  commercial
paper.  The highest rating in the case of variable and floating  demand notes is
"VMIG-1" by Moody's and "SP-1/AA" by S&P. Such  instruments  may produce a lower
yield than would be  available  from less highly rated  instruments.  The Fund's
Board of Directors has determined that Municipal Obligations which are backed by
the credit of the Federal  Government  (the interest on which is not exempt from
Federal  income  taxation)  will be  considered  to have a rating  equivalent to
Moody's "Aaa". (See "Description of Ratings" herein.)

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 or less.

As a  non-diversified  investment  company,  the  Fund  is  not  subject  to any
statutory  restriction under the Investment Company Act of 1940 (the "Act") with
respect  to  investing  its  assets  in  one or  relatively  few  issuers.  This
non-diversification  may present greater risks than in the case of a diversified
company.  However,  the Fund  intends  to  qualify  as a  "regulated  investment
company" under  Subchapter M of the Code.  Therefore the Fund will be restricted
in that at the close of each  quarter of the taxable  year,  at least 50% of the
value of its total assets must be  represented by cash,  government  securities,
investment company securities and other securities limited in respect of any one
issuer to not more  than 5% in value of the total  assets of the Fund and to not
more than 10% of the outstanding  voting securities of such issuer. In addition,
at the close of each quarter of its taxable year,  not more than 25% in value of
the Fund's total assets may be invested in  securities  of one issuer other than
government  securities.  The limitations  described in this paragraph  regarding
qualification as a "regulated  investment company" are not fundamental  policies
and may be revised to the extent applicable  Federal income tax requirements are
revised. (See "Federal Income Taxes" herein.)

DESCRIPTION OF MUNICIPAL OBLIGATIONS

As used in the Prospectus, "Municipal Obligations" include the following as well
as "Variable Rate Demand Instruments and Participation Certificates" herein.

(1)  Municipal  Bonds  with  remaining  maturities of 397 days or less that are
     Eligible Securities at the time of acquisition.

     Municipal  Bonds  are  debt  obligations  of  states,   cities,   counties,
     municipalities  and municipal agencies (all of which are generally referred
     to as  "municipalities")  which  generally  have a maturity  at the time of
     issue of one year or more and which are issued to raise  Funds for  various
     public


                                       3
<PAGE>
     purposes  such  as  construction  of  a  wide  range of public  facilities,
     to refund outstanding  obligations and to obtain funds for institutions and
     facilities.

     The  two  principal   classifications   of  Municipal  Bonds  are  "general
     obligation" and "revenue"  bonds.  General  obligation bonds are secured by
     the issuer's  pledge of its faith,  credit and taxing power for the payment
     of principal  and  interest.  Issuers of general  obligation  bonds include
     states, counties, cities, towns and other governmental units. The principal
     of and  interest on revenue  bonds are payable  from the income of specific
     projects or  authorities  and  generally  are not supported by the issuer's
     general power to levy taxes. In some cases,  revenues derived from specific
     taxes are pledged to support payments on a revenue bond.

     In addition, certain kinds of "private activity bonds" are issued by public
     authorities to provide Funding for various  privately  operated  industrial
     facilities  (hereinafter  referred  to as  "industrial  revenue  bonds"  or
     "IRBs"). Interest on the IRBs is generally exempt, with certain exceptions,
     from regular  Federal  income tax  pursuant to Section  103(a) of the Code,
     provided the issuer and corporate  obligor thereof continue to meet certain
     conditions.  (See "Federal  Income Taxes" herein.) IRBs are, in most cases,
     revenue bonds and do not generally  constitute  the pledge of the credit of
     the issuer of such bonds. The payment of the principal and interest on IRBs
     usually  depends  solely  on the  ability  of the  user  of the  facilities
     financed  by the  bonds  or the  other  guarantor  to  meet  its  financial
     obligations  and,  in certain  instances,  the pledge of real and  personal
     property as security  for  payment.  If there is no  established  secondary
     market for the IRBs,  the IRBs or the  participation  certificates  in IRBs
     purchased by the Fund will be supported by letters of credit, guarantees or
     insurance  that meet the  definition of Eligible  Securities at the time of
     acquisition  stated  herein and  provide  the demand  feature  which may be
     exercised by the Fund at any time to provide liquidity. Shareholders should
     note that the Fund may invest in IRBs acquired in transactions  involving a
     Participating  Organization.  In accordance with  Investment  Restriction 6
     (herein),  the Fund is  permitted  to invest up to 10% of the  portfolio in
     high quality, short-term Municipal Obligations (including IRBs) meeting the
     definition of Eligible  Securities at the time of acquisition  that may not
     be readily marketable or have a liquidity feature.

(2)  Municipal  Notes  with  remaining  maturities  of 397 days or less that are
     Eligible  Securities at the time of  acquisition.  The  principal  kinds of
     Municipal Notes include tax anticipation  notes, bond  anticipation  notes,
     revenue anticipation notes and project notes. Notes sold in anticipation of
     collection of taxes,  a bond sale or receipt of other  revenues are usually
     general  obligations of the issuing  municipality or agency.  Project notes
     are  issued by local  agencies  and are  guaranteed  by the  United  States
     Department of Housing and Urban Development. Project notes are also secured
     by the full faith and credit of the United States.  The Fund's  investments
     may be concentrated in Municipal Notes of New Jersey issuers.

(3)  Municipal  Commercial  Paper that is an  Eligible  Security  at the time of
     acquisition.  Issues of Municipal Commercial Paper typically represent very
     short-term,  unsecured,  negotiable promissory notes. These obligations are
     often issued to meet seasonal working capital needs of municipalities or to
     provide interim  construction  financing and are paid from general revenues
     of  municipalities  or are refinanced  with  long-term  debt. In most cases
     Municipal  Commercial  Paper  is  backed  by  letters  of  credit,  lending
     agreements,  note repurchase agreements or other credit facility agreements
     offered  by banks or other  institutions  which may be  called  upon in the
     event of default by the issuer of the commercial paper.

(4)  Municipal  Leases,  which  may take  the form of a lease or an  installment
     purchase  or  conditional  sale  contract,  are  issued  by state and local
     governments  and  authorities  to acquire a wide variety of  equipment  and
     facilities  such  as  fire  and  sanitation  vehicles,   telecommunications
     equipment  and other  capital  assets.  Municipal  Leases  frequently  have
     special risks not normally  associated  with general  obligation or revenue
     bonds. Leases and installment purchase or conditional sale contracts (which
     normally  provide for title to the leased asset to pass  eventually  to the
     governmental  issuer) have evolved as a means for  governmental  issuers to
     acquire  property and  equipment  without  meeting the  constitutional  and
     statutory   requirements  for  the  issuance  of  debt.  The  debt-issuance
     limitations  of many  state  constitutions  and  statutes  are deemed to be
     inapplicable  because  of the  inclusion  in many  leases or  contracts  of
     "non-appropriation"  clauses that provide that the governmental  issuer has
     no obligation to make future  payments  under the lease or contract  unless
     money is appropriated for such purpose by the appropriate  legislative body
     on a yearly or other  periodic  basis.  To reduce this risk,  the Fund will
     only purchase Municipal Leases subject to a non-appropriation  clause where
     the payment of principal and accrued interest is backed by an unconditional
     irrevocable  letter of credit,  a guarantee,  insurance or other comparable
     undertaking of an approved financial institution.


                                       4
<PAGE>

     These  types  of municipal leases may be considered illiquid and subject to
     the 15% 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 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 15% limitation on investments in illiquid
     securities.

(5)  Any other Federal income tax-exempt, and to the extent possible, New Jersey
     income  tax-exempt  obligations  issued  by  or on  behalf  of  states  and
     municipal  governments and their authorities,  agencies,  instrumentalities
     and political subdivisions, whose inclusion in the Fund would be consistent
     with the Fund's "Investment Objectives, Policies and Risks" and permissible
     under Rule 2a-7 under the Act.

Subsequent to this purchase by the Fund, a rated Municipal  Obligation may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. If this occurs,  the Board of Directors of the Fund shall  reassess
promptly  whether the Municipal  Obligation  presents  minimal  credit risks and
shall cause the Fund to take such action as the Board of Directors determines is
in the best interest of the Fund and its shareholders.  However, reassessment is
not required if the Municipal  Obligation is disposed of or matures  within five
business  days of the  Manager  becoming  aware of the new rating  and  provided
further that the Board of Directors is  subsequently  notified of the  Manager's
actions.

In addition,  in the event that a Municipal  Obligation  (1) is in default,  (2)
ceases to be an  Eligible  Security or (3) there is a  determination  that it no
longer  presents  minimal  credit risks,  the Fund will dispose of the Municipal
Obligation absent a determination by the Fund's Board of Directors that disposal
of the Municipal  Obligation  would not be in the best interests of the Fund. In
the event that the  Municipal  Obligation is disposed of it shall be disposed of
as soon as practicable consistent with achieving an orderly disposition by sale,
exercise  of any demand  feature or  otherwise.  In the event of a default  with
respect to a Municipal Obligation which immediately before default accounted for
1/2 of 1% or more of the Fund's total assets, the Fund shall promptly notify the
Securities and Exchange Commission of such fact and of the actions that the Fund
intends to take in  response to the  situation.  Certain  municipal  obligations
issued by  instrumentalities  of the United States  Government are not backed by
the  full  faith  and  credit  of the  United  States  Treasury  but only by the
creditworthiness  of the  instrumentality.  The Fund's  Board of  Directors  has
determined that any municipal  obligation that depends  directly,  or indirectly
through a government insurance program or other guarantee, on the full faith and
credit of the United  States  Government  will be considered to have a rating in
the highest category.  Where necessary to ensure that the Municipal  Obligations
are Eligible  Securities or where the obligations  are not freely  transferable,
the Fund will  require  that the  obligation  to pay the  principal  and accrued
interest be backed by an  unconditional  irrevocable  bank  letter of credit,  a
guarantee,  insurance or other comparable  undertaking of an approved  financial
institution that would qualify the investment as an Eligible Security.

VARIABLE RATE DEMAND INSTRUMENTS
AND PARTICIPATION CERTIFICATES

Variable  rate demand  instruments  that the Fund will  purchase are  tax-exempt
Municipal  Obligations  that provide for a periodic  adjustment  in the interest
rate paid on the  instrument  and  permit  the  holder to demand  payment of the
unpaid  principal  balance plus accrued  interest at specified  intervals upon a
specified  number of days' notice either from the issuer or by drawing on a bank
letter  of  credit,  a  guarantee  or  insurance  issued  with  respect  to such
instrument.

The variable rate demand instruments in which the Fund may invest are payable on
not more than thirty  calendar  days' notice and may be exercised at any time or
at specified  intervals not exceeding 397 days  depending  upon the terms of the
instrument.  The  terms of the  instruments  provide  that  interest  rates  are
adjustable at intervals ranging from daily to up to 397 days and the adjustments
are based upon the "prime  rate"1 of a bank or other  appropriate  interest rate
adjustment index as provided in the respective instruments. A fund utilizing the
amortized cost method of valuation  under Rule 2a-7 of the Act may only purchase
variable  rate  demand  instruments  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

- --------------------------------------------------------------------------------
1 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>

if unrated,  is determined  to be of  comparable  quality by the Fund's Board of
Directors.  The Fund's Board of Directors may determine that an unrated variable
rate demand  instrument  meets the Fund's quality  criteria if it is backed by a
letter of credit or guarantee or is insured by an insurer that meets the quality
criteria for the Fund stated  herein or on the basis of a credit  evaluation  of
the  underlying  obligor.  If an instrument is ever not deemed to be an Eligible
Security,  the Fund  either  will sell it in the market or  exercise  the demand
feature.

The  variable  rate  demand  instruments  that the Fund may  invest  in  include
participation certificates purchased by the Fund from banks, insurance companies
or other financial  institutions in fixed or variable rate, tax-exempt Municipal
Obligations  (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations.  The Fund will not purchase participation certificates
in fixed rate tax-exempt  Municipal  Obligations without obtaining an opinion of
counsel  that the Fund will be treated as the owner  thereof for Federal  income
tax purposes.  A participation  certificate gives the Fund an undivided interest
in the Municipal  Obligation  in the  proportion  that the Fund's  participation
interest  bears to the total  principal  amount of the Municipal  Obligation and
provides the demand repurchase  feature  described below.  Where the institution
issuing the participation  does not meet the Fund's  eligibility  criteria,  the
participation is backed by an irrevocable letter of credit or guaranty of a bank
(which may be the bank issuing the participation  certificate,  a bank issuing a
confirming  letter of credit to that of the issuing  bank,  or a bank serving as
agency of the  issuing  bank with  respect  to the  possible  repurchase  of the
certificate of  participation)  or insurance policy of an insurance company that
the Board of Directors of the Fund has determined  meets the prescribed  quality
standards  for the  Fund.  The  Fund has the  right  to sell  the  participation
certificate back to the institution and, where applicable, draw on the letter of
credit or insurance  after no more than thirty days' notice either at anytime or
at specified  intervals not  exceeding  397 days  (depending on the terms of the
participation),  for all or any part of the full principal  amount of the Fund's
participation  interest in the security plus accrued interest.  The Fund intends
to  exercise  the  demand  only (1) upon a  default  under the terms of the bond
documents,  (2) as  needed  to  provide  liquidity  to the Fund in order to make
redemptions  of  Fund  shares,  or (3) to  maintain  a high  quality  investment
portfolio. The institutions issuing the participation certificates will retain a
service and letter of credit fee (where  applicable) and a fee for providing the
demand repurchase feature, in an amount equal to the excess of the interest paid
on the instruments  over the negotiated yield at which the  participations  were
purchased  by the Fund.  The total  fees  generally  range from 5% to 15% of the
applicable  prime rate or other interest rate index.  With respect to insurance,
the Fund will attempt to have the issuer of the  participation  certificate bear
the cost of the  insurance,  although  the Fund  retains  the option to purchase
insurance if necessary,  in which case the cost of insurance  will be an expense
of the Fund subject to the expense limitation (see "Expense Limitation" herein).
The Manager has been  instructed by the Fund's Board of Directors to continually
monitor  the  pricing,  quality  and  liquidity  of  the  variable  rate  demand
instruments held by the Fund, including the participation  certificates,  on the
basis of published financial  information and reports of the rating agencies and
other bank analytical  services to which the Fund may subscribe.  Although these
instruments  may be sold by the  Fund,  the  Fund  intends  to hold  them  until
maturity,  except  under the  circumstances  stated above (see  "Federal  Income
Taxes" herein).

In view of the "concentration" of the Fund in bank participation certificates in
New Jersey Municipal Obligations, which may be secured by bank letters of credit
or guarantees, an investment in the Fund should be made with an understanding of
the  characteristics  of the  banking  industry  and  the  risks  which  such an
investment may entail. Banks are subject to extensive  governmental  regulations
which  may  limit  both the  amounts  and  types of loans  and  other  financial
commitments  which may be made and interest rates and fees which may be charged.
The  profitability  of this industry is largely  dependent upon the availability
and cost of capital Funds for the purpose of financing lending  operations under
prevailing money market conditions.  Also,  general economic  conditions play an
important  part in the  operations  of this  industry  and The to credit  losses
arising from possible financial  difficulties of borrowers might affect a bank's
ability to meet its  obligations  under a letter of credit.  The Fund may invest
25% or more of the net assets of any portfolio in securities that are related in
such a way  that an  economic,  business  or  political  development  of  change
affecting  one  of  the  securities  would  also  affect  the  other  securities
including, for example, securities the interest upon which is paid from revenues
of similar type projects,  or securities the issuers of which are located in the
same state.

While the value of the underlying  variable rate demand  instruments  may change
with  changes in  interest  rates  generally,  the  variable  rate nature of the
underlying  variable rate demand instruments should minimize changes in value of
the  instruments.  Accordingly,  as interests  rates  decrease or increase,  the
potential  for  capital   appreciation   and  the  risk  of  potential   capital
depreciation  is less than would be the case with a  portfolio  of fixed  income
securities.  The portfolio may contain  variable maximum rates set by state law,
limit the degree to which interest on such variable rate demand  instruments may
fluctuate;  to the  extent  it

                                       6
<PAGE>
does,  increases or decreases in value may be somewhat greater than would be the
case without such limits. Additionally,  the portfolio may contain variable rate
demand participation certificates in fixed rate Municipal Obligations. The fixed
rate of  interest  on  these  Municipal  Obligations  will be a  ceiling  on the
variable rate of the participation certificate. In the event that interest rates
increased so that the  variable  rate  exceeded the fixed rate on the  Municipal
Obligations,  the Municipal Obligations could no longer be valued at par and may
cause the Fund to take  corrective  action,  including  the  elimination  of the
instruments from the portfolio.  Because the adjustment of interest rates on the
variable  rate  demand  instruments  is made in  relation  to  movements  of the
applicable  banks' "prime rates",  or other interest rate adjustment  index, the
variable rate demand  instruments  are not  comparable  to long-term  fixed rate
securities.  Accordingly, interest rates on the variable rate demand instruments
may be higher or lower than current  market rates for fixed rate  obligations of
comparable quality with similar maturities.

Because of the variable  rate nature of the  instruments,  the Fund's yield will
decline  and  its   shareholders   will  forego  the   opportunity  for  capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing  interest rates have increased,  the
Fund's  yield will  increase  and its  shareholders  will have  reduced  risk of
capital depreciation.

For purposes of determining  whether a variable rate demand  instrument  held by
the Fund matures within 397 days from the date of its acquisition,  the maturity
of the  instrument  will be deemed to be the longer of (1) the  period  required
before the Fund is entitled to receive  payment of the  principal  amount of the
instrument of (2) the period remaining until the instrument's next interest rate
adjustment. The maturity of a variable rate demand instrument will be determined
in the same manner for purposes of computing the Fund's dollar-weighted  average
portfolio  maturity.  If a  variable  rate  demand  instrument  ceases  to be an
Eligible  Security,  it will be sold in the  market or through  exercise  of the
repurchase demand feature to the issuer.

WHEN-ISSUED SECURITIES

New  issues  of  certain  Municipal  Obligations  frequently  are  offered  on a
when-issued  basis.  The payment  obligation  and the interest rate that will be
received  on the  Municipal  Obligations  are each  fixed at the time the  buyer
enters  into the  commitment  although  delivery  and  payment of the  Municipal
Obligations  normally  take  place  within 45 days  after the date of the Fund's
commitment to purchase. Although the Fund will only make commitments to purchase
when-issued Municipal Obligations with the intention of actually acquiring them,
the Fund  may  sell  these  securities  before  the  settlement  date if  deemed
advisable by the Manager.

Municipal  Obligations  purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way, that is, both  experiencing  appreciation  when interest  rates
decline and  depreciation  when  interest  rates  rise) based upon the  public's
perception  of  the  creditworthiness  of  the  issuer  and  changes,   real  or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued  basis can involve a risk that the yields  available in the market
when the  delivery  takes  place may  actually  be higher  or lower  than  those
obtained in the transaction itself. A separate account of the Fund consisting of
cash  or  liquid  debt  securities  equal  to  the  amount  of  the  when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining  the  adequacy  of the  securities  in the  account,  the  deposited
securities  will be valued at market value.  If the market or fair value of such
securities declines,  additional cash or highly liquid securities will be placed
in the account  daily so that the value of the account  will equal the amount of
such  commitments  by  the  Fund.  On the  settlement  date  of the  when-issued
securities,  the Fund will meet its obligations from  then-available  cash flow,
sale of securities held in the separate  account,  sale of other  securities or,
although it would not  normally  expect to do so,  from sale of the  when-issued
securities  themselves (which may have a value greater or lesser than the Fund's
payment obligations).  Sale of securities to meet such obligations may result in
the  realization  of capital gains or losses,  which are not exempt from Federal
Income Tax.

STAND-BY COMMITMENTS

When the Fund  purchases  Municipal  Obligations  it may also  acquire  stand-by
commitments  from banks and other  financial  institutions  with respect to such
Municipal  Obligations.  Under a stand-by  commitment,  a bank or  broker-dealer
agrees to purchase at the Fund's  option a specified  Municipal  Obligation at a
specified  price  with  same  day  settlement.  A  stand-by  commitment  is  the
equivalent  of a "put" option  acquired by the Fund with respect to a particular
Municipal Obligation held in its portfolio.

The  amount  payable  to the Fund upon its  exercise  of a  stand-by  commitment
normally  would  be  (1)  the  acquisition  cost  of  the  Municipal  Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized  market premium or plus an amortized market or original issue discount
during the period the Fund owned the security,  plus (2) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund.  Absent  unusual  circumstances  relating  to a change in
market  value,

                                       7
<PAGE>
the Fund would value the  underlying  Municipal  Obligation  at amortized  cost.
Accordingly,  the amount  payable by a bank or dealer during the time a stand-by
commitment is exercisable would be substantially the same as the market value of
the underlying Municipal Obligation.

The Fund's right to exercise a stand-by  commitment would be  unconditional  and
unqualified.  A  stand-by  commitment  would  not be  transferable  by the Fund,
although it could sell the underlying  Municipal  Obligation to a third party at
any time.

The Fund expects that stand-by  commitments  generally will be available without
the payment of any direct or indirect  consideration.  However, if necessary and
advisable,  the Fund may pay for stand-by  commitments either separately in cash
or by paying a higher price for portfolio  securities which are acquired subject
to such a commitment  (thus reducing the yield to maturity  otherwise  available
for the same securities). The total amount paid in either manner for outstanding
stand-by  commitments held in the Fund's portfolio would not exceed 1/2 of 1% of
the value of the Fund's total assets calculated  immediately after each stand-by
commitment was acquired.

The Fund  would  enter  into  stand-by  commitments  only  with  banks and other
financial  institutions that, in the Manager's  opinion,  present minimal credit
risks  and,  where the  issuer  of the  Municipal  Obligation  does not meet the
eligibility  criteria,  only where the  issuer of the  stand-by  commitment  has
received  a rating or if not  rated,  presents  a  minimal  risk of  default  as
determined  by the Board of  Directors.  The Fund's  reliance upon the credit of
those banks the broker-dealers would be supported by the value of the underlying
Municipal Obligations held by the Fund that were subject to the commitment.

The Fund intends to acquire stand-by  commitments solely to facilitate portfolio
liquidity  and does not intend to  exercise  its rights  thereunder  for trading
purposes.  The  purpose  of this  practice  is to  permit  the  Fund to be fully
invested in securities the interest on which is exempt from Federal income taxes
while preserving the necessary liquidity to purchase securities on a when-issued
basis,  to meet  unusually  large  redemptions  and to  purchase at a later date
securities other than those subject to the stand-by commitment.

The  acquisition  of a stand-by  commitment  would not affect the  valuation  or
assumed maturity of the underlying Municipal  Obligations which will continue to
be valued in accordance  with the amortized  cost method.  Stand-by  commitments
acquired by the Fund would be valued at zero in determining  net asset value. In
those  cases in which  the Fund  paid  directly  or  indirectly  for a  stand-by
commitment,  its cost would be  reflected  as  unrealized  depreciation  for the
period  during which the  commitment is held by the Fund.  Stand-by  commitments
would not affect the  dollar-weighted  average maturity of the Fund's portfolio.
The maturity of a security  subject to a stand-by  commitment is longer than the
stand-by repurchase date.

The  stand-by  commitments  that the Fund may enter into are  subject to certain
risks,  which include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying  security
will generally be different from that of the commitment.

In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to  stand-by  commitments  will be exempt  from  Federal  income  taxation  (see
"Federal  Income  Taxes"  herein).  In the absence of a favorable  tax ruling or
opinion of  counsel,  the Fund will not  engage in the  purchase  of  securities
subject to stand-by commitments.

TAXABLE SECURITIES

Although  the Fund will  attempt to invest 100% of its net assets in  tax-exempt
Municipal  Obligations,  the Fund may invest up to 20% of the value of its total
assets in securities of the kind described  below,  the interest income on which
is subject to regular Federal income tax, under any one or more of the following
circumstances:  (a) pending investment of proceeds of sales of Fund shares or of
portfolio   securities,   (b)  pending  settlement  of  purchases  of  portfolio
securities and (c) to maintain liquidity for the purpose of meeting  anticipated
redemptions.  In addition, the Fund may temporarily invest more than 20% in such
taxable securities when, in the opinion of the Manager, it is advisable to do so
because  of  adverse  market  conditions  affecting  the  market  for  Municipal
Obligations.  The kinds of taxable  securities  in which the Fund may invest are
limited to the following  short-term,  fixed-income  securities (maturing in 397
days or less from the time of purchase):  (1)  obligations  of the United States
government or its agencies,  instrumentalities  or  authorities;  (2) commercial
paper meeting the definition of Eligible  Securities at the time of acquisition;
(3) certificates of deposit of domestic banks with assets of $1 billion or more;
and (4) repurchase agreements with respect to any Municipal Obligations or other
securities  which the Fund is  permitted to own.  (See  "Federal  Income  Taxes"
herein.)

REPURCHASE AGREEMENTS

The Fund may  invest  in  instruments  subject  to  repurchase  agreements  with
securities  dealers or member  banks of the Federal  Reserve  System.  Under the
terms of a typical  repurchase  agreement,  the Fund would acquire an underlying
debt  instrument for a relatively  short period (usually not more than one week)
subject to an obligation of the seller to
                                       8
<PAGE>
repurchase  and the Fund to resell  the  instrument  at a fixed  price and time,
thereby  determining the yield during the Fund's holding period. This results in
a fixed rate of return insulated from market  fluctuation  during such period. A
repurchase  agreement  is  subject  to the  risk  that  the  seller  may fail to
repurchase the security.  Repurchase  agreements may be deemed to be loans under
the Act.  All  repurchase  agreements  entered  into by the Fund  shall be fully
collateralized at all times during the period of the agreement in that the value
of the  underlying  security  shall be at least equal to the amount of the loan,
including the accrued interest thereon, and the Fund or its custodian shall have
possession  of the  collateral,  which the Fund's Board  believes will give it a
valid, perfected security interest in the collateral. In the event of default by
the seller under a repurchase  agreement construed to be a collateralized  loan,
the  underlying  securities  are not  owned  by the  Fund  but  only  constitute
collateral for the seller's  obligation to pay the repurchase price.  Therefore,
the  Fund may  suffer  time  delays  and  incur  costs  in  connection  with the
disposition  of the  collateral.  The Fund's Board  believes that the collateral
underlying  repurchase  agreements  may be more  susceptible  to  claims  of the
seller's  creditors than would be the case with securities owned by the Fund. It
is expected that  repurchase  agreements will give rise to income which will not
qualify as tax-exempt  income when  distributed  by the Fund.  The Fund will not
invest in a  repurchase  agreement  maturing in more than seven days if any such
investment  together with illiquid securities held by the Fund exceed 15% of the
Fund's net assets.  (See  Investment  Restriction  Number 6 herein.)  Repurchase
agreements  are  subject  to  the  same  risks  described  herein  for  stand-by
commitments.

NEW JERSEY RISK FACTORS

This summary is included for the purpose of providing a general  description  of
the credit and financial condition of the State of New Jersey.

STATE FINANCE

New   Jersey's   principal    manufacturing    industries   produce   chemicals,
pharmaceuticals,   electrical  goods,  machinery,   instrumentation,   plastics,
printing and publishing.  Other economic activities include insurance,  tourism,
petroleum refining and truck farming.

In 1975,  and again in 1989,  several  states in the northeast and some of their
subdivisions  experienced  financial  difficulties  which  effected their credit
ratings and  borrowing  abilities.  The  combination  of the  region's  cyclical
adjustment  and the  national  recession  which  officially  began in July  1990
(according to the National Bureau of Economic  Research)  adversely affected the
growth  of New  Jersey's  economy.  As a result  of the  recession,  New  Jersey
experienced  declines in its construction and manufacturing  sectors and overall
increases in the rates of unemployment.  In the wake of the continued  expansion
of the  national  economy  which began in late 1993,  New  Jersey's  economy has
experienced  a  protracted  recovery  that in 1994  began to  generate  internal
momentum due to increases in employment and income levels.  Although  employment
growth in New Jersey has occurred in a variety of employment  sectors,  business
services  and trade  sectors  have been the greatest  generators  of  employment
growth in New Jersey while manufacturing jobs continued to trend downward albeit
at a more moderate pace. Other evidence of New Jersey's improving economy can be
found in increased home-building above the depressed levels of 1990 through 1992
and rising consumer spending.

The largest part of the total financial operations of the State is accounted for
in the  General  Fund,  which is the fund  into  which all  State  revenues  not
otherwise  restricted by statute are deposited and from which appropriations are
made. New Jersey's  Constitution and budget and appropriations  system require a
balanced budget. Pursuant to the State Constitution,  no money may be drawn from
the State  Treasury  except for  appropriations  made by law. In  addition,  all
monies for the support of State  purposes  must be  provided  for in one general
appropriation  law covering one and the same fiscal  year.  The State's  current
Fiscal Year ends June 30, 1995.

The budget for Fiscal Year 1995 was signed by the Governor on June 30, 1994. The
Fiscal  Year  1994  budget  produced  a Fund  Balance  in the  General  Fund  of
approximately $925.9 million at the end of Fiscal Year 1994.

The primary method for State  financing of capital  projects is through the sale
of the general obligation bonds of the State. These bonds are backed by the full
faith and credit of the State.  State tax  revenues  and certain  other fees are
pledged to meet the  principal and interest  payments  required to fully pay the
debt. No general  obligation debt can be issued by the State without prior voter
approval.

The State made  appropriations  for principal and interest  payments for general
obligation  bonds for Fiscal Years 1991,  1992,  1993 and 1994 in the amounts of
$388.5 million,  $410.6 million, $444.3 million and $119.9 million respectively.
For Fiscal Year 1995,  the State has made  appropriations  of $103.5 million for
principal and interest payments for general obligation bonds.

The aggregate outstanding general obligation bonded indebtedness of the State as
of June 30, 1993 was $3.59 billion.

On November 1, 1994,  the State issued an additional  $59 million of its general
refunding  obligation  bonds.  S&P,  Moody's and Fitch Investors  Service,  Inc.
("Fitch")  have  given  these  bonds  the  ratings  of "AA+",  "Aa1" and  "AA+",
respectively.  There is no assurance 

                                       9
<PAGE>

that such  ratings  will  continue  for any given  period of time or that either
rating will not be suspended,  lowered or withdrawn  entirely by S&P, Moody's or
Fitch if, in the judgment of S&P,  Moody's or Fitch,  circumstances  so warrant.
Any  explanation  of the  significance  of the ratings may be obtained only from
S&P, Moody's and Fitch.

Aside from its general  obligation  bonds, the State's "moral  obligation" backs
certain obligations issued by the Higher Education Assistance Authority, the New
Jersey Housing and Mortgage Finance Agency and the South Jersey Port Corporation
(the  "Corporation").  As of June 30, 1993,  there was  outstanding in excess of
$722.89 million of moral obligation bonded indebtedness issued by such entities,
for which the  maximum  annual debt  service was over $63.47  million as of such
date. In addition,  the State  guarantees the payments of obligations of the New
Jersey Sports and Exposition  Authority and has incurred other  obligations on a
"subject to appropriation basis." The total of these obligations,  including the
"moral obligation" debt is approximately $3.33 billion.

At any given time, there are various numbers of claims and cases pending against
the State,  State Agencies and employees,  seeking  recovery of monetary damages
that are primarily paid out of the fund created pursuant to the Tort Claims Act.
The  State  does not  formally  estimate  its  reserves  representing  potential
exposure for these claims and cases. An independent study estimated an aggregate
potential exposure of $50 million for claims pending,  as of January 1, 1982. It
is estimated  that were a similar study made of claims  currently  pending,  the
amount of such estimated  exposure would be somewhat higher. The State is unable
to estimate its exposure for these claims. New Jersey is involved in a number of
lawsuits  in  which  adverse   decisions  could  materially  affect  revenue  or
expenditures. Such cases include challenges to the State's funding mechanism for
school districts  within the State,  challenges to the method by which the State
shares  with  county   governments  the  costs  for  care  and  housing  of  the
developmentally  disabled,  challenges  to the  State's  methodology  of setting
hospital  rates  and  challenges  to tax  payments  made  to the  State's  Spill
Compensation Fund.

MUNICIPAL FINANCE

New Jersey's local finance system is regulated by various  statutes  designed to
assure that all local  governments  and their  issuing  authorities  remain on a
sound  financial  basis.  Regulatory  and remedial  statutes are enforced by the
Division of Local  Government  Services (the "Division") in the State Department
of Community Affairs.

COUNTIES AND MUNICIPALITIES

The Local Budget Law imposes  specific  budgetary  procedures  upon counties and
municipalities  ("local units"). Every local unit must adopt an operating budget
which is balanced on a cash basis, and items of revenue and  appropriation  must
be  independently  audited by a registered  municipal  accountant.  The Division
reviews all municipal and county annual budgets prior to adoption.  The Director
is  empowered  to require  changes for  compliance  with law as a  condition  of
approval;  to disapprove  budgets not in accordance with law; and to prepare the
budget of a local  unit if the local  unit is  unwilling  to prepare a budget in
accordance  with law. This process  insures that every  municipality  and county
annually  adopts  a budget  balanced  on a cash  basis,  within  limitations  on
appropriations or tax levies,  respectively,  and making adequate  provision for
principal  of and  interest  on  indebtedness  falling  due in the fiscal  year,
deferred charges and other statutory expenditure requirements.

The Local  Government Cap Law (the "Cap Law") generally  limits the year-to-year
increase of the total appropriations of any municipality and the tax levy of any
county  to either  5% or an index  rate  determined  annually  by the  Director,
whichever is less. However,  where the index percentage rate exceeds 5%, the Cap
Law permits the governing body of any  municipality or county to approve the use
of a higher  percentage  rate up to the  index  rate.  Further,  where the index
percentage  rate is less than 5%, the Cap Law also permits the governing body of
any municipality or county to approve the use of a higher  percentage rate up to
5%.  Certain  exceptions  exist to the Cap  Law's  limitation  on  increases  in
appropriations.  The principal exceptions to these limitations are municipal and
county  appropriations  to pay debt service  requirements;  to comply with other
State or  Federal  mandates  enacted  after the  effective  date of the Cap Law;
amounts approved by referendum; and, in the case of municipalities only, to fund
the  preceding  year's  cash  deficit  or  to  reserve  for  shortfalls  in  tax
collections.  The Cap Law was  re-enacted  in 1990  with  amendments  and made a
permanent part of the Municipal Finance System.

State law also  regulates the issuance of debt by local units.  The Local Budget
Law  limits  the  amount of tax  anticipation  notes that may be issued by local
units and requires the repayment of such notes within three months of the end of
the fiscal year (six months in the case of the  counties)  in which  issued.  No
local unit is  permitted  to issue  bonds for the  payment of current  expenses.
Local  units may not issue  bonds to pay  outstanding  obligations,  except  for
refunding purposes,  and then only with the approval of the Local Finance Board.
Local  units  may  issue  bond  anticipation  notes for  temporary  periods  not
exceeding in the aggregate  approximately  ten years from the date of issue. The
debt that any  local  unit may  authorize  is  limited  to a  percentage  of its
equalized  valuation  basis,  which is the three year  average of the  equalized
value of all  taxable  real  property  and  improvements  within the 

                                       10
<PAGE>
geographic  boundaries of the local unit. Authorized net capital debt is limited
to 3.5% of the equalized valuation basis in the case of municipalities and 2% of
the  equalized  valuation  basis in the case of  counties.  The debt  limit of a
county or municipality,  with certain exceptions,  may be exceeded only with the
approval of the Local Finance Board.

Chapter 75 of the  Pamphlet  Laws of 1991,  signed  into law on March 28,  1991,
requires certain  municipalities  and permits all other  municipalities to adopt
the  State  fiscal  year  in  place  of  the  existing   calendar  fiscal  year.
Municipalities that change fiscal years must adopt a six month transition budget
for January to June.  Since  expenditures  would be expected to exceed  revenues
primarily  because  state aid for the calendar year would not be received by the
municipality  until  after  the  end of the  transition  year  budget,  the  Act
authorizes  the  issuance of Fiscal Year  Adjustment  Bonds to fund the one time
deficit for the six month transition  budget.  The Act provides that the deficit
in  the  six  month  transition   budget  may  be  funded  initially  with  bond
anticipation  notes based on the estimated  deficit in the six month transition.
Notes  issued  in  anticipation  of  Fiscal  Year  Adjustment  Bonds,  including
renewals,  can only be issued for up to one year unless the Local  Finance Board
permits the  municipality to renew them for a further period.  The Local Finance
Board must  confirm the actual  deficit  experienced  by the  municipality.  The
municipality  then may issue Fiscal Year Adjustment Bonds to finance the deficit
on a permanent  basis. The purpose of the Act is to assist  municipalities  that
are heavily  dependent on state aid and that have had to issue tax  anticipation
notes to fund  operating  cash flow deficits  each year.  While the Act does not
authorize  counties to change their fiscal years,  it does provide that counties
with cash flow deficits may issue Fiscal Year Adjustment Bonds as well.

SCHOOL DISTRICTS

New Jersey's school districts  operate under the same  comprehensive  review and
regulation  as do  its  counties  and  municipalities.  Certain  exceptions  and
differences  are provided,  but the State  supervision of school finance closely
parallels that of local governments.  The State Department of Education has been
empowered  with the necessary  and effective  authority in extreme cases to take
over the  operation of local school  districts  which cannot or will not correct
severe and complex educational deficiencies.

SCHOOL BUDGETS

In each school district having a Board of School  Estimate,  the Board of School
Estimate examines the budget request and fixes the appropriation amounts for the
next  year's  operating  budget  after  a  public  hearing.  This  board,  whose
composition is fixed by statute, certifies the budget to the municipal governing
bodies and to the local  board of  education.  If the local  board of  education
disagrees,   it  must  appeal  to  the  State  Commissioner  of  Education  (the
"Commissioner") to request changes.

In each school district without a Board of School Estimate, the elected board of
education develops the budget proposal and, after public hearing, submits to the
voters of such district for approval.  Previously authorized debt service is not
subject to referendum in the annual budget process. If approved, the budget goes
into effect. If defeated,  the governing body of each municipality in the school
district  has  approximately  20 days to  determine  the amount  necessary to be
appropriated  for each item appearing in such budget.  Should the governing body
fail to  certify  any amount  determined  by them to be  necessary  for any item
rejected at the election, the board of education of such district may appeal the
action to the Commissioner.

SCHOOL DISTRICT BONDS

School  district  bonds and temporary  notes are issued in  conformity  with the
School Bond Law.  Schools are subject to debt limits and to State  regulation of
their  borrowing.  The debt limitation on school district bonds depends upon the
classification  of the school district,  but may be as high as 4% of the average
equalized  valuation  basis of the  constituent  municipality.  In certain cases
involving  school districts in cities with populations  exceeding  100,000,  the
debt limit is 8% of the average  equalized  valuation  basis of the  constituent
municipality,  and in cities with  population in excess of 80,000 the debt limit
is 6% of the aforesaid average equalized valuation.

SCHOOL DISTRICT LEASE PURCHASE FINANCINGS

In 1982, school districts were given an alternative to the traditional method of
bond  financing  capital  improvements  pursuant to the Lease  Purchase Law. The
Lease  Purchase  Law  permits  school  districts  to  acquire a site and  school
buildings through a lease purchase agreement with a private lessor  corporation.
The lease purchase agreement does not require voter approval.  The rent payments
attributable to the lease purchase agreement are subject to annual appropriation
by the school  district  and are  required to be included in the annual  current
expense  budget  of  the  school  district.   Furthermore,   the  rent  payments
attributable  to the lease  purchase  agreement  do not  constitute  debt of the
school  district  and  therefore  do not  impact on the school  district's  debt
limitation.  Lease  purchase  agreements  in excess of five  years  require  the
approval of the Commissioner and the Local Finance Board.

LOCAL FINANCING AUTHORITIES

The Local  Authorities  Fiscal Control Law provides for state supervision of the
fiscal  operations and debt issuance  practices of independent local authorities
and
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<PAGE>
special taxing districts by the State Department of Community Affairs. The Local
Authorities  Fiscal Control Law applies to all autonomous  public bodies created
by counties or  municipalities,  which are  empowered to issue bonds,  to impose
facility  or  service  charges,  or to  levy  taxes  in  their  districts.  This
encompasses most autonomous local authorities  (sewerage,  municipal  utilities,
parking,  pollution  control,  improvement,  etc.) and special taxing  districts
(fire, water, sewer, street lighting, etc.).

Financial control  responsibilities over local authorities and special districts
are  assigned to the Local  Finance  Board and the  Director of the  Division of
Local Government Services. The Local Finance Board exercises approval power over
the  creation  of new  authorities  and  special  districts  as  well  as  their
dissolution.  The Local Finance Board also reviews, conducts public hearings and
issues  findings and  recommendations  on any proposed  project  financing of an
authority  or  district,  and on any  proposed  financing  agreement  between  a
municipality  or county and an  authority  or  special  district.  The  Director
reviews and approves annual budgets of authorities and special districts.

The Fund believes the  information  summarized  above describes some of the more
significant  aspects  relating to the Fund. The sources of such  information are
the  official  statements  of  issuers  located  in New  Jersey as well as other
publicly available documents. While the Sponsors have not independently verified
this  information,  they have no reason to believe that such  information is not
correct in all material respects.

INVESTMENT RESTRICTIONS

The Fund has adopted the following  fundamental  investment  restrictions  which
apply to all  portfolios  and  which may not be  changed  unless  approved  by a
majority  of the  outstanding  shares of each  series of the Fund's  shares that
would be affected by such a change. The Fund may not:

(1)  Make  portfolio  investments  other  than as  described  under  "Investment
     Objectives,  Policies  and Risks" or any other  form of Federal  tax-exempt
     investment which meets the Fund's high quality  criteria,  as determined by
     the Board of Directors.

(2)  Borrow Money.  This restriction shall not apply to borrowing from banks for
     temporary or emergency (not leveraging) purposes,  including the meeting of
     redemption  requests that might otherwise require the untimely  disposition
     of  securities,  in an amount up to 15% of the  value of the  Fund's  total
     assets  (including the amount  borrowed)  valued at market less liabilities
     (not  including  the amount  borrowed) at the time the  borrowing was made.
     While  borrowings  exceed 5% of the value of the Fund's total  assets,  the
     Fund will not make any investments. Interest paid on borrowings will reduce
     net income.

(3)  Pledge,  hypothecate,  mortgage or otherwise encumber its assets, except in
     an amount up to 15% of the  value of its  total  assets  and only to secure
     borrowings for temporary or emergency purposes.

(4)  Sell securities  short or purchase  securities on margin,  or engage in the
     purchase and sale of put,  call,  straddle or spread  options or in writing
     such  options,  except to the extent  that  securities  subject to a demand
     obligation  and  stand-by  commitments  may be purchased as set forth under
     "Investment Objectives, Policies and Risks."

(5)  Underwrite the securities of other issuers,  except insofar as the Fund may
     be deemed an underwriter under the Securities Act of 1933 in disposing of a
     portfolio security.

(6)  Purchase  securities  subject  to  restrictions  on  disposition  under the
     Securities  Act of 1933  ("restricted  securities"),  except  the  Fund may
     purchase  variable rate demand  instruments which contain a demand feature.
     The Fund will not invest in a  repurchase  agreement  maturing in more than
     seven days if any such  investment  together with  securities  that are not
     readily marketable held by the Fund exceed 15% of the Fund's net assets.

(7)  Purchase or sell real  estate,  real estate  investment  trust  securities,
     commodities  or commodity  contracts,  or oil and gas  interests,  but this
     shall not prevent the Fund from investing in Municipal  Obligations secured
     by real estate or interests in real estate.

(8)  Make loans to others, except through the purchase of portfolio investments,
     including repurchase agreements, as described under "Investment Objectives,
     Policies and Risks."

(9)  Purchase  more than 10% of all  outstanding  voting  securities  of any one
     issuer or invest in companies for the purpose of exercising control.

(10) Invest more than 25% of its assets in the  securities  of  "issuers" in any
     single  industry,  provided  that the Fund may invest  more than 25% of its
     assets in bank participation  certificates and there shall be no limitation
     on the  purchase  of  those  tax-exempt  municipal  obligations  and  other
     obligations  issued or  guaranteed  by the United  States  government,  its
     agencies or  instrumentalities.  When the assets and revenues of an agency,
     authority, instrumentality or other political subdivision are separate from
     those of the government creating the issuing entity and a security is based
     only by the assets and  revenues of the entity,  the entity would be deemed
     to be the  sole  issuer  of the  security.  Similarly,  in the  case  of an
     industrial

                                       12
<PAGE>
     revenue   bond,   if  that   bond  is  backed   only  by  the   assets  and
     revenues of the  non-governmental  user,  then such  non-governmental  user
     would be deemed to be the sole issuer.  If,  however,  in either case,  the
     creating  government or some other entity,  such as an insurance company or
     other corporate obligor, guarantees a security or a bank issues a letter of
     credit, such a guarantee or letter of credit would be considered a separate
     security and would be treated as an issue of such government,  other entity
     or bank.  With  respect  to 75% of the total  amortized  cost  value of the
     Fund's  assets,  not more than 5% of the Fund's  assets may be  invested in
     securities that are subject to underlying  puts from the same  institution,
     and no single bank shall issue its letter of credit and no single financial
     institution shall issue a credit  enhancement  covering more than 5% of the
     total assets of the Fund.  However, if the puts are exercisable by the Fund
     in the event of  default  on  payment  of  principal  and  interest  on the
     underlying  security,  then the Fund may  invest up to 10% of its assets in
     securities  underlying  puts issued or guaranteed by the same  institution;
     additionally,  a single  bank can  issue  its  letter of credit or a single
     financial  institution can issue a credit enhancement covering up to 10% of
     the Fund's assets, where the puts offer the Fund such default protection.

(11) Invest in securities  of other  investment  companies,  except the Fund may
     purchase unit investment  trust  securities where such unit trusts meet the
     Investment  Objectives of the Fund and then only up to 5% of the Fund's net
     assets,  except as they may be acquired as part of a merger,  consolidation
     or acquisition of assets.

(12) Issue senior  securities,  except insofar as the Fund may be deemed to have
     issued a senior security in connection with any permitted borrowing.

If a percentage restriction is adhered to at the time of an investment,  a later
increase  or  decrease  in  percentage  resulting  from a change  in  values  of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.

PORTFOLIO TRANSACTIONS

The Fund's  purchases  and sales of portfolio  securities  usually are principal
transactions.  Portfolio  securities  are normally  purchased  directly from the
issuer,  from banks and financial  institutions or from an underwriter or market
maker for the securities.  There usually are no brokerage  commissions  paid for
such purchases.  The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage  commission will be effected
at the best  price and  execution  available.  Purchases  from  underwriters  of
portfolio  securities  include a commission or concession  paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include the
spread  between  the bid and  asked  price.  The  Fund  purchases  participation
certificates in variable rate Municipal  Obligations  with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable  interest rate  adjustment  index for the security.  The interest
received  by the  Fund is net of fee  charged  by the  issuing  institution  for
servicing the underlying  obligation and issuing the participation  certificate,
letter of credit,  guarantee or insurance and  providing  the demand  repurchase
feature.

Allocation of  transactions,  including their  frequency,  to various dealers is
determined  by the Manager in its best  judgment  and in a manner  deemed in the
best  interest  of  shareholders  of the Fund rather  than by any  formula.  The
primary  consideration  is prompt  execution of orders in an effective manner at
the most favorable price. No preference in purchasing  portfolio securities will
be given to banks or dealers that are Participating Organizations.

Investment  decisions for the Fund will be made independently from those for any
other  investment  companies  or accounts  that may be or become  managed by the
Manager or its affiliates.  If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same  security,  the  transactions  may be  averaged as to price and
allocated  equitably to each account. In some cases, this policy might adversely
affect  the  price  paid or  received  by the Fund or the  size of the  position
obtainable  for the  Fund.  In  addition,  when  purchases  or sales of the same
security for the Fund and for other investment  companies managed by the Manager
occur contemporaneously,  the purchase or sale orders may be aggregated in order
to obtain any price  advantage  available to large  denomination  purchasers  or
sellers.

No portfolio transactions are executed with the Manager or its affiliates acting
as  principal.  In  addition,  the  Fund  will  not  buy  bankers'  acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.

HOW TO PURCHASE AND REDEEM SHARES

The material relating to the purchase and redemption of shares in the respective
Prospectuses is herein incorporated by reference.

NET ASSET VALUE

The Fund does not determine net asset value per share on the following holidays:
New Year's Day,  President's Day, Good Friday,  Memorial Day,  Independence Day,
Labor Day, Thanksgiving 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. It is computed by dividing the value of
the Fund's net assets (i.e.,  the value of its  securities
                                       13
<PAGE>
and other assets less its liabilities, including expenses payable or accrued but
excluding capital stock and surplus) by the total number of shares outstanding.

The Fund's portfolio securities are valued at their amortized cost in compliance
with the  provisions  of Rule  2a-7  under  the Act.  Amortized  cost  valuation
involves  valuing an instrument at its cost and  thereafter  assuming a constant
amortization to maturity of any discount or premium,  except that if fluctuating
interest  rates cause the market  value of the Fund's  portfolio to deviate more
than 1/2 of 1% from the value  determined  on the basis of amortized  cost,  the
Board of Directors  will consider  whether any action  should be  initiated,  as
described  in the  following  paragraph.  Although  the  amortized  cost  method
provides certainty in valuation, it may result in periods during which the value
of an instrument  is higher or lower than the price an investment  company would
receive if the instrument were sold.

The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset  value at $1.00 per share.  These  procedures  include a review of the
extent of any deviation of net asset value per share,  based on available market
rates,  from the Fund's $1.00  amortized  cost per share.  Should that deviation
exceed 1/2 of 1%, the Board will consider whether any action should be initiated
to  eliminate  or  reduce   material   dilution  or  other  unfair   results  to
shareholders.  Such action may  include  redemption  of shares in kind,  selling
portfolio  securities prior to maturity,  reducing or withholding  dividends and
utilizing a net asset value per share as  determined by using  available  market
quotations.  The Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less, will not purchase any instrument  with a remaining  maturity
greater than 397 days, will limit portfolio  investments,  including  repurchase
agreements,  to those  United  States  dollar-denominated  instruments  that the
Fund's Board of Directors  determines  present  minimal  credit risks,  and will
comply with certain  reporting and recordkeeping  procedures.  The Fund has also
established  procedures to ensure compliance with the requirement that portfolio
securities are Eligible  Securities (see  "Investment  Objectives,  Policies and
Risks" herein).

YIELD QUOTATIONS

The  Fund  calculates  a  seven-day  yield  quotation  using a  standard  method
prescribed by the rules of the  Securities and Exchange  Commission.  Under that
method, the Fund's yield figure, which is based on a chosen seven-day period, is
computed  as  follows:  the Fund's  return for the  seven-day  period  (which is
obtained  by  dividing  the net  change in the value of a  hypothetical  account
having a balance  of one share at the  beginning  of the  period by the value of
such  account at the  beginning  of the period  (expected to always be $1.00) is
multiplied  by  (365/7)  with the  resulting  annualized  figure  carried to the
nearest  hundredth of one percent).  For purposes of the foregoing  computation,
the determination of the net change in account value during the seven-day period
reflects  (i)  dividends  declared on the original  share and on any  additional
shares,  including the value of any additional  shares  purchased with dividends
paid on the original share,  and (ii) fees charged to all shareholder  accounts.
Realized capital gains or losses and unrealized  appreciation or depreciation of
the Fund's portfolio  securities are not included in the computation.  Therefore
annualized  yields may be different  from  effective  yields quoted for the same
period.

The Fund's  "effective  yield" is obtained by adjusting  its "current  yield" to
give effect to the compounding nature of the Fund's portfolio,  as follows:  the
unannualized  base  return is  compounded  and  brought  out to the  nearest one
hundredth  of one percent by adding one to the base period  return,  raising the
sum to a power equal to 365 divided by 7, and  subtracting  one from the result,
i.e., effective yield = (base period return + 1)365/7-1.

Although  published  yield  information  is useful to investors in reviewing the
Fund's  performance,  investors should be aware that the Fund's yield fluctuates
from day to day. The Fund's yield for any given period is not an indication,  or
representation  by the Fund,  of future  yields or rates of return on the Fund's
shares,  and may not provide a basis for comparison  with bank deposits or other
investments  that pay a fixed yield for a stated  period of time.  Investors who
purchase the Fund's shares directly may realize a higher yield than  Participant
Investors  because  they will not be subject to any fees or charges  that may be
imposed by Participating Organizations.

The Fund may from  time to time  advertise  its tax  equivalent  yield.  The tax
equivalent  yield is computed based upon a 30-day (or one month) period ended on
the date of the most recent balance sheet included herein,  computed by dividing
that  portion of the yield of the Fund (as  computed  pursuant  to the  formulae
previously  discussed) which is tax-exempt by one minus a stated income tax rate
and adding the product to that portion, if any, of the yield of the Fund that is
not tax-exempt.  The tax equivalent  yield for the Fund may also fluctuate daily
and does not provide a basis for determining future yields.

The Fund may from time to time advertise a taxable  equivalent yield table which
shows the yield that an investor would need to receive from a taxable investment
in order to equal a tax-free  yield from the Fund.  See the "Taxable  Equivalent
Yield Table" herein.

The Fund's  yield for the  seven-day  period  ending  January 31, 1995 was 2.99%
which is equivalent to an effective yield of 3.04%.

                                       14
<PAGE>

MANAGER

The  Investment  Manager for the Fund is Reich & Tang Asset  Management  L.P., a
Delaware  limited  partnership with principal  offices at 600 Fifth Avenue,  New
York,  New York 10020 (the  "Manager").  The  Manager  was at January  31,  1995
manager, adviser or supervisor with respect to assets aggregating  approximately
$8.6 billion.  The Manager acts as manager or  administrator  of eighteen  other
investment  companies and also advises pension trust,  profit sharing trusts and
endowments.

Effective  October 1, 1994,  the Board of  Directors  of the Fund  approved  the
re-execution of the Investment  Management Contract and Administrative  Services
Contract with the Manager.  The Manager's  predecessor,  New England  Investment
Companies,  L.P. ("NEICLP") is the limited partner and owner of a 99.5% interest
in the newly created limited partnership, Reich & Tang Asset Management, Inc. (a
wholly-owned  subsidiary  of NEICLP)  is the  general  partner  and owner of the
remaining .5% interest of the Manager.  Reich & Tang Asset  Management  L.P. has
succeeded  NEICLP as the Manager of the Fund. The re-execution of the Investment
Management Contract does not result in "assignment" of the Investment Management
Contract  with NEICLP  under the Act,  as  amended,  since there is no change in
actual control or management of the Manager caused by the re-execution.

New England Investment  Companies,  Inc.  ("NEIC"),  an affiliate of New England
Mutual Life Insurance  Company ("The New  England"),  serves as the sole general
partner of NEICLP.  NEIC is a  wholly-owned  subsidiary of The New England which
may be deemed a "controlling  person" of the Manager.  NEIC is a holding company
offering  a broad  array  of  investment  styles  across  a wide  range of asset
categories  through eight  investment  advisory/management  affiliates and three
distribution  subsidiaries.  These include, in addition to the Manager,  Loomis,
Sayles & Company,  L.P., Copley Real Estate Advisors,  Inc., Westpeak Investment
Advisors,  L.P.  Draycott  Partners,  Ltd., TNE Investment  Services,  L.P., New
England  Investment  Services L.P., and an affiliate,  Capital Growth Management
Limited  Partnership.  These affiliates in the aggregate are investment advisors
or managers of 57 other registered investment companies.

The  re-executed  Investment  Management  Contract and  Administrative  Services
Contract  contain  the  same  terms  and  conditions   governing  the  Manager's
investment   management  and  administrative   responsibilities  as  the  Fund's
predecessor Investment Management Contract and Administrative  Services Contract
except for (i) the date of execution and (ii) the identity of the Manager.

Pursuant to the Investment  Management Contract,  the Manager manages the Fund's
portfolio of  securities  and makes  decisions  with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.

The  Investment  Management  Contract  was  approved by the Board of  Directors,
including a majority of directors who are not interested  persons (as defined in
the  Act),  of the  Fund or the  Manager,  effective  September  15,  1993.  The
re-execution of the Investment  Management Contract was approved by the Board of
Directors,  including a majority of the directors who are not interested persons
of the Fund of the Manager, effective October 1, 1994.

The Manager provides persons  satisfactory to the Board of Directors of the Fund
to serve as  officers  of the Fund.  Such  officers,  as well as  certain  other
employees  and  directors  of the Fund,  may be directors or officers of Reich &
Tang  Asset  Management,  Inc.,  the sole  general  partner of the  Manager,  or
employees of the Manager or its affiliates.

The Investment  Management Contract has a term which extends to August 31, 1995,
and may be continued in force  thereafter  for successive  twelve-month  periods
beginning  each  September 1, provided  that such  continuance  is  specifically
approved annually by majority vote of the Fund's  outstanding  voting securities
or by its Board of Directors,  and in either case by a majority of the directors
who are not parties to the Investment  Management Contract or interested persons
of any such  party,  by votes  cast in person at a meeting  for the  purpose  of
voting on such matter.

The Investment  Management Contract is terminable without penalty by the Fund on
sixty days'  written  notice  when  authorized  either by  majority  vote of its
outstanding  voting shares or by a vote of a majority of its Board of Directors,
or by the  Manager  on  sixty  days'  written  notice,  and  will  automatically
terminate in the event of its  assignment.  The Investment  Management  Contract
provides  that in the  absence  of  willful  misfeasance,  bad  faith  or  gross
negligence  on  the  part  of  the  Manager,  or of  reckless  disregard  of its
obligations  thereunder,  the  Manager  shall  not be liable  for any  action or
failure to act in accordance with its duties thereunder.

Pursuant  to the  Administrative  Service  Contract  with the Fund,  the Manager
performs clerical, accounting, office service and related functions for the Fund
and  provides  the Fund with  personnel  to (i)  supervise  the  performance  of
accounting and related services by Investors Fiduciary Trust Company, the Fund's
bookkeeping or  recordkeeping  agent,  (ii) prepare  reports to and filings with
regulatory  authorities  and (iii)  perform such other  services as the Fund may
from time to time request of the Manager.  The personnel rendering such services
may be employees of the Manager,  of its  affiliates or of other  organizations.

                                       15
<PAGE>
It is  intended  that such rates will be the actual  costs of the  Manager.  The
Investment  Management  Contract  was  approved  by a  majority  of  the  Fund's
shareholders at the meeting held on August 12, 1993.

For its services under the Investment Management Contract,  the Manager receives
from the Fund a fee  equal to .30% per  annum of the  Fund's  average  daily net
assets for managing  the Fund's  investment  portfolio  and  performing  related
services.  The fees are accrued daily and paid monthly. Any portion of the total
fees  received by the Manager may be used by the Manager to provide  shareholder
and administrative services (see "Distribution and Service Plan" herein).

For the Fund's  fiscal  year ended  October  31,  1994,  the fee  payable to the
Manager under the Investment Management Contract was $290,271, none of which was
waived.  The Fund's  net assets at the close of  business  on October  31,  1994
totaled $105,929,259. For the Fund's fiscal year ended October 31, 1993, the fee
payable to the Manager under the  Investment  Management  Contract was $392,820,
$114,820 of which was waived.  The Fund's net assets at the close of business on
October 31, 1993 totaled  $78,347,126.  For the Fund's fiscal year ended October
31,  1992,  the fee  payable  to the  Manager  under the  Investment  Management
Contract  was  $170,478,  all of which was waived.  The Fund's net assets at the
close of business on October 31, 1992 totaled $46,373,671. The Manager may waive
its rights to any portion of the  management  fee and may use any portion of the
management  fee for  purposes of  shareholder  and  administrative  services and
distribution of the Fund's shares.

Expense Limitation

The Manager has agreed to  reimburse  the Fund for its  expenses  (exclusive  of
interest, taxes, brokerage, and extraordinary expenses) which in any year exceed
the limits on investment  company expenses  prescribed by any state in which the
Fund's  shares are  qualified  for sale.  For the purpose of this  obligation to
reimburse expenses,  the Fund's annual expenses are estimated and accrued daily,
and any  appropriate  estimated  payments  are  made to it on a  monthly  basis.
Subject to the  obligations  of the Manager to reimburse the Fund for its excess
expenses as  described  above,  the Fund has,  under the  Investment  Management
Contract,  confirmed  its  obligation  for  payment  of all its other  expenses,
including  taxes,  brokerage  fees and  commissions,  commitment  fees,  certain
insurance  premiums,  interest  charges and expenses of the custodian,  transfer
agent  and  dividend  disbursing  agent's  fees,   telecommunications  expenses,
auditing and legal  expenses,  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, Securities and Exchange Commission
registration  fees and expenses,  state  securities laws  registration  fees and
expenses,  expenses of preparing and printing the Fund's prospectus for delivery
to existing  shareholders  and of  printing  application  forms for  shareholder
accounts,  and  the  fees  payable  to the  Distributor  under  the  Shareholder
Servicing Agreement,  Administrative Services and the Distribution Agreement and
all other costs borne by the Fund pursuant to the Distribution and Service Plan.

The Fund may  from  time to time  hire its own  employees  or  contract  to have
management   services  performed  by  third  parties  (including   Participating
Organizations) as discussed herein, and the management of the Fund intends to do
so  whenever  it  appears  advantageous  to the Fund.  The Fund's  expenses  for
employees  and for such  services are among the expenses  subject to the expense
limitation described above.

MANAGEMENT OF THE FUND

The Directors and Officers of the Fund and their  principal  occupations  during
the past five  years are set forth  below.  Mr.  Steven W. Duff may be deemed an
"interested  person" of the Fund,  as  defined  in the Act,  on the basis of his
affiliation with Reich & Tang Asset Management L.P. Unless otherwise  specified,
the address of the  following  persons is 600 Fifth Avenue,  New York,  New York
10020.

Steven W. Duff,  42 - President  and a Director of the Fund, is President of the
Manager.  Mr.  Duff was  formerly  Director  of Mutual  Fund  Administration  of
Nationsbank  with which he was  associated  with from 1981 to 1994.  Mr. Duff is
also  President and a Director of California  Daily Tax Free Income Fund,  Inc.,
Connecticut  Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Michigan Daily Tax Free Income Fund,  Inc., New York Daily Tax Free Income Fund,
Inc.,  North Carolina Daily  Municipal  Income Fund,  Inc. and Short Term Income
Fund,  Inc.,  President  and Trustee of Florida  Daily  Municipal  Income  Fund,
Institutional  Daily Income Fund and  Pennsylvania  Daily Municipal Income Fund;
President  of Reich & Tang  Government  Securities  Trust,  President  and Chief
Executive Officer of Tax Exempt Proceeds Fund, Inc., Executive Vice President of
Reich & Tang Equity Fund,  Inc., and Senior Vice  President of Lebenthal  Funds,
Inc.

Dr. W. Giles  Mellon,  64 -  Director  of the Fund,  is  Professor  of  Business
Administration  and  Area  Chairman  of  Economics  in the  Graduate  School  of
Management, Rutgers University with which he has

                                       16
<PAGE>
been associated since 1966. His address is Rutgers University Graduate School of
Management,  92 New  Street,  Newark,  New Jersey  07102.  Dr.  Mellon is also a
Director of California Daily Tax Free Income Fund, Inc.,  Connecticut  Daily Tax
Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,  Delafield Fund, Inc.,
Michigan Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc., and
a Trustee of Reich & Tang Government  Securities Trust,  Florida Daily Municipal
Income Fund,  Institutional  Daily Income Fund and Pennsylvania  Daily Municipal
Income Fund.

Dr. Yung Wong, 57 - Director of the Fund, is General  Partner of Abacus  Limited
Partnership (a general partner of a venture capital investment firm) since 1984.
His  address is 29 Alden  Road,  Greenwich,  Connecticut  06831.  Dr.  Wong is a
Director of Republic Telecom Systems Corporation (provider of telecommunications
equipment)  since  January  1989,  and of  TelWatch,  Inc.  (provider of network
management  software)  since  August  1989.  Dr.  Wong  is  also a  Director  of
California Daily Tax Free Income Fund, Inc.,  Connecticut  Daily Tax Free Income
Fund,  Inc., Daily Tax Free Income Fund,  Inc.,  Delafield Fund, Inc.,  Michigan
Daily Tax Free Income Fund,  Inc.,  North Carolina Daily Municipal  Income Fund,
Inc.,  Reich & Tang Equity  Fund,  Inc.,  Short Term Income  Fund,  Inc.,  and a
Trustee of Eclipse  Financial Asset Trust,  Florida Daily Municipal Income Fund,
Institutional  Daily Income Fund,  Pennsylvania  Daily Municipal Income Fund and
Reich & Tang Government Securities Trust.

Robert  Straniere,  54 - Director of the Fund, has been a member of the New York
State  Assembly and a partner  with the law firm of Straniere & Straniere  since
1981.  His  address is 182 Rose  Avenue,  Staten  Island,  New York  10306.  Mr.
Straniere is also a Director of  California  Daily Tax Free Income  Fund,  Inc.,
Connecticut  Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc.,  Michigan Daily Tax Free Income Fund, Inc., North Carolina
Daily Municipal  Income Fund,  Inc.,  Reich & Tang Equity Fund,  Inc., and Short
Term  Income  Fund,  Inc.  and a Trustee of Reich & Tang  Government  Securities
Trust, Florida Daily Municipal Income Fund,  Institutional Daily Income Fund and
Pennsylvania Daily Municipal Income Fund.

Lesley M. Jones,  47 - Vice  President of the Fund, is Senior Vice  President of
the Manager since  September  1993. Ms. Jones was formerly Senior Vice President
of Reich & Tang, Inc. which she was associated with from April 1973 to September
1993.  Ms. Jones is also a Vice  President of  California  Daily Tax Free Income
Fund, Inc.,  Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income
Fund,  Inc.,   Delafield  Fund,  Inc.,  Florida  Daily  Municipal  Income  Fund,
Institutional  Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New
York Daily Tax Free Income Fund,  Inc.,  North Carolina Daily  Municipal  Income
Fund, Inc.,  Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Reich & Tang Government Securities Trust and Short Term Income Fund, Inc.

Bernadette N. Finn, 48 - Secretary of the Fund, is Vice President of the Manager
since September 1993. Ms. Finn was formerly Vice President of Reich & Tang, Inc.
which she was associated with from September 1970 to September 1993. Ms. Finn is
also Secretary of California Daily Tax Free Income Fund, Inc., 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,  Lebenthal Funds, Inc.,  Michigan Daily Tax Free Income Fund,
Inc., New York Daily Tax Free Income Fund,  Inc., North Carolina Daily Municipal
Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Tax Exempt Proceeds
Fund,  Inc.  and a Vice  President  and  Secretary  of  Reich & Tang  Government
Securities  Trust,  Reich & Tang Equity Fund,  Inc., and Short Term Income Fund,
Inc., and Assistant Secretary of The Gabelli Asset Fund, The Gabelli Growth Fund
and The Gabelli Money Market Funds.

Molly  Flewharty,  44 - Vice  President  of the Fund,  is Vice  President of the
Manager since September 1993. Ms. Flewharty was formerly Vice President of Reich
& Tang, Inc. which she was associated with from December 1977 to September 1993.
Ms.  Flewharty is also Vice President of California  Daily Tax Free Income Fund,
Inc.,  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, Lebenthal Funds, Inc., Michigan Daily Tax
Free  Income  Fund,  Inc.,  New York Daily Tax Free  Income  Fund,  Inc.,  North
Carolina Daily Municipal Income Fund, Inc.,  Pennsylvania Daily Municipal Income
Fund, Reich & Tang Equity Fund,  Inc., Reich & Tang Government  Securities Trust
and Short Term Income Fund, Inc.

Dana E.  Messina,  39 - Vice  President  of the Fund,  is Vice  President of the
Manager since September 1993. Ms. Messina was formerly Vice President of Reich &
Tang,  Inc. which she was associated  with from December 1980 to September 1993.
Ms.  Messina is also Vice  President of  California  Daily Tax Free Income Fund,
Inc.,  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.,

                                       17
<PAGE>

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., is
Vice President and Treasurer of Lebenthal  Funds,  Inc. and is Treasurer,  Chief
Accounting Officer and Chief Financial Officer of Tax Exempt Proceeds Fund, Inc.

Richard De Sanctis,  39 - Treasurer of the Fund,  is Assistant  Treasurer of New
England  Investment  Companies,  Inc.,  since September 1993. Mr. De Sanctis was
formerly  controller of Reich & Tang,  Inc.,  with which he has been  associated
since January 1991.  Mr. De Sanctis was formerly Vice President and Treasurer of
Cortland Financial Group, Inc. and Vice President of Cortland Distributors, Inc.
since 1989. He is also Treasurer of California Daily Tax Free Income Fund, Inc.,
Connecticut  Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund,  Institutional  Daily
Income Fund,  Michigan Daily Tax Free Income Fund, Inc., New York Daily Tax Free
Income  Fund,   Inc.,   North  Carolina  Daily  Municipal   Income  Fund,  Inc.,
Pennsylvania  Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Reich
& Tang Government  Securities Trust and Short Term Income Fund, Inc. and is Vice
President and Treasurer of Cortland Trust, Inc.

The Fund paid an aggregate  remuneration of $6,000 to its directors with respect
to the period  ended  October 31,  1994,  all of which  consisted  of  aggregate
directors' fees paid to the three disinterested directors, pursuant to the terms
of the Investment  Management Contract (see "Manager" herein).  See compensation
table below.
<TABLE>
<CAPTION>

                               COMPENSATION TABLE
              <S>                    <C>                      <C>                      <C>                         <C>

             (1)                     (2)                      (3)                      (4)                        (5)

       Name of Person,      Aggregate Compensation   Pension or Retirement       Estimated Annual       Total Compensation from
           Position          from Registrant for      Benefits Accrued as    Benefits upon Retirement  Fund and Fund Complex Paid
                                 Fiscal Year         Part of Fund Expenses                                   to Directors*
    W. Giles Mellon,
    Director                      $2,000.00                    0                        0             $48,791.67 (14 Funds)

    Robert Straniere,
    Director                      $2,000.00                    0                        0
                                                                                                      $48,791.67 (14 Funds)
    Yung Wong,
    Director                      $2,000.00                    0                        0             $48,791.67 (14 Funds)

* The total  compensation  paid to such persons by the Fund and Fund Complex for
the fiscal year ending  October  31, 1994 (and,  with  respect to certain of the
funds in the Fund  Complex,  estimated  to be paid during the fiscal year ending
October 31, 1994). The parenthetical  number represents the number of investment
companies (including the Fund) from which such person receives compensation that
are considered part of the same Fund complex as the Fund,  because,  among other
things, they have a common investment advisor.

COUNSEL AND AUDITORS

Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Messrs.  Battle  Fowler LLP, 75 East 55th Street,  New York,  New
York 10020.

Matters  in  connection  with New Jersey  law are  passed  upon by Sills  Cummis
Zuckerman Radin Tischman Epstein & Gross, P.A., The Legal Center, One Riverfront
Plaza, Newark, New Jersey 07102.

McGladrey & Pullen LLP, 555 Fifth Avenue, New York, New York 10017,  independent
certified public accountants, have been selected as auditors for the Fund.

DISTRIBUTION AND SERVICE PLAN

Pursuant to Rule 12b-1 under the Act, the Securities and Exchange Commission has
required that an investment  company which bears any direct or indirect  expense
of  distributing  its shares must do so only in accordance with a plan permitted
by the Rule.  The Fund's  Board of  Directors  has  adopted a  distribution  and
service  plan  (the  "Plan")  and,  pursuant  to the  Plan,  the  Fund  and  the
Distributor  have  entered  into  a  Distribution  Agreement  and a  Shareholder
Servicing Agreement with Reich & Tang Distributors L.P., (the "Distributor").

Reich & Tang Asset Management,  Inc. serves as the sole general partner for both
Reich & Tang Asset Management L.P. and Reich & Tang Distributors L.P., and Reich
& Tang  Asset  Management,  Inc.  serves  as the  sole  limited  partner  of the
Distributor.

Under the Plan,  the Fund and the  Distributor  will enter  into a  Shareholding
Servicing Agreement, with respect to the Fund's shares.

                                       18
<PAGE>
For its services under the  Shareholder  Servicing  Agreement,  the  Distributor
receives from the Fund a fee equal to .20% per annum of the Fund's average daily
net assets (the "Shareholder  Servicing Fee"). The fee is accrued daily and paid
monthly and any  portion of the fee may be deemed to be used by the  Distributor
for purposes of  distribution  of Fund shares and for payments to  Participating
Organizations  with respect to  servicing  their  clients or  customers  who are
shareholders of the Fund.

For the Fund's  fiscal year ended  October 31, 1994,  the amount  payable to the
Distributor  under  the  Distribution  and  Service  Plan  and  the  Shareholder
Servicing  Agreement  adopted  thereunder  pursuant to Rule 12b-1 under the Act,
totaled  $193,514,  of which  $189,468  was  voluntarily  waived by the Manager.
During the same period,  the Manager made total payments under the Plan to or on
behalf of Participating  Organizations of $361,597.  The excess of such payments
over the total payments the Manager and the  Distributor  received from the Fund
under the Plan represents  distribution  expenses funded by the Manager from its
own resources including the management fee.

Under the Distribution Agreement,  the Distributor for nominal consideration and
as agent for the Fund,  will  solicit  orders  for the  purchase  of the  Fund's
shares,  provided that any  subscriptions  and orders will not be binding on the
Fund until accepted by the Fund as principal.

The Plan and the Shareholder  Servicing  Agreement  provide that, in addition to
the  Shareholder  Servicing  Fee,  the Fund will pay for (i)  telecommunications
expenses  including the cost of dedicated  lines and CRT terminals,  incurred by
the  Participating  Organizations  and Manager in carrying out their obligations
under the  Shareholder  Servicing  Agreement  and (ii)  preparing,  printing and
delivering  the  Fund's  prospectus  to  existing  shareholders  of the Fund and
preparing and printing subscription  application forms for shareholder accounts,
brochures and other promotional materials and of delivering the prospectuses and
materials to prospective shareholders of the Fund.

The Plan  provides that the Manager may make payments from time to time from its
own  resources,  which may include the  management  fee and past profits for the
following  purposes:  (i) to  defray  the costs of,  and to  compensate  others,
including  Participating  Organizations  with whom the Manager has entered  into
written   agreements   for   performing   shareholder   servicing   and  related
administrative  functions  on  behalf of the Fund;  (ii) to  compensate  certain
Participating  Organizations for providing assistance in distributing the Fund's
shares;  (iii)  to pay  the  costs  of  printing  and  distributing  the  Fund's
prospectus  to  prospective  investors;  (iv)  and to  defray  the  cost  of the
preparation and printing of brochures and other promotional materials,  mailings
to prospective  shareholders,  advertising,  and other  promotional  activities,
including the salaries and/or  commissions of sales personnel in connection with
the  distribution  of the Fund's shares.  The Distributor may also make payments
from time to time from its own  resources,  which may  include  the  Shareholder
Servicing  Fee and past profits for the purposes  enumerated  in (i) above.  The
Distributor,  in its sole discretion, will determine the amount of such payments
made  pursuant to the Plan,  provided  that such  payments will not increase the
amount which the Fund is required to pay to the Manager and  Distributor for any
fiscal year under either the Investment  Management  Contract in effect for that
year or under the Shareholder Servicing Agreement in effect for that year.

In  accordance  with the Rule,  the Plan  provides  that all written  agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating   Organizations  or  other   organizations   must  be  in  a  form
satisfactory  to the Fund's Board of Directors.  In addition,  the Plan requires
the Fund and the  Distributor to prepare,  at least  quarterly,  written 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 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 Board of Directors  initially  approved the
Plan on October 19, 1990 and most recently approved the Plan on July 15, 1994 to
be effective until August 31, 1995. 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.

DESCRIPTION OF COMMON STOCK

The authorized  capital stock of the Fund,  which was  incorporated  on July 24,
1990 in Maryland,  consists of twenty billion shares of stock having a par value
of one tenth of one cent  ($.001) per share.  The Fund's  Board of  Directors is
authorized to divide the shares into separate  series of stock,  one for each of
the  portfolios  that may be  created.  Each share of any series of shares  when
issued will have equal dividend,  distribution and liquidation rights within the
series  for 

                                       19
<PAGE>
which it was issued and each fractional  share has those rights in proportion to
the percentage that the fractional share represents of a whole share.  Shares of
all series have identical  voting rights,  except where, by law, certain matters
must be approved by a majority of the shares of the  unaffected  series.  Shares
will be voted in the aggregate.  There are no conversion or preemptive rights in
connection  with any shares of the Fund.  All shares,  when issued in accordance
with the terms of the offering, will be fully paid and nonassessable. Shares are
redeemable at net asset value, at the option of the shareholder.  On January 31,
1995, there were 107,538,816  shares of the Fund outstanding.  As of January 31,
1995, the amount of shares owned by all officers and directors of the Fund, as a
group,  was less than 1% of the outstanding  shares of the Fund. Set forth below
is  certain  information  as to  persons  who  owned  5% or more  of the  Fund's
outstanding shares as of January 31, 1995:

                                               Nature of
Name and address             % of Class        Ownership

Fundtech Services L.P.        69.71%           Record
as Agent for Various
Beneficial Owners
3 University Plaza
Hackensack, NJ 07061

Investors Fiduciary Trust     14.30%           Record
Company
as Agent for Customers
210 West 10th Street
Kansas City, MO 64105

Neuberger & Berman             6.91%           Record
as Agent for Customers
11 Broadway
New York, NY 10004

Under its  Articles of  Incorporation  the Fund has the right to redeem for cash
shares of stock owned by any  shareholder to the extent and at such times as the
Fund's Board of Directors  determines to be necessary or  appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes.  In this regard, the
Fund may also exercise its right to reject purchase orders.

The shares of the Fund have non-cumulative  voting rights,  which means that the
holders of more than 50% of the shares  outstanding  voting for the  election of
directors can elect 100% of the  directors if the holders  choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors.

As a general  matter,  the Fund will not hold  annual or other  meetings  of the
Fund's shareholders.  This is because the By-Laws of the Fund provide for annual
meetings  only (a) for the  election of  directors,  (b) for approval of revised
investment  advisory  contracts with respect to a particular  class or series of
stock, (c) for approval of revisions to the Fund's  distribution  agreement with
respect  to a  particular  class or series of  stock,  and (d) upon the  written
request of holders of shares entitled to cast not less than 25% of all the votes
entitled to be cast at such meeting.  Annual and other  meetings may be required
with respect to such additional  matters relating to the Fund as may be required
by the Act,  including the removal of Fund directors(s) and communication  among
shareholders,  any  registration  of the Fund with the  Securities  and Exchange
Commission  or  any  state,  or as  the  Directors  may  consider  necessary  or
desirable.  Each  Director  serves  until the next  meeting of the  shareholders
called  for the  purpose of  considering  the  election  or  reelection  of such
Director  or of a  successor  to such  Director,  and  until  the  election  and
qualification of his or her successor,  elected at such a meeting, or until such
Director  sooner  dies,  resigns,  retires  or is  removed  by the  vote  of the
shareholders.

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 and other income, net of certain
deductions.  Exempt-interest dividends, as defined in the Code, are dividends or
any part thereof (other than capital gain  dividends)  paid by the Fund that are
attributable  to interest on  obligations,  the interest on which is exempt from
regular  Federal  income  tax,  and  designated  by the Fund as  exempt-interest
dividends in a written notice mailed to the Fund's  shareholders  not later than
60 days  after  the  close of its  taxable  year.  The  percentage  of the total
dividends   paid  by  the  Fund  during  any  taxable  year  that  qualifies  as
exempt-interest  dividends  will  be the  same  for all  shareholders  receiving
dividends during the year.

Exempt-interest  dividends are to be treated by the Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code.
However,  a  shareholder  is advised to consult his tax advisors with respect to
whether exempt-interest  dividends retain the exclusion under Section 103 of the
Code if such  shareholder  would be treated as a "substantial  user" or "related
person"  under

                                       20
<PAGE>

Section 147(a) of the Code with respect to some or all of the "private activity"
bonds  (generally,  a bond issue in which more than 10% of the proceeds are used
in a  non-governmental  trade  or  business),  if any,  held by the  Fund.  If a
shareholder  receives an exempt-interest  dividend with respect to any share and
such  share has been held for six  months or less,  then any loss on the sale or
exchange  of such share will be  disallowed  to the extent of the amount of such
exempt-interest  dividend.  The Code  provides  that  interest  on  indebtedness
incurred, or continued,  to purchase or carry certain tax-exempt securities such
as shares of the Fund is not deductible.  Therefore, among other consequences, a
certain  proportion  of interest on  indebtedness  incurred,  or  continued,  to
purchase or carry  securities on margin may not be deductible  during the period
an investor holds shares of the Fund.  P.L.  99-514  expands the  application of
this rule as it applies to  financial  institutions,  effective  with respect to
taxable years ending after  December 31, 1986. For Social  Security  recipients,
interest on tax-exempt bonds,  including  exempt-interest  dividends paid by the
Fund,  is to be added to adjusted  gross income for  purposes of  computing  the
amount of Social  Security  benefits  includible  in gross  income.  Under  P.L.
99-514, as amended by the Technical and Miscellaneous  Revenue Act of 1988 (P.L.
100-647) and the Revenue  Reconciliation Act of 1990 (P.L. 101-508),  the amount
of such interest received will have to be disclosed on the shareholders' Federal
income  tax  returns.   Further,   under  P.L.  99-514,   taxpayers  other  than
corporations  are required to include as an item of tax  preference for purposes
of the  Federal  alternative  minimum  tax all  tax-exempt  interest on "private
activity"  bonds (other than  Section  501(c)(3)  bonds)  issued after August 7,
1986.  Thus,  this  provision  will apply to the portion of the  exempt-interest
dividends from the Fund's assets,  that are  attributable to such post-August 7,
1986  private  activity  bonds,  if any of such bonds are  acquired by the Fund.
Corporations are required to increase their  alternative  minimum taxable income
by 75% 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).  Further,  interest  on the  Municipal
Obligations is includable in a 0.12% additional corporate minimum tax imposed by
the  SuperFund  Amendments  and  Reauthorization  Act of 1986.  In addition,  in
certain cases,  Subchapter S corporations with accumulated  earnings and profits
from  Subchapter  C years  are  subject  to a  minimum  tax on  excess  "passive
investment income" which includes tax-exempt interest.

Although it is not intended, it is possible that the Fund may realize short-term
or long-term capital gains or losses from its portfolio  transactions.  The Fund
may also  realize  short-term  or long-term  capital  gains upon the maturity or
disposition   of  securities   acquired  at  discounts   resulting  from  market
fluctuations.  Short-term  capital  gains  will be taxable  to  shareholders  as
ordinary income when they are distributed.  Any net capital gains (the excess of
its net realized long-term capital gain over its net realized short-term capital
loss) will be  distributed  annually to the Fund's  shareholders.  The Fund will
have no tax  liability  with respect to  distributed  net capital  gains and the
distributions  will be taxable  to  shareholders  as  long-terms  capital  gains
regardless of how long the  shareholders  have held Fund shares.  However,  Fund
shareholders  who at the time of such a net capital gain  distribution  have not
held their Fund shares for more than six months, and who subsequently dispose of
those  shares at a loss,  will be  required  to treat  such loss as a  long-term
capital loss to the extent of the net capital gain  distribution.  Distributions
of net capital gain will be designated as a "capital gain dividend" in a written
notice mailed to the Fund's  shareholders not later than 60 days after the close
of the Fund's taxable year. Under P.L. 99-514,  effective as of January 1, 1988,
net capital gain is taxable at the same rates as ordinary income.  However, P.L.
101-508  restored  preferential  treatment of net capital gains by placing a 28%
ceiling on the marginal tax rate  applicable  to net capital  gains  realized by
individuals.

The Fund intends to distribute at least 90% of its  investment  company  taxable
income (taxable income subject to certain adjustments exclusive of the excess of
its net long-term  capital gain over its net  short-term  capital loss) for each
taxable  year.   The  Fund  will  be  subject  to  Federal  income  tax  on  any
undistributed  investment  company taxable income.  To the extent such income is
distributed it will be taxable to shareholders as ordinary income. Expenses paid
or incurred by the Fund will be allocated between  tax-exempt and taxable income
in the same  proportion as the amount of the Fund's  tax-exempt  income bears to
the total of such  exempt  income  and its gross  income  (excluding  from gross
income the excess of capital  gains over capital  losses).  If the Fund does not
distribute  at least 98% of its ordinary  income and 98% of its capital gain net
income for a taxable year, the Fund will be subject to a nondeductible 4% excise
tax on the excess of such amounts over the amounts actually distributed.

If  a   shareholder   fails  to  provide  the  Fund  with  a  current   taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
interest,  dividend payments,  and proceeds from the redemption of shares of the
Fund.

Dividends and  distributions to shareholders  will be treated in the same manner
for  Federal  income tax  purposes  whether  received in cash or  reinvested  in
additional shares of the Fund.

With respect to the variable rate demand  instruments,  including  participation
certificates  therein,  the Fund 

                                       21
<PAGE>
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
thereof  and  the  interest  on the  underlying  Municipal  Obligations  will be
tax-exempt  to the Fund.  Counsel  has  pointed  out that the  Internal  Revenue
Service has announced that it will not ordinarily  issue advance  rulings on the
question of ownership of securities or participation  interests  therein subject
to a put and, as a result, the Internal Revenue Service could reach a conclusion
different from that reached by counsel.

From time to time, proposals have been introduced before Congress to restrict or
eliminate   the  Federal   income  tax   exemption  for  interest  on  Municipal
Obligations.  If such a proposal were introduced and enacted in the future,  the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund  would  re-evaluate  its  investment  objective  and  policies  and
consider  changes in the  structure.  Many  important  changes  were made to the
Federal  income  tax  system by the  Revenue  Reconciliation  Act of 1993  (P.L.
103-66),  including an increase in marginal tax rates.  P.L.  99-514  provided a
unified state volume  limitation for many types of tax-exempt  bonds and revised
current arbitrage restrictions.

In South  Carolina  v.  Baker,  the U.S.  Supreme  Court  held that the  Federal
government may constitutionally  require states to register bonds they issue and
may subject the  interest  on such bonds to Federal tax if not  registered,  and
that there is no  constitutional  prohibition  against the Federal  government's
taxing the interest earned on state or other municipal  bonds. The Supreme Court
decision affirms the authority of the Federal government to regulate and control
bonds such as the Municipal Obligations and to tax such bonds in the future. The
decision does not,  however,  affect the current  exemption from taxation of the
interest  earned on the Municipal  Obligations in accordance with Section 103 of
the Code.

NEW JERSEY INCOME TAXES

The  designation  of all or a  portion  of a  dividend  paid  by the  Fund as an
"exempt-interest  dividend"  under the Code does not  necessarily  result in the
exemption  of such amount  from tax under the laws of any state or local  taxing
authority.

The Fund intends to be a "qualified  investment  fund" within the meaning of the
New Jersey gross income tax. The primary  criteria for constituting a "qualified
investment fund" are that (1) such fund is an investment company registered with
the Securities and Exchange Commission which, for the calendar year in which the
distribution   is  paid,  has  no  investments   other  than  interest   bearing
obligations,  obligations  issued  at a  discount,  and  cash  and  cash  items,
including  receivables and financial options,  futures,  forward  contracts,  or
other similar financial  instruments  relating to interest-bearing  obligations,
obligations  issued at a discount or bond indexes related thereto and (2) at the
close of each  quarter of the taxable  year,  such fund has not less than 80% of
the aggregate  principal amount of all of its investments,  excluding  financial
options,  futures,  forward  contracts,  or other similar financial  instruments
relating to  interest-bearing  obligations,  obligations issued at a discount or
bond indexes related thereto to the extent such instruments are authorized under
the  regulated  investment  company  rules under the Code,  cash and cash items,
which cash items shall include receivables, in New Jersey Municipal Obligations,
Territorial  Municipal  Obligations  and  certain  other  specified  securities.
Additionally,  a  qualified  investment  fund  must  comply  with its  reporting
obligations under New Jersey law with respect to qualified  investment funds. In
the opinion of Sills Cummis  Zuckerman  Radin  Tischman  Epstein & Gross,  P.A.,
special New Jersey tax counsel to the Fund, assuming that the Fund constitutes a
qualified  investment fund, (a)  distributions  paid by the Fund to a New Jersey
resident  individual  shareholder  will not be subject  to the New Jersey  gross
income tax to the  extent  that the  distributions  are  attributable  to income
received  as  interest  on or gain  from New  Jersey  Municipal  Obligations  or
Territorial Municipal  Obligations,  and (b) gain from the sale of shares in the
Fund by a New Jersey resident individual  shareholder will not be subject to the
New Jersey gross income tax.

Shareholders  are  urged to  consult  their tax  advisers  with  respect  to the
treatment of distributions  from the Fund and ownership of shares of the Fund in
their own States and localities.

CUSTODIAN AND TRANSFER AGENT

Investors Fiduciary Trust Company,  127 West 10th Street,  Kansas City, Missouri
64105 is custodian for its cash and  securities,  and is the transfer  agent and
dividend agent for the shares of the Fund.  State Street Bank and Trust Company,
P.O. Box 9021,  Boston,  Massachusetts  02205-9827,  is the registrar,  transfer
agent and  dividend  disbursing  agent for the  shares of the Fund.  The  Fund's
transfer  agent and  custodian  do not assist in, and are not  responsible  for,
investment decisions involving assets of the Fund.

                                       22
<PAGE>
DESCRIPTION OF RATINGS *

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST MUNICIPAL BOND RATINGS:

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest  degree of investment  risk and are generally  referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally  stable
margin and principal is secure. While the various protective elements are likely
to change,  such changes as can be  visualized  are most  unlikely to impair the
Fundamentally  strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.  They are rated lower than the best bonds  because  margins of protection
may not be as large as in Aaa securities,  or fluctuation of protective elements
may be of greater  amplitude,  or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

Con.  (________) - Bonds for which the security  depends upon the  completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects  under  construction,  (b) earnings of
projects  unseasoned  in  operating  experience,  (c)  rentals  which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches.  Parenthetical  rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

DESCRIPTION  OF MOODY'S  INVESTORS  SERVICE,  INC.'S TWO
HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER SHORT-TERM LOANS: 

Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG").  This distinction is in recognition
of the differences  between  short-term credit risk and long-term risk.  Factors
affecting  the  liquidity  of  the  borrower  are  uppermost  in  importance  in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:

MIG-1 - Loans bearing this designation are of the best quality,  enjoying strong
protection  from  established  cash flows of Funds for their  servicing  or from
established and broad-based access to the market for refinancing, or both.

MIG-2 - Loans  bearing this  designation  are of high  quality,  with margins of
protection ample although not so large as in the preceding group.

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S TWO HIGHEST DEBT RATINGS:

AAA - Debt  rated AAA has the  highest  rating  assigned  by  Standard & Poor's.
Capacity to pay interest and repay  principal  is  extremely  strong.

AA - Debt  rated  AA has a very  strong  capacity  to  pay  interest  and  repay
principal and differs from the highest rated issues only in small degree.

Plus (+) or Minus (-):  The AA rating may be modified by the  addition of a plus
or minus sign to show relative standing within the AA rating category.

Provisional Ratings: The letter "p" indicates that the rating is provisional.  A
provisional  rating  assumes the  successful  completion  of the  project  being
financed  by the debt being rated and  indicates  that  payment of debt  service
requirements  is largely or entirely  dependent  upon the  successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project,  makes no comment on the likelihood of,
or the risk of default upon  failure of, such  completion.  The investor  should
exercise his own judgment with respect to such likelihood and risk.

Standard & Poor's does not provide ratings for state and municipal notes.

DESCRIPTION  OF  STANDARD  & POOR'S
CORPORATION'S  TWO HIGHEST  COMMERCIAL  PAPER RATINGS:

A - Issues  assigned  this  highest  rating are  regarded as having the greatest
capacity for timely  payment.  Issues in this category are  delineated  with the
numbers 1, 2 and 3 to indicate the relative degree of safety.

A-1 - This  designation  indicates  that the degree of safety  regarding  timely
payment is either  overwhelming  or very  strong.  Those  issues  determined  to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.

A-2 - Capacity  for timely  payment on issues with this  designation  is strong.
However,  the relative degree of safety is not as high as for issues  designated
A-1.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, 
INC.'S TWO HIGHEST  COMMERCIAL  PAPER  RATINGS:

Moody's employs the following designations,  both judged to be investment grade,
to indicate the relative  repayment capacity of rated issues:  Prime-1,  highest
quality; Prime-2, higher quality.
- --------------------------------------------------------------------------------
* As described by the rating agencies.
                                       23
<PAGE>
- -------------------------------------------------------------------------------

NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
INDEPENDENT AUDITOR'S REPORT


===============================================================================

The Board of Directors and Shareholders
New Jersey Daily Municipal Income Fund, Inc.


We have  audited the  accompanying  statement  of net assets of New Jersey Daily
Municipal Income Fund, Inc. as of October 31, 1995, and the related statement of
operations for the year then ended,  the statements of changes in net assets for
each of the two  years in the  period  then  ended  and the  selected  financial
information  for each of the four years in the period  then ended and the period
from October 26, 1990  (Commencement  of Operations) to October 31, 1991.  These
financial  statements and selected financial  information are the responsibility
of the Fund's  management.  Our responsibility is to express an opinion on these
financial statements and selected financial information based on our audits.


We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about  whether  the  financial  statements  and  selected
financial  information  are free of  material  misstatement.  An audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the financial  statements.  Our procedures  included  confirmation of securities
owned as of October 31, 1995, by  correspondence  with the  custodian.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.


In our opinion,  the financial  statements  and selected  financial  information
referred to above  present  fairly,  in all  material  respects,  the  financial
position of New Jersey Daily Municipal Income Fund, Inc. as of October 31, 1995,
the results of its  operations,  the changes in its net assets and the  selected
financial  information for the periods  indicated,  in conformity with generally
accepted accounting principles.



/s/ McGladry & Pullen, LLP



 New York, New York
 November 29, 1995




- -------------------------------------------------------------------------------

                                       24
<PAGE>

- -------------------------------------------------------------------------------

NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
STATEMENT OF NET ASSETS
OCTOBER 31, 1995

===============================================================================


</TABLE>
<TABLE>
<CAPTION>

                                                                                                             Ratings (a)
                                                                                                          -----------------
     Face                                                            Maturity                 Value                Standard
    Amount                                                             Date     Yield       (Note 1)      Moody's & Poor's
    ------                                                             ----     -----       --------      -------   -------
Other Tax Exempt Investments (19.52%)
- -----------------------------------------------------------------------------------------------------------------------------------
   <S>          <C>                                                 <C>         <C>       <C>             <C>      <C>  
   $ 2,408,000  Berkeley Heights, NJ BANS (b)                       11/08/96    3.75%     $ 2,409,397
     3,000,000  Essex County, NJ TAN - Series C
                LOC Natwest Bank                                    11/22/95    3.50        3,001,188     MIG-1
     4,000,000  Fort Lee, NJ TAN (b)                                02/02/96    3.46        4,004,325
     2,600,000  Mendham Township, NJ BAN (b)                        10/10/96    3.77        2,606,935
       516,000  Montclair, NJ BAN (b)                               06/28/96    3.79          517,257
       500,000  New Jersey State GO                                 04/01/96    3.63          506,561      Aa1     AA+
       750,000  Pequannock Township, NJ Board of Education
                (Collateralized with U.S. Government Securities)    03/01/96    3.70          774,668      Aaa     AAA
     3,500,000  Southern Regional High School District,
                NJ Board of Education Temporary Notes (b)           11/02/95    4.49        3,500,021
     5,060,000  Trenton, NJ School District Tempory Notes (b)       10/24/96    3.81        5,074,979
     3,000,000  Township of Parsippany-Troy Hills BAN               11/01/96    3.64        3,008,640     MIG-1
    ----------                                                                             ----------
    25,334,000  Total Other Tax Exempt Investments                                         25,403,971
    ----------                                                                             ----------
<CAPTION>
Other Variable Rate Demand Instruments (c) (68.09%)
- -----------------------------------------------------------------------------------------------------------------------------------
   <S>          <C>                                                 <C>         <C>       <C>            <C>       <C>
   $ 1,500,000  Glouchester County, NJ PCFA
                (Monsanto Company Project)                          12/01/22    3.80%     $ 1,500,000      P1      A1
     6,100,000  Mercer County, NJ Improvement Authority
                Pooled Government Loan Program Bond
                LOC Credit Suisse                                   11/01/98    3.60        6,100,000    VMIG-1    A1+
     3,400,000  New Jersey EDA (b)
                (400 International Drive Rockefeller Corporation)
                LOC Morgan Guaranty                                 09/01/05    3.85        3,400,000
     1,050,000  New Jersey EDA Bears - Series G
                LOC First Fidelity Bank                             07/01/03    3.85        1,050,000              A1
     2,300,000  New Jersey EDA Dock Facility Refunding RB
                (Bayonne/IMTT-Bayonne Project)
                LOC First National Bank of Chicago                  12/01/27    3.95        2,300,000    VMIG-1
       200,000  New Jersey EDA Dock Facility Refunding RB
                (Bayonne/IMTT-Bayonne Project) - Series 1993B
                LOC First National Bank of Chicago                  12/01/27    3.90          200,000    VMIG-1
     2,115,000  New Jersey EDA Economic Growth Bonds - Series 1994A
                LOC National Westminster Bank PLC                   08/01/14    3.85        2,115,000      P1      A1+
       850,000  New Jersey EDA Manufacturing Facility RB
                (Commerce Center Project)
                LOC Bank of America                                 08/01/17    4.40          850,000      P1      A1
     2,500,000  New Jersey EDA Natural Gas Facilities RB
                (New Jersey Natural Gas Company) - Series B
                AMBAC Insured                                       07/01/30    3.55        2,500,000    VMIG-1


</TABLE>
- -------------------------------------------------------------------------------
                       See Notes to Financial Statements.

                                       25
<PAGE>
- -------------------------------------------------------------------------------





===============================================================================

<TABLE>
<CAPTION>

                                                                                                                       Ratings (a) 
                                                                                                                    ---------------
      Face                                                                               Maturity           Value         Standard 
     Amount                                                                                Date    Yield  (Note 1) Moody's & Poor's
     ------                                                                                ----    -----  -------- -------   ------
Other Variable Rate Demand Instruments (c) (Continued)                                                                             
- -----------------------------------------------------------------------------------------------------------------------------------
    <S>         <C>                                                                     <C>        <C>   <C>           <C>     <C> 
     1,500,000  New Jersey EDA Natural Gas Facility RB - Series A                                                                  
                (New Jersey National Gas Company)                                                                                  
                AMBAC Insured                                                           07/01/30   3.45   1,500,000    AAA     Aaa
     1,000,000  New Jersey EDA School RB                                                                                          
                (Peddie School) - Series 1994B                                          02/01/19   3.95   1,000,000            A1 
     3,200,000  New Jersey EDA                                                                                                    
                (Hillcrest Health System Inc. Obligated Group Project) - Series 1995                                      
                LOC Industrial Bank of Japan, Ltd.                                      01/01/22   3.70   3,200,000    P1      A1 
     1,000,000  New Jersey EDA Variable Rate Demand                                                                               
                RB Sewage Facility                                                                                                
                LOC PNC Bank                                                            07/01/01   4.15   1,000,000    P1      A1 
     2,085,000  New Jersey State EDA                                                                                              
                (Block Drug Corporation) - Series A                                                                               
                LOC Trust Co. Bank of Atlanta                                           06/01/09   3.95   2,085,000    P1         
     1,650,000  New Jersey State EDA                                                                                              
                (Block Drug Corporation) - Series B                                                                               
                LOC Trust Co. Bank of Atlanta                                           06/01/09   3.95   1,650,000    P1      A1+
     3,250,000  New Jersey State EDA (Campus 130 Associates)                                                                      
                LOC The Bank of New York                                                12/01/11   4.20   3,250,000    P1      A1 
     4,000,000  New Jersey State EDA (Crompton & Knowles)                                                                         
                LOC ABN AMRO Bank N.V.                                                  07/01/97   3.88   4,000,000    P1      A1+
     2,600,000  New Jersey State EDA (Curtiss-Wright Flight Systems)                                                              
                LOC Bank of Nova Scotia                                                 01/01/02   3.65   2,600,000            A1+
     1,791,500  New Jersey State EDA (Hartz & Rex Associates) (b)                                                                 
                LOC Citibank                                                            01/01/12   4.08   1,791,500               
     2,725,000  New Jersey State EDA, (b)                                                                                         
                Industrial & Economic Development (FMC Corp.)                                                                     
                LOC Wachovia Bank & Trust Co., N.A.                                     06/01/22   3.95   2,725,000               
     2,890,000  New Jersey State EDA STPCO II                                                                                     
                LOC Barclays Bank PLC                                                   07/01/06   3.80   2,890,000            A1+
    12,600,000  New Jersey State Turnpike Authority - Series A                                                                    
                FGIC Insured                                                            01/01/18   3.60  12,600,000  VMIG-1    A1+
       200,000  Pollution Control Finance of Union County New Jersey                                                              
                (Exxon Project) - Series 1994                                           07/01/23   3.85     200,000    P1      A1+
       500,000  Pollution Control Finance of Union County New Jersey                                                              
                (Exxon Project) - Series 1994                                           07/01/33   3.85     500,000    P1      A1+
     4,400,000  Port Authority of New York &  New Jersey - Series 1                     08/01/28   3.90   4,400,000  VMIG-1    A1+
     7,500,000  Port Authority of New York &  New Jersey - Series 3                                                               
                LOC Deutsche Bank A.G.                                                  10/01/14   3.80   7,500,000  VMIG-1    A1+
                                                                                                                                  
</TABLE>                                   
- -------------------------------------------------------------------------------
                       See Notes to Financial Statements.

                                       26
<PAGE>
- -------------------------------------------------------------------------------

NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
OCTOBER 31, 1995

===============================================================================
<TABLE>
<CAPTION>
                                                                                                            Ratings (a)
                                                                                                        ------------------
     Face                                                            Maturity             Value                  Standard
    Amount                                                             Date    Yield    (Note 1)        Moody's & Poor's
    ------                                                             ----    -----    --------        -------   --------
Other Variable Rate Demand Instruments (c) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
   <S>          <C>                                                 <C>        <C>     <C>               <C>       <C>
   $ 1,000,000  Port Authority of New York &  New Jersey
                Special Obligation RB (2nd Installment)
                LOC Deutsche Bank A.G.                              10/01/14   3.80%   $ 1,000,000       VMIG-1    A1+
    14,700,000  Port Authority of New York &  New Jersey
                Versatile & Structure Obligation Series - 3         06/01/20   3.70     14,700,000       VMIG-1    A1+
    ----------                                                                          ----------
    88,606,500  Total Other Variable Rate Demand Instruments                            88,606,500
    ----------                                                                          ----------
<CAPTION>
Put Bonds (d) (3.38%)
- -----------------------------------------------------------------------------------------------------------------------------------
     <S>        <C>                                                 <C>        <C>       <C>             <C>       <C>
     $ 900,000  Puerto Rico Industrial Medical & Environmental Bond
                LOC Morgan Guaranty                                 12/01/95   3.80%     $ 900,276       VMIG-1
     1,000,000  Puerto Rico Industrial Medical & Environmental Bond
                LOC Morgan Guaranty                                 12/01/95   4.35      1,000,000                 AAA
     2,500,000  Puerto Rico Industrial Medical & Environmental
                PCFA PCRB (Reynolds Metals Corporation)
                LOC ABN AMRO Bank N.V.                              09/01/96   3.96      2,494,938       VMIG-1    A1+
    ----------                                                                          ----------
     4,400,000  Total Put Bonds                                                          4,395,214
    ----------                                                                          ----------
<CAPTION>
Tax exempt Commercial Paper (11.56%)
- -----------------------------------------------------------------------------------------------------------------------------------
   <S>          <C>                                                 <C>        <C>     <C>               <C>      <C>
   $ 3,000,000  New Jersey State EDA Exempt Facility RB
                (Chambers Cogeneration)
                LOC Swiss Bank Corp.                                11/28/95   3.70%   $ 3,000,000       VMIG-1   A1+
     1,000,000  New Jersey State EDA Exempt Facility RB
                (Chambers Cogeneration)
                LOC Swiss Bank Corp.                                12/07/95   3.80      1,000,000       VMIG-1   A1+
     3,000,000  New Jersey State EDA Exempt Facility RB
                (Keystone 1992 Project)
                LOC Union Bank of Switzerland                       11/14/95   3.60      3,000,000       VMIG-1   A1+
       445,000  Port Authority of New York &  New Jersey            11/14/95   3.70        445,000         P1     A1+
     1,500,000  Port Authority of New York &  New Jersey            12/13/95   3.75      1,500,000         P1     A1+
     6,100,000  Puerto Rico Government Development Bank             11/10/95   3.25      6,100,000                A1+
    ----------                                                                          ----------
    15,045,000  Total Tax Exempt Commercial Paper                                       15,045,000
    ----------                                                                          ----------
<CAPTION>
Variable Rate Demand Instruments - Participations (0.06%)
- -----------------------------------------------------------------------------------------------------------------------------------
   <S>          <C>                                                 <C>        <C>     <C>                 <C>    <C>
   $    70,909  Thermwell Products
                LOC Barclays Bank PLC                               07/31/96   5.69%   $    70,909         P1     A1+
    ----------                                                                          -----------
        70,909  Total Variable Rate Demand Instrumnets - Participations                     70,909
    ----------                                                                          -----------
                Total Investments (102.61%)(Cost $133,521,594+)                         133,521,594
                Liabilities in Excess of Cash (-2.61%)                                 (  3,394,034)
                                                                                        -----------
                Net Assets (100.00%), 130,130,432 Shares Outstanding (Note 3)          $130,127,560
                                                                                        ===========
                Net Asset Value, offering and redemption price per share               $       1.00
                                                                                        ===========
              + Aggregate cost for federal income tax purposes is identical.

</TABLE>

- -------------------------------------------------------------------------------
                       See Notes to Financial Statements.
                                       27
<PAGE>
- -------------------------------------------------------------------------------





===============================================================================




FOOTNOTES:

(a)  Unless the variable rate demand instruments are assigned their own ratings,
     the ratings noted are those of the bank whose letter of credit secures such
     instruments. P1 and A1+ are the highest ratings assigned for tax exempt
     commercial paper.
(b)  Securities  that are not rated  which the  Fund's  Board of  Directors  has
     determined to be of comparable quality to the rated securities in which the
     Fund invests.
(c)  Securities are payable on demand at par including accrued interest (usually
     with seven days notice) and where applicable are unconditionally secured as
     to principal  and interest by a bank letter of credit.  The interest  rates
     are  adjustable  and are based on bank prime rates or other  interest  rate
     adjustment  indices.  The rate  shown is the rate in  effect at the date of
     this statement.
(d)  The maturity date indicated for the put bonds is the next put date.

<TABLE>
<CAPTION>

KEY:
     <S>      <C> <C>                                             <C>      <C>  <C>
     BAN      =   Bond Anticipation Note                          PCFA     =    Pollution Control Finance Authority

     EDA      =   Economic Development Authority                  PCRB     =    Pollution Control Revenue Bond

     GO       =   General Obligation                              RB       =    Revenue Bond

</TABLE>




- -------------------------------------------------------------------------------
                       See Notes to Financial Statemnts.

                                       28
<PAGE>
- -------------------------------------------------------------------------------

NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995

===============================================================================



<TABLE>
<CAPTION>

INVESTMENT INCOME
<S>                                                                                           <C>
Income:
    Interest................................................................................  $   4,427,669
                                                                                               ------------
Expenses: (Note 2)
    Investment management fee...............................................................        355,223
    Administration fee......................................................................        236,815
    Distribution fee........................................................................        236,815
    Custodian, shareholder servicing and related shareholder expenses.......................        122,878
    Legal, compliance and filing fees.......................................................         52,167
    Audit and accounting....................................................................         40,746
    Amortization of organization expenses...................................................         10,289
    Directors' fees.........................................................................          6,308
    Other...................................................................................          4,054
                                                                                               ------------
      Total expenses........................................................................      1,065,295
Less fees waived (Note 2)...................................................................  (     217,216)
                                                                                               ------------
      Net expenses..........................................................................        848,079
                                                                                               ------------
Net investment income.......................................................................      3,579,590


<CAPTION>
REALIZED GAIN ON INVESTMENTS

<S>                                                                                           <C>
Net realized gain on investments............................................................          1,012
                                                                                               ------------
Increase in net assets from operations......................................................  $   3,580,602
                                                                                               ============


</TABLE>
- -------------------------------------------------------------------------------
                       See Notes to Financial Statements.

                                       29
<PAGE>
- -------------------------------------------------------------------------------

NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 1995 AND 1994

===============================================================================

<TABLE>
<CAPTION>

                                                                           1995                   1994
                                                                     ---------------         ---------------


INCREASE (DECREASE) IN NET ASSETS
 <S>                                                                 <C>                     <C>                  
 Operations:
    Net investment income.........................................   $     3,579,590         $     1,950,607
    Net realized gain (loss) on investments.......................             1,012         (         3,614)
                                                                     ---------------         ---------------
    Increase in net assets from operations........................         3,580,602               1,946,993
 Dividends to shareholders from net investment income.............   (     3,579,590)*       (     1,950,607)*
 Capital share transactions (Note 3)..............................        24,197,289              27,585,747
                                                                     ---------------         ---------------
        Total increase............................................        24,198,301              27,582,133

Net assets:
    Beginning of year.............................................       105,929,259              78,347,126
                                                                      --------------         ---------------
    End of year...................................................   $   130,127,560           $ 105,929,259
                                                                      ==============         ===============

*    Designated as exempt-interest dividends for federal income tax purposes.
</TABLE>


- -------------------------------------------------------------------------------
                       See Notes to Financial Statements.

                                       30
<PAGE>
- -------------------------------------------------------------------------------

NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS


===============================================================================
1. Summary of Accounting Policies.

New Jersey  Daily  Municipal  Income Fund,  Inc. is a no-load,  non-diversified,
open-end  management  investment company registered under the Investment Company
Act of 1940. Its financial  statements are prepared in accordance with generally
accepted accounting principles for investment companies as follows:

    a) Valuation of Securities -
    
    Investments are valued at amortized  cost.  Under this valuation  method,  a
    portfolio  instrument  is  valued at cost and any  discount  or  premium  is
    amortized  on a  constant  basis  to the  maturity  of the  instrument.  The
    maturity of variable rate demand  instruments  is deemed to be the longer of
    the period  required  before the Fund is entitled to receive  payment of the
    principal  amount  or the  period  remaining  until the next  interest  rate
    adjustment.

    b) Federal  Income  Taxes - 
    
    It is the Fund's  policy to  comply  with the requirements of the Internal
    Revenue Code applicable to regulated investment companies and to distribute
    all of its tax exempt and  taxable income to its shareholders.  Therefore,
    no provision for federal income tax is required.

    c) Dividends and Distributions -
    
    Dividends from investment  income  (excluding  capital gains and losses,  if
    any,  and  amortization  of market  discount)  are  declared  daily and paid
    monthly.  Distributions  of net capital gains, if any,  realized on sales of
    investments  are made after the close of the Fund's fiscal year, as declared
    by the Fund's Board of Directors.  

    d) General - 
    
    Securities transactions are recorded on a trade date basis. Interest income
    is accrued as earned. Realized gains and losses from securities transactions
    are recorded on the identified cost basis.

2. Investment Management Fees and Other Transactions with Affiliates.

Under the Investment Management Contract, the Fund pays an investment management
fee to Reich & Tang Asset Management L.P. (Manager),  at the annual rate of .30%
of the Fund's average daily net assets. The Manager is required to reimburse the
Fund  for  its  expenses   (exclusive  of  interest,   taxes,   brokerage,   and
extraordinary  expenses)  to  the  extent  that  such  expenses,  including  the
investment management and the shareholder servicing and administration fees, for
any fiscal year exceed the limits on investment  company expenses  prescribed by
any  state  in  which  the  Fund's  shares  are  qualified  for  sale.  No  such
reimbursement was required for the year ended October 31, 1995.

The Manager is a wholly-owned  subsidiary of New England  Investment  Companies,
L.P.  ("NEIC").  On August 16, 1995, New England  Mutual Life Insurance  Company
("The New England"), the owner of NEIC's general partner and a majority owner of
the limited  partnership  interest in NEIC,  entered  into an agreement to merge
with  Metropolitan Life Insurance  Company  ("MetLife"),  with MetLife to be the
survivor of the merger. The merger is subject to several  conditions,  including
the required approval,  by shareholders of the Fund of a proposed new investment
advisory  agreement,  intended to take effect at the time of the merger. The new
agreement will be substantially similar to the existing agreement.


- -------------------------------------------------------------------------------
                                       31
<PAGE>
- -------------------------------------------------------------------------------





===============================================================================
2. Investment Management Fees and Other Transactions with Affiliates
   (Continued).

Pursuant to a Distribution Plan adopted under Securities and Exchange Commission
Rule  12b-1,  the Fund and  Reich & Tang  Distributors  L.P.  (the  Distributor)
entered into a Distribution Agreement and a Shareholder Servicing Agreement. For
its services under the Shareholder Servicing Agreement, the Distributor receives
from the Fund a fee equal to .20% of the Fund's average daily net assets.  There
were no additional expenses borne by the Fund pursuant to the Distribution Plan.

During  the year ended  October  31,  1995 the  Distributor  voluntarily  waived
shareholder servicing fees of $217,216.

Fees are paid to Directors who are unaffiliated with the Manager on the basis of
$1,000 per annum plus $250 per meeting attended.

Included  in  the  Statement  of  Operations   under  the  caption   "Custodian,
shareholder servicing and related shareholder expenses" are fees of $29,607 paid
to Fundtech  Services  L.P., an affiliate of the Manager as servicing  agent for
the Fund.

3. Capital Stock.

At  October  31,  1995,  20,000,000,000  shares of $.001 par  value  stock  were
authorized and capital paid in amounted to $130,130,432. Transactions in capital
stock, all at $1.00 per share, were as follows:

<TABLE>
<CAPTION>
                                                             Year                         Year
                                                            Ended                        Ended
                                                      October 31, 1995              October 31, 1994
                                                      -----------------            -----------------
<S>                                                  <C>                          <C>
Sold........................................               246,436,643                 190,710,019
Issued on reinvestment of dividends.........                 2,746,946                   1,655,365
Redeemed....................................         (     224,986,300)           (    164,779,637)
                                                      ----------------             ---------------
Net increase................................                24,197,289                  27,585,747
                                                      ================             ===============
</TABLE>

4. Sales of Securities.

Accumulated  undistributed  realized  losses at October  31,  1995  amounted  to
$2,872.

5. Concentration of Credit Risk.

The Fund invests primarily in obligations of political subdivisions of the State
of  New  Jersey  and,  is  subject  to  the  credit  risk  associated  with  the
non-performance  of such issuers.  Approximately  49% of these  investments  are
further  secured,  as to principal and interest,  by letters of credit issued by
financial  institutions.  The Fund maintains a policy of monitoring its exposure
by  reviewing  the  credit  worthiness  of the  issuers,  as well as that of the
financial institutions issuing the letters of credit, and by limiting the amount
of holdings with letters of credit from one financial institution.




- -------------------------------------------------------------------------------

                                       32
<PAGE>
- -------------------------------------------------------------------------------

NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


===============================================================================

6. Selected Financial Information.
<TABLE>
<CAPTION>
                                                             Year Ended                           
                                                             October 31,                          October 26, 1990
                                       -------------------------------------------------------     (Inception) to
                                        1995             1994            1993            1992     October 31, 1991
                                        ----             ----            ----            ----     ----------------
Per Share Operating Performance:
(for a share outstanding throughout the year)
<S>                                    <C>              <C>             <C>             <C>             <C>  
Net asset value, beginning of year.    $1.00            $1.00           $1.00           $1.00           $1.00
                                       -------          -------         -------         -------         -------

Net investment income..............      .030            0.020           0.020           0.030           0.042

Dividends from net investment income   ( .030 )        ( 0.020 )       ( 0.020 )       ( 0.030 )       ( 0.042 )
                                       -------          -------         -------         -------         -------
Net asset value, end of year.......    $1.00            $1.00           $1.00           $1.00           $1.00
                                       ======           =======         =======         =======         =======

Total Return.......................     3.08%            2.03%           1.98%           3.01%           4.62%*

<CAPTION>
Ratios/Supplemental Data

<S>                                   <C>              <C>              <C>            <C>             <C>    
Net assets, end of  year (000).....   $130,128         $105,929         $78,347        $46,374         $26,238

Ratios to average net assets:
    Expenses.......................      0.72%+          0.66%+          0.61%+          0.42%+          0.27%*+
    Net investment income..........      3.02%+          2.02%+          1.95%+          2.88%+          4.32%*+
</TABLE>

* Annualized
+ Net of management,  administration and shareholder servicing fees waived
  equivalent to .18%,  .26%,  .35%,  .70%,  and .70% of average net assets
  respectively, plus expense reimbursement equivalent to .00%, .00%, .00%, .04%
  and .53% of average net assets, respectively.




- -------------------------------------------------------------------------------

                                       33
<PAGE>


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